Rotala confident despite CSR cost factors
TRANSPORT group Rotala has said its full year results are likely to be in line with management expectations despite cost factors affecting the business as a result of the Government’s Comprehensive Spending Review.
The company, which operates Flights coaches and various West Midlands bus services such as the Black Country’s Black Diamond routes, said that since its interims in August, the CSR had been published and with it, subsequent transport issues had arisen.
Currently, the Bus Services Operating Grant (BSOG) sees 80% of the fuel duty paid on diesel used in bus operations refunded to operator. However, as a result of the CSR this will be reduced by 20% from April 2012.
Rotala said that while this would not affect operations during 2011, it would have to review fares in 2012 to ensure fuel costs could be met. Increases of between 5-6% have been predicted. Approximately one third of Rotala’s turnover is not supported by BSOG and will therefore be unaffected by the changes.
A review of the concessionary fares scheme will go ahead in April next year and changes to the current set up are expected. Predictions are that nationally, this will have the effect of reducing concessionary fares re-imbursements by up to 30%. Centro, the transport authority for the West Midlands, is not forecasting such a change but Rotala said a more significant impact might be felt in other local authority areas.
Rotala said it was likely that fares would have to rise to compensate for any reduction in revenues, but this would be the same for all operators.
However, the firm said it was also hopeful the change to reimbursements might bring opportunities to increase market share, as smaller companies operating more marginal routes struggled to make them viable.
Centro, which is Rotala’s largest customer, has said that revenue spend will not be reduced in 2011/12. However, Rotala said the plans announced by the Government to devolve expenditure decisions to local authorities would inevitably mean councils will be left with difficult decisions of prioritisation.
The Rotala board said it anticipated these decisions might involve some reductions to transport budgets and some continuing uncertainties.
Fuel remains a significant cost to the transport sector. Each year Rotala said it used around 10m litres of diesel and it had been unable to hedge costs.
“The group therefore remains vulnerable to further price rises. In 2010 the diesel fuel used cost about £1m more than in 2009 on the same basis of operations. In drawing up its budgets for 2011 the board has anticipated further rises in the price of diesel and that the increases in fuel duty so far announced will be implemented,” said the firm in a trading update.
“The group will continue to monitor the impact of rises in the price of diesel and will be able to mitigate further rises by fare increases and the use of contract price escalators.”
The company has won new contracts at its Heathrow operation, ferrying aircrew for two airlines. The contracts will run between two and five years and will bring in additional revenue of £340,000 in a full year.
It said it was also seeing a renewed willingness on the part of some customers to discuss new contracts, this is in stark contrast to the situation 12 months ago.
In the West Midlands, the company said it was pushing ahead with the introduction of new technology. Following the rollout of ticket machines capable of handling smartcard transactions, it said Centro was pressing ahead with a plan to introduce a cross-operator commercial smart card with Oyster-type features.
In order to maintain service levels, Rotala said it had ordered 53 new vehicles in the 2009/10 financial year and remained committed to operating a young fleet.
Preliminary results for the year ended November 30, 2010 are expected to be released in March 2011.
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