National Express Annual Reports and Accounts 2011

Annual Report and Accounts 2011

Business model

A strategic roadmap

Our portfolio of businesses provides an excellent platform for future value generation.

Spain

Mode Urban bus, intercity coach Operating model Concession, long-term
Market share

20%

of the intercity, regional and outsourced urban contract market

Current opportunities

Continued growth in both businesses

Market regulation Lightly regulated Return on capital Strong
Business model

ALSA is the largest private operator of buses and coaches in Spain where public transport is seen as an essential public service. Its markets are regulated and supported by long-term concession agreements provided in exchange for public service obligations. Concessions are operated exclusively, with competition at point of tender. Concessions typically run for 10 to 15 years. ALSA’s portfolio provides a balance between:

  • long distance coach operations, which receive no subsidy and take revenue risk in return for flexibility over the number of services operated and a regulated maximum fare;
  • regional coach operations which may be subsidised by the autonomous governments; and
  • urban bus operations operated under programme contracts with city councils and transport consortia.

Day-to-day competition is primarily intermodal; ie rail, low cost airlines and the car.

Risks to manage in 2012 Concession re-bidding

North America

Mode School bus Operating model Contract, medium-term
Market share

10%

of the outsourced school bus market

Current opportunities

Revenue, margin and return on capital growth

Market regulation Lightly regulated Return on capital Acceptable, improving
Business model

The Group’s operations are carried out by our subsidiaries, Durham School Services (US) and Stock Transportation (Canada). We are the second largest private operator. The outsourced (private operator) market is only around one third of the total, with the remainder being insourced; that is, owned and run by the school boards themselves. Contracts typically run for five years and contract retention is high. Once secured, contracts have very low revenue risk over the contract life. Scale is beneficial – economies can be achieved through procurement, centralisation of administration and business development. Access to capital is key; most new contracts require investment in new buses and asset utilisation is low, due to the part time usage of these specialised vehicles.

Risks to manage in 2012 School board funding

UK Bus

Mode Urban bus Operating model Perpetuity, owned business
Market share

80%

of the West Midlands bus market

Current opportunities

Passenger volume and further margin growth

Market regulation Unregulated Return on capital Strong
Business model

National Express West Midlands is the market leader in the largest single urban network in the UK deregulated market. The deregulated model allows for total flexibility in both fares and service. The business has a high regional market share, with strong competition from multiple operators on specific routes. Modal competition is principally from private cars. Revenue and profitability are driven by the scale of operations delivering frequent, reliable and affordable services across a broad network, utilising a high quality fleet.

Risks to manage in 2012 UK Government funding (BSOG)

UK Coach

Mode Intercity coach Operating model Perpetuity, owned business
Market share

60%

of the UK scheduled coach market

Current opportunities

Organic revenue growth

Market regulation Unregulated Return on capital Strong (capital light)
Business model

‘National Express’ is the national coach network operator in the UK, offering great value and accessible travel to all. It operates the only scheduled national UK coach network and the largest in Europe, running 500 coaches a day serving over 1,000 domestic destinations. Built on a flexible, outsourced business model, where third party providers supply 80% of the coaches and responsibility for sales lies with the company. With 70% unprompted brand recognition, the business benefits from its integrated network and scale, offering breadth and interconnectivity, where competitors offer only point-to-point services with limited infrastructure.

Risks to manage in 2012 UK Government funding (CSOG)

UK Rail

Mode Commuter rail Operating model Franchise, long-term
Market share

10%

of the UK rail franchise market

Current opportunities

Manage franchises. Participate in franchise bids

Market regulation Highly regulated Return on capital Strong (capital light)
Business model

National Express has a strong operational skills base in UK rail, one of the only privatised systems in Europe. The UK rail industry comprises franchises awarded on an exclusive operation basis to private operators. Prices are predominantly regulated and costs are substantially fixed around track access, rolling stock and franchise payments. The Group ran two franchises in 2011, operating as National Express East Anglia and c2c, running until February 2012 and May 2013 respectively.

Risks to manage in 2012 Franchise terms and bidding