17 December 2009
Arriva plc: pre-close trading statement
* Trading in line with expectations
* Cost reduction programmes in all three divisions
* Continuing signs of recovery in UK Trains passenger revenue growth
* Earnings benefit from other items
Leading European transport services group Arriva plc reports that trading has
continued in line with its expectations. Cost reduction initiatives have
reduced the impact of both recessionary conditions and a year-on-year fuel cost
increase of around £60 million, and will continue to benefit the group in
future years. Whilst the economic environment remains challenging there is
evidence of recovery in passenger revenue growth in our UK Trains division.
Trading
Revenue in the UK Bus division, adjusted for the same number of trading days,
has increased by 4.4 per cent in the 11 months ended 30 November. Mileage
growth in the contracted London business, which accounts for around a third of
the division by revenue, was over two per cent in the same period. In the UK
regional business, targeted reductions in commercial mileage of 3.4 per cent
year-on-year have reduced the cost base whilst improving yield per mile and
maintaining the viability of our network ahead of fuel cost reductions in 2010.
Results for the division will reflect the second-half weighting of the 2009
fuel cost increase.
Revenue in the Mainland Europe division, expressed in euro, grew by 5.8 per
cent in the 11 months ended 30 November. Excluding the effect of acquisitions
made in 2008, revenue growth was 2.4 per cent. Cost saving programmes have been
implemented throughout the division and will benefit the business next year. As
previously reported, the commercial operations in Portugal have been
particularly adversely affected by the recession, whilst trading conditions in
the Netherlands bus market have been difficult.
Passenger revenue for CrossCountry is up by 2.1 per cent for the first 48 weeks
of 2009. For the 13 weeks ended 12 December 2009 the increase has been 6.1 per
cent, continuing the marked improvement in patronage since September. At Arriva
Trains Wales, passenger revenue growth was 7.0 per cent for the same 48 week
period, after allowing for timetable changes in December 2008. Both franchises
have continued to provide excellent operational performance. Cost reduction
measures already in place have contributed annualised savings of approximately
£15 million. As reported previously, the revenue growth and cost savings in
CrossCountry will be insufficient, this year, to offset the decline in
franchise support payments.
Financial position
The group's financial position remains solid, with continuing healthy cash
generation and significant undrawn committed bank facilities. The group's
principal facility, a £615 million revolving credit facility, does not expire
until August 2012 and has been enhanced by an additional €100 million facility
with the same expiry date.
As previously anticipated, the existing fleet of 29 trains for Arriva's Jutland
rail contract has been recognised on the balance sheet in the second half of
the year, with a book value of around £50 million and corresponding increase in
debt. The trains continue to be financed by the existing provider. Most of the
group's debt is denominated in euro or in currencies linked to the euro. If the
recent strengthening of the euro persists until the end of the year, the
sterling equivalent of that debt will be higher than the half year when the
exchange rate was 85 pence to the euro.
Other items
In addition to earnings derived from underlying trading activities, it is
anticipated that there will be a net earnings benefit from the following items.
There has been an agreed change in the benefit structure of the Arriva
Passenger Services Pension Plan, the largest of the group's defined benefit
pension schemes. Following discussions and subsequent agreement with the trade
union and the Trustee, and a consultation process with the active members of
the scheme, a proposal to reduce future benefit accrual, reducing costs to both
members and to the company, was implemented with effect from 1 December. This
change will significantly moderate the increase in retirement benefit
obligations in the group balance sheet and is expected to give rise to a
corresponding credit to the income statement (before taxation) of around £45
million. It will also mitigate against future pension cost increases that would
otherwise arise from the increase in such obligations.
During the year the group has resolved a number of historical tax matters with
tax authorities. These include a recent settlement which we expect to give rise
to a saving of approximately £70 million. The timing of the recognition of this
amount in the income statement is yet to be determined.
An impairment charge of approximately £30 million is anticipated. In light of
the factors affecting the Portuguese bus market and the likely continued
abstraction of revenue to the recently extended light-rail system south of
Lisbon, the Portuguese operation has been de-scaled to a level commensurate
with the changed environment.
Outlook
Although 2009 has been marked by uncertainty over the general macroeconomic
outlook and impact of challenging market conditions, some of which continues,
the trading performance of the group, tight cost control, and the circa £30
million reversal of the 2009 peak fuel cost increases, all combine to give the
Board greater confidence in a positive medium-term outlook. The competitive
landscape continues to provide opportunities for further growth, with an
encouraging pipeline of tenders in the mainland European market.
The recent upturn in CrossCountry passenger revenue growth represents a
substantial improvement from the levels experienced in the first half of 2009,
but still falls well short of the level required to compensate for declining
franchise support payments. With the availability to CrossCountry of
contractual protection from shortfalls in projected passenger revenue from
November 2011, and the continuing good financial performance of Arriva Trains
Wales, we have clear visibility of significant anticipated recovery in the
financial performance of the UK Trains division from 2012 onwards.
The group is scheduled to release preliminary results for the year to 31
December 2009 on Wednesday 3 March 2010.
* The group's forward fuel fixing for 2010 is substantially complete, with 17.1
per cent of the anticipated 510 million litre annual fuel requirement protected
by indexation arrangements, and 76.6 per cent forward purchased at an average
price of 35.9 pence per litre, excluding fuel taxation and delivery. The
position for 2011 is 37.3 per cent fixed at an average price of 31.4 pence per
litre. As reported previously, 75 per cent of the approximate 100 million litre
annual fuel requirement for CrossCountry remains fixed at 26.5 pence per litre,
until 2016.
Enquiries:
Arriva plc
David Martin, Chief Executive 0191 520 4000
Steve Lonsdale, Group Finance Director
Simon Craven, Director - Communications
Tulchan Communications
Stephen Malthouse 020 7353 4200
Notes to editors:
Arriva is one of the largest private sector providers of passenger transport in
Europe, employing more than 44,000 people (including share of associate
companies) and providing more than one billion passenger journeys every year.
Arriva provides transport services including buses, trains, commuter coaches
and water buses, and operates in 12 European countries: the Czech Republic,
Denmark, Germany, Hungary, Italy, the Netherlands, Poland, Portugal, Slovakia,
Spain, Sweden and the UK.
Registered Number: 347103 England