ROL.L Regulatory News (ROL)

28 July 2023

Rotala Plc

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

Interim Results

Rotala plc (AIM:ROL), a provider of transport solutions across the UK, announces its unaudited interim results for the six months ended 31 May 2023.

Highlights

· Continued Government support for the bus industry

· Passenger numbers remain at 90%-95% of pre-COVID levels

· Revenues up approximately 35% to £52.6m (H1 2022: £39.0m) 

· Profit before tax and exceptional items £865,000 (2022: £4,000)

· Normalised earnings per share of 1.43p (2022: 0.01p)

· Interim dividend declared of 0.5p per share (2022: 0.5p)

· Net debt at 31 May 2023 of £45m (2022: £43m)

· Trading in line with the Board's expectations for FY 2023

Post-period end:

· Completed the sale of the Bolton depot for £12.7 million in cash

· Net debt reduced to £32m after completion of sale

Simon Dunn, Chief Executive of Rotala, said: "The Group performed well in the first six months of the year. COVID-19 has changed bus travel patterns and the bus industry is co-operating closely with central and local Government to align bus services with these changes. We expect this process to continue to produce growth opportunities and I believe that the Company is well placed to take advantage of any opportunities that arise." 

For further information please contact:

I am pleased to be able to make this report to the shareholders of Rotala Plc for the six months ended 31 May 2023 ("H1 2023").

Passenger numbers and Government support

Nationally, passenger volumes have yet to recover fully to the levels seen before the COVID-19 pandemic. During 2022, passenger volumes for the bus industry reached approximately 85% to 90% of pre-COVID levels and, in the first six months of 2023, have consolidated at the upper end of that range. The Company's passenger volumes over the same period were slightly higher, at around 90% to 95% compared to pre-COVID levels. However, in the view of the Board, this outperformance can be ascribed to small gains in the Company's market share, rather than differences in the Company's markets compared to the national UK bus market.

The UK Government continues to respond to the need to raise passenger volumes with initiatives to support the bus industry and to encourage increased bus usage. In mid-2021, the Department for Transport ("DfT") introduced a scheme called "Bus Recovery Grant" ("BRG") which focused on compensating operators for the shortfall in passenger numbers as the industry recovered from COVID. BRG was extended beyond its planned initial termination date several times but was finally phased out on 30 June 2023. From 1 January 2023, the Government also introduced funding for a £2 single fare cap which will continue until 31 October 2023, when it will be replaced by a fare cap set at £2.50. This cap will extend until 30 November 2024. Early evidence from Government surveys suggests that these fare cap initiatives have had a positive impact on bus patronage. All the Group's operating subsidiaries have now enrolled their eligible services in this scheme.

The Government continues to add its support following the end of BRG. The latest new initiative, called "BSOG+", introduced from 1 July 2023, adds a payment for each kilometre driven coupled to an additional pence per litre payment for fuel used, over and above the long-standing Bus Service Operators' Grant, which is also paid by litre in relation to usage. The BSOG+ initiative will last until April 2025.

Revenues

The above table highlights that the grants and subsidies received from the various arms of the UK Government have tapered as passenger numbers have recovered and normal commercial operations resumed. Commercial revenue reflects these factors and has significantly grown period on period. Contracted revenue has shown, relatively speaking, an even stronger growth pattern as the local and transport authorities in the areas in which the Group operates have reacted to UK Government policy by increasing their budgets for supported bus services. The Group has been able to gain a substantial share of these increased budgets, driving the growth in this type of revenue. However, revenues have been affected by the impact of inflation in broadly the same manner as it has the rest of the economy.

Financial results

As normal commercial operation has returned, operating profit before exceptional items has in turn responded and more than doubled in H1 2023, compared to the corresponding period in the preceding year (2022: £1.1m). For the six months ended 31 May 2023, a profit before tax and exceptional items of £0.9m was recorded compared to breakeven in the comparative period last year. 

Profit before tax and after exceptional items fluctuates principally as a result of the marking to market of the Group's fuel derivative position (which saw a profit of £2.4m in the first six months of 2022 and £2.6m for FY 2022 as a whole). The mark to market loss of £0.8m in the first six months of FY 2023 was principally caused by the Company's fuel hedges covering FY 2024 and FY 2025. Details of the current fuel hedge position are set out below.

In H1 2022, an exceptional profit of £0.6m was also recorded on the sale of a leasehold property. Note 3 to this statement contains a full analysis of the make-up of exceptional items.

Working capital

The Group's total working capital remained at low levels, showing some fluctuation across the periods under report, as can be seen in the above table. However, there were no special factors to be identified. As the exposure to contracted services grows, for example in Greater Manchester, the Board expects more working capital to be required to finance this type of revenue, which absorbs more working capital by its very nature.

Total net debt (including hire purchase debt)

During the COVID pandemic, the Board focused on cash conservation and debt reduction. Thus, at 30 November 2022, the Company was not using its RCF facility at all. During H1 2023, the Company conducted a Tender Offer, as detailed further below, which was financed by a drawing of £10m on the RCF. In the same period, the Company also acquired a new freehold depot in Eccles, Greater Manchester for a cash consideration of £1.9m which was also financed by the RCF. All these drawings were repaid upon receipt of the funds for the sale of the Bolton bus depot, as set out below. As a result, following completion of the sale of the Bolton depot, the Company's net debt was reduced to £32m. 

No new mortgage or hire purchase debt was incurred in any of the periods set out in the above table and so this debt amortised across these periods in line with the normal repayment terms of these borrowings.

Tender Offer

By means of a Tender Offer announced on 26 January 2023, and fully described in a circular to shareholders of the same date, the Company returned surplus capital of £10 million to shareholders in the period. The circular should be consulted for the full details of the Tender Offer and the background and reasons for its launch.

The Tender Offer proposed that the Company would buy back up to £10 million of its own shares at a price of 55p per ordinary share. The Tender Offer was fully taken up and a total of 18,181,818 shares was acquired by the Company at a cost of £10 million. Of these shares, 13,993,134 were cancelled and 4,188,684 were taken to treasury to cover any potential issues of ordinary shares in respect of the outstanding share options. Immediately after the Tender Offer closed on 16 February 2023, a total of 5,910,000 ordinary shares was held in treasury.

Franchising developments in Greater Manchester

On 23 December 2022, the Company released a detailed announcement about developments in the franchising arrangements in Greater Manchester and how they affected the Company. The principal matters dealt with in this announcement were the proposed disposals of the Company's Bolton bus depot and the majority of the bus fleet based at that depot (together the "Disposals"). On 1 June 2023, the Company announced that it had concluded negotiations with Transport for Greater Manchester ("TfGM") and the Greater Manchester Combined Authority ("GMCA") and had conditionally exchanged contracts on the Disposals as follows to:

1. dispose of its Bolton bus depot to the GMCA, with all its associated fixtures, fittings, plant and machinery; and

2. place 134 vehicles, being the majority of its buses based at the Bolton depot, into the notional asset pool (the Residual Value Mechanism) created by TfGM as part of the franchising arrangements for Greater Manchester. 

As both of these transactions required shareholder approval, a circular dated 15 June 2023 was sent to shareholders and this circular (the "Circular") should be consulted for the detail of the transactions and the reasons why the Company entered into them. A general meeting to gain the necessary shareholder approvals was called for 3 July 2023. At that meeting, the resolutions authorising the Disposals were approved decisively. All other conditions attaching to the disposal of the Bolton depot to the GMCA were subsequently satisfied and, accordingly, on 7 July 2023 the disposal was completed and the cash consideration of £12.7 million attaching to this leg of the Disposals was duly received. These proceeds were used to repay the:

1. mortgage debt of £2m related to the Bolton depot; and

2. remaining outstanding drawings on the RCF, such that this facility is now undrawn.

The Company will receive the remaining cash consideration of approximately £17.7 million for the second leg of the Disposals outlined above in September 2023. These proceeds will be used to:

1. repay the hire purchase debt of approximately £12.8 million attaching to these bus assets at that time; and

2. bolster the Company's general cash resources.

The pro forma illustrative effect of the Disposals on the Company was set out in the Circular and in the following table:

The overall effect of these transactions on the Group is that it will receive aggregate cash consideration of approximately £30.4 million for the assets included within the Disposals. The total net book value of these assets at their dates of sale is estimated to be approximately £23.0 million.

Capital expenditure

During FY 2022, the Company's requirements for new vehicles were very limited, being restricted to vehicles for new work or contracts won. The Company does not expect to acquire a material number of new vehicles in FY 2023, but in the early part of FY 2024, 60 new vehicles will be delivered. These vehicles are required to operate the small franchise contracts won by the Company in Greater Manchester and which are described in detail in the Circular, and will cost £11.9m, financed by new hire purchase contracts.

The Company will also take delivery of its first new-build electric bus in late FY 2023. The Board expects that in FY 2024, it will begin a fresh cycle of fleet replacement. It is intended that these vehicles will be electric and not diesel fuelled.

Management of the vehicle fleet continued in the period. The Company disposed of 35 older vehicles, which were replaced by second hand vehicles of the EURO VI emissions standard. Two-thirds of the bus fleet is now of EURO VI standard or better. The continuing disposal of older vehicles in the period ensured that the average fleet age remained closely comparable to previous periods.

Dividend

In accordance with its stated dividend policy, the Board has declared an interim dividend of 0.5p per share (2022: 0.5p) which will be paid on 25 August 2023 to shareholders on the register at the close of business on 11 August 2023, with the ex-dividend date being 10 August 2023.

Fuel hedging

The Group's budget for FY 2023 anticipates fuel usage of approximately 12 million litres, falling to 11 million litres in each of FY 2024 and FY 2025 as mileage driven aligns itself with the currently anticipated profile of the Group's businesses. Hedging contracts have been taken out to cover these levels of fuel usage such that approximately 52% of the budgeted fuel usage in FY 2023 has been hedged, and 76% of both of FY 2024 and FY 2025. All these hedging contracts are at an average price of between 103p and 112p per litre. For reference, the market price of fuel at the date of this statement (excluding VAT) is 114p per litre. 

The Board will continue to monitor market conditions closely and take out such further fuel hedging contracts as it deems are appropriate to meet its objective of reducing volatility in its costs and, where possible, creating greater business certainty.

Financial review

Income statement

The Consolidated Income Statement is set out below. The factors governing the levels of revenue have been dealt with earlier in this statement in the section on total revenue. As revenue has increased, so did cost of sales, principally in the areas of driver salaries and fuel. The gross profit margin remained at approximately the same 14% level. Administrative expenses before exceptional items rose mainly because of increases in overhead employee salary costs, general training expenses and technology costs, large parts of which will have been driven by the prevalent inflationary conditions. The increase in interest expense reflects the higher level of borrowings in the period caused by the RCF drawing to finance the Tender Offer. Interest on hire purchase contracts was slightly lower than in the comparative period last year.

As a result of the above, profit from operations (before exceptional items) increased from £1.1m in FY 2022 to £2.3m for H1 2023 and profit before tax increased from £4,000 to £865,000. This was in line with the Board's budget for the period. As set out above, profit before tax (after exceptional items) was impacted by the marking to market of the Group's fuel derivative exposure. The majority of the provision related to the fuel derivative cover in FY 2024 and FY 2025. In contrast, the previous year had seen a profit from the same source. Note 3 to this statement sets out a full analysis of exceptional items.

As a result of all the factors set out above, normalised earnings per share for the six months ended 31 May 2023, before exceptional items, were 1.43p (2022: 0.01p). Basic earnings per share, after exceptional items, were 0.00p (2022: 4.17p).

Balance sheet

The gross assets of the Group as at 31 May 2023 declined to £83.4 million (2022: £91.1 million), but the total was very similar to the position as at 30 November 2022. The book values of property, plant and equipment (which are fully analysed in note 6) were maintained at roughly the same levels but the principal difference in non-current assets, when compared to the position at 31 May 2022, is the value ascribed to the defined benefit pension scheme. This value changed markedly in the second half of FY 2022, as described in the 2022 Annual Report. Current assets were little different from the position at the end of FY 2022, though much decreased from the position as at 31 May 2022 due to the absence of a derivative financial instrument asset and a decline in trade and other receivables as outstanding Government grants were received in cash.

Current liabilities rose principally because of the increase in loans and borrowings occasioned by the drawings on the RCF used to finance the Tender Offer in February 2023, as described above. As noted above these borrowings were repaid in July 2023. The exposure to derivative financial instruments was also a liability in 2023, whereas it had been an asset in FY 2022. The full analysis of loans and borrowings at period ends is set out in note 7 below. Total obligations under hire purchase contracts fell as repayments were made but no new contracts were taken out. Note 9 contains a full analysis of the profile of hire purchase obligations. Other non-current liabilities were little changed from those seen at the end of 2022 or in the comparable period last year.

The result of the movements outlined above was that the net assets of the Group as at 31 May 2023 had fallen to £20.3 million (2022: £34.1 million).

Cash flow statement

Cash flows from operating activities (before changes in working capital and provisions) fell when compared to H1 2022 to £5.3 million (2022: £7.7 million). The principal reason for this was a fall in profitability as the result of an exceptional loss being incurred on the marking to market of the fuel derivative, compared to a profit on the same item in the comparable period last year. Cash flows from changes in working capital and provisions also decreased markedly. In the previous period, various accumulated accrued government grants were finally received in cash. This item was not repeated in H1 2023. Cash generated from operations was therefore £7.7 million for the period (2022: £17.2 million). Interest paid on lease liabilities fell slightly as no new hire purchase contracts were entered into. Net cash flows from operations thus declined from £16.4 million in the comparable period last year to £6.9 million in H1 2023.

Purchases of property, plant and equipment, at £3.8 million, included £1.9 million for the new freehold depot in Eccles, Greater Manchester referred to above. This was financed by a drawing on the Company's RCF. The Group also took the opportunity to acquire 40 buses, most of them second hand, to retire a similar number of older vehicles of lower emission standard. All these vehicles were acquired for cash.

Within financing activities, the Company drew £10 million on its RCF to finance the return of cash to shareholders following the full take up of the Tender Offer made in the earlier part of the year and another £1.9 million (£2.4 million including the related VAT) to acquire the freehold depot in Eccles already mentioned. £1.5 million of this drawing on the RCF had been repaid by the period end together with the standard mortgage instalments. The capital paid on lease liabilities was higher than in the comparable period last year because the Company chose to pay off £1.2 million in variable rate hire purchase agreements in preparation for the sale of those same vehicles into the Residual Value Mechanism which is part of the Greater Manchester franchising arrangements described above.

Thus, given net cash flows from operating activities of £6.9 million (2022: £16.4 million), £3.8 million of cash used in investing activities (2022: £1.8 million), and cash used in financing activities of £4.9 million (2022: £11.4 million), there was an overall decrease in cash of £1.8 million in the period (2022: increase of cash of £3.2 million). In summary, the net overdraft position of the Group was £544,000 at 31 May 2023, compared to a net cash asset of £30,000 at 31 May 2022 and £1.2 million at 30 November 2022. 

Outlook

The Group continues to trade in line with its budget for FY23. In late September 2023, the Group will transfer its commercial bus operations based at the Bolton depot to the incoming franchise operator, but at the same time will commence operating the seven new small franchises in Greater Manchester which it was awarded in the same bidding round. Recently, the Company has been successful in the second round of franchise bidding in Greater Manchester, winning another small franchise, this time in the Oldham area. This franchise will commence in March 2024 and is a five-year contract with annual revenues of approximately £1.5 million. Seven new buses have been ordered to operate these services at a cost of £1.4 million. We intend to participate fully in the bidding for the third round of franchises which will be conducted in late 2023.

Elsewhere in the Group, we continue to work closely with our local authority partners in evaluating changes to the bus market and in aligning services with current passenger loadings and likely future requirements. We are working particularly closely with those local authorities with approved Bus Service Improvement Plans. These authorities are now able to use those plans to support bus services in the short term with a view to creating sustainable long term commercial services.

All these developments demonstrate that the bus industry remains in a state of change and continues with the re-organisation necessitated by the consequences of COVID-19. This turmoil will present opportunities for both incremental growth and growth by acquisition in the coming years; the Board believes that the Company, both in terms of its management and its financial resources, is well-placed to take advantage of these opportunities as they arise.  

John Gunn

Non-Executive Chairman

Date: 28 July 2023

Notes to the Unaudited condensed Consolidated Interim Financial Statements for the six months ended 31 May 2023

1. Basis of preparation:

The unaudited condensed consolidated interim financial statements for the six months ended 31 May 2023 have been prepared using the accounting policies set out in the Group's 2022 statutory financial statements. 

The financial statements of the Group for the full year are prepared in accordance with UK adopted international accounting standards ("IFRSs") and these interim financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting". The interim financial statements have been prepared on a going concern basis.

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: commercial services, contracted services and charter services.

As set out in the Chairman's Statement, the Group has been the beneficiary of continuing support from the Department for Transport and those local authorities in which the Group operates.

3. Profit before taxation:

Profit before taxation includes the following items which the directors consider to be outside of the normal trading transactions of the Group and are therefore to be regarded as exceptional in nature:

4. Taxation:

The main rate of corporation tax increased to 25% from April 2023. The deferred tax liability has therefore been accrued at this rate.

5. 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 43,973,216 (31 May 2022: 49,947,223; 30 November 2022: 49,502,254). Diluted earnings per share have been calculated on the basis of profit after taxation and the weighted average number of shares in issue (including such potential issues as are dilutive) for the period of 43,973,216 (31 May 2022: 49,947,223; 30 November 2022: 49,502,254).

Basic adjusted and diluted adjusted earnings per share before exceptional items have been calculated using the same weighted average numbers of shares in issue, but on the basis of profits after tax and before any exceptional items. This is done in order to aid comparability between the accounting periods.

6. Property, plant and equipment:

7. Loans and borrowings:

Secured bank loans are mortgage-type loans secured by reference to the Group's freehold property.

8. Lease liabilities:

9. Hire purchase agreements:

The Group's obligations under hire purchase agreements are secured by the lessors' rights over the leased assets.

10. Other lease liabilities:

Future lease payments for leases treated as leases under IFRS 16 but which take the legal form of rental agreements, without the legal right of ultimate ownership of the asset leased, are as follows:

11. Dividends:

The Company paid a final dividend of 1.0p per share in June 2023 in relation to the year ended 30 November 2022. All dividends are payable in cash only.

12. Additional information:

The unaudited Consolidated Interim Report was approved by the Board of Directors on 27 July 2023. The consolidated interim financial information for the six months ended 31 May 2023 and for the six months ended 31 May 2022 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 2022 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, did not contain an emphasis of matter and did not include a statement under section 498 of the Companies Act 2006. Copies of the financial statements are available from the registered office of the Company at Rotala Group Headquarters, Cross Quays Business Park, Hallbridge Way, Tividale, Oldbury, West Midlands, B69 3HW and on the Company's website www.rotalaplc.com.

13. Copies of this statement are available from the registered office of the Company at Rotala Group Headquarters, Cross Quays Business Park, Hallbridge Way, Tividale, Oldbury, West Midlands, B69 3HW and on the Company's website www.rotalaplc.com.