ROL.L Regulatory News (ROL)

12 April 2018

Rotala plc

("Rotala" or "the Company" or "the Group")

Final audited results for the year ended 30 November 2017

Rotala plc (AIM:ROL), a provider of transport solutions across the UK, is pleased to announce its audited results for the year ended 30 November 2017.

Highlights

· Turnover of £57.9 million (2016: £55.0 million), up 5%

· Adjusted EBITDA* of £7.8 million (2016: £7.0 million), up 11%

· Adjusted operating profit* of £4.5 million (2016: £4.0 million), up 13%

· Adjusted profit before taxation* up 20% to £3.22 million (2016: £2.68 million)

· Strong net cash generation from operations, doubling to £3.84 million (2016: £1.93 million)

· Adjusted basic earnings per share* up 8% to 5.95p per share (2016: 5.51p)

· Three acquisitions completed during the year, expanding operations in the West Midlands, the North West and at Heathrow airport

· New and extended bank finance package negotiated to support further acquisitions

· Another acquisition completed shortly after the year end

· Dividends for the year paid and proposed total 2.50p per share (2016: 2.30p), in accordance with progressive dividend policy

*before mark to market provision, acquisition related costs and other exceptional items further described in note 3 to this announcement below

For further information please contact:

About the business:

Rotala provides a range of transport solutions, from local bus services under contract to local authorities, to commercial bus routes. Rotala has operations at Heathrow Airport, in the West Midlands, the North West and South West of England.

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 2017. The Company made good progress this year and the results clearly show the benefit of the three acquisitions we made in 2016. We have pursued our acquisition strategy in 2017 by making three more acquisitions in the year and one shortly after the year end. The two smaller acquisitions were aimed at enlarging our bus business, firstly in the West Midlands and secondly in Greater Manchester. The last and largest acquisition just before the year end, for our Heathrow depot, further increased our presence in this key market. Shortly after the year end we acquired another small bus business in the West Midlands area in order to extend our route network there. The seven acquisitions we have made since 2016 have very much enlarged the scale of the Group's operations and considerably raised the Group's prospects in a market which continues to undergo much change.

Results and review of trading

Revenues for the Group as a whole for the year ended 30 November 2017 were £57.9 million. This represents an increase of 5% on the revenues of £55.0 million achieved in the previous year. Gross margin increased slightly to 19.1% (2016:18.3%). I am also pleased to report that pre-tax profits before exceptional items rose by 20% to £3.22 million (2016: £2.68 million), demonstrating our ability to manage cost and margin effectively.

Contracted Services

Revenues in Contracted Services rose overall by 9% to £21.4 million (2016: £19.7 million). Contracted Services comprised 37% of Group revenues in 2017, compared to 36% in 2016. Revenues in this division fall under two broad headings, those from local authority contracts and those from corporate contracts. The latter stream of income benefited in particular from the full year effect of the acquisition we made at Heathrow in 2016 but also from the transportation contracts servicing Bicester Shopping Village, the full implementation of which began in April 2017. Corporate contracted income is now the largest component of the Contracted Services division and is set to grow further with the effect of the Hotel Hoppa acquisition which we made right at the end of the accounting year. A considerable proportion of Hotel Hoppa's revenue is delivered under contract to corporate bodies like airlines and hotels.

In the local authority arena the proportion of Group revenues derived from this source increased slightly to about 16% (2016:15%). In monetary terms these revenues were in fact up some 9% compared to those seen in 2016. This rise reflected diverging trends in our various areas of operation. In the South West our income from local bus contracts fell considerably as the available contract base has shrunk in line with local transport budgets. But this reduction was more than made up for elsewhere in the country. From our Heathrow depot we began, as we announced in the early part of 2017, to operate bus contracts for Surrey County Council; in Greater Manchester we have been successful in growing incrementally the contracts we operate for Transport for Greater Manchester ("TfGM"); and in my report to you at this time last year I mentioned the contracts that we had at that time been recently awarded by Transport for the West Midlands ("TfWM") and which began operations also in April 2017.

I expect to see further growth in this source of revenue in 2018, partly as a result of the contracts brought in by the bus business acquisitions we have made in 2017 in the West Midlands and Manchester (for which see later in this statement). A key reason for making these acquisitions was to put the Group in a position to obtain a greater share of the contracted markets in these regions by extending our operational reach. Furthermore we have recently been awarded new bus contracts in both Preston and Greater Manchester. In the Preston area Lancashire County Council, having previously reduced its transport budget, has now increased it again and we have been successful in winning a number of contracts which should bring in new revenues (combining both contracted and commercial elements) of some £1.6 million in a full year. These contracts began in December 2017. In Greater Manchester we have been awarded a series of new contracts, commencing in April 2018, which will bring new revenues (again combining both contracted and commercial elements) of £401,000 in a full year. Thus the overall contribution of Contracted Services revenues to the Group will continue its upward trend of the last few years.

Commercial Services

Revenues in Commercial Services, at £33.7 million for the year, grew by 3% compared to the 2016 total of £32.9 million. Commercial Services comprised 58% of Group revenues in 2017, compared to 60% in 2016. As mentioned above, the primary reason for the fall in the proportion of Group revenues coming under this heading is the expansion of the Contracted Services division in the last two years. The growth in revenue in Commercial Services in 2017 largely reflected the regional pattern seen in Contracted Services. In the South West over the last few years we have slowly reduced our exposure to commercial revenues by curtailing the number of services we run. This has however enabled us to redeploy vehicles elsewhere in the Group and expand our commercial revenues in the West Midlands, Surrey and Greater Manchester in the same time period, as we announced periodically throughout 2017. A further boost to commercial revenues will come from the acquisitions made in 2017 and the early part of 2018. The two bus business acquisitions in the West Midlands have a strong commercial element, as does the Hotel Hoppa acquisition at Heathrow Airport.

The new contracts awarded by Lancashire County Council and TfGM, mentioned above, have a commercial stream which will fall into this division. These revenues will provide another source of growth in the current year. In summary therefore I expect the division to show appreciable growth in 2018.The proportion of Group revenues provided by this division should however be expected to continue to fall, reflecting the greater investment which the Group is making in Contracted Services at the current time.

Charter Services

Revenues in Charter Services rose by 16% compared to the previous year to £2.8 million (2016: £2.4 million). Charter Services comprised 4.8% of Group revenues in 2017, compared to 4.4% in 2016. This increase reflects the contribution in the private hire stream of business of the two small acquisitions of Wigan Coachways and Elite Minibus and Coach Services completed in 2016. The year on year increase in revenues saw a significant contribution from the North West of the country, which was the target of the making of these two small acquisitions. We had identified that we had little or no penetration of this potentially lucrative market in that area of the country. The two acquisitions were designed to remedy this weakness and we are pleased with the progress we have made. There was also a strong contribution from private hire work associated with the Bicester Shopping Village contract. Revenues in Charter Services therefore are now 70% higher than they were two years ago, as a result of the three acquisitions we have made in that period to improve radically our presence in the private hire markets at Heathrow Airport and in the North West of England.

Strategy and the Bus Services Act 2017

In May 2017, the Bus Services Act 2017 received the Royal Assent. The Act enables the re-franchising of bus networks in any area with an elected mayor. The approach of the transport authorities in each of the regions affected by the Act in which we have a presence is however different. In both the South West and Greater Manchester it is clearly envisaged that the local authorities will use the legislation to achieve complete control over local bus networks by the franchise process. But in the West Midlands a more collaborative approach using bus alliances is favoured by the local authority. From our perspective both lines of approach offer the prospect of being able to increase our market shares to levels to which we could not possibly have aspired under the existing structure of the bus markets in these locations.

The speed with which changes are likely to happen is however difficult to gauge with any certainty. In the West Midlands we anticipate a gradual introduction of bus alliances covering a number of routes over the next few years. In Manchester TfGM seems to be positioning itself to implement any mayoral direction to take control of bus networks but this decision could be a year or two away. In the South West the rate of progress is uncertain and so it is difficult to formulate a definite view.

Our appreciation of these developments has however driven our acquisition strategy, as outlined below. In the West Midlands we have sought to increase our reach on the western and northern parts of the conurbation by making infill acquisitions of two smaller bus businesses. These acquisitions have increased our market shares in key locations. In Greater Manchester we decided that we needed to increase the size of our overall operation so that we could have a more meaningful part to play in bidding for any franchises that might come up. Thus we bought a small local bus operation on the western side of Manchester. In the South West the lack of clear direction has dissuaded us from making any further investment in the near term and we are content to await developments there.

Acquisitions

During the year the Group made three acquisitions, followed shortly after the year end by a fourth. The first occurred at the end of July 2017 when we acquired Hansons (Wordsley) Limited for a cash consideration of £608,000. This company was based in Stourbridge between two of our existing depots and had a turnover of some £2 million per annum. It had about 50 staff and operated some 30 vehicles. We saw the opportunity through this acquisition to increase the size of our operation in this part of the West Midlands and to cement our position as the second largest operator in the West Midlands conurbation as a whole. In addition the acquisition made it possible to increase the utilisation of our existing overhead structure and so take advantage of economies of scale. Following acquisition we therefore immediately moved Hansons vehicles and drivers to our existing depots and put the Stourbridge property on the market. Completion of the sale of this property occurred at the end of January 2018 at a price of £320,000. 

We followed this up in early September 2017 with an acquisition in the Eccles area of Greater Manchester. This acquisition was the bus business of Go Goodwins (Coaches) Limited and comprised a bus and minibus business turning over about £2 million per annum, with 28 staff and 18 buses. The cash consideration was £707,000 and included a well located freehold depot. Furthermore it brought with it the opportunity, which we have since taken up, to acquire the immediately adjacent freehold plot which will enable us to double the size of the depot and operate about 50 vehicles from there, a very similar size of operation to our existing depot in Atherton. By this acquisition we therefore put ourselves in a position to double the scale of our operations in Greater Manchester in anticipation of developments in the re-franchising of bus networks by TfGM. 

Then, just before the year end, in late November 2017 we purchased for £2 million in cash the Hotel Hoppa bus business from National Express together with the fleet of 32 buses. This business, with revenues of about £6 million per annum and about 90 employees, comprises a passenger transport service between all the terminals of Heathrow Airport and hotels within a five mile radius of Heathrow Central Bus Station, delivered under contracts with those hotels and other airline customers. This acquisition enabled Rotala to strengthen significantly its operations in the Heathrow area. Many of the airline customers of the Hotel Hoppa business are already users of various airside and landside services provided by us in and around Heathrow Airport. No additional overheads were incurred as a result of the acquisition because the acquired business utilised spare capacity in the existing Rotala depots on the southern side of the airport.

Finally, in February 2018, we acquired from CEN Group Limited its entire bus business, trading as Central Buses, and 30-strong vehicle fleet for a cash consideration of £1.95 million. The business has annual revenues of approximately £2.8 million. Central Buses is a well-established operator of commercial and contracted bus services in the northern part of the West Midlands area. This business, with its 40 staff, has been folded into the existing depot infrastructure which Rotala already possesses in the West Midlands. The acquisition extends the Group's network of bus services in the northern part of Birmingham, particularly in the Perry Barr area, and so adds further to our market presence in the key West Midlands conurbation.

Technology investment

On 23 April 2017 Rotala went live with new ticket machines equipped with the latest ticketing technology. We have invested £900,000 in this new ticketing system across the whole of the West Midlands and Worcestershire network operated by our Diamond Bus brand. The equipment was supplied by UK-based company Ticketer and, working closely with them, we were able to go from the decision to acquire the new ticket machines to implementation in approximately six months.

The investment means that Diamond Bus can now offer passengers a range of new features. From a passenger's perspective one key advantage is Contactless Payment, giving the customer a more convenient way to pay. Usage of this feature has been growing steadily since inception. From the operator's perspective this means less time purchasing a ticket and so better time keeping. Rotala is the first operator in the West Midlands area to offer contactless payment on a network-wide basis. We have also been able to make tracking information available to passengers through our own mobile app and website. This has been well received by users. In due course, in coordination with TfWM, Real Time Information ("RTI") will be passed from the new ticket machines to TfWM's RTI infrastructure.

We also extended the usage of Ticketer machines to the Hotel Hoppa business immediately after its acquisition in November 2017, as described above. Here the Contactless Payment function rapidly showed its worth. Uptake of this method of payment by passengers has grown steeply from a standing start and now forms a significant proportion of ticket sales revenue. Passengers can buy tickets by the contactless method both on bus and at automated kiosks which we have installed in their hotels. These kiosks also give passengers RTI about the location of their next bus.

From the business perspective the new ticket machines, equipped with the latest in tracking and communications technology, give live location and status feeds for each vehicle to depot traffic offices. This feature enables managers to report delays much more accurately to customers and liaise more easily with drivers to identify and rectify problems. Tickets are also printed with individual Quick Response ("QR") codes. The QR codes are scanned when boarding a bus and are unique to each ticket. This significantly reduces the risk of fraudulent ticket abuse, a perennial management problem for any bus operator.

Fleet management

The focus of our fleet management activity in this accounting period was on the integration of the vehicles acquired with the three acquisitions we made during the year and then shaping the combined fleet to fit the on-going Group requirements. This has resulted in the disposal of a large number of older vehicles this year, but, principally because of the ages of the fleets of the acquired businesses, the average age of the fleet has gone up to 9.50 years (2016: 8.45 years). This however is still a figure which is closely comparable to bus fleets outside Greater London. Since the year end we have acquired a 20 strong batch of second hand vehicles but we do not see the need for a significant number of new vehicles in the remainder of 2018 unless customer requirements change. New vehicles in these circumstances would be matched by significant additional revenues and so make commercial sense. We continue to manage the fleet actively in accordance with our policies and this will no doubt result in an on-going level of vehicle acquisition and disposal.

When acquiring any vehicle new to the fleet we are acutely conscious of its emission standards and relative fuel consumption. We believe that having a modern and efficient bus fleet is a key aspect of customer service. Management monitors each vehicle in the fleet for relative fuel consumption, reliability and maintenance cost. Older vehicles also produce a greater level of emissions and we are keen to minimise this aspect of bus operation. Those vehicles that fall outside of acceptable parameters are designated for disposal.

Dividend

As the Company matures I expect the dividend to be progressive. The board is conscious of the importance of dividend flows to shareholders and has set a target dividend cover of 2.5 times earnings, to match underlying earnings and free cash flows.

The Company paid an interim dividend of 0.85 pence per share in December 2017. The board will recommend to the forthcoming Annual General Meeting a final dividend in respect of 2017 of 1.65 pence per share making a total of 2.50 pence for the year (2016: 2.30 pence). The dividend will be paid, subject to shareholder approval at the Annual General Meeting, on 29 June 2018 to all shareholders on the register on 8 June 2018.

Banking

Just after the year end, the Group changed its principal bankers to HSBC Bank plc and entered into new and enlarged facilities to support its greater scale of operation. These facilities are generally on more favourable terms than the ones they replaced but the borrowings of the Group were initially unchanged. The new facilities comprise a term loan of £5.5m, a revolving facility of £15.5m and an overdraft facility of £3.5m, with a maturity date for all these facilities of 5 December 2021. Taking into account these new facilities and parallel asset finance facilities, the Group has approximately £10 million of headroom with which it can finance further potential acquisitions.  

Placing of new shares

On 2 August 2017, the Company raised £2 million, before fees and expenses, through a subscription by two existing shareholders at a price of 60p a share, and one of these subscribers, Graham Peacock, subsequently joined the board, as set out below. On 18 August 2017 a further £1.5 million was raised through a placing with certain other investors, also at 60p per share.

The net proceeds from these issues of equity were used to finance the acquisitions described above.

Board changes

As mentioned above, following his participation in the subscription for new shares on 2 August 2017, we were delighted to welcome Graham Peacock to the board as a non-executive director. Graham has significant expertise in the transport services sector and was previously Chief Executive Officer and a substantial shareholder of MRH (GB) Limited, the UK's largest independent owner and operator of petrol stations in the UK. The experience he brings will be invaluable to the Company in executing its strategy of organic and acquisitive growth.

With effect from 1 June 2017 Graham Spooner, an existing non-executive director of the Company, was appointed to the post of Deputy Chairman.

It is also my sad duty to report the sudden and most unexpected death of Geoff Flight last month. Geoff was an investor in and director of Rotala for a decade or more, until he stepped down in 2016. Geoff was a well-known figure in the coach industry. He will be sorely missed.

Fuel hedging

The fuel hedge position is little changed over the last year. Given the uncertain direction of oil prices during 2017, the board decided not to consider fuel hedging while this market uncertainty remains unresolved. The Group does however have a fuel hedge in place for the whole of 2018. This covers about 78% of the fuel requirement at an average price of 91p a litre.

Financial review

Income statement

The Consolidated Income Statement is set out below. This section of the review addresses the results before the mark to market provision for fuel derivatives and other exceptional items. Revenues for the year rose by 5% compared to those of 2016. This increase was principally driven by the acquisitions made in the year. Cost of Sales also rose by 4%. Gross Profits therefore increased by 10%, whilst the gross profit margin rose slightly to 19.1% (2016: 18.3%) as the new acquisitions were integrated into the rest of the Group. Administrative expenses increased by 7.6% as a result of the general expansion in the size of the group and its depot footprint. The Profit from Operations at £4.48 million (2016: £3.95 million) was 13% up on that achieved in the previous year. As a consequence adjusted EBITDA rose by 11% to £7.8 million (2016: £7.0 million). Finance expense however fell very slightly as borrowings were more or less static and interest expense overall was little changed. Profit before taxation therefore rose by 20% when compared to the previous year to £3.22 million (2016: £2.68 million).

Exceptional items represented by the mark to market provision on fuel derivatives and other exceptional costs are analysed in detail in note 3 to this statement. Profit from Operations after all exceptional items was £3.68 million (2016: £3.96 million). However in 2016 there was a much larger mark to market profit than in 2017. Similarly Profit before Taxation and after all exceptional items was in 2017 £2.42 million (2016: £2.69 million).

Basic earnings per share in 2017, after taking into account the mark to market provision and other exceptional items, were 4.73p per share (2016: 5.49p). However, the impact of the mark to market provisions and the other exceptional items make the basic earnings per share numbers very difficult to understand. A better guide to true comparability is to consider the adjusted basic earnings per share numbers. Adjusted basic earnings per share (before the mark to market provision and other exceptional items) were then 5.95p in 2017 (2016: 5.51p), giving an increase of 8% year on year.

Balance sheet

The gross assets of the Group grew by 9% in the year and stood at £68.9 million at 30 November 2017 (2016: £63.5 million). Goodwill and other intangible assets rose by £2.7 million as a result of the three acquisitions made during the year. Holdings of freehold property increased following the addition of a freehold depot with the acquisition of the Eccles - based business in September 2017. The bulk of the investment in plant and machinery was represented by new ticket equipment. The book value of the vehicle fleet also increased partly because of the acquisitions made in the year but also because of the reshaping of the Group fleet that was required after the business acquisitions made during the year.

Stocks of parts, tyres and fuel were unchanged overall. However both Trade and Other Receivables rose considerably, both because of the increased size of the Group but also because much of the new business of the year was delivered by contract, rather than being commercial income. These changes in the shape of the business also drove the increases in prepayments and accrued income, where the bulk of the increase was accounted for by amounts receivable in Bus Services Operators' Grant, concessionary fares schemes and local authority run fares collection systems. Trade and Other Payables reflected the same business factors and showed a commensurate increase. The dollar/sterling exchange rate and the oil price rise of the latter part of 2017 moved the mark to market asset held in respect of the Group's fuel derivative position into even greater surplus at the period end.

The gross loans and borrowings of the Group overall were very little changed from the previous year at £16.3 million (2016: £16.0 million), as the acquisitions made were largely financed by the new share issues. Because the Group's banking facilities were due to expire five months after the year end all borrowings were classified as current at that date. However within a few days of the year end the Group banking facilities moved to HSBC Bank plc and assumed a more conventional shape as described below.

Obligations under hire purchase contracts also saw little change year on year: the present value stood at £11.5 million at 30 November 2017 compared to £11.3 million the year before. This position

reflects the extensive fleet changes which occurred after the business acquisitions of the year and a number of hire purchase refinancing transactions. The pension obligations of the Group (£427,000) now reflect the remaining contributions due to be paid to this defined benefit scheme, as certified by the scheme's independent actuary. The scheme actually moved from an accounting deficit of £800,000 in 2016 to an accounting surplus of £894,000 at the end of 2017. The rules of this government - run scheme prevent at present the return of any surplus. This is why the remaining contributions to the scheme are recognised as a Group liability.

The gross liabilities of the Group were therefore 3% higher than the previous year at £36.6 million (2016: £35.7 million). Responding to the new share issues of £3.4 million net of expenses in August 2017, in addition to the positive factors described above, the net assets of the Group rose to £32.4 million at the end of the year, compared to £27.8 million at the end of 2016, a rise of 16% year on year.

Cash flow statement

Cash flows from operating activities (before changes in working capital and provisions) were little changed from the previous year at £6.28 million (2016: £6.46 million). However the increased size of the Group and the fact that the businesses acquired were largely in the contracted services sector, where revenues are billed by invoice rather than being collected at delivery as with commercial bus services, caused cash to be absorbed into working capital. This picture was much the same as it had been in 2016 and for similar reasons, though the extra working capital required was at a much lower level than was the case in the prior year. Interest paid on HP agreements was slightly increased when compared to the previous year. As a result of the above factors net cash flows from operating activities were much improved on 2016 at £3.34 million (2016: £1.45 million).

Cash used in investing activities in the year was much greater than the previous year. That year had seen the benefit of the sale of the Long Acre depot. There was no similar event in 2017. Investment in property, plant and equipment was lower than that made in 2016 at £1.80 million (2016: £2.56 million). Sales of surplus vehicles however raised a very similar sum to that of the previous year and so the net spend on property, plant and equipment was this year £0.8 million (2016: £1.5 million). The amount spent on the three acquisitions made in the year (£3.3 million) was much higher than that spent on a similar number of acquisitions in 2016 (£1.87 million) Thus cash used in investing activities was £4.13 million net of related proceeds (2016: £0.93 million net).

Financing activities were affected by a number of events. Once again in 2017 new shares were placed. This happened in August 2017 and raised £3.36 million (2016: £2.4 million). The sum raised in 2017 was almost exactly that expended on acquisitions, as laid out above. Dividends paid reflect both an increase in the dividend per share and the number of shares in issue. There was no share buy-back this year.

In 2017 £722,000 of bank loans were repaid in accordance with their standard terms and moderate drawings were made on the revolving facility such that bank borrowings changed little over the year as a whole. This was very like 2016 where new bank loans and repayments were geared around the receipt of the sale proceeds of the Long Acre depot. Bank interest paid in 2017 was also at a very similar level to that seen in 2016. Advantage was again taken this year of the unencumbered value represented by the vehicle fleet. By refinancing these vehicles with new hire purchase arrangements £700,000 of capital was released to invest in the business. The capital element of payments on hire purchase agreements fell somewhat in the year to £3.09 million (2016: £3.37 million). The cash absorbed by financing activities therefore rose slightly to £0.57 million net (2016: £0.27 million net).

Overall therefore cash and cash equivalents declined by £1.38 million in the year compared to an increase of £256,000 in the prior year. The closing overdraft, net of cash and cash equivalents, of £1.7 million (2016: £342,000 overdraft), was in line with management's expectations.

Outlook

The Group performed well in 2017 and trading for the current year has begun in line with expectations. Following the four acquisitions which have been made in 2017 and in the early part of 2018, together with the more recent announcements of new business, turnover in the current year should show further significant growth. We have moreover underpinned the growth prospects of the Group by successfully negotiating enlarged and more favourable banking facilities to provide the headroom and finance for further acquisitions. Rotala has grown predominantly through acquisition and we continue to be actively engaged in looking for attractive acquisition opportunities.

The Group possesses a strong and very experienced management team which has demonstrated over the last decade that it has the right strategy and the skills to implement it. We have shaped our current strategy to take full advantage of the opportunities to be presented by the Bus Services Act 2017. The Act will potentially enable Rotala to increase its market shares significantly in areas where such ambitions would once have been thought to be unattainable. The Act also, taken together with the effects of other transport policy changes by government in recent years, continues to force change on the bus industry. Change brings opportunity to businesses like Rotala and we think we are very well positioned to take full advantage of any eventualities.

Overall therefore we are confident about the prospects of the Group and excited about the possibility of expanding it considerably in the years ahead.

John Gunn

Non-Executive Chairman

Date: 11 April 2018

CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 30 NOVEMBER 2017

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED

30 NOVEMBER 2017

All of the activities of the Group are classed as continuing.

 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 NOVEMBER 2017

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 NOVEMBER 2017

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 NOVEMBER 2017

Notes to the Preliminary Announcement of results for the year ended 30 November 2017

1. Basis of preparation:

The accounting policies used in the preparation of this financial information are those that have been used in the preparation of the annual statutory financial statements of the Company for the year ended 30 November 2017. 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 are recognised as 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 three 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. Profit before taxation:

Profit before taxation includes the following mark to market provisions and other exceptional items:

As a result of its acquisition of Green Triangle Buses Limited (now renamed Diamond Bus (North West) Limited) in 2015, the Group inherited a long standing dispute over the correct rate of concessionary fare re-imbursement. This dispute has now been amicably resolved but part of the settlement terms affected the pre-acquisition element of the revenue in question. Had the resolution of the dispute occurred before the end of the 2016 accounting year, the settlement of the dispute would have been reflected in a corresponding increase in positive goodwill arising on consolidation. However, since that window of adjustment is now closed, the item has had to be written off to the profit and loss account.

4. Tax expense:

Tax expense includes the following:

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

The main rate of corporation tax will fall further to 17% from 1 April 2020 (a change which has been substantively enacted).

Deferred tax has been measured at the average tax rates that are expected to apply in the accounting periods in which the timing differences are expected to reverse, based on the tax rates and laws which have been enacted or substantively enacted at the balance sheet date.

5. 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 potential ordinary shares take the form of share 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. 

6. Loans and borrowings:

The above analysis reflects the banking arrangements of the Group as at 30 November 2017. These facilities were due to expire on 30 April 2018.

However, on 5 December 2017 the Group engaged HSBC Bank plc as its principal bankers and all the Group's facilities were transferred to that bank. This new Senior Facilities Agreement provides for a revolving facility of up to £15.5 million and a mortgage facility of £5.5 million, with a corresponding overdraft facility of up to £3.5 million. The Group entered into a cross-guarantee and floating charge agreement on that same date covering these facilities. The facilities expire on 5 December 2021 but are renewable at that date.

The bank loans are secured on the Group's freehold property. The annual mortgage repayments are calculated such that the mortgage facilities amortise in a straight line over a term of 20 years which is considered to give a reasonable approximation to the effective interest rate.

7. Obligations under hire purchase contracts:

Future lease payments are due as follows:

The present value of future lease payments are analysed as:

8. Acquisitions:

(a) Hansons (Wordsley) Limited 

As set out in the Chairman's Statement, in July 2017 the Group acquired Hansons (Wordsley) Limited. The Chairman's Statement describes the details of and the reasons for the acquisition, and should be consulted for a detailed description of all the relevant factors. The consideration for the acquisition (excluding acquisition costs) was £608,000 in cash. The book values of the assets acquired are set out below.

Because the acquired business was immediately folded into the existing operations of the Group in the relevant locality, it is not possible to distinguish revenues and profits for the acquired business in the period to 30 November 2017. Pre-acquisition book values were determined based on applicable IFRS, immediately prior to the acquisition. The values of assets recognised on acquisition are their estimated fair values. For the vehicles acquired this is based on the directors' assessment of the age and condition of each of the vehicles and their knowledge of disposal values for equivalent vehicles.

The directors have made an assessment of whether there are any intangible assets acquired with the business. No licenses were acquired with the business. The sales and purchase agreement includes a standard non-compete clause; however, the sellers had no intention of re-entering the respective markets at the acquisition date and so there could be no value attributable to this clause. Where there were contracts in place, there was no evidence that

these contracts produced any immediately identifiable profits or positive cash flows in the hands of the previous owners. On these bases no separate intangible assets have been identified. The goodwill generated by the acquisition arose from the benefit of synergies with the existing business of the Group in the respective location. As stated above the business acquired includes a vehicle fleet and these vehicles were immediately subsumed into existing operations following acquisition. The acquisition expenses incurred by the Group amounted to £30,000 and have been expensed in the Consolidated Income Statement in Administrative Expenses.

(b) Bus business of Go Goodwins (Coaches) Limited and the Hotel Hoppa business

As set out in the Chairman's Statement, in September and November 2017 the Group acquired, respectively, the small bus business of Go Goodwins (Coaches) Limited in Eccles, Manchester and the Hotel Hoppa bus business in and around Heathrow airport. The Chairman's Statement describes the details of and the reasons for the acquisitions, and should be consulted for a detailed description of all the relevant factors. The aggregate consideration for these acquisitions was £2.8 million in cash. The book values of the assets acquired are set out below.

Because the acquired businesses were immediately folded into the existing operations of the Group in the relevant localities, it is not possible to distinguish revenues and profits for the acquired businesses in the period to 30 November 2017. Pre-acquisition book values were determined based on applicable IFRS, immediately prior to the acquisition. The values of assets recognised on acquisition are their estimated fair values. For the vehicles acquired this is based on the directors' assessment of the age and condition of each of the vehicles and their knowledge of disposal values for equivalent vehicles.

The directors engaged Crowe Clark Whitehill LLP ("CCW") to make an assessment of the values of the intangible assets acquired with the businesses. Principally this involved an assessment of the value of the intangible asset attributable to the contracts inherited with these businesses. The values estimated by CCW are reflected in the above table.

The directors do not consider that the brand names have any separable values. No licenses were acquired with the businesses. The sales and purchase agreements include standard non-compete clauses; however, the sellers had no intention of re-entering the respective markets at the acquisition date and so there could be no value attributable to these clauses. The goodwill generated by the acquisitions arose from the benefit of synergies with the existing businesses of the Group in their respective locations. As stated above the businesses acquired include vehicle fleets and these vehicles were immediately subsumed into existing operations following acquisition. The acquisition expenses incurred by the Group amounted to £17,000 and have been expensed in the Consolidated Income Statement in Administrative Expenses.

9. Financial Information:

The Financial Statements for the year ended 30 November 2017 were approved by the Board of Directors on 11 April 2018. 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 2017 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The auditors have reported on the 2017 accounts; the auditors' opinion is unqualified and does not include a statement under section 498 of the Companies Act 2006.

10. Further Information:

The Company's Annual Report and Accounts for the year ended 30 November 2017 are expected to be posted to shareholders on 4 May 2018 and will also be available to view on the Company's website at the following link: http://www.rotalaplc.com

Copies of this statement are available from the registered office of the Company at Cross Quays Business Park, Hallbridge Way, Tipton, Oldbury, West Midlands, B69 3HW or the Company's website at the following link: http://www.rotalaplc.com