ROL.L Regulatory News (ROL)

23 August 2012

Rotala plc

("Rotala" or "the Company")

Unaudited Interim Results for the six months to 31 May 2012

Highlights

·; Growth in Turnover of 7 per cent. to £28.5 million (2011: £26.6 million)

·; Interest expense down 18% to £0.65 million (2011: £0.8 million)

·; Profit before tax up 4% to £0.96 million (2011: £0.92 million)

·; Net Debt down 20% to £16.1 million (2011: £20.1 million)

·; Net Debt to EBITDA ratio: 2.2, down 18% period on period

·; Interim dividend up by 25% to 0.50 pence per share (2011: 0.40 pence)

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Chairman's Statement

I am pleased to be able to present this interim report to shareholders in respect of the six months ended 31 May 2012. Rotala is the number two bus operator by market share in both the West Midlands, where we operate under the "Diamond Bus" banner, and Bristol, where we operate as "Wessex Connect". The West Midlands remains the second largest bus market in the country after London. We are moreover one of the leading providers of private bus networks in the country, especially to the aviation industry in the South East.

Results

Despite the adverse economic headwinds on all fronts and the sustained contraction in the UK economy, the Group has continued to expand during the first half of this year when compared to the same period in 2011. In saying this I would not wish to understate the challenges which the Group, in common with other bus operators, is facing in maintaining its operations. The public announcements of our competitors make clear the difficulties that the Government's austerity measures are creating for the bus industry. The erosion of subsidy for services contracted to local authorities, the reduction in payments for concessionary fares and the 20% cut in the fuel tax rebate inherent in the Bus Services Operators' Grant have this year, taken together, changed in a major way the operating characteristics of the bus industry. Bus fares have had to rise in recognition of these increased costs. Some route mileage has had to be trimmed back because it was no longer profitable. Inevitably the rising cost of bus travel is holding back passenger growth, which does seem a bizarre policy outcome when there is so much government focus on getting people out of their cars and onto public transport. Nevertheless, within the Rotala Group, revenues rose by 7% over those of the first half of 2011, to a total of £28.5 million. To some degree this rise reflects the timing of the acquisition of Preston Bus Limited ("PBL") in January 2011, but there has nevertheless been real underlying growth in the Group's two main business streams.

·; Contracted Services

Revenues in Contracted Services rose by 15% to a total of £11.8 million (2011: £10.3 million). The main drivers to growth came from the effect of corporate contracts won in the Heathrow and Birmingham areas. This growth more than offset the reduction in local bus contracts which resulted from the contraction in local authority transport budgets in Worcestershire and the South West.  

·; Commercial Services

Revenues in Commercial Services rose by 6% to a total of £15.4 million (2011: £14.5 million). Whilst the underlying Commercial Services business continued to grow, the greater part of this growth came from the effect of the acquisition of PBL. We have succeeded in expanding PBL's business since we acquired it and this growth has also made a significant contribution. Elsewhere in the Group there was a pleasing increase in the revenue derived from our own network cards; furthermore the network card administered by Centro in the West Midlands also continued to show strong growth, which is an excellent pointer for the future. These increases offset the revenue reductions which flowed from the service reviews which we conducted in both the West Midlands and the South West in order to identify and cut back on unproductive mileage.

·; Charter Services

Revenues in Charter Services fell by 29% to £1.3 million (2011: £1.8 million). Much of this reduction reflects our decision to reduce the Group's exposure to speculative private hire and short term sports contract work. We judged the return on capital in this sector to be too low to justify continued investment. The airline-related chauffeur car service (which we sub-contract in its entirety) also saw fewer crew movements in the first half of 2012 when compared to the prior year and this affected revenues.

Financial review

I have already highlighted the 7% increase in revenues period on period. Cost of Sales was up 8% and correspondingly Gross Profits rose by 5% compared to the previous period. Administrative Expenses increased considerably as the full effect of the PBL acquisition was felt; this reduced Profit from Operations, but, since Interest Expense fell by 18%, Profit before Taxation showed an increase of 4% over that of the comparative period in 2011 to £0.959 million. Basic earnings per share were lower than those of 2011. There is however no real comparability between the two periods, because there was no tax charge in 2011 but a tax charge at standard rate in 2012.

The gross assets of the Group stood at £46.4 million at 31 May 2012, down 6% from the position a year before. This resulted both from the effect of depreciation and from the sale at a profit of vehicles of more recent acquisition which still had considerable book value. The loans and borrowings of the Group, including its obligations under hire purchase contracts, stood at £16.1 million at 31 May 2012. This was 21% down on that same figure as at 31 May 2011, and 14% below that of 30 November 2011. The Board has focused particularly on the levels of debt in the business. In the first half of 2012 the ratio of total debt to earnings before interest, depreciation and amortisation (pro rata to the full year) fell significantly, when compared to 2011, from 2.7 to 2.2 times. The board believes that a ratio at this level is extremely conservative for this type of business, but in line with the current attitudes to debt and risk which pervade the business world in these difficult economic times.

Net assets reached £21.4 million at the period end (2011: £20.4 million), equivalent to 61 pence per share.

Cash flows from operating activities were very similar to the comparative period, but cash generated from operations was affected by the increase in trade and other receivables that we customarily experience at the half year stage. Investment in property, plant and equipment was slightly up on that of 2011, but the sale of a number of relatively new vehicles produced proceeds of £3.5 million (upon which the related capital settlement payments totalled £1.6 million). The capital element of payments on HP agreements totalled £2.3 million in 2012 (2011: £2.1 million). We also redeemed, as set out in detail in the 2011 annual report, £1.3 million of the outstanding Convertible Unsecured Loan Stock ("CULS") in accordance with its terms. A total of £2.3 million of CULS now remains outstanding, with a maturity date of 31 December 2014. After dividend and interest payments the closing figure for cash and cash equivalents at the end of the period was a borrowing of £0.85 million, as compared with an asset of £0.41 million at the same stage in 2011.

Dividend

The Company will pay an interim dividend of 0.50 pence per share (2011: 0.40 pence) on 7th December 2012 to all shareholders on the register on 28th September 2012. The Board is conscious of the importance of dividend flows to shareholders and intends that dividends should grow at least in line with the growth in underlying earnings and free cash flows.

Fuel

Fuel is a significant cost to Rotala's business. The Group now uses about 11 million litres of fuel per annum. In the period under review the price of fuel has continued to be volatile and an average price of about 113p per litre was paid. This gave rise to an adverse variance in the period of about £250,000 against the budgeted cost of fuel. However in the early summer 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 will ensure that the average price of three quarters of the Group's fuel supply will be at about 108p a litre for the next twelve months. This is slightly below the figure at which we have budgeted for that period; this price should also be compared to the current price of diesel as at the date of this announcement of about 116p a litre. The board is keen to fix fuel prices as far out as possible and so will take advantage of any further opportunities to hedge fuel exposures as and when they arise.

Fleet Changes and Fuel Efficiency

During the period under review we received all 15 of our initial batch of hybrid-power buses. These have performed well in service and have achieved the targeted fuel saving, when compared to a similar diesel bus, of about 30%. Under the most recent Green Bus Fund initiative by the Government we have ordered a further eight hybrid-power vehicles. These should all be in service by the end of the calendar year.

Under a separate programme, we have embarked upon the installation of "EcoManager" fuel-saving software in the rest of the existing 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 20% of the vehicle fleet has been equipped with this software. A further 20% of the fleet will be fitted with this equipment by the end of the year. Thus by that date almost half 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 7% of fuel usage. We are furthermore at a relatively early stage of the bedding in of this product and 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 and to monitor closely the maintenance cost and fuel consumption of each vehicle in the fleet. As a consequence we have been quick to dispose of vehicles which did not meet our demanding criteria. This means in addition that only a very few vehicles in our current fleet do not comply with the requirements of the Disability Discrimination Act, the looming deadlines for which are problematic for significant parts of the bus industry.

Outlook

Considerable changes are in process in the bus industry, with many of these stemming from the withdrawal of Government support. This means an extended phase of volatility and instability in the sector, which is unsettling for all participants. We have managed to cope with these changes as a result of much hard work and application of operational expertise, but the trading environment continues to be challenging and one in which it is difficult to make strategic choices. But uncertainty also brings with it opportunity. The group has a solid financial base. Although local authority budgets will remain under pressure, there are certainly considerable opportunities for organic growth in the corporate market. Commercial bus, which is now more than half the Group's business, also continues to grow. Acquisition opportunities may present themselves in the current market conditions. Therefore the Board feels confident about the Group's prospects for the remainder of the year and looks forward to the continued growth in the business in years to come.

John Gunn

Non-Executive Chairman

23 August 2012

Notes to the Unaudited Consolidated Interim Accounts for the six months ended 31 May 2012

1. Basis of preparation:

The unaudited condensed consolidated interim accounts have been prepared using the accounting policies set out in the Group's 2011 statutory accounts. The financial statements of the group for the full year are prepared in accordance with IFRS's as adopted by the European Union and these interim financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting".

2. Turnover:

Revenue represents sales to external customers excluding value added tax. 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. Earnings per share:

Basic earnings per share have been calculated on the basis of profit after taxation and the weighted average number of shares in issue for the period of 35,270,888 (May 2011: 33,543,703; November 2011: 34,651,991). Diluted earnings per share have been calculated on the basis of profit after taxation (adjusted where necessary for the effect of convertible loan stock interest) and the weighted average number of shares in issue (including such potential issues as are dilutive) for the period of 40,445,625 (May 2011: 33,543,703; November 2011: 43,290,880).

4. Dividends:

On 5 December 2011 the Company paid an interim dividend of 0.40 pence per share in respect of the year ended 30 November 2011 and a final dividend in respect of the same accounting year on 29 June 2012 at a rate of 0.80 pence per share. All dividends are payable in cash only.

5. Additional information :

The unaudited Consolidated Interim Report was approved by the Board of Directors on 22 August 2012. The consolidated interim financial information for the six months ended 31 May 2012 and for the six months ended 31 May 2011 is unaudited. The financial information in this interim announcement does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. The statutory accounts of Rotala plc for the year ended 30 November 2011 have been reported on by the Company's auditors and have been delivered to the Registrar of Companies. The report of the auditors on these accounts was unqualified and does not include a statement under section 496 of the Companies Act 2006.

6. 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 www.rotalaplc.com.