Annual Report and Accounts 2008
19 Business combinations
(a) Acquisitions
2008 Acquisitions
Transportes Colectivos SA
On 21 November 2008 the Group acquired the remaining 75% share capital of Transportes Colectivos, S.A. (TCSA), a coach company based in Spain, which operates regional services in the Basque Country. Consideration of £21.4m was satisfied by cash, and in addition the Group had already paid £5.1m in 2006 for the initial investment in 25% of the share capital.
| Net assets at date of acquisition: | Book value £m |
Fair value adjustments £m |
Fair value total £m |
|---|---|---|---|
| Intangible assets | – | 6.2 | 6.2 |
| Property, plant and equipment | 6.7 | (0.2) | 6.5 |
| Inventories | 0.7 | (0.3) | 0.4 |
| Trade and other receivables | 6.5 | – | 6.5 |
| Current tax | 0.1 | – | 0.1 |
| Cash and cash equivalents | 22.0 | – | 22.0 |
| Trade and other payables | (10.7) | (0.3) | (11.0) |
| Provisions | (5.3) | 4.0 | (1.3) |
| Net financial liabilities | (5.1) | – | (5.1) |
| Deferred tax liability | – | (1.9) | (1.9) |
| Net assets | 14.9 | 7.5 | 22.4 |
| Goodwill on acquisition | 4.1 | ||
| Total consideration | 26.5 | ||
| Less: initial investment of the 25% made in 2006 | (5.1) | ||
| Less: net cash acquired | (22.0) | ||
| Net cash (inflow) | (0.6) |
The acquisition balance sheet has been adjusted to reflect fair value adjustments. The adjustments represent:
a)the recognition of a customer contract acquired with TCSA (£6.2m) which reflects the expected renewal of this contract in Spain. The customer contract is amortised over the life of the contract;
b)a decrease in the value of passenger transportation fleet (£0.2m) and spare parts inventories (£0.3m);
c) an increase in payables in relation to accrued holiday pay;
d) an adjustment in provisions to reflect only liabilities existing as at the acquisition date, such as agreed redundancy payments (£1.3m);
e)the deferred tax liability associated with the contract acquired.
From the date of acquisition, TCSA has contributed £0.4m to the operating profit of the Group. If the combination had taken place at the beginning of the year, the operating profit for the Group would have been £168.2m and revenue from continuing operations would have been £2,808.5m.
Included in the goodwill recognised above are certain intangible assets that cannot be separately identified and measured due to their nature. This includes control over the acquired businesses and assembled workforce and increased scale in our Spanish regional operations. Management believes that goodwill represents value to the Group for which the recognition of a discrete intangible asset is not permitted.
Other 2008 acquisitions
During the year ended 31 December 2008, in Canada, the Group acquired the entire share capital of school bus operators Alouette (North Bay Alouette Bus Lines Inc) on 7 January 2008. In the United States, the Group acquired the entire share capital of school bus operators A&E (A&E Transport Services Inc) on 28 February 2008.
| Book value | ||||||||
|---|---|---|---|---|---|---|---|---|
| Net assets at date of acquisition: | Alouette £m |
A&E £m |
Total £m |
Fair value adjustments £m |
Fair value Total £m |
|||
| Intangible assets | 0.1 | – | 0.1 | 6.4 | 6.5 | |||
| Property, plant and equipment | 0.1 | 1.6 | 1.7 | 0.1 | 1.8 | |||
| Trade and other receivables | – | 1.2 | 1.2 | – | 1.2 | |||
| Cash and cash equivalents | – | 0.6 | 0.6 | – | 0.6 | |||
| Trade and other payables | – | (0.3) | (0.3) | – | (0.3) | |||
| Deferred tax liability | – | – | – | (1.8) | (1.8) | |||
| Net assets acquired | 0.2 | 3.1 | 3.3 | 4.7 | 8.0 | |||
| Goodwill on acquisition | 4.6 | |||||||
| Total consideration | 12.6 | |||||||
| Net consideration | 12.5 | |||||||
| Acquisition costs | 0.1 | |||||||
| Total consideration | 12.6 | |||||||
| Less: net cash acquired | (0.6) | |||||||
| Net cash outflow | 12.0 | |||||||
The acquisition balance sheets have been adjusted to reflect fair value adjustments. The adjustments represent:
a)the elimination of the book value of Alouette’s intangible assets (£0.1m), the recognition of customer contracts acquired with A&E (£1.7m), and customer relationships acquired with Allouette (£4.2m) and A&E (£0.6m). The customer contracts are amortised over the life of the contracts, whilst customer relationships are not amortised, but are tested for impairment on an annual basis;
b)a £0.1m increase in the value of property, plant and equipment at Alouette following a review of the vehicle fleet;
c)the deferred tax liability associated on the customer contracts acquired with A&E (£0.5m), and the customer relationships acquired with Alouette (£0.2m) and A&E (£1.1m).
Total consideration was £0.9m for Alouette (including £0.1m acquisition costs) and £11.7m for A&E.
From their respective dates of acquisition Alouette and A&E have contributed £0.3m and £1.6m respectively to operating profit of the Group. If these combinations had taken place at the beginning of the year the Group operating profit would have been £168.2m and revenue from continuing operations would have been £2,769.4m.
Included in the goodwill recognised above are certain intangible assets that cannot be separately identified and measured due to their nature. This includes control over the acquired businesses and assembled workforce and increased scale in our North American school bus operations. Management believes that goodwill represents value to the Group for which the recognition of a discrete intangible asset is not permitted. The majority of the value was assessed to comprise of synergy benefits expected to be achieved by merging the businesses acquired into the Group’s North American operations.
2007 acquisitions
Continental Auto
The project to allocate the consideration paid on 4 October 2007 to purchase Continental Auto’s entire share capital to the fair value of assets acquired was completed in the first half of 2008 and reported in the interim financial statements. However, the fair values of the contracts acquired have been updated.
| Net assets at date of acquisition: | Book value as reported 31 December 2007 £m |
Fair value adjustments as reported 31 December 2007 £m |
Provisional fair value as reported 31 December 2007 £m |
Final fair value adjustments £m |
Final fair value Total £m |
|---|---|---|---|---|---|
| Intangible assets | 92.2 | (92.2) | – | 154.6 | 154.6 |
| Property, plant and equipment | 87.5 | (1.9) | 85.6 | 17.7 | 103.3 |
| Investments accounted for under the equity method | 1.9 | – | 1.9 | – | 1.9 |
| Inventories | 1.5 | – | 1.5 | – | 1.5 |
| Trade and other receivables | 17.0 | – | 17.0 | – | 17.0 |
| Cash and cash equivalents | 4.1 | – | 4.1 | – | 4.1 |
| Trade and other payables | (16.7) | – | (16.7) | – | (16.7) |
| Provisions | (1.4) | – | (1.4) | – | (1.4) |
| Fixed asset grants | (3.0) | – | (3.0) | – | (3.0) |
| Net financial liabilities | (22.8) | – | (22.8) | – | (22.8) |
| Current tax | (1.3) | – | (1.3) | – | (1.3) |
| Deferred tax liability | (11.7) | 0.6 | (11.1) | (51.7) | (62.8) |
| Net assets | 147.3 | (93.5) | 53.8 | 120.6 | 174.4 |
| Goodwill on acquisition | 409.4 | (120.6) | 288.8 | ||
| Total consideration | 463.2 | – | 463.2 | ||
| Net consideration | 459.8 | ||||
| Acquisition costs | 3.4 | ||||
| Total consideration | 463.2 | ||||
| Less: net cash acquired | (4.1) | ||||
| Net cash outflow | 459.1 |
The adjustments represent:
a) the recognition of customer contracts (£140.1m) and contractual relationships (£14.5m) acquired with Continental Auto which reflects the expected renewal of these contracts in Spain. The customer contracts are amortised over the life of the contracts, whilst contractual relationships are not amortised, but are tested for impairment on an annual basis;
b) an increase in the value of property, plant and equipment following a valuation of the assets acquired;
c) the deferred tax liability associated on the contracts acquired, as well as on the revaluation of the property.
From the date of acquisition, Continental Auto has contributed £5.8m to the normalised operating profit of the Group. If the combination had taken place at the beginning of the year, the normalised operating profit for the Group would have been £220.9m and revenue from continuing operations would have been £2,708.4m.
In accordance with IFRS3, the Group income statement for 2007 has been restated to reflect the amortisation of customer contracts now recognised in the updated fair value review, as follows:
| Audited | Adjustments | Restated | |
|---|---|---|---|
| Year to 31 December Total 2007 |
Year to 31 December Total 2007 |
Year to 31 December Total 2007 |
|
| Continuing operations | |||
| Revenue | 2,615.4 | – | 2,615.4 |
| Operating costs before intangible asset amortisation & exceptional items | (2,409.8) | – | (2,409.8) |
| Intangible asset amortisation | (27.5) | (5.4) | (32.9) |
| Exceptional items | (15.8) | – | (15.8) |
| Total operating costs | (2,453.1) | (5.4) | (2,458.5) |
| Group operating profit | 162.3 | (5.4) | 156.9 |
| Profit on disposal of non-current assets | 16.2 | – | 16.2 |
| Profit from operations | 178.5 | – | 173.1 |
| Share of post tax results from associates and joint ventures accounted for using the equity method | 0.4 | – | 0.4 |
| Finance income | 17.0 | – | 17.0 |
| Finance costs | (46.0) | – | (46.0) |
| Profit before tax | 149.9 | (5.4) | 144.5 |
| Tax expense | (37.6) | 1.6 | (36.0) |
| Profit after tax for the period from continuing operations | 112.3 | (3.8) | 108.5 |
| Loss for the period from discontinued operations | (2.9) | – | (2.9) |
| Profit for the period | 109.4 | (3.8) | 105.6 |
| Profit attributable to equity shareholders | 108.9 | (3.8) | 105.1 |
| Profit attributable to minority interests | 0.5 | – | 0.5 |
| 109.4 | (3.8) | 105.6 | |
| Earnings per share – Basic | 71.7p | (2.5)p | 69.2p |
| Earnings per share – Diluted | 71.2p | (2.5)p | 68.7p |
This restated position represents the 2007 results before Dot2Dot was classified as a discontinued operation.
2007 acquisitions
In accordance with IFRS3 the Group balance sheet as at December 2007 has been restated to reflect the fair value and amortisation adjustments relating to Continental Auto and the goodwill adjustment relating to The Kings Ferry Limited as follows:
| Audited 30 December 2007 £m |
Kings Ferry goodwill value adjustment £m |
Continental Auto fair value adjustments £m |
Continental Auto intangible assets amortisation £m |
Foreign exchange on adjustments £m |
Restated 31 December 2007 £m |
|
|---|---|---|---|---|---|---|
| Non-current assets | ||||||
| Intangible assets | 1,173.9 | 3.0 | 34.0 | (5.4) | 1.4 | 1,206.9 |
| Property, plant and equipment | 678.7 | (1.0) | 17.7 | – | 1.0 | 696.4 |
| Financial assets – Available for sale | 7.2 | 7.2 | ||||
| Financial assets – Derivative financial instruments | 5.3 | 5.3 | ||||
| Investments accounted for using the equity method | 11.8 | 11.8 | ||||
| Other receivables | 10.0 | 10.0 | ||||
| 1,886.9 | 2.0 | 51.7 | (5.4) | 2.4 | 1,937.6 | |
| Current assets | 469.1 | – | – | – | – | 469.1 |
| Total assets | 2,356.0 | 2.0 | 51.7 | (5.4) | 2.4 | 2,406.7 |
| Non-current liabilities | ||||||
| Financial liabilities – Borrowings | (652.3) | (652.3) | ||||
| Financial liabilities – Derivative financial instruments | (5.4) | (5.4) | ||||
| Deferred tax liability | (104.0) | (1.3) | (51.7) | 1.6 | (2.7) | (158.1) |
| Other non-current liabilities | (3.7) | (3.7) | ||||
| Defined benefit pension liability | (29.8) | (29.8) | ||||
| Provisions | (43.5) | (43.5) | ||||
| (838.7) | (1.3) | (51.7) | 1.6 | (2.7) | (892.8) | |
| Current liabilities | (1,076.2) | (0.7) | – | – | – | (1,076.9) |
| Total liabilities | (1,914.9) | (2.0) | (51.7) | 1.6 | (2.7) | (1,969.7) |
| Net assets | 441.1 | – | – | (3.8) | (0.3) | 437.0 |
| Shareholders’ equity | ||||||
| Called up share capital | 7.7 | 7.7 | ||||
| Share premium account | 195.3 | 195.3 | ||||
| Capital redemption reserve | 0.2 | 0.2 | ||||
| Own shares | (16.3) | (16.3) | ||||
| Other reserves | 30.7 | (0.3) | 30.4 | |||
| Retained earnings | 219.6 | (3.8) | 215.8 | |||
| Total shareholders’ equity | 437.2 | (3.8) | (0.3) | 433.1 | ||
| Minority interest in equity | 3.9 | 3.9 | ||||
| Total equity | 441.1 | – | – | (3.8) | (0.3) | 437.0 |
Other 2007 acquisitions
During the year ended 31 December 2007, in Canada, the Group acquired the entire share capital of school bus operators Dundas (Dundas Bus Service Ltd) on 30 March 2007 and Hogan (Hogan Bus Service Ltd) on 31 May 2007. In the United States, the Group acquired the entire share capital of school bus operators Murphy (Murphy Transportation Inc) on 30 July 2007.
The Group also acquired the entire share capital of Hotelink Limited (now renamed National Express Dot2Dot Limited) on 31 March 2007 and The Kings Ferry Limited on 8 November 2007. These acquired entities operate coach services in the UK. The fair value of the net assets of The Kings Ferry Limited have been updated in the year ended 31 December 2008.
| Book value | ||||||||
|---|---|---|---|---|---|---|---|---|
| Net assets at date of acquisition: | Dundas £m |
Hogan £m |
Murphy £m |
Hotelink £m |
Kings Ferry £m |
Total £m |
Fair value adjustments £m |
Fair value Total £m |
| Intangible assets | – | – | – | – | – | – | 8.9 | 8.9 |
| Property, plant and equipment | 0.5 | 0.2 | 4.9 | – | 8.5 | 14.1 | (0.7) | 13.4 |
| Inventories | – | – | 0.2 | – | 0.1 | 0.3 | – | 0.3 |
| Trade and other receivables | – | – | 1.5 | 0.2 | 1.2 | 2.9 | – | 2.9 |
| Cash and cash equivalents | – | – | 0.6 | 0.2 | – | 0.8 | – | 0.8 |
| Trade and other payables | – | – | (0.4) | (0.2) | (1.7) | (2.3) | (0.8) | (3.1) |
| Financial liabilities – Borrowings | – | – | – | – | (5.0) | (5.0) | – | (5.0) |
| Deferred tax liability | – | – | – | – | – | – | (3.7) | (3.7) |
| Net assets acquired | 0.5 | 0.2 | 6.8 | 0.2 | 3.1 | 10.8 | 3.7 | 14.5 |
| Goodwill on acquisition | 13.4 | |||||||
| Total consideration | 27.9 | |||||||
| Net consideration | 27.6 | |||||||
| Acquisition costs | 0.3 | |||||||
| Total consideration | 27.9 | |||||||
| Less: deferred consideration | (1.1) | |||||||
| Less: acquisition costs accrued | (0.1) | |||||||
| Less: net cash acquired | (0.8) | |||||||
| Net cash outflow | 25.9 | |||||||
The acquisition balance sheets have been adjusted to reflect fair value adjustments. The adjustments represent:
a)the recognition of customer contracts acquired with Murphy (£1.8m) and The Kings Ferry Limited (£0.8m), and customer relationships acquired with Dundas (£1.0m), Hogan (£0.3m) and Murphy (£5.0m) which reflects the expected indefinite renewal of these school bus contracts in North America. The customer contracts are amortised over the life of the contracts, whilst customer relationships are not amortised, but are tested for impairment on an annual basis;
b)following a review of the vehicle fleet, the value of the property, plant and equipment was increased in Murphy and decreased in The Kings Ferry Limited;
c)an increase in payables of £0.1m at Hotelink; and
d)the deferred tax liability associated on the customer contracts acquired with Murphy (£0.5m) and The Kings Ferry Limited (£0.2m), the customer relationships acquired with Dundas (£0.3m), Hogan (£0.1m) and Murphy (£1.5m) and finance leases acquired with The Kings Ferry Limited (£1.1m).
Consideration was £1.5m for Dundas (including £0.1m deferred consideration), £0.6m for Hogan, £16.3m for Murphy (including £0.1m acquisition costs and £1.0m deferred consideration), £0.9m for Hotelink Limited (including £0.1m acquisition costs), and £8.6m for The Kings Ferry Limited (including £0.1m acquisition costs).
From their respective dates of acquisition to 31 December 2007, Dundas, Hogan, Murphy, Hotelink Limited and The Kings Ferry Limited have contributed £0.3m, £0.1m, £1.4m, a loss of £4.8m and £0.1m respectively to the operating profit of the Group. If these combinations, excluding Hotelink Limited, had taken place at the beginning of 2007 the Group operating profit would have been £163.5m, and revenue from continuing operations would have been £2,627.2m. Hotelink Limited would have contributed £3.5m of revenue and an operating loss of £5.0m.
Included in the goodwill recognised above are certain intangible assets that cannot be separately identified and measured due to their nature. This includes control over the acquired businesses and assembled workforce and increased scale in our North American school bus operations and UK Coach operations. Management believes that goodwill represents value to the Group for which the recognition of a discrete intangible asset is not permitted. The majority of the value was assessed to comprise of synergy benefits expected to be achieved by merging the businesses acquired into the Group’s operations.
(b) Disposals
In 2008, the Group disposed of the Portuguese transport business and one Spanish concession held by Alsa within the European Coach & Bus division. The disposal proceeds were £8.3m comprising of £5.4m cash received in 2008 and £2.9m deferred consideration to be received in 2009 and 2010. The net assets were £3.2m resulting in £5.1m profit on disposal.
In 2007, the Group disposed of the trade and business of Stewart International Airport for gross proceeds of £36.4m resulting in £16.2m profit on the sale of the business.