16 November 2020
The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.
("Rotala", the "Company" or the "Group")
Rotala plc (AIM:ROL), an operator of bus routes in the UK for businesses, local authorities and the general public, announces the following update on the continuing impact of the Coronavirus epidemic ("COVID-19") on its business and the likely impact on trading results for the year ending 30 November 2020 ("FY 20").
Bus operation continues to be regarded by the UK Government as an essential service. Since mid-March 2020, the Company has concentrated on aligning bus services with local requirements, reducing the costs of operation where possible and conserving cash. Cash flow, both at EBITDA level and net of all debt, interest and other payments, has been positive since the beginning of May 2020 and is expected to remain so for the foreseeable future. Net debt (excluding hire purchase debt) continues to decline gradually from the level of £26.6 million set out in the Company's unaudited half year results to 31 May 2020, which were announced on 15 September 2020 ("H1 results"). The amounts currently drawn on the Company's revolving commercial facility (£16.2 million as at 31 May 2020) are unchanged. Mortgage debt (£6.3 million as at 31 May 2020) has fallen slightly as repayments have been made. Drawings on the Company's overdraft facility fluctuate according to the precise timing of the receipt of instalments in the Government grant package described below. The amounts currently due to the Company under this grant package exceed the £4.1 million drawn on the overdraft facility as at 31 May 2020. As previously announced, and as a consequence of these factors, the Company has not needed to take up any of the options available under the various Government-supported loan schemes and does not currently foresee any requirement to do so.
The financial and operational performance of the Company throughout the COVID-19 crisis has been underpinned by the key support of Government at local and national level, for which the Company remains very grateful. Currently, these support measures encompass a specific grant ("CBSSG Restart") and the maintenance of the Bus Services Operator's Grant, concessionary fares re-imbursements and payments for contracted bus services broadly at their pre-COVID-19 levels. The effect of these measures is that bus operators are guaranteed to make neither a profit nor a loss at the normalised statutory pre-tax profit line for as long as the support package is in place.
The Government has confirmed that CBSSG Restart and all other support measures will continue in place for the foreseeable future. Furthermore, it has stated that it will give eight weeks' notice in the event of termination of CBSSG Restart, which should give ample time for the Company to make any necessary service changes following the withdrawal of the grant. In addition, the Company is playing its full part in the Home to School transport initiative being funded separately by the Department of Education. This funding has been confirmed for the remainder of the current school term.
Passenger numbers rose steadily throughout the summer months and, prior to the re-imposition of lockdown restrictions in England, which became effective on 5 November 2020, reached a peak of approximately 60% of the levels seen in the same period last year. To match these increases, bus service frequencies, supported by the Government grants referred to above, were returned to pre-COVID-19 levels. The commencement of the renewed lockdown phase earlier this month has reduced passenger volumes once again to about 45% of pre-COVID-19 levels. However, CBSSG Restart contains a ratchet mechanism which ensures that, as passenger numbers decline, grant support increases, maintaining the no profit/no loss position for the bus operator referred to above.
The Group's historical normal annual fuel requirement is approximately 15.0 million litres. Given the current lows in fuel prices, the Board has hedged 50% of the Group's normal fuel requirement for the 12 months ending 30 November 2022 at an average fuel price of approximately 87p per litre.
About 77% of the Group's normal fuel requirement for 2020, and about 87% of its normal fuel requirement for 2021, is already covered by hedging contracts. Actual fuel usage during the COVID-19 crisis has been well below expected levels. Full mark to market provision for the losses on these hedging contracts was made in the H1 results.
Current trading and prospects
The Company has continued to take other measures to realign its operations to likely future requirements. At Heathrow Airport, the opportunity has been taken not to renew the lease of a depot near Hatton Cross station, which expired in October 2020, and to concentrate operations at the airport at the Company's other depot on the south side of the airport perimeter road. This decision will result in annual savings of approximately £400,000. Most of the benefit of the decision will accrue in the financial year ending 30 November 2021.
In addition, the Company has historically operated a small number of coaches. In the current operating climate there has been, as with many coach operators throughout the country, little demand for such vehicles. As the operating leases for these vehicles have come to an end, they have not therefore been replaced. As and when coach business returns, for example at Heathrow Airport, the Company will consider the economic rationale for investing in this business stream and temper the scale of its investment accordingly.
The commencement of the COVID-19 crisis led the Company to withdraw its previous market guidance for FY20 and beyond. As set out above, the provision of CBSSG Restart and the associated UK Government measures have been designed to ensure that the Company makes neither a profit nor a loss at the normalised level for the second half of FY 20. Therefore, the Company's results for FY 20 are likely to be broadly the same at the normalised level as the H1 results. A further announcement on the Group's current trading and prospects will be made following the Company's year-end and this is expected to be released in mid-January 2021.
Commenting, Simon Dunn, Chief Executive of Rotala, said: -
"For the foreseeable future, we will continue to work closely with the Department for Transport and relevant local authorities and be in receipt of the various elements of Government support in the form of the grants and subsidies set out above.
"In the longer term, the Board believes that the pre-existing drivers of change in the bus industry will have been further strengthened by the impact of COVID-19. Therefore, we continue to believe that opportunities for growth, both organic and by acquisition, will arise once the crisis has passed. The Group's service delivery and reliability levels have improved throughout the crisis and our increased investment in systems infrastructure has continued to produce discernible benefits. The Board is therefore confident that operationally the Group is in good shape, well able to meet the challenges and capture the opportunities that lie beyond the end of the COVID-19 crisis."
0121 322 2222
John Gunn, Chairman
020 7408 4090
Tom Griffiths / James Thomas / Michael McGloin (Corporate Advisory)
About the business
Rotala provides a range of transport solutions, ranging from local bus services under contract to local authorities, through to commercial bus routes. Rotala has operations at Heathrow Airport, in the West Midlands and in the North West. Operating companies are Diamond Bus Ltd, Diamond Bus (North West) Ltd, Hallmark Connections Ltd and Preston Bus Ltd.