CIÉ Group Annual Report Year Ended 31 December 2015 - Cie.ie

Financial Review 2015EBITDARevenue and EBITDAWhen these factors are taken into account, the underlyingEBITDA performance reflects a combination of strongbusiness performance due to:lChange m m m846.0825.120.9PSO contractincome189.6211.8(22.2)Other State 0Payroll beforepension adjustment(556.5)(545.8)(10.7)Pension 4.7)(1,038.8)(65.9)48.381.2(32.9)lFare revenue andcommercial incomeOther incomeTotal revenueMaterials andservicesTotal operatingcostsEBITDA(i) 2014 EBITDA included a significant once-off benefitrelated to additional Exchequer funding of 12.0million. This funding, which was received in late 2014through a supplementary estimate, has funded c. 70%of the 16.8 million increase in railway infrastructuremaintenance that occurred in 2015.(ii) Pension accounting adjustments account for 18.7million of the year on year decline in EBITDA, while thepension adjustment is a non–cash item, the increasehighlights the importance of implementing changesto pensions, on an agreed basis, which reduces therisk of significant cost escalations as has occurred inPayroll costs, before pension adjustment, increasedby 10.7 million in the year. During 2015, the staff ofIarnród Éireann contributed 5.6 million in savingsthrough a voluntary pay reduction scheme. A similarprogramme, which had been implemented in BusÉireann, completed in December 2014 and as a result,the year on year pay costs increased by 5.0 million.The positive fare revenue trends help to meet thecontinuing challenge of funding the maintenance of publictransport infrastructure and fleets to the appropriatestandards:llGovernment support for investment in railwayinfrastructure maintenance increased by 36.2 million,this was in addition to 12.0 million funding providedin 2014 for planned maintenance programmesundertaken in 2015. On an overall basis, during 2015the total cost of rail infrastructure maintenance, net offunding, increased by 16.8 million.This increased investment in rail infrastructuremaintenance includes programmes of substantialrenewal of degraded track ballast and essentialrefurbishment of station buildings which will supportfaster journey times and an improved customerexperience for the travelling public.Financial StatementsThe 2015 EBITDA result of 48.3 million is 32.9 millionlower than 2014 EBITDA of 81.2 million. The principalcomponents of the EBITDA decline are:lThe increase in payroll costs in the year reflectsrecruitment necessary to service additional demandcombined with an increased focus on ongoing essentialmaintenance rather than new project works.Review2014Strong revenue performance across all operations asCIÉ Group increased its passenger numbers by 6.5million to 241.0 million passenger journeys, which isan increase of 3.6%.Chairman’s Statement2015HighlightsThe operating results for the CIÉ Group for 2015 showearnings before interest, taxation, depreciation, andamortisation and before exceptional costs and profits ondisposal of fixed assets (EBITDA) of 48.3 million.2015. The pension adjustment reflects the differencebetween the current and past service charges underFRS 102 and the actual employer contributions paidand payable in the year.Finally, Public Service Obligation (PSO) funding has reducedduring 2015 – the reduction of 22.2 million more thanoffsets the improvements in fare revenue. As a result,the gains achieved in the year, principally by carryingmore passengers, has not resulted in an improvement inEBITDA.Córas Iompar Éireann Annual Report 20155

Financial Review (cont’d)RevenueRevenue for the CIÉ Group in 2015 was 1,153.0 million andcan be broken down by company and business activity asfollows:Revenue Growth of 20.9m during 2015Fare, Commercial and PSO IncomeIarnród Éireann20152014Change m m m233.9217.62015Revenue 846.0m 1.0m 9.9m16.3Bus Éireann303.0297.95.1 15.2mBus Átha Cliath228.1216.012.1Other (Tours, Propertyand CAN)81.093.6(12.6)volumegrowthFare and commercialrevenue846.0825.120.9Iarnród Éireann98.2117.4(19.2)Bus Éireann33.734.4(0.7)Bus Átha Cliath57.760.0(2.3)PSO contract income189.6211.8(22.2)Other al revenuefareincreases 5.2mother revenueimprovementsCIÉ Tourslower volume2014Revenue 825.1mPSO Contract IncomePSO contract incomeFare and Commercial RevenueFare and commercial revenues grew in each of the publictransport companies giving a combined improvementin 2015 of 33.5 million. Property and Advertising activityincome of 20.1 million, which was previously partiallyallocated to the operating companies, is now allocatedin full so that PSO activities of the operating companiesincorporate the full benefit of ancillary activity. CIÉ Toursrevenue declined by 5.2 million due to a reduction inpassenger volumes.CIÉ is pleased to report that a higher proportion of revenuegrowth has derived from increased demand for its servicesthan was the case in previous years. Total fare revenue grewby 2.7% of which 1.8% was attributable to volume increases.Fare revenue grew by 25.1 million through a combinationof an improvement in passenger journeys ( 15.2m), andfare increases approved by the National Transport Authority(NTA) in 2014 ( 9.9 m).6CIÉ Tours passenger numbers declined during 2015. CIÉTours carried 43,403 visitors to Ireland and Great Britain inthe year, and remains one of the country’s largest inboundtour operators.Córas Iompar Éireann Annual Report 2015PSO contract income was reduced in each operatingcompany during 2015.Within Iarnród Éireann, the reduction in PSO contractincome was made possible by a combination of growth inrevenue and continued strong cost control. However, as aresult of the reduction, Iarnród Éireann did not generatea reasonable profit on its PSO contract in 2015. Whilethe reduction in PSO did facilitate increased funding forInfrastructure maintenance, the reduction in PSO contractincome contributed to the increase in the deficit incurred byIarnród Éireann in 2015.In Bus Éireann, PSO income declined by 2% and was notsufficient to generate a reasonable profit on its PSO activityduring the year.We are pleased to note the strong operational performanceof Bus Átha Cliath. During the year, Bus Átha Cliath wasvery successful in growing revenue. As passengers availedof better value LEAP ticketing, the increase in revenueis almost entirely attributable to additional demand forpublic transport services. Bus Átha Cliath was successful indelivering an increased level of service while reducing thedirect cost to the Exchequer of the PSO contract.The sustained improvement in the efficiency of publictransport services provided by the CIÉ Group enabled afurther reduction in PSO contract income in 2015. However,the reduction in PSO income was greater than the benefitof additional volume when the increased costs, particularlyof Infrastructure maintenance are taken into account. As aresult, there has been a further erosion of the capital base

semployement capitalisation maintenance contractorsClaimscostsOtherOperatingcost savings Costs 2015of the Group. The long-term viability of the Group willrequire that PSO income be set at a level, which generatesa reasonable return so that the business has the financialstrength to continue to manage its business challenges.Operating CostsOther Exchequer FundingA summary of the movement in operating costs, from2014 to 2015 is set out below:Iarnród Éireann’s operating result is reduced in 2015 as aresult of CIÉ’s contribution of additional net expenditureon infrastructure maintenance of 16.8 million. Thesupplementary estimate, which was provided in late 2014,provided 12.0 million of the funding for this increasedinvestment. A longer term commitment to infrastructuremaintenance by the DTTaS is essential to maintain thehigh standards of safety and operational reliability thatwe have challenged ourselves to achieve on a continuousbasis.llllllPension costs as advised by the Group’s actuariesare included in the financial statements to reflect thedefined benefit accounting pension requirements ofFRS 102. Relative to 2014, the non-cash pension costadjustment has increased by 18.7 million.In October 2014, Iarnród Éireann’s staff accepted avoluntary pay reduction scheme. This voluntary payreduction scheme was also implemented within CIÉ,as a result, operating costs reduced by 5.3 millionrelative to 2014.We are pleased to report that the CIÉ Group hasincreased employment by 191 during 2015 to meetthe growth in passenger demand. The additional costarising as a result is 11.0 million.Iarnród Éireann is striving to achieve the best standardof infrastructure maintenance possible with limitedresources. In this context a greater proportion ofour own labour resource has been dedicated tomaintenance rather than capital, as a result anadditional 4.6 million of the total payroll cost wasincluded in operating costs in the year.Financial StatementsCIÉ welcomes the additional funding commitment toessential infrastructure maintenance and has itselfcommitted additional resources over and above theavailable direct funding to ensure that infrastructure ismaintained to the highest standards possible within thefinancial constraints that both CIÉ and the Exchequerfaces.lReviewIn 2015, a greater proportion of MAC was spent onessential maintenance with a lesser proportion spenton renewals. Consequently, a greater proportion of thefunding is accounted for as a Revenue Grant with theassociated maintenance costs being included in OperatingCosts.Group operating costs before exceptional costs increasedby 66.0 million in 2015 from 1,038.8 million in 2014 to 1,104.8 million in 2015.Chairman’s StatementOther Exchequer Funding relates principally to fundingto Iarnród Éireann in respect of railway infrastructuremaintenance costs. In 2014, Iarnród Éireann agreed aMulti-Annual Contract (MAC) with the Department ofTransport, Tourism and Sport (DTTaS), administeredby the DTTaS and monitored by the NTA, which fundsexpenditure on maintenance and renewal of RailwayInfrastructure.HighlightsOperatingCosts 2014There has been a significant increase in expenditureon infrastructure maintenance during 2015 relativeto 2014. This increase was planned and substantiallyfunded by additional Exchequer Funding.The number of children availing of the SchoolsTransport Service provided through Bus Éireann hascontinued to increase.In recognition of the increase in passenger journeys,and related claims, CIÉ has increased its provisions forclaims in the year.Córas Iompar Éireann Annual Report 20157

lFinally cost savings of 7.2 million were realised whichis made up of a 3.3 million, volume related, reductionin CIÉ Tours costs and the effect of other cost savinginitiatives across the Group.In summary, the year on year change is outlined as follows:Deficit for the YearThe CIÉ Group reported a net deficit of 26.4 million in2015. This compared to a net deficit of 3.3 million in 2014,a deterioration of 23.1 million. mEBITDA 201481.2Revenue growth20.9Reduction in PSO income(22.2)(1.3)Net additional rail maintenanceexpenditure funded from ownresources(16.8)Non cash pension cost adjustment(18.7)Other changes – netEBITDA 2015Change m m m48.381.2(32.9)Profit on disposal offixed assets1.51.9(0.4)Exceptional )8.9(0.2)(1.3)1.1(26.4)(3.3)48.3It is now generally accepted that the funding level providedfor railway infrastructure maintenance is below the levelrequired to maintain the network so that it does notdeteriorate. Therefore, we were pleased to receive additionalmaintenance funding of 35.4m in 2015, which togetherwith the benefit of the supplementary funding of 12.0million provided in 2014, financed significant additionalmaintenance works. In addition, CIÉ provided a further 4.8 million of its own resources to finance infrastructuremaintenance.The long run cost of the provision of defined benefit pensionbenefits is significantly impacted by long-term interest rates.As interest rates have declined the costs of providing a fixedincome increases.Córas Iompar Éireann Annual Report 20152014Non-operating income/(costs)3.9The summary illustrates that the Group made very goodprogress in growing its fare revenue base during 2015.However, this improvement was more than offset by thereduction in PSO funding.8EBITDA2015Depreciation andamortisation net ofgrant amortisationNet finance expense(excluding pension)Pension relatedfinance costsTotal non-operatingincome and costsTaxation chargeNet deficit(23.1)

Progress on Cost ReductionManaging pay costs within a competitive growing economyis a significant challenge for CIÉ. During the year, theGroup has made further significant progress in deliveringtargeted cost containment programmes.lIarnród Éireann implemented a 25-month payreduction agreement in the latter half of 2014.500408448600447800400200-2008 2009 2010 2011 2012 2013 2014 2015Total Funding m1,000Total Funding v Customer 400m2335422282292352414084472008 2009 2010 2011 2012 2013 2014 2015Total State &EU Funding240220500448Financial StatementsGiven the requirement to reduce debt by reducing the termloan over the life of the agreement, the Group is focusedon developing initiatives to ensure its PSO Contractsdeliver an adequate return to enable the Group to meetits obligations under the banking facility agreement. Theseinitiatives include revenue raising and cost containmentprogrammes.Total State & EU FundingReviewThese facilities are based on normal commercialarrangements that require CIÉ to abide by a number ofstandard financial covenants – in particular not exceedingthe required ratio of Net Debt to EBITDA over the life ofthe facility. m1,000542The banking facilities consist of an 80 million five-yearterm loan and an 80 million revolving facility. The termloan is repayable at a rate of 13 million per annum,two repayments have been made with a further annualrepayment instalment due in July 2016.The provision of reliable, efficient public transport requiresfunding. During 2015 total public funding for both thePSO contracts and for capital investment amounted to 447 million a reduction from 500 million in 2014. Thefollowing graphs illustrate the trend in PSO and otherstate funding over recent years.718Since 2008, the Group has financed a 208 millionshortfall in PSO contract income, while maintainingservices, through a combination of asset sales( 121 million) and increasing its net debt. During 2013, CIÉsuccessfully secured a 5-year 160 million banking facility.Total State FundingChairman’s StatementBanking FacilitiesThe combination of these measures generated savingsof 5.3 million in 2015.754Finally, the lower taxation charge is related to the reductionin the profits of CIÉ Tours.lA similar pay reduction agreement has beenimplemented in the CIÉ Holding Company on avoluntary basis.922Net finance costs, excluding pension related finance costs,have been reduced as average borrowings reduced during2015 reflecting the supplementary funding provided inboth 2014 and in late 2015.lHighlightsThe deterioration in EBITDA of 32.9 million was partiallyoffset by an improvement of 8.9 million in the otherincome and costs of the Group. The reduction in othercosts arises principally in reduced net depreciation andamortisation charges.200Passenger journeysCIÉ acknowledges the support of the Minister, the DTTaSand the NTA. Providing a public transport service, whichsupports economic and social cohesion with the State,is the primary role of CIÉ. The graph illustrates strongevidence of a recovery in passenger journeys and identifiesthe challenge of ensuring appropriate funding to supportCóras Iompar Éireann Annual Report 20159

Financial Review (cont’d)the provision of comprehensive public transport services tomeet the increased demand.The significant decline in funding has occurred in bothcapital investment and in the subvention in respect ofsocially desirable but economically non-sustainable publictransport services.Capital ExpenditureThe CIÉ Group continues to work closely with the DTTaSand the NTA to identify the best opportunities for capitalinvestment in the public transport network. Capitalinvestment is key to improving the safety of the networkand comfort of our customers. It is also a cornerstone ofrealising further operational cost savings.-2008200920102011 2012 2013Capital 92454431596600726CIÉ Capital Investment & Funding 2008 - 2015 m8002014 2015Exchequer & EU FundingGroup investment in fixed assets in 2015 amounted to 173.0 million. There is a notable downward trend ininvestment in the public transport system assets managedby the CIÉ Group since 2008. This is due principally tofinancial constraints on the Exchequer, and brings publictransport investment in Ireland significantly below EUaverages. Increasingly limited resources are targetedtowards maintaining the existing infrastructure assets.PSO Contract Income 2008-2015Iarnród Éireann, Bus Átha Cliath and Bus Éireann (OperatingCompanies) operate socially desirable but economicallyunviable public transport services under Public ServiceObligation (PSO) contracts from the National TransportAuthority (NTA).During 2015, as in every year since the financial crisis beganin 2008, each Operating Company has worked closely withthe NTA to absorb further reductions in income from thesePSO contracts while maintaining public transport services in10Córas Iompar Éireann Annual Report 2015terms of frequency and quality across all three companies.During 2015, the Group continued the progress achieved in2014 by a combination oflGrowth in Passenger Journeys,lCost Reduction, andlFare Increases.However, the Group’s PSO contracts did not generate anyreasonable returns. Despite a reduction in its PSO contractincome Bus Átha Cliath was successful in generating amodest return on its PSO contract, the rate of return on itsrevenue was just 2.6%.Both Iarnród Éireann and Bus Éireann sustained losses ontheir PSO contracts in the year. The Iarnród Éireann lossincludes the net result of Infrastructure Manager activity,which has included a significant increase in un-fundedmaintenance expenditure. Bus Éireann’s PSO contractgenerated a loss as its PSO contract income was reducedrelative to 2014.The aggregate net loss from PSO contracts in 2015 was 5million and has increased the cumulative deficit 2008 to 208 million.Working in partnership with our Shareholder, the DTTaSand the NTA and bearing in mind the importance of

CIÉ Tours experienced a decline in volume and margin during 2015. Negative consumer sentiment towards European travel generally during the principal booking period adversely affected volume, while greater competition for lower numbers gave rise to margin pressure. Nevertheless, CIÉ Tours continued to be profitable in 2015.