Metropolitan European Transport Limited

Transcription

1 Metropolitan European Transport Limited formerly Marwyn European Transport plc Report and Consolidated Financial Statements for the year ended 31 December

2 was a year of growth in our contracted bus business. Highlights Total reported revenue 25.8m 18.1m Local bus EBITDA 1.9m 0.8m Express bus EBITDA ( 0.7m) (0.4m) Operating EBITDA 1.2m 0.4m EBITDA (before exceptionals) ( 0.5m) ( 1.3m) Bus fleet at year end Order book at year end 132m 95m

3 Metropolitan European Transport Limited Contents Business Summary Highlights of the Year 02 Chairman s Statement 04 Management and Business Review Board of Directors 05 Strategic Report 06 Directors Report 11 Financial Statements Independent Auditors Report to the Members 14 Consolidated Statement of Comprehensive Income 16 Consolidated Statement of Financial Position 17 Consolidated Statement of Changes in Equity 18 Consolidated Cash Flow Statement 19 Notes to the Consolidated Financial Statements 20 Independent Auditors Report to the Members of Metropolitan European Transport Limited 42 Company Balance Sheet 44 Notes to the Company Financial Statements 45 Company Information 48 Business Summary Management and Business Review Financial Statements Metropolitan European Transport Limited Annual Report and Consolidated Financial Statements 01

4 Business Summary Highlights of the Year Company Metropolitan European Transport Limited ( MET or the Company ) was incorporated as Marwyn European Transport plc on 8 February 2011 to pursue consolidation opportunities within the European transport sector. Until 9 June 2014 MET was a subsidiary of Marwyn Management Partners plc ( MMP ), which is listed on the main market of the London Stock Exchange. On 2 June 2014 the Company was renamed Metropolitan European Transport Limited and on 9 June 2014 MET was purchased by DGIW Omnibus Company Limited, which is a company owned by the founders and Executive Directors of MET; David Leeder, Guy Houston, Iain Lanaghan and Linearis Beratungs GmbH (a company wholly owned by Wolfgang Meyer). The Executive Directors of MET have held senior management positions in leading bus and rail companies in the UK, North America and EU. Since incorporation, MET has completed the acquisition of five bus operating companies within the German market and won additional contracts. The Company s strategy is to grow organically by continuing to win bus operating contracts with German local authorities. No acquisitions were made during the year due to funding constraints, resulting from the lack of capital in MET s parent company (MMP). Financial highlights Total revenue increased to 25.8 million from 18.1 million. Local bus EBITDA increased to 1.9 million from 0.8 million. Order book at year-end has increased from 95 million to 132 million Total reported revenue 25.8m 18.1m 4.9m Local bus EBITDA * 1.9m 0.8m 0.2m Express bus EBITDA * ( 0.7m) ( 0.4m) Operating EBITDA * 1.2m 0.4m 0.2m HQ costs (before exceptionals) ( 1.7m) ( 1.7m) ( 1.5m) EBITDA (before exceptionals) ( 0.5m) ( 1.3m) ( 1.3m) Net (liabilities)/assets ( 4.8m) 4.8m 7.6m Cash in bank 0.6m 0.8m 1.9m External loans and borrowings 8.2m 6.7m 0.2m Order book ** 132m 95m 48m * The Directors use EBITDA as the principal metric to assess the performance of the business. This measure is reconciled to its statutory equivalent in note 3 of the consolidated financial statements. ** Our order book represents the contracted future revenue from public transport contracts, operating licences and concessions already operated by the local bus business. By providing forward visibility of a large proportion of future revenue, it helps to demonstrate the underlying strength and stability of the business. It tracks estimated future revenue from the contracted business, rolled forward to reflect contract variations and end dates. It is updated to current prices at each year end. Operational highlights Operational hubs established in the Cologne and Frankfurt regions, as well as a fast-growing express bus operation. Increase in revenue, revenue per bus, and operating EBITDA. Local bus EBITDA margin increased to 8% (: 5%) First full year contribution from Germersheim contract (commenced December ) and part year contribution from LOF West and Mitte contracts (commenced December ). Full year contribution from Bonifer bus businesses (acquired October ). Express bus revenue up from 0.6 million in to 0.8 million in. Further growth of passengers and launch of second route at Publicexpress. The second express route from Mannheim, Heidelberg and Karlsruhe to Strasbourg started in June and has grown strongly. The overall growth of the MET business slowed due to the limited capital available from MET s majority shareholder in. 02 Annual Report and Consolidated Financial Statements Metropolitan European Transport Limited

5 Business Summary We continued to invest in new buses during as MET gained additional RMV contracts for suburban services in the Frankfurt region. Key operational performance indicators as at 31 December Key operational performance indicators 2011 as Number at 31 of December employees Number of licences and contracts Cumulative buses acquired through acquisitions Cumulative buses gained through contract wins Total buses at year end Revenue per bus 68,984 47,757 20,082 Express passengers 95,800 60,000 46,400 Express passenger growth 37% 23% n/a Outlook MMP were unable to provide the funding required to match the aspirations of the Directors, so agreement was reached, whereby the Director s purchased the entire share capital of the Company from MMP and the other minority shareholders. Following the purchase of the Company by DGIW Omnibus Company Limited, the Group no longer has the financial support of MMP plc. However, as an independent business, MET will benefit from a lower cost base and greater flexibility, therefore management has commenced a series of cost cutting measures and is currently negotiating with third parties to secure further funding which is needed to achieve the Group s strategic objectives of continued growth in the German bus market. The owners of DGIW Omnibus Company limited have confirmed they are able to, and will, provide Metropolitan European Transport Limited with financial support in the event it is required to enable it to continue in operation for at least twelve months from the date on which the 31 December financial statements are signed. MET s priority for 2014 is to reduce the cost base to a size that it is appropriate for the size of the current business, ensure the business is wholly cash self-sufficient and then increase the Company s financing to fund further profitable growth during the latter half of 2014 and Metropolitan European Transport Limited Annual Report and Consolidated Financial Statements 03

6 Business Summary Chairman s Statement Our people MET aims to create shareholder value by deploying the skills and experience built in the liberalised markets of the UK and North America across the developing transport markets of mainland Europe. Iain M Lanaghan I am pleased to present to the shareholders the Annual Report and audited consolidated financial statements for Metropolitan European Transport Limited ( MET ) for the year to 31 December, together with relevant information up to the date of publication. MET is now an established player in the German bus market with a growing and well-diversified portfolio of operating contracts and good revenue visibility. We now have two strong local bus hubs, centred on the Cologne and Frankfurt regions and have made our initial entry into the emerging express bus market. We have retained local brands and local management and created a strong central bid team to allow us to bid for additional contracts and licenses and to develop our commercial express services. was a year of consolidation, in which we demonstrated our ability to grow revenues and margins in the businesses acquired in 2011 and. Management focused on back office integration, operating cost and revenue growth synergies. The success of these efforts is shown in the significant growth in revenue per bus and EBITDA margin. Our secured order book increased once again from 95 million to 132 million as a result of significant net contract wins during the year. We continue to develop our pipeline of bid opportunities for 2014 and beyond and we see substantial scope for further growth in both the local bus and express bus segments. We remain extremely positive about opportunities in the sector. Our team is characterised by their widespread experience and depth of knowledge of the bus and rail sector. The Executive Directors have all held senior management positions in listed and unlisted transport businesses in the UK, EU and North America, including FirstGroup, Arriva, Abellio, Greyhound Lines and National Express. Our German team has extensive experience of private and public sector bus operations throughout Germany, including municipal and Mittelstand bus companies. Events since year end The lack of capital of MET s parent company ( MMP ) during constrained MET s growth and prevented MET from acquiring further businesses during the year. MET also continued to incur on-going and exceptional costs resulting from MET s status as part of the MMP group. Accordingly, on 9 June 2014 the founders and Executive Directors of MET purchased the entire share capital of MET via a new holding company DGIW Omnibus Company Limited. Separation from MMP has immediately reduced costs and the Directors are now progressing a number of cost cutting and revenue growth initiatives which will ensure that the business will achieve cash break-even by the end of 2014 and will be in a position to grow organically in 2015 and beyond. Outlook MET has a strong pipeline of contracts in its current operating areas that create substantial scope for profitable growth, as well as continued scope for acquisitions. As an independent business, MET will immediately benefit from a lower cost base and greater flexibility. MET s priority for the first half of 2014 is to reduce the cost base to a size that it is appropriate to the current business, ensure the business is wholly cash self-sufficient and then increase the Company s financing to fund further profitable growth during the latter half of 2014 and Therefore, the Company is confident of being able to take advantage of the excellent opportunities in the German bus sector by securing further funding in the second half of 2014 and early Iain M Lanaghan Chairman 27 June Annual Report and Consolidated Financial Statements Metropolitan European Transport Limited

7 Management and Business Review Board of Directors Iain Lanaghan Non-Executive Chairman Iain is the Non-Executive Chairman of MET and is a non-executive Director of Northern Petroleum plc. Previously Iain was Finance Director of Faroe Petroleum plc and spent four years as Group Finance Director of transport operator FirstGroup plc ( FirstGroup ). He was a co-founder of the German bus and rail group Abellio GmbH. He planned the flotation of 3i-backed Atlantic Power Group and then led its merger with the Norwegian group Petroleum Geo-Services. He was also Finance Director of PowerGen International and has advised a variety of financial investors in the transport and energy sectors. Iain is a chartered accountant, having qualified with KPMG London. David Leeder Chief Executive Officer David has more than 20 years experience in the transport sector, having previously been a main board director and Development Director at FirstGroup plc. He held the position of CEO of West Midlands Travel for National Express and director of Greyhound Lines USA for FirstGroup America s iconic and market-leading express bus operator. He has held a number of senior management and business development roles in the industry in the UK, Ireland, Germany, Belgium, the United States and Scandinavia. As CEO of West Midlands Travel he ran Britain s largest unified bus network outside London, operating almost 1800 buses throughout the region. At FirstGroup he was Managing Director of Britain s largest portfolio of regional bus companies, running over 9,000 buses and generating revenues of over 1 billion pa. As an advisor he has worked with government, global investment banks, infrastructure funds and private equity businesses in the UK, USA, Europe and Asia. From he was a member, and later Vice Chairman, of the Commission for Integrated Transport on behalf of the UK Department for Transport, and is a past president of the Confederation of Passenger Transport-UK. He is co-founder of the specialist consultancy company Transport Investment Limited. Management and Business Review Guy Houston Finance Director A chartered accountant, Guy s career has broadened over the last 20 years to encompass wider management and commercial experience gained as Finance Director of large transport businesses in both the public and private sector. Guy is a specialist in transport operational finance and his previous positions include Finance Director of regional bus companies for Stagecoach and FirstGroup, senior HQ roles at Stagecoach and UK Bus Finance Director for FirstGroup where he lead the integration of 20 subsidiaries, whilst being part of the leadership team that grew revenues to more than 1 billion pa. In the public sector, Guy was Finance & Corporate Services Director of Transport Scotland, a Scottish Government Agency where he was responsible for an annual budget of 2 billion across bus, rail and highways. He also has experience of managing rail operations in Scandinavia and the UK. He is co-founder of the specialist consultancy company Transport Investment Limited. Steve Clayton Independent Non-Executive Director Steve is a former main board director of Arriva plc and former President of the Confederation of Passenger Transport UK. He has extensive experience in the transport industry, both in the UK and Continental Europe. After 19 years with London Transport he joined what became Arriva plc in 1994 where he held a variety of senior management positions, including Managing Director of London Bus, Managing Director UK Bus and, ultimately, Group MD Corporate Affairs. Steve was an integral part of the management team that transformed Arriva into an international group with 3 billion of revenue, 43,500 employees and transport operations in 12 countries across Europe. Steve is a non-executive director of leading UK-based bus manufacturer ADL Limited and the public interest bus company Uno. Metropolitan European Transport Limited Annual Report and Consolidated Financial Statements 05

8 Management and Business Review Strategic Report Strategy MET s strategy is to build the largest independent German bus business, through a combination of contract bidding, value-accretive acquisitions and new express route launches. The German bus market is large, highly fragmented, and undergoing a process of regulatory change that creates new opportunities for entrepreneurial businesses with access to capital. The MET management team aim to deploy the skills and experience gained from managing similar businesses in the liberalised bus markets of the UK, North America and across the EU, to the emerging situation in Germany. MET have identified opportunities in both the contracted local bus and commercial express bus segments. The strategy focuses on identifying hub companies that can be purchased at attractive prices in areas that offer prospects for growth, and leveraging the operational infrastructure of these businesses by bidding for additional contracts and by acquiring and combining with sub-scale neighbouring businesses to generate cost synergies. MET have built a strong German operational management team with excellent relationships with both operators and transport authorities. A central German based bid team allows MET to process contract bidding opportunities rapidly, and to exploit a growing database of operational information that is typically not available to smaller, independent groups. As outlined in the Chairman s Statement, the continued growth of the business slowed in due to the limited capital available from MET s majority shareholder ( MMP ). Following the buyout from MMP, MET has already been able to simplify structures and reduce corporate finance and other costs incurred when part of the MMP group. MET s priority for 2014 is to reduce the cost base to a size that it is appropriate for the size of the current business, ensure the business is wholly cash self-sufficient and then increase the Company s financing to fund further profitable growth during the latter half of 2014 and Our financial KPIs are provided in the section entitled Highlights of the year on page 2 of this report. MET operates in two distinct but related sub-sectors within the German bus market: Local bus services are operated through contracts with government-backed regional transport authorities and transport companies. Our local bus services operate within a regulatory regime characterised by high barriers to entry: bus operators hold exclusive rights and enjoy predictable revenue streams with limited exposure to passenger volume or price risk over the term of the contract. Many contracts incorporate direct or indirect indexation of cost elements. Express bus services are defined as routes that cross national borders, or routes within Germany where every passenger travels more than 50 kilometres. Cross-border bus services within the EU have been liberalised for some years, but German domestic long-distance bus services were only liberalised with effect from 1 January. The long distance segment now operates on an open-access basis and revenues are earned directly from passenger fares. Operators in Germany now enjoy considerable freedoms in marketing, timetabling and pricing, similar to the UK and US regimes. The opportunity now exists to develop profitable long-distance bus services in a market with attractive geographic and demographic factors that had been closed for over 70 years. Based on the experience of MET management in the US and UK, the Company anticipates that new express services can achieve break even after a build-up period in passenger volumes of between 18 months and two years and are likely to generate superior long-term operating margins compared to local bus services. MET operations as at 31 December North Rhine Westphalia Dortmund Essen Dusseldorf Cologne 186 vehicles Rhineland Pfalz Saarland Bremen 8 vehicles Hesse Frankfurt 185 vehicles Stuttgart Baden Wurttemberg Schleswig Holstein Hamburg Lower Saxony Hanover Thuringia Saxony Anhalt Nuremberg Bavaria Munich Mecklenburg Western Pomerania Brandenburg Saxony Berlin 06 Annual Report and Consolidated Financial Statements Metropolitan European Transport Limited

9 Each MET regional hub is led by its own Managing Director, who can maintain close links with our passengers, corporate customers and business partners such as Passenger Transport Authorities ( PTAs ), Deutsche Bahn and other bus and rail operators. In addition, MET works closely with the regional transport and operator associations, where appropriate, as well as other Mittelstand bus companies. Local bus Cologne hub The Cologne regional business (based around the Axel Tücks GmbH business acquired in July 2011) focuses on the provision of bus services for schools. The company has grown from 105 buses, generating 5 million revenue at acquisition to 186 buses, generating revenue of over 8 million in. Our Frankfurt business, BRH viabus, works closely with many local authorities and Passenger Transport Authorities such as Stadtwerke Langen and RMV (Rhein-Main-Verkehrsverbund), the transport authority for the Frankfurt Metropolitan Area. The benefits of increasing scale The business benefited in from the scale economies inherent in our growth strategy as our central costs for financial administration and business development are being spread over a larger business. This cost efficiency will add further to shareholder returns as the business continues to grow. In addition, MET is now large enough to take advantage of cost efficiencies in other areas. Our central bid team is able to support tender opportunities across a larger business and assists local teams to prepare contract bids quickly and cost-effectively, using standardised data collected from across the business to improve the attractiveness, speed and accuracy of pricing compared to smaller companies. Buses and other services are also purchased on a centralised basis where appropriate. was a year of consolidation, as we enhanced margins in the businesses acquired in 2011 and and built up our pipeline for future expansion. In, the Company introduced a fuel hedging strategy and the Company now operates a rolling hedge appropriate to our planned fuel volumes that will mitigate the effects of fuel price volatility over time. Approximately 76% of the budgeted 2014 fuel volumes have been hedged. Close relationships with customers MET believes firmly in the value of strong local management teams who are rooted in their communities and have close links with customers. MET has maintained and supported the local brand names of each of the acquired hub companies, which are well known in the communities that they serve. We have identified further opportunities to grow this business in 2014 and Frankfurt hub MET entered the Frankfurt region on 30 September 2011 following the acquisition of the German operations of UK-listed FirstGroup plc, subsequently renamed BRH Viabus. Since acquisition by MET, the business has grown its bus fleet, revenue and EBITDA margins. In December, BRH Viabus commenced the Germersheim contract and in December, BRH renewed and expanded the LOF West/Mitte contract. also saw the full year effects of the Bonifer companies acquired in October. Taken together, the BRH Viabus revenues have grown from 14 million on acquisition to over 21 million in and the fleet has grown from 130 buses to 185 buses by year-end with further scope for margin-enhancement opportunities in this region during In December, MET took delivery of a fleet of new vehicles for the expanded LOF West/Mitte contract. Management and Business Review Metropolitan European Transport Limited Annual Report and Consolidated Financial Statements 07

10 Management and Business Review Strategic Report continued Central costs and exceptional items Central costs of 1.7 million (: 1.7 million) (before interest, tax, depreciation and amortisation) comprise head office and management costs of the Company and its immediate subsidiary company, Metropolitan European Transport Investments Limited ( METIL ) and the resources necessary to manage a programme of business acquisitions. Exceptional costs of 6.3 million (: 0.7 million) include one-off establishment and mobilisation costs and costs relating to on-going business combinations of 1.1 million (: 0.7 million), aborted IPO costs of 0.4 million and impairment of the Group s goodwill and intangible assets which amounted to a further 4.8 million. With innovative marketing and expansion of services, passengers on our express network increased 23% in and a further 37% in. Express bus Publicexpress ( PX ) was acquired in January operating a single express coach service linking Groningen (Netherlands) with Oldenburg and Bremen (Germany). Since acquisition, frequencies on the route have been increased by 55% and a second route linking Mannheim, Heidelberg and Karlsruhe in Germany with Strasbourg in France commenced in June. MET s strategy is to deploy management techniques and market insights built up in similar businesses in the UK and USA to the emerging long-distance bus market in Germany. Both routes have grown consistently in both passengers and revenue. Divisional performance MET has put in place an experienced operational management team and the business is now positioned to significantly increase the size of its bus fleet without additional management cost. EBITDA is presented below to illustrate the underlying operating performance of the acquired bus companies before central, acquisition and exceptional costs. During the period the Group delivered earnings before interest, tax and depreciation and amortisation ( EBITDA ) of ( 0.5) million ( ( 1.3) million) before exceptional items. The performance by division in the period under review is set out in the table below and includes the EBITDA of each division: Interest and tax Net finance costs in the year totalled 0.6 million (: 0.1 million) and included interest charges on MMP loan notes and borrowing costs arising from asset-backed bank loans in Axel Tücks GmbH and BRH Viabus GmbH and asset backed finance lease arrangements in BRH Viabus GmbH and the ex Bonifer companies. A 0.6 million tax charge has been applied to the results due to the write off of the Group s deferred tax asset (: 0.2 million tax credit). Statement of financial position Net liabilities at 31 December were 4.8 million (: net assets of 4.8 million). The Group s net liabilities include cash of 0.6 million, bank loans and borrowings of 8.2 million and non-current assets of 13.0 million. The Group performs an annual impairment review on goodwill and other intangible assets with indefinite useful lives, by comparing the carrying amount of these assets with the recoverable amount. During the year, the Directors performed an annual impairment review which determined that goodwill and intangible assets should be fully written off, therefore resulting in an exceptional charge to the Statement of Comprehensive Income of 4.8 million. Cash flow Cash outflow from operations was 3.1 million (: 2.8 million) and the net cash outflow from investing activities, net of cash acquired, and purchasing property, plant and equipment was 4.2 million (: 4.0 million). Cash inflow from loan proceeds, offset by repayment of borrowings and associated interest totalled 7.1 million (: 5.8 million). Local bus m Express bus m Central costs m Total before exceptional items m Exceptional costs m Revenue EBITDA* 1.9 (0.7) (1.7) (0.5) (6.3) (6.8) Total m * A reconciliation of EBITDA and their statutory equivalents is set out in note 3 of the consolidated financial statements. 08 Annual Report and Consolidated Financial Statements Metropolitan European Transport Limited

11 Each operating subsidiary retains ownership of their respective cash management processes. The approved budgets of each operating company provide for sufficient liquidity for the foreseeable future. Borrowing facilities At 31 December, total external borrowings were 8.2 million (: 6.7 million) and comprised the following securitised facilities: Bank debt at Axel Tücks GmbH 0.5m Bank debt at BRH Viabus GmbH 0.5m Vehicle financing at BRH Viabus GmbH 4.4m Vehicle financing in the ex Bonifer Group companies 2.8m In addition, BRH Viabus has 0.3 million in bank guarantees and an overdraft facility of 0.4 million securitised against company property. Axel Tücks GmbH also has an overdraft facility securitised against company property of 0.1 million. Undrawn overdraft facilities at 31 December were 0.1 million (: 0.5 million). In addition, there was 9.9 million (: 4.0 million) due to the parent company, MMP, in the form of loan notes. As part of the acquisition of MET by DGIW Omnibus Company Limited, these loans were converted to equity prior to the acquisition for a total consideration of 1 in June Principal risks and uncertainties Risk is an inherent and accepted element of doing business. We aim to monitor business risks on a continuous basis. We have identified the principal risks impacting the Group and we maintain and develop a risk management system that is appropriate and commensurate to our business. The Board is ultimately responsible for risk management and has developed policies and procedures that reflect the nature and scale of the Group s businesses. These are designed to identify, mitigate and manage risk, but they cannot entirely eliminate it. We set out below our key risks, together with the mitigating factors or action we have taken. Financial risk The Group s assets, earnings and cash flows are exposed to a variety of financial risks. These risks include: Availability of funds to meet the Group s operating and financing requirements. Ability to secure financing facilities for new acquisitions and contract expansion. Loss of contracts and revenues. Fluctuations in interest and foreign exchange risks (further detail below). Fluctuations in the prices of key cost inputs such as labour, materials and fuel prices (further detail below). Foreign exchange risk The majority of the Group s trading is carried out in Euros. The Company seeks to minimise exchange rate risk by minimising Euro:Sterling cross-border movements and by conducting most debt financing and commodity purchases in Euros. Interest rate risk MET s policy is to enter into fixed interest rate financing deals for its bus assets, and the majority of MET s capital is therefore not subject to interest rate risk. Input cost risk The business is subject to fluctuations in the price of key input costs such as labour, materials and fuel. It seeks to mitigate these risks through continuous and detailed monitoring of prices and volumes, and by adopting appropriate cost mitigation strategies. We consider fuel price to be the most volatile input cost. Our strategy is to negotiate cost-indexation arrangements in our bus operating contracts and to continuously hedge fuel prices with the objective of smoothing out fluctuations in fuel prices through a series of rolling hedges. The Company has a Fuel Hedging Committee, reporting to the Board, and has hedged approximately 76% of the forecast 2014 fuel volume as at 1 June Labour costs are the largest component of total costs and we regularly measure the elements of labour costs at depot and route level, and implement operational strategies to manage these costs efficiently. Further information on the management of financial risks is provided in note 19 to the consolidated financial statements. Revenue risk The Group derives the bulk of its revenues from contracts to operate local bus services. These contracts may be of fixed duration or operate on a rolling basis. The Company seeks to develop a diversified portfolio of contracts and customers such that no single contract or customer accounts for an excessive part of total revenues or profits. The level of revenue and profit deriving from each contract and each customer, and the bidding pipeline, are regularly monitored against these criteria. Most assets and costs are directly linked to a specific contract and the Company seeks to align the asset lives, financing arrangements, fuel hedges and rental arrangements of assets to the relevant contract term. Acquisition risk The Group may encounter evaluation risks relating to the underlying financial condition and future prospects of acquisitions, despite various controls being in place during the pre-acquisition due diligence phase. The Group s strategic investment framework outlines the principal guidelines for the Group prior to undertaking acquisitions. The framework requires thorough due diligence on the investment opportunity, with various assessment criteria as well as an approval framework Management and Business Review Metropolitan European Transport Limited Annual Report and Consolidated Financial Statements 09

12 Management and Business Review Strategic Report continued requiring consent at various stages of the investment process from the MET Board. The Group s business strategy of achieving capital appreciation through its buy-and-build model may be negatively impacted by ineffective operating strategies or by a failure to complete identified acquisitions, leading to reduced capital appreciation. The Board continually monitors the performance of the Company s investment portfolio to ensure effective implementation of its operating strategy and that management action plans are in place to address identified operating inefficiencies where required. The business strategy of the Group allows for it to make acquisitions that are focused on a particular business sector and geographical area that may be affected by macroeconomic events, but do not have an impact on the broader economy. Whilst the current portfolio is developed, the current business may be subject to a higher degree of risk than would be the case if it held a more diversified portfolio. Performance risk The Company s investment portfolio is exposed to external factors that may impact directly on its performance. Adverse weather conditions or one off events may impact revenues and the transport business revenues are largely derived from long-term contracts that may not be renewed. The operational performance of the operating companies is constantly monitored to ensure that risks to the underlying performance of the businesses are addressed in an efficient and timely manner. Dependence on key personnel The Group s strategy of working with operational management teams means that the loss of the services of key personnel may have an adverse effect on the business. The Group operates employee incentivisation schemes where appropriate, including rewarding management teams for long term sustainable increase in shareholder value, in order to retain and maximise the value of the teams employed by the Group. Details of the Group s incentive scheme are set out in note 26 of the consolidated financial statements. Changes to legislation and regulation Each operating company is subject to local regulation and regulation change that may impact its future performance. Local management is responsible for ensuring compliance with regulations and where appropriate operational procedures are established to provide a compliance framework for each business. Management continually monitors regulatory and legal developments and at a local and national level participates in industry forums through membership of various trading bodies. Regulatory change in the transport sector generally occurs relatively slowly. Operational risk Whilst the Group undertakes due diligence on investment opportunities, it cannot be guaranteed that all material weaknesses in a company s operating models have been or can be identified. In addition, the diversity of the Group s revenue streams and reliance on different systems, vehicle types, equipment and people in its operating companies reduces its exposure to operational risks in the event of failure of any one element. Operational interruptions resulting from accidents, system interruptions or breakdown of vehicles or machinery and equipment may also affect the Group s operations and financial performance. To mitigate these risks the Group has in place preventative maintenance programmes, and regular monitoring of operational performance as well as comprehensive insurance. Health, safety and environmental compliance are considered as key priorities in the Group s operations, more details on which are provided in the Directors report under the heading Health, safety and the Environment. MET has invested in premises and buses are maintained in modern, well equipped workshops where preventative maintenance programmes are undertaken by our qualified engineers. 10 Annual Report and Consolidated Financial Statements Metropolitan European Transport Limited

13 Management and Business Review Directors Report The Directors present their report, together with the consolidated audited financial statements, for the year to 31 December. Results and dividends For the year ended 31 December, the Group s loss before tax was 9.2 million (: 3.5 million), including the cost of establishing, developing and funding the Group s activities to date, as well as impairment of the Group s goodwill and intangible assets which amounted to 4.8 million (: nil). At 31 December, the Group s consolidated net liabilities were 4.8 million (: Net assets of 4.8 million). Cash in hand was 0.6 million (: 0.8 million), total bank loans and borrowings were 8.2 million (: 6.7 million) and loan notes owed to the parent company were 9.9 million (: 4.0 million). Dividends will be paid to shareholders when the Directors believe it is appropriate and prudent to do so. No dividends have been recommended for the period ended 31 December. Directors The following Directors served during the period and up to the date of the signing of the financial statements: Iain Lanaghan Chairman David Leeder Chief Executive Officer Guy Houston Finance Director Imran Rahim Commercial Director resigned 17 July Mark Kirkland Non-Executive Director appointed 29 August, resigned 9 June 2014 Steve Clayton Non-Executive Director Andy Walford Non-Executive Director resigned 9 June 2014 Mark Watts Non-Executive Director resigned 29 August Biographies of the Directors at the date of this report are provided in the section entitled Board of Directors. Directors interests The Directors had the following interests in the issued share capital of the Company at 31 December : Director Ordinary shares Iain Lanaghan 56,494 David Leeder 283,332 Guy Houston 83,688 The Company has third-party indemnity and liability insurance for its Directors and Officers against any financial consequences of actions which may be brought against them by third parties for their acts or omissions in the course of the performance of their duties as Directors or Officers of the Company. Employees The Group recognises the importance of employee involvement in the operation and development of its businesses, which are given considerable autonomy within the Group structure to enable local management to be fully accountable for their own actions, and gain maximum benefit from their local knowledge. The Group is committed to providing equal opportunities for individuals in all aspects of employment. Health, safety and the environment The safety of our customers and staff is our highest priority. Safety is at the heart of our operations. We focus on eradicating unsafe acts and practices and continually develop ways to actively engage employees in ensuring best practice in all areas of health and safety across all of our businesses. We have a Group Health and Safety strategy and have standardised systems and processes across our operating companies in order to maintain the highest standards of safety, reinforced through regular audits. Health and safety standards and benchmarks have been established and performance is closely monitored through Safety Key Performance Indicators and regular audits of local operations. These audits are linked to company-specific Health & Safety Action Plans. A strong Corporate Social Responsibility ( CSR ) culture is also important to any business. It drives businesses to improve performance, resulting in better employee engagement, improved customer service and higher business efficiency. CSR is also about ensuring we help tackle some of the wider challenges we face as a society, including traffic congestion, resource use and climate change. We are committed to playing our part in meeting these challenges by ensuring that public transport provides an attractive, low emission alternative to other forms of travel. Since we have invested 6 million in 31 new low emission vehicles and we work with Local Authorities, governments and our industry partners to support the development of policy changes at both national and local level that support these objectives. Employment policies The Group s employment policies are regularly reviewed by local management to ensure that they remain effective. These policies promote a working environment which underpins the recruitment and retention of professional and conscientious employees and which improves productivity in an atmosphere free of discrimination. The Group is committed to giving full and fair consideration to all applicants for employment who are disabled and where practicable for continuing the employment of those who become disabled while employed. Training is also a priority and is a focus of considerable effort. Employees are consulted and involved in the development of the Group in a number of ways that include regular briefings, team updates and announcements. Management and Business Review Metropolitan European Transport Limited Annual Report and Consolidated Financial Statements 11

14 Management and Business Review Directors Report continued Statement of Directors responsibilities The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group financial statements in accordance with International Financial Reporting Standards ( IFRSs ) as adopted by the European Union, and the parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing these financial statements, the Directors are required to: select suitable accounting policies and then apply them consistently; make judgements and accounting estimates that are reasonable and prudent; state whether IFRSs as adopted by the European Union and applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Group and parent company financial statements respectively; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the Company s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Auditors and disclosure of information to auditors In accordance with Companies Act 2006, all Directors in office as at the date of this report have confirmed: As far as the Director is aware, there is no relevant audit information of which the Company s auditor is unaware; and The Director has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company s auditor is aware of that information. The auditors, PricewaterhouseCoopers LLP, have indicated their willingness to continue in office, and a resolution that they be re-appointed will be proposed at the Annual General Meeting. Corporate governance The Directors recognise the value of strong corporate governance and are committed to maintaining high standards. The core purpose of the Board is to create and deliver long-term returns for shareholders. The Board is responsible for monitoring the Company s performance in delivering against the business strategy, and ensuring that risk management and internal controls are appropriate and effective. As the Company places great importance on good governance, some of the measures that have been put in place are outlined below. Governance and the Board of Directors The current Board consists of the Non-Executive Chairman, a Non-Executive Director and two Executive Directors. Biographical details of the Directors are set out on page 5. The Board considers that each of the Non-Executive Directors brings a senior level of experience and judgement on issues of strategy, performance and standards of conduct. The Board continually monitor the independence of the Non-Executive Directors, each Director being required to regularly declare their interests. The interest in the Company of each Director is disclosed in the Directors report. The Executive Directors, supported by senior management, are responsible for the day-to-day operation and development of the business whilst the Non-Executive Directors provide an external and independent view, both to support and when appropriate, challenge their management colleagues. The Non-Executive Directors closely monitor performance against the agreed strategy and their independence allows them to play a critical part in key Board governance functions through their work on the five Board Committees, which are: Audit Committee Remuneration Committee Nomination Committee Investment Committee Risk and Fuel Hedging Committee Meetings A minimum of ten formal Board meetings is held each year to consider those matters which have been specifically reserved for the Board to review. The Board meet on a monthly basis and additionally on an ad-hoc basis to formally discuss, review and approve investment proposals. In addition, investment and acquisition proposals can be reviewed by the Board outside of formal meetings. The Board met formally 16 times during the year to 31 December (: 22 times). 12 Annual Report and Consolidated Financial Statements Metropolitan European Transport Limited

15 Internal control The Board recognises the need for effective internal controls. The Group does not currently have an internal audit function, given its current size and the close involvement of the Executive Directors and Board on a day-to-day operational basis. This will be reviewed as the Business grows. The Group corporate financial procedure manual details the key policies, procedures and authority matrices applicable to the central function and the operating divisions that are designed to ensure there is an appropriate governance and control framework across the Group. It is the responsibility of the relevant Directors to ensure compliance with the manual. The scope of the corporate manual includes risk management policies, procurement guidelines, processes for treasury and cash management, contracting for derivatives and loan approvals, along with guidelines and reporting manuals for the Group s management information, annual budget and financial reporting processes. Events after the balance sheet date On 23 May 2014 MMP announced that the Group had entered into a Transaction Agreement with DGIW Omnibus Company Limited and the senior management team of MET in relation to the sale of MET. The Agreement, which was conditional upon receipt of a number of consents, provided for the sale of MET for a nominal initial consideration, the conversion to equity of all inter-company debt and an earn-out of up to E3.25 million based on receipt of additional investment into and any proceeds from material disposals by the MET Group in the 24 month period from completion. Payment of the deferred consideration, if earned, would be guaranteed by MET s senior management team. In addition, MMP s subsidiary, MMPSL, agreed to provide a 24 months E400,000 loan to provide working capital for MET. On 10 June 2014 MMP announced that the above transaction was completed on 9 June 2014 and on this date DGIW Omnibus Company Limited ( DGIW ) became the owner of the entire share capital of MET. DGIW is wholly owned by the original founders and senior management of MET; David Leeder (Chief Executive Officer), Guy Houston (Finance Director), Iain Lanaghan (Non-Executive Chairman) and Linearis Beratungs GmbH (which is a company controlled by Wolfgang Meyer strategic adviser to the MET Board). Going concern As referenced in the note above relating to events after the balance sheet date, MET was acquired by DGIW on 9 June DGIW is a company wholly owned by current senior management. Prior to the sale, MET had been reliant upon the financial support of MMP plc to meet its on-going funding requirements. As a result, since the sale, the Directors have implemented measures to reduce the cost base to a size which is appropriate for the current business and have commenced discussions with third parties in respect of achieving further funding to support the Group s strategic objectives. The measures taken consist of the following: The owners of DGIW Omnibus Company Limited have committed to make a cash investment into MET of over 0.4 million. Senior management have agreed to forego salary and bonuses due to them for the six months from 1 May 2014 and continue on reduced salaries until December In total this will reduce costs by 0.6 million in the period to December MET has ended its corporate finance relationship and office rental agreements with the Marwyn entities and is going through a process of simplifying the Group structure and reducing the head office cost base to one that is appropriate to the current business size and will reduce the head office cost through savings in office costs, Corporate Finance fees, acquisition and project costs, as well as a reduced head office headcount. This will reduce costs by a further 0.7 million per annum. A process of reducing the express head office and marketing cost base to one that is commensurate with the size of the current express business has already commenced and will reduce express head office costs by 50%, equating to nearly 0.2 million of savings per annum. Implementation of a new sales system in the express business in May 2014 now allows greater flexibility in yield management and the use of discount codes that were previously not available under the previous system. This new system will therefore allow revenue (yield per passenger) to grow more quickly than previously possible. In addition, the owners of DGIW Omnibus Company Limited have confirmed they are able to, and will, provide Metropolitan European Transport Limited with financial support in the event it is required to enable it to continue in operation for at least twelve months from the date on which the 31 December financial statements are signed. After reviewing the above plans for the next twelve months from the date of this report, its liquid resources and its medium term plans and the financial support of the Directors if required, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and, accordingly, consider that it is appropriate to adopt the going concern basis in preparing these financial statements. On behalf of the Board David Leeder Chief Executive Officer 27 June 2014 Management and Business Review Metropolitan European Transport Limited Annual Report and Consolidated Financial Statements 13