InterCity East Coast franchise award

Transcription

1 1 InterCity East Coast franchise award Analyst and investor presentation Stagecoach Group plc 27 November 2014

2 Cautionary statement 2 This document is solely for use in connection with a briefing on the award of the InterCity East Coast franchise to Inter City Railways Limited, a company within the group 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, regulatory and business circumstances occurring from time to time in the countries, sectors and markets in which the InterCity East Coast business and the wider 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 is not a full record of the presentation because it does not include comments made verbally by Stagecoach Group management or by others.

3 3 MARTIN GRIFFITHS CHIEF EXECUTIVE

4 4 Introduction Bid assessed by Government based on quality and financial measures Eight year franchise from 1 March 2015 & possible one-year extension Blends the experience, culture and service-focus of both Stagecoach and Virgin, including experience of running major UK inter-city rail franchises Virgin branded services New, quicker and more frequent journeys State-of-the-art fleet of new trains (Inter City Express Project - IEP) Range of initiatives to improve end to end journey experience Increasing payments to Government Premium of 2.3 billion* over eight-year core franchise period Total initial risk capital of c. 232m Significant potential shareholder value * Projected premia payments over core franchise period to 31 March 2023, expressed in 2014/15 prices and discounted at real discount rate of 3.5% per annum

5 5 ROSS PATERSON FINANCE DIRECTOR

6 6 The InterCity East Coast Franchise Current route map Key facts and timelines Currently under government ownership (Directly Operated Railways) Some 3,000 staff operating 155 trains per day Calls at 52 Stations Franchise start: 1 March 2015 Franchise end: 31 March 2023 (one year extension callable at DfT s discretion) Planned delivery of new IEP trains Sep 2018 to Feb 2020 Planned introduction of ERTMS (European Rail Traffic Management System) - Dec 2018 Planned completion of route capacity and power supply upgrades - March 2019 Full new timetable planned for May 2020

7 Benefits for customers 7 New trains - 65 new express trains (IEP) from 2018 Better connections - Extra and new direct services to London from key UK locations, including at weekends Shorter journey times - Regular two-hour London-Leeds and four-hour London-Edinburgh services Better value fares 10% cut in Standard Anytime fares on long-distance journeys to and from London and Stevenage Station enhancements Planned investment of over 25m in modern customer zones, improved accessibility, more car park spaces, extra cycle facilities and improved security New technology new website, smartphone apps, interactive touch screens at stations, portable technology for staff, free Wi-Fi Improved customer support Annual improvement fund of 1m, new industry-leading passengers charter with automated refunds, satisfaction benchmarks, measures and independent surveys

8 Benefits for staff and the community 8 More training for all staff throughout the franchise Access for staff to Stagecoach Buy as You Earn share scheme Innovation Council with guaranteed financial support (approx. 23m) Graduate programme and apprenticeships Ex-offenders programme Ring-fenced communities fund of 500k per year managed by dedicated stakeholder managers Support for small businesses and regeneration in disadvantaged areas

9 A robust bid process 9 Significant time, effort and money invested in producing a deliverable bid Dedicated bid team of appropriately experienced professionals Drawing on the expertise of Stagecoach, Virgin and external experts Working with the industry supply chain Bid steering group Representatives of Stagecoach, Virgin and Virgin Rail Group as well as an external expert Provided oversight, expertise, analysis and challenge Extensive scenario analysis undertaken to assess risk-reward trade-off Bid deliverability subject to considerable risk assessment / risk adjustment by DfT Ultimate approvals from Stagecoach Board and Virgin Group Board

10 Corporate structure 10 Stagecoach subsidiary Inter City Railways Limited ( ICR ) Stagecoach holds 90% of ICR s share capital, Virgin 10% Minority interest in Stagecoach consolidated financial statements Unusually, ICR will acquire existing train operating company Arm s length amounts payable to Virgin for brand, marketing expertise etc.

11 Franchise commitments 11 Premium of 2.3 billion over eight-year core franchise period Projected premium payments discounted using Government real discount rate of 3.5% Extensive contractual commitments To ensure we deliver on our bid promises Taxpayer protection financial covenants and risk capital GDP sharing arrangements 2% deadband Government responsible for 90% of variances outside the deadband Franchise takes other revenue risks Profit share arrangements Share of profit in excess of defined amounts payable to Government

12 Franchise financial returns /14 passenger revenue c. 662m Forecast financial return commensurate with franchise duration and risks Financial returns may be lower in early years of franchise as we invest and progress our initiatives Arm s length brand management agreement with Virgin Stagecoach earns 90% of profit after tax Not anticipated to significantly change Stagecoach net debt in 2014/15 Forecast capital expenditure - 100m over eight years plus additional investment by rolling stock companies

13 Equity and risk capital 13 Initial capital requirement m Estimated risk capital Bank/ Insurer backed Parent company support (intra-group loan facility) Performance bond Season ticket bond 5 5 Rolling stock lease guarantee 7 - Agreed Funding Commitment (short-term intragroup loan to fund capital expenditure etc.) 35 - Total Comments Not forecast to be used. To increase broadly with RPI To increase broadly in line with season ticket sales Risk capital fully underwritten by Stagecoach 10% of any amounts called / drawn to be funded by Virgin Plus c. 11m to purchase existing train operating company Financial covenants specified in franchise agreement

14 Next steps 14 Standstill period of at least ten days Contract expected to be signed by DfT at end of standstill period Mobilisation work has begun Further stakeholder engagement planned Mandatory phase 1 review by Competition & Markets Authority New franchise begins March 2015

15 Summary 15 Franchise to deliver significant benefits to customers, employees, communities and tax payers Potential to generate significant shareholder value Appropriate risk-reward trade-off Appropriately backed by risk capital

16 16 InterCity East Coast franchise award Analyst and investor presentation Stagecoach Group plc 27 November 2014