Capital Markets Day. 13 January 2012

Transcription

1 1 Capital Markets Day 13 January 2012

2 2 Agenda Time 0900 Registration & coffee mins Martin Griffiths Introduction Strategy Management structure and team mins Dale Moser Growing the market for budget coach travel in North America mins Ross Paterson Megabus North America Financials and Valuation mins Mark Threapleton Stagecoach London: Delivering on the turnaround opportunity mins Break mins Robert Montgomery Driving organic bus growth mins Tim Shoveller A low-cost partnership model for UK rail mins Graeme Hampshire Positioning Stagecoach for growth in UK rail mins All Panel Q&A Conclusion hr Buffet lunch

3 3 Cautionary statement This document is solely for use in connection with a briefing on the group of companies headed by Stagecoach Group plc ( the Group ). This document contains forward-looking statements that are subject to risk factors associated with, amongst other things, the economic and business circumstances occurring from time to time in the countries, sectors and markets in which the Group operates. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a wide range of variables which could cause actual results to differ materially from those currently anticipated. No assurances can be given that the forward-looking statements in this presentation will be realised. The forward-looking statements reflect the knowledge and information available at the date of preparation. This document contains illustrative valuation measures. These are only to illustrate possible valuations using certain assumptions. No reliance should be placed on those valuations nor on the reasonableness of the assumptions that underpin them. This document is not a full record of the presentation because it does not include comments made verbally by Stagecoach Group management or by others.

4 4 Growing the market for budget coach travel in North America Dale Moser, President and Chief Operating Officer megabus.com North America

5 5 Overview Growing megabus.com network Transport trends in North America Understanding the market Innovative marketing Competitive advantage

6 6 megabus.com North America network 72 Cities Served in the USA & Canada 6 Major Hubs

7 7 Growing demand for budget travel Pitts May 11 Passenger journeys per quarter Philly July 10 DC Dec MW Apr 06 NY June 08 Note: megabus.com North America passenger journeys per quarter, , showing hub launches

8 8 Transport trends in North America - 1 Source: 2011 Intercity Bus Study Chaddick Institute for Metropolitan Development, DePaul University

9 9 Transport trends in North America - 2 Source: 2011 Intercity Bus Study - Chaddick Institute for Metropolitan Development, DePaul University

10 10 Understanding the market Customer Profile Previous Modes 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 31% 39% 16% 14% 17% 17% 23% 20% 10% Key Market Student/Young Professional 8% 2% 2% Key Market Car Travel Source: Online tracking survey by Stagecoach Group plc, December 2010 March 2011 versus June 2009 September 2009, new megabus.com users only 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 32% 39% 9% 20% 21% 14% 14% 14% 7% 11% 9% 9% CAR AIR TRAIN G/HOUND BOLT OTHER BUS

11 11 Marketing strategy Social media and targeted web marketing New customer development incentives Hub marketing Selective advertising/promotions Leveraging greener bus travel PR campaigns Exterior bus graphics

12 12 Digital marketing Social media Search engine advertising blasts Web banner advertising Using affiliates

13 13 megabus.com competitive advantage First mover Flexible business and operational model Detailed understanding of market Strong margins in mature hubs Infrastructure and fleet (high capacity double-deckers) Competitive advantage

14 14 Flexible operating models Direct operation Entire operation provided by megabus.com, which takes revenue risk Approach used in majority of current markets Limited by current footprint Contract Drivers and operations provided by outside company megabus.com takes revenue risk Allows easy expansion into new locations outside core footprint Already deployed in Atlanta hub and elsewhere Franchise Entire operation and marketing provided by outside company megabus.com provides sales engine & pricing management Outside company pays a fee to megabus.com and takes revenue risk Options being assessed

15 15 Megabus North America Financials and Valuation Ross Paterson Director of Finance and Company Secretary Stagecoach Group

16 16 Overview Summary of the current hubs Capital invested to date Revenue development Case study of the Chicago hub Key statistics Financial and vehicle data Illustrative valuation Typical income statement

17 17 Summary by hub Hub Launch date Peak vehicle requirement ( PVR )*, Dec-11 Total vehicles Dec-11 Chicago April New York May Philadelphia July Washington DC December Pittsburgh May Atlanta** November Total * Peak Vehicle Requirement ( PVR ) is the number of vehicles required to operate the scheduled services at maximum frequency but excludes any spare vehicles that are necessary to allow for maintenance cycles etc. ** Atlanta services are operated by a sub-contractor using vehicles provided by Stagecoach

18 18 Capital invested Current megabus.com North America fleet 33 single decker vehicles & 150 double decker vehicles To date, we have acquired c.us$122m worth of vehicles Includes c.us$7m from elsewhere in Group Includes c.us$40m of which were financed by operating lease Availability of cost effective asset financing c.us$1m incremental investment in property and plant Use of existing Stagecoach infrastructure Use of partners infrastructure beyond Stagecoach footprint Total investment to date c.us$83m and c.us$40m on op lease

19 19 Revenue development Revenue and average PVR by hub for Stagecoach financial years pro rated to derive estimates of revenue for each year from the launch date of each of the hubs. Includes forecast revenue through to 30 April 2012.

20 20 Case study Chicago Current profile 2010/11 Revenue US$23.8m 2010/11 EBITDAR* US$8.0m, 33.6% margin 2010/11 Operating profit* US$5.4m, 22.7% margin 2010/11 Average peak vehicle requirement 25 Current peak vehicle requirement 34 Current total fleet 42 Number of current routes 14 * Operating profit is profit before interest and tax. EBITDAR is profit before interest, tax, depreciation, amortisation and operating lease costs.

21 21 Case study Chicago Financial and vehicle data 2005/6 2006/7 2007/8 2008/9 2009/ / /12 Actual Actual Actual Actual Actual Actual Forecast Revenue US$ ,672 9,541 18,083 17,598 23,840 31,404 EBITDAR US$000 (1,295) (1,589) (92) 3,656 3,193 8,054 8,832 PVR at end of year Number Vehicles at end of year, including 25% spare Number New vehicles in year Number (5) Change in invested capital at $650k per vehicle US$000 (13,000) - (11,050) 3, (7,150) Revenue, EBITDAR and PVR data is actual (or for 2011/12, forecast) Central overheads not applied as no incremental expenditure Property and plant capital excluded as incremental expenditure was minimal 25% spare vehicle ratio and US$650k cost per vehicle are estimates allowing for the transfer of vehicles within the Stagecoach Group

22 22 Case study Chicago Illustrative valuation 2005/6 2006/7 2007/8 2008/9 2009/ / /12 Perpetuity Actual Actual Actual Actual Actual Actual Forecast Forecast Illustrative cash flows EBITDAR US$000 (1,295) (1,589) (92) 3,656 3,193 8,054 8,832 8,832 Tax on 35% US$ (1,280) (1,118) (2,819) (3,091) (3,091) Capital invested US$000 (13,000) - (11,050) 3, (7,150) (3,993) Tax credit on capital 35% US$ ,684 1,456 1, ,047 1,398 Net cash flow US$000 (12,932) (123) (9,426) 7,082 3,531 5,781 (363) 3,145 Undiscounted cash flow and perpetuity US$000 (12,932) (123) (9,426) 7,082 3,531 5,781 (363) 52,424 Discount period Discount dates Date 10-Apr-06 2-May Oct Oct Oct Oct Oct Oct Oct-11 Discount rate % 8.00% Long-term growth rate % 2.00% Discounted cash flow US$000 (12,872) (118) (8,360) 5,816 2,685 4,070 (236) 34,173 Net present value at hub launch US$000 25,158 IRR at hub launch % 29.6% Assumes all vehicles are cash funded (no operating leases) Perpetuity assumes vehicles replaced every seven years

23 23 Valuation thoughts IRR of 30% / NPV US$25m at launch Higher post-launch due to start-up losses being sunk Assumption on tax (35%) conservative due to available losses 2% growth from 2012/13 onwards conservative 32% revenue growth forecast in 2011/12 Commercial revenue from mature UK Bus operations up 6%+ Perpetuity value (post start up phase) is US$1,542k per PVR Potential to add capital and value

24 24 Typical income statement Chicago year ended 30 April 2011 US$m Revenue 23.8 Staff costs (5.2) Fuel costs (2.6) Insurance and claims costs (1.0) Maintenance (1.8) Drivers accommodation and expenses (1.3) Credit card fees and call centre costs (1.3) Other costs (2.6) EBITDAR 8.0

25 25 Conclusion More established megabus.com operations show strong growth and returns Existing hubs have further growth opportunities Scope for new hubs elsewhere in North America Significant shareholder value opportunity

26 26 Stagecoach London: Delivering on the turnaround opportunity Mark Threapleton, Managing Director Stagecoach London

27 27 Background and Challenges Acquisition of East London, Selkent and Thameside companies from East London Bus Group in Oct 2010 Trading - unprofitable and unsustainable Competitive market - too much capacity chasing too few contracts = falling tender prices Cost base - high in comparison to other London bus operators Contracts - no new work since March 2009; struggling to retain contracts at any profit margin at all

28 28 Actions Cost base: depots, fleet, staff Restructuring: productivity, overheads, property Contract bidding strategy

29 29 Cost base Oct 2010 Jan 2012 Change Depots Depot capacity % Fleet size % Staff % Overhead staff costs reduced by 3m (20%) Driving staff costs reduced by 9m (7%)

30 30 Restructuring Driver productivity 5% improved productivity = 180 less drivers required 2% reduction in drivers pay costs withdrawal of restrictive practices and premium pay, and reduced absence costs Overheads Head office and service control staff reduced by 28% Accountancy function transferred to SSC saving net 1m Service control function centralised to improve performance Engineering productivity more hours for same costs Property One depot closed to consolidate capacity and reduce overhead costs

31 31 Contract bidding strategy Sustainable profitability over 5 year contract life Realistic assessment of potential performance bonus Leased vehicles matched to contract terms Volume discounts where genuine overhead cost benefits identified

32 32 Results Dramatic improvement in contract successes in 2011/2012 Bids submitted for 318 peak vehicles 153 on existing work; 165 on other operator work 138 existing peak buses retained (14%) 11 peak vehicles won on new contracts first since 2009 Stable peak bus position compared to 121 net loss in 2010/11

33 33 Contract market challenges Public sector spending cuts squeeze on Transport for London (TfL) budgets Highly competitive tendering market continues - spare depot capacity in London still too high Contract performance bonuses opportunities harden as service quality continues to improve Pressure on overhead costs due to TfL administration Short-term performance challenges due to Olympics traffic management strategy

34 34 Our competitive advantage Good reputation with TfL Strong senior and depot management teams company restructuring achieved without industrial action Benefits from recently introduced competitive working and pay agreements Well located depots all freehold except West Ham Only 17% (200 buses) of current fleet to be tendered over next 2 years

35 35 Opportunities Improved competitive cost base will increase opportunity to retain existing work and win new contracts Growth opportunities in next 2 years 28 contracts to be tendered for 250 peak buses currently run by other operators Potential for more depot rationalisation to reduce capacity and cost base Further service performance improvements through new centralised control structure Fleet maintenance improvement plan drive improved performance and reduced costs

36 36 Driving organic bus growth Robert Montgomery, Service Performance Director Stagecoach UK Bus

37 37 Bus travel in UK: market context Bus Car Source: Department for Transport

38 38 Stagecoach track-record of growth 7 Reported passenger growth, Growth

39 39 Keys to Organic Growth Strong, efficient service delivery Value for money travel Consistent investment Easy to use networks, simple timetables, convenient ticketing Effective marketing and new products to target key markets

40 40 Peterborough network map pre 2004 Completely different on evenings & Sundays!

41 Peterborough citi launch

42 42 Peterborough Results PETERBOROUGH CITI SERVICES - ANNUAL PASSENGER TRIPS / / / / / /09

43 43 Commercial Kickstart initiatives Successful pump-priming approach Designed to encourage organic growth and modal shift Costs hit on day one Revenue grows more slowly Funding the gap Three Year Programme

44 44

45 45 66 Kickstart Swindon Farringdon Oxford Before hourly with peak extras After all day half hourly service After improved Sunday service Coincident with fleet renewal Mileage increase of 66% Cost increase of 35% Year one passenger growth of 38% By year two at 50%... and growth continues

46 46

47 Premium bus product 47

48 48 Targeting car users - 1 Generating modal shift from car to bus through: Optimised quality of product High-specification vehicle Enhanced driver training Enhanced cleaning specification Customer Charter High-profile luxury marketing

49 49

50 50 The 94 Experience No change to frequency or resources Simply enhanced vehicle quality and marketing Year One passenger growth of 8.5% By Year Two passenger growth of 14% and it continues

51 51 Gold projects to date Perth Service 7 Leamington Spa Service 66 Aldershot - Guildford Service 1 Cheltenham - Gloucester Service 94 Oxford Services S1/S2/S5 Peterborough Northampton Milton Keynes X4 Swindon Oxford Service 66 Further roll-out planned

52 52 Simplicity and value Complicated prices deter modal shift Non-users overestimate bus fares Best value through dayrider and megarider Britain s best value major bus operator

53 53 megarider: key features Unlimited travel For a period Over a route, zone or area Transferable Easy to purchase More a simple marketing message than a network ticket

54 54 megarider: purchasing options On bus from the driver At a Travel Shop Through an Agent Online by Credit or Debit Card On a StagecoachSmart smartcard by recurring transaction From your employer Through salary sacrifice Free from Stagecoach telemarketing!

55 55 Ticket to Switch megarider fixes travel costs for up to a year Compare with petrol and parking December 2011 Survey Imminent fuel campaign

56 56 Delivering organic growth Significant target market exists We know the keys and have the tools Requires detailed local work Success also linked to demographics, local economy, local political environment Strategy can manage headwinds of public sector squeeze and cost challenges We are ahead and growing!

57 57 A low-cost partnership model for UK rail Tim Shoveller, Managing Director South West Trains

58 58 Overview Challenge from McNulty review Stagecoach cost reduction programme Potential alliance with Network Rail Other opportunities

59 59 Challenge from McNulty review Identified inefficiencies in UK rail, including: Excessive costs Over-centralised infrastructure management Interfaces not working well Misaligned incentives

60 60 Stagecoach cost reduction programme Stagecoach ahead of the game in delivering more sustainable railway Decisive management action in response to economic downturn in 2008 Controllable costs at East Midlands Trains and South West Trains cut by 20% to 25% since 2008 High train performance and customer satisfaction maintained above UK average Opportunity to replicate approach across UK rail network Needs constructive partnership between stakeholders - Government, ORR, train companies, trade unions, Network Rail and passengers

61 61 Potential alliance with Network Rail Potential alliance between South West Trains and Network Rail Single senior management team to deliver rail services in south and south-west England More collaborative working, better decision-making, fully-aligned incentives Better service for passengers, more efficient, lowercost railway Organisations remain separate entities Interests of other passenger and freight operators protected Set benchmark first for the UK rail industry

62 62 Other opportunities Once-in-a-generation capacity enhancement schemes in partnership with DfT additional capacity for growth financial incentive for delivery low-cost HLOS phase 1 agreed discussions on phase 2

63 63 Positioning Stagecoach for growth in UK rail Graeme Hampshire Director, Business Development Stagecoach Rail

64 64 Overview Industry structure update How the new franchising model may look UK rail franchising programme Possible targets in 2012 Why Stagecoach is well-placed

65 65 Industry structure update Office of Rail Regulation (ORR) to become the passenger s champion Transfer of responsibilities from DfT Implications of McNulty Report Changes to franchises Rail Delivery Group established Network Rail devolution Alliances and line of sight deals

66 66 How the new franchising model may look Current Likely Term 7 years 15 years plus Timetable Service Level Stop requirement Commitment Crowding (Implied by fleet To be determined requirement) Quality Bespoke regime NPS measure Risk share Cap and Collar GDP index and profit share Stations Access Agreement Full repairing 99 year leases Likely to see a horses for courses approach

67 67 UK rail franchising programme DfT Pin Notice August 2011 Possible Franchise Great Western Essex Thameside Thameslink East Coast South Eastern Northern TransPennine Greater Anglia Scotrail East Midlands London Midland Cross Country SWT Prequalification period Tender period Franchise award Franchise commencement

68 68 Possible targets in 2012 Essex Thameside Incumbent: Greater Western Incumbent: National Express First Group Turnover: 125m Key issue: Turnover: 700m Key issue: Term: 15 years Maintain punctuality Term: 15 years Electrification and new trains East Coast Incumbent: Directly Operated Railways Thameslink (including Southern) Incumbent: First Group and GoVia Turnover: 650m Term: tbc -15 years? Key issue: New trains Turnover: 1bn Term: years Key issue: Infrastructure upgrade and new trains Note: Virgin Rail Group to receive Invitation to Tender for InterCity West Coast franchise in Jan 2012

69 69 Why Stagecoach is well-placed Combination of commercial and operational excellence Business development Continue to bid throughout the cycle Experienced team, refreshed with senior operational expertise Highly developed support network Recognised for technical quality and approach Operational performance Major project delivery Introduction of revenuegenerative timetables Cost control Consistently high levels of performance and passenger satisfaction

70 70 Capital markets day 13 January 2012