After a move away from coaching, commercial bus work now makes up 60% of the group’s annualised revenues
Rotala plc has announced a 10.5% rise in pre-tax profit from £1.88m to £2.08m – according to its final results for the year ended November 30, 2012.
While turnover decreased from £56.1m to £54.8m, the gross profit margin increased to 16.5% from 15.6%.
Chairman John Gunn described 2012 as being “one of profound and continuing change for the bus industry.”
The 20% cut in BSOG hit Rotala to the tune of £1m. Revenues in contracted services overall rose by 3% to £22.5m. However, Rotala said reductions in revenue resulted from further cutbacks in transport budgets in Worcestershire and, to a certain extent, in the Bristol area, following the withdrawal of some subsidised services. According to Mr Gunn, the group also lost “a number of marginally profitable subsidised contracts in the Centro operating area in circumstances where we refused to match unrealistic tender bids made by certain competitors.”
On that note, he added: “We have also not been drawn in to submitting unrealistic bids for local authority tenders and have thus deliberately relinquished some business in this area.”
Gatwick depot was closed at the end of 2011, with some of the work moving to Heathrow and the remainder being relinquished. According to Mr Gunn: “This had some impact on the comparisons with 2012. We took this step because we did not consider we stood any realistic prospect of significant expansion in our business around Gatwick and because we felt our capital invested there would be better utilised elsewhere in the group. However, in contrast to this our revenues from corporate customers grew strongly in the year and more than compensated for the reductions in local authority business and the closure of the Gatwick depot.”
In line with its policy, the group has progressively reduced the amount of private hire coach work it undertakes. “We have done this consciously because we judged the return on capital in this sector to be too low to justify continued investment,” explained Mr Gunn. “We also cut back the number of coaches we have available for private hire work as we considered that, in the current economic environment, the risks in speculative private hire work were too high. As a result, charter revenues fell by 18% to £2.7m – the 2011 figure being £3.3m.”
Fleet, Fuel & First depots
Having acquired operations in Redditch and Worcester from FirstGroup earlier this year, the firm acknowledges a “certain amount of investment is required”. As Mr Gunn put it: “Many of the (36) vehicles (acquired from First) do not comply with the requirements of the Disability Discrimination Act which begin to come into force in 2014. We will thus need to replace most of these vehicles in due course, and in certain cases have done this already.”
Turning to the all-important cost of fuel, Mr Gunn said in the earlier part of 2012 the price of fuel was volatile and an average price of about 113p per litre was paid. This gave rise to an adverse variance in that period against the budgeted cost of fuel. However, in the middle of the year the firm was able to take advantage of the dip in diesel prices at that time to fix some 75% of the group’s diesel needs out to July 2013. These fuel fixes ensured that the average price of three quarters of the group’s fuel supply was 108p a litre for the rest of the year.
“This was slightly below the figure at which we had budgeted for that period. The board is keen to fix fuel prices as far out as possible and so will take advantage of any further opportunities to eliminate fuel price exposures as and when they arise,” he added.
Perhaps helping to quantify that figure, following the recent acquisition of the Kidderminster and Redditch depots, the group said it will use about 12 million litres of diesel fuel in a full year.
In an attempt to save fuel the group is installing 21st Century’s ‘EcoManager’ software in the existing conventionally dieselpowered fleet. To date, about 23% of the fleet has been equipped, with a further 50% due to be fitted by the end of the year. The group said EcoManager has so far shown a like-for-like fuel saving of a minimum of 11% of fuel usage.
On a fleet note, the group has set itself a target to have an average fleet age of about 7.5 years. Mr Gunn took up the story: “Even with the addition of the relatively old vehicles we acquired recently with Redditch and Kidderminster, the average fleet age stands at 7.7 years. As we continue to replace vehicles this average will certainly fall. This figure is low in industry terms. We believe that having a modern and efficient bus fleet is a key aspect of customer service and that running one of the youngest fleets compared to its peers gives the group an important competitive advantage. Older vehicles also emit a greater level of emissions and we are keen to minimise this aspect of bus operation.
“The board monitors each vehicle in the fleet for relative fuel consumption, reliability and maintenance cost. Those vehicles which fall outside of acceptable parameters are designated for disposal. As a result of this policy about 25% of the vehicle fleet was replaced in the year. These replacements are a judicious mix of the new and the second hand, chosen so as to meet the criteria which we have set. The objective, to possess an efficient and effective fleet of the right age profile, was successfully achieved.”
The sale of vehicles, after taking account of the related hire purchase settlements, produced £3.1m for the group – compared to £0.7m in 2011. Interestingly, Rotala has also switched from rented to owned tyres in the last year.
The company paid an interim dividend of 0.50 pence per share in December 2012. At the forthcoming AGM the Board will recommend a final dividend in respect of 2012 of 0.90p per share, making 1.40p for the year as a whole.
Turning to the future, Mr Gunn said the firm intends to continue to expand its commercial bus business. Following the recent expansion, 60% of the group’s annualised revenues will derive from this source.
He also said he believes “there is still encouraging activity in the corporate sector for private bus networks.” Rotala is confident more of this business can be obtained.
“Where others take decisions to divest, or not re-invest, we are given the opportunity to expand,” concluded Mr Gunn. “Uncertainty brings opportunity. When we have digested our recent acquisition, the group will be conservatively geared and we possess ample facilities to take on any further acquisitions which may arise.”