Rotala Group (Half year results, 23/8)

[winston]

For anyone interested Rotala Plc half year results:

Growth in Turnover of 7 per cent. to GBP28.5 million (2011: GBP26.6 million)
   --    Interest expense down 18% to GBP0.65 million (2011: GBP0.8 million)
   --    Profit before tax up 4% to GBP0.96 million (2011: GBP0.92 million)
   --    Net Debt down 20% to GBP16.1 million (2011: GBP20.1 million)
   --    Net Debt to EBITDA ratio: 2.2, down 18% period on period
   --    Interim dividend up by 25% to 0.50 pence per share (2011: 0.40 pence)

Net assets reached GBP21.4 million at the period end (2011: GBP20.4 million), equivalent to 61 pence per share.

A couple of things that stand out are that net assets are worth GBP21.4 million, but Rotala still owe GBP16.1 million in net debt
Profit margins are only 3.37% and have actually fallen slightly from the same period last year even on increased turnover of nearly GBP2 million, the current margins / debt levels leave little room for fleet investment or any further expansion through acquisitions

Also of note, reported on WMBus yahoo group, Rotala Group currently have 21 vehicles advertised for sale due to the withdrawal of further commercial service / Centro tender losses, these are reported to include 13 x DAF / Wright Cadets (Does anyone know where they are advertised? There is nothing in the latest Route one / Bus & Coach buyer.

[PM]

Those profit margins are apalling!!! And why would they sell their best buses. They do waste money....-these could transfer to preston to replace solos or something or keep them at diamond to replace darts. That really is the stupidest decision ever!!

[winston]

Rotala's WM bus business appears to be in decline and the fleet size / number of routes operated has been shrinking for a while now, since the arrival of Arriva it now seems to be picking up pace....

Rotala just seem to have given up in the WM since they lost a number of senior management to Yourbus & elsewhere

I'm surprised the Cadets are for sale, I always thought they were better buses than standard Dart SLF's, may be they need the money

[PM]

yep, they certainly need the money!! They need to refocus the business model in the WM. One diamond fleet on one license with coaches, black diamond fleet and red diamond fleet. Keep red diamond as it is and black diamond running the 50, 16, 301, 404e, 401e and 002 routes-maybe a couple more Ive missed out. The problem is that they need money-tho it is good to see that their debt is reducing to a more manageable level. Im not being funny here but dont you think it would be good in the long run to have a london operation which is guaranteed pretty much to make money and where there is lots of funding available??

[Tony]

yep, they certainly need the money!! They need to refocus the business model in the WM. One diamond fleet on one license with coaches, black diamond fleet and red diamond fleet. Keep red diamond as it is and black diamond running the 50, 16, 301, 404e, 401e and 002 routes-maybe a couple more Ive missed out. The problem is that they need money-tho it is good to see that their debt is reducing to a more manageable level. Im not being funny here but dont you think it would be good in the long run to have a london operation which is guaranteed pretty much to make money and where there is lots of funding available??

Yes I would love the London System in the West Midlands with lots of funding. I live in Staffordshire so wouldn't have to pay the vastly increased council tax!

[winston]

Im not being funny here but dont you think it would be good in the long run to have a london operation which is guaranteed pretty much to make money and where there is lots of funding available??

The problem with that idea is Rotala either would need to buy an established operator or set up a new operation from scratch which will take considerable investment, money which they don't currently have and unless there are any substantial improvements in financial performance are unlikely to have for some time. If you remember NX's reason for selling Travel London to Ned railways was due to the amount of investment required to expand / for new tender wins etc at a time when the group being strangled by mountains of debt.

[PM]

I wasnt proposing reregulation in the WM area just thinking that a london operation would be good in the long run for them to have-i know it would take a lot of money to set up etc. Or, how about to increase revenues and profits trying out running a whole subcontracted network such as somewhere in France.

[winston]

I wasnt proposing reregulation in the WM area just thinking that a london operation would be good in the long run for them to have-i know it would take a lot of money to set up etc. Or, how about to increase revenues and profits trying out running a whole subcontracted network such as somewhere in France.

I think Rotala need to concentrate on improving profit margins at existing businesses and reducing group debt before considering any further expansion

[PM]

But the thing is with expansion, opportunities only come up rarely such as at the moment with first disposing of businesses. Surely buying a profitable one such as Wigan may be expensive but will really pay off and help expand the business. Plus, it would please shareholders and compliment a company such as Preston Bus. I think by the way that preston bus has probably saved rotala-a good solid safe purchase that they can expand and make more profitable. A star buy!!

[Tony]

I wasnt proposing reregulation in the WM area just thinking that a london operation would be good in the long run for them to have

You are contradicting yourself there though, saying not regulation, but a London operation would be good.

The only reason the London operation is like it is is because of regulation and lots of money from Council tax payers. To 'Increase Revenues and profits' that money has to come from somewhere. In an ideal world it would come from lots more passengers on the buses all paying fares, but they aren't going to just appear all of a sudden. Numbers in the West Midlands are now rising again very slightly
which is good news and will hopefully continue with NXWMs campaign to improve the quality of the vehicles and reliability. The only ways you would get a sudden increase is drastically reduce fares which would also increase operator's costs because of resources needed so may be counter productive or set up a London system of regulated services on fixed fares where the operators can afford their increased resources because they know they have the guaranteed income, but would cost Council tax payers.

The Greater London Authority's Transport Grant for 2013/2014 is expected to be £2.7billion. I think pro-rata that is considerably more than WMPTA/Centro will be able to receive!

[Tony]

But the thing is with expansion, opportunities only come up rarely such as at the moment with first disposing of businesses. Surely buying a profitable one such as Wigan may be expensive but will really pay off and help expand the business. Plus, it would please shareholders and compliment a company such as Preston Bus. I think by the way that preston bus has probably saved rotala-a good solid safe purchase that they can expand and make more profitable. A star buy!!

Have you seen Preston buses financial figures since Rotala purchased them? No? neither have I, so neither of us really know whether it was a star buy or not, but if Preston Bus is performing to a decent level then the rest of Rotala really is bad if the total profit margin is less than 4%

[winston]

But the thing is with expansion, opportunities only come up rarely such as at the moment with first disposing of businesses. Surely buying a profitable one such as Wigan may be expensive but will really pay off and help expand the business. Plus, it would please shareholders and compliment a company such as Preston Bus. I think by the way that preston bus has probably saved rotala-a good solid safe purchase that they can expand and make more profitable. A star buy!!

Preston Bus isn't the star buy you think it is, when purchased it had a turnover of £.7.75 million & was making a loss of £132,000. I doubt Rotala have improved things much judging by the latest profit figures.

[andy]

I wasnt proposing reregulation in the WM area just thinking that a london operation would be good in the long run for them to have

You are contradicting yourself there though, saying not regulation, but a London operation would be good.

The only reason the London operation is like it is is because of regulation and lots of money from Council tax payers. To 'Increase Revenues and profits' that money has to come from somewhere. In an ideal world it would come from lots more passengers on the buses all paying fares, but they aren't going to just appear all of a sudden. Numbers in the West Midlands are now rising again very slightly
which is good news and will hopefully continue with NXWMs campaign to improve the quality of the vehicles and reliability. The only ways you would get a sudden increase is drastically reduce fares which would also increase operator's costs because of resources needed so may be counter productive or set up a London system of regulated services on fixed fares where the operators can afford their increased resources because they know they have the guaranteed income, but would cost Council tax payers.

The Greater London Authority's Transport Grant for 2013/2014 is expected to be £2.7billion. I think pro-rata that is considerably more than WMPTA/Centro will be able to receive!

I don't think Peter was advocating a London style operation here, just suggesting that Rotala might look to London to grow the business rather than acquiring operations or attempting to expand up here. I can see his logic as although a London franchise does require investment, you get money up front for the tender.

I know how much a lot of people on here are anti the London system and there is no doubt that it is a lot more costly, but it's not all down to council tax. Government pays far more towards the system there than anywhere else. At least you don't end up with private monopolies; operators are targeted to provide good service and transport links are not left to the mercy of shareholders.  What we should be doing is pressurising politicians into providing authorities like Network WM with the infrastructure and funding to revert to such an operation without substantial council tax hikes.

[PM]

Thankyou Andy. Thats exactly what I was saying!!!!! I assumed Preston was profitable seeing as everything i read says because of preston bus, rotala's profits are growing!! I didnt make it up!!

[Tony]

Thankyou Andy. Thats exactly what I was saying!!!!! I assumed Preston was profitable seeing as everything i read says because of preston bus, rotala's profits are growing!! I didnt make it up!!

London has advantages and disadvantages for operators. Biggest advantage is you know the income for the whole length of the contract, so as long as you get your costs correct you know the profits you will make.

Disadvantages include having to find the money for a fleet of new buses before you even start getting any income. Even Stagecoach are now leasing buses for London instead of buying to save this initial cost and then having non-standard buses left at the end of the contract.

Margins are tight because of competition in the bidding. Profit margins for operators are generally less than outside London so can actually make group figures look worse to the city.

It is extremely difficult for new entrants to get into London. How many current TfL operators can people name that are not part of big groups?

Garage space is expensive and difficult to find for new entrants. To try and get new entrants into the bidding TfL actually bought up some old closed garages and offered to lease/sell them to new entrants some years ago to try and get smaller operators in but it doesn't seem to have worked!