• Year in review
• Market overview

Overall performance

The UK Bus business delivered a strong performance in 2010, returning to an industry average margin after a period of weak profitability. Cost control improved markedly and better fare and network management was combined with a commitment to invest in new fleet across the core operation.

Revenue in UK Bus was £257.8 million (2009: £293.9m). Excluding revenue from the Travel London operation, which was sold in June 2009, underlying revenue was broadly flat year- on-year. This was a good performance given a 4% decline in network mileage to improve operating efficiency. Prices rose by 4% as the fare basket was realigned in June 2010.

Normalised operating profit, after stripping out the lower margin Travel London results from 2009, increased by 48% to £28.3 million (2009: £20.8m including £1.7m from Travel London). Operating margin was 11.0% (2009: 7.1%) and is now consistent with the industry average, having reached this target significantly ahead of schedule.

The UK Bus business delivered a strong performance in 2010, returning to an industry average margin after a period of weak profitability.

Driving revenue

Fare adjustments during the summer of 2010 delivered a rebalancing of the fare basket. This ensured appropriate incremental journey pricing, whilst driving more efficient network usage. Whilst cash single fares remained unchanged, the pricing of travelcards, which account for 50% of revenues, was increased to better match journey demand with supply.

Passenger volumes remained subdued, down 4% during the year, reflecting lower levels of economic activity in both the West Midlands and Dundee regions. More targeted marketing, together with additional measures to encourage travel, should improve growth in the bus business, whilst enhancing margins further. Working with Centro, the local integrated transport executive, we are investing in 600 buses over the next five years, which will drive capacity and, we expect, patronage on the core network. We are also investing in hybrid buses as part of our commitment to greener vehicles and to promote greater use of more environmentally friendly public transport over the car.

2010 also saw delivery of new benefits for cash-constrained customers. The website was overhauled to provide easier access to route and timetable information, along with a mobile version for customers on the move. It is now easier for customers to purchase tickets on-line, which is proving very popular, and this facility has been extended to include Dundee travelcards. Live information updates helped passengers during the worst of December’s weather, with nearly 60,000 visits received on a single day.

Managing costs

During 2010, the business made strong progress in addressing the issues that led to earlier margin decline. The network was reassessed to match capacity to demand, with services and frequencies adjusted to add capacity to the high demand corridors. As a consequence, average revenue per journey increased and fuel efficiency improved, adding to a £3 million fuel benefit. Following a review of depot footprint, one facility was closed, reducing costs by over £2 million per annum, and driver wages were restructured, to help address some of the highest costs in the industry which had resulted from a previous three-year pay agreement. In addition, a new two year wage agreement has been reached in the West Midlands which will see pay rise by 2% per annum from October 2010.

National Express West Midlands is the market leader in the largest single urban network in the deregulated market outside of London.

The Midland Metro tram service made a profit during the year for only the second time since its inception and achieved outstanding service – over 99% reliability and 98.5% punctuality.

Developing opportunities

In October 2010, in its Comprehensive Spending Review (“CSR”), the UK Government announced a reduction of 20% in the Bus Service Operators Grant (“BSOG”) from April 2012, together with a review of the concessionary reimbursement scheme and a cut in local funding for transport. We estimate the adverse impact from BSOG to be approximately £4 million for 2012 and £5 million in a full year. We have made our submissions to the Competition Commission review of the UK Bus industry and await its report, due later in 2011.

We continue to roll out a package of revenue enhancing and cost reduction improvements under the leadership of our new UK Bus Managing Director. We are supporting our fleet investment programme with a campaign to address anti-social behaviour, provide more real-time information to passengers and start to utilise benefits from our new smart card system that was introduced during 2010. Our on-board Traffilog system will be used to reduce fuel costs and engender safer driving behaviours. A ‘Lean’ engineering pilot will be extended across all depots and is targeted to reduce engineering costs, increase fleet availability by reducing time off the road and decrease the total size of the fleet.

Whilst the economic outlook and unemployment in our regions remain challenging, the quality of our UK Bus business is high and the urban density of our customer base offers an attractive platform for improving service and driving stronger performance. We do not anticipate a material impact from recent government cuts. We have targeted delivery of margin improvements towards industry-leading levels in the medium term through investment in new buses and new technology, as well as by securing procurement and engineering savings.