ROL.L Regulatory News (ROL)

26 January 2015

Rotala plc

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

Pre-close Trading Statement

Rotala is pleased to announce the following update on trading for the year ended 30 November 2014 and prospects for the current year ending 30 November 2015, as well as a number of other matters.

Year ended 30 November 2014

Pre-tax profits, on a slightly reduced level of turnover and before exceptional items, were modestly ahead of those of 2013 and were broadly in line with management expectations. Exceptional items are largely comprised of the mark to market provisions for the derivative-based fuel hedges which the Company has taken out to cover its future fuel requirements. Market to market provisions must be taken to profit or loss every year, but the fuel hedges are in reality in place to benefit the business in the future.

The board's stated policy is to create certainty over the Group's fuel costs by hedging the total fuel requirement, whenever it seems prudent to do so. The board's view is that hedging the fuel requirement is a prudent and conservative approach which reduces the volatility of underlying earnings and cash flows whilst also giving certainty to business planning and financial forecasts. The board therefore has continued to take out fuel hedges against the fuel requirements of the Group, at the present time up to November 2017. The current position on fuel hedges is set out in more detail below.

Operating cash flow was again very good and enabled the Group to improve the balance between current assets and current liabilities by £2.5m in the year compared to the position at the end of 2013. Net debt, which at 30 November 2013 stood at £20.0m, had fallen to £18.4m by 30 November 2014.

Convertible Loan Stock

The convertible loan stock issued in 2008 expired on 31st December 2014. Of the £2.32m loan stock outstanding at 30 November 2013, £2.16 m was converted into ordinary shares in accordance with the terms of the loan stock deed and the remainder has been repaid at par.

Fuel Hedging

The volatility of oil prices has been much in the news recently and the effect on fuel prices up to now has been marked. The fuel duty and delivery cost components of a litre of diesel are however unchanged at some 58p and 3p respectively. Further falls in the oil price are therefore working on an increasingly small part of the total cost of a litre of diesel and must be expected to have more limited impact.

The board has, as described above, a stated policy of hedging fuel requirements as far forward as possible in order not to be subject to the risks and uncertainties of market fluctuations. For 2015, where hedges at about 108p a litre were already in place for the whole of the 9.1 million litre full year fuel requirement, recent oil price volatility will therefore have little or no impact on the Company's prospects.

For 2016 the Company has been able, taking advantage of recent falls in the oil price, to extend the coverage of its fuel hedge and reduce the average price per litre of that hedge. The Company has now hedged about 94% of its fuel requirement for that year at an average price of about 102p a litre.

For 2017 some 80% of the fuel requirement for that year has now been hedged at an average price of just under 96p a litre.

The board will continue to monitor market conditions closely and take out such further fuel hedges as it deems are appropriate to meet its objective of reducing volatility and creating business certainty.

Prospects for 2015 and beyond

Trading for the current year has begun in line with budget. However in the first half of the year the contract with British Airways, which the Company has held for more than 10 years, will come to an end. This will of course have a negative impact on the results of the second half of the year. However management is confident that this impact will be largely mitigated by the effect of certain new contracts, gains in operating efficiencies and service enhancements in a number of our operating centres.

John Gunn, Chairman, said:

"Current market prices for fuel offer an opportunity to fix a key operating cost at a much lower level for a number of years ahead. This will underpin the board's commitment to a progressive dividend policy which reflects improvements to underlying earnings and cash flows. It is pleasing to note that our determination to deliver value for shareholders has been reflected in a stronger share price over the past two years and this strength should be underpinned by the certainty of lower fuel prices over the next three years as the result of our hedging activities.  

The enhanced banking facilities which we announced in November 2014 leave us well placed to make acquisitions and increase the size of the Company considerably in the next few years. We have also strengthened operational management recently with key recruits at a senior level. Change is still the watchword in the bus industry and we are confident that we can, strongly equipped as we are in both financial and management resources, play an increasing role in this process. We believe that the Company has performed well in 2014 and the current financial year has started positively."

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