Corporate news releases
National Express Group PLC ("National Express" or "the Group"), the international public transport operator, today releases a pre-close trading update ahead of the year ending 31 December 2010.
The Group has continued its strong progress during the fourth quarter, with ongoing growth in year-on-year profitability. All parts of the business have performed well - highlights have included:
- good revenue growth in UK Coach, Rail and North America;
- margin recovery well ahead of plan in UK Bus; and
- strong margin coupled with a return to intercity revenue growth in Spain.
As a result, the Board now expects normalised1 profit before tax for 2010 to be a little above current market expectations and markedly stronger than was expected back in January 2010.2
The business recovery plan launched in summer 2010 is delivering ahead of expectations. In June we set a target to achieve industry average margins over time3 and implemented a three part programme to deliver a package of revenue and service improvements, achieve better network utilisation and reduce operating costs. This has enabled us to commence a five-year investment plan to boost capacity and modernise the fleet, especially on high frequency corridors in the West Midlands, with significant benefits for customers and the environment.
As a result of these measures, the West Midlands business has returned to underlying4 revenue growth, up 1.5% since July. Network mileage has reduced by 4% over the same period, driving up operational efficiency, while cost reduction benefits are building. Consequently, this business will now deliver industry average margins in 2010, well ahead of schedule. Continued progress with the business recovery programme, combined with the experience of our new UK Bus Managing Director, Dave Kaye, will allow us to extend performance towards best-in-class, allowing continued improvement in customer service and further fleet investment.
UK Coach has continued to trade well, with underlying revenue growth of over 3% year to date. The Express coach business is being reorganised around its key segments. This will ensure a sharper focus, create new journey opportunities and improve revenue management. Our Airports business has renewed its five year contract with BAA to operate Heathrow Central Bus Station, leading to additional investment and services at this key network hub. Under the new UK Coach Managing Director, Andrew Cleaves, the business has launched a major investment in improving the customer experience, which saw the new Milton Keynes coach station open this month, and on-board tracking investment to capture operating efficiencies.
We expect to achieve significant gains from this programme in the medium term, whilst broadly maintaining profit in the short term. In addition, we do not anticipate a material impact from the cessation of the current government funded senior citizen concessionary fare scheme in October 2011.
The UK Rail business has delivered strong revenue growth, with underlying revenue 7% higher in the fourth quarter. With the East Anglia franchise extended to October 2011, this month sees the initial delivery of a £185 million investment to provide 10,000 additional seats in the peak commuter period. With its proven expertise in rail operations, the Group intends to bid for both the short contract extension and the remodelled longer term franchise, as outlined in the recent UK Government announcement. The Group is strongly supportive of the new franchise framework and believes it can create significant value for customers, shareholders and stakeholders through its continued involvement in the rail sector, both within the UK and elsewhere.
The c2c franchise continues to perform well and deliver industry leading customer performance. With the retendering of the franchise now set for 2013, we are exploring opportunities to continue to operate it in the near term, and to bid to operate the longer term franchise in due course.
In Spain, our Alsa business continues to perform very strongly. Conditions in the domestic coach market have shown improvement. Underlying revenue has grown over 1% in the fourth quarter, with intercity revenue up year-on-year for the first time since 2008. Efficiency savings, reflecting a 4% reduction in kilometres operated in 2010, have helped drive an operating profit improvement of over 10% in 2010, relative to 2009.
The stable concessionary model, which protects the economic balance for the operator, provides a positive environment in which to operate. Alsa is the preeminent private operator in the bus and coach market, with a long track record of providing value for money and an economically sustainable service to consumers in the current environment. Cost efficiency and service flexibility have allowed Alsa to respond quickly to demand changes.
The impact of the current austerity measures on subsidised urban services has been minimal. With pressure on public funding of other modes of transport, Alsa remains well placed to extend its presence in the domestic market, whilst successfully growing geographically.
Following the successful start-up of over 1,600 new routes, underlying revenue in North America has grown by 6% year-on-year since the September start of the new school year, with demand in existing contracts and field trips broadly maintained. Our business recovery programme continues to make good progress, and we have now secured over US$30 million of annualised cost savings. As a result, normalised operating profit in 2010 will be around 50% higher than in 2009. The next phase of our business recovery programme will focus on improving underperforming contracts, delivering further cost savings and improving fleet management and procurement. This is expected to result in total cost savings in excess of the US$40 million target, with the North America margin expected to be in line with best-in-class in the industry by the end of 2011.5
Dean Finch, National Express' Group Chief Executive, commented:
"2010 has been a year of tremendous progress for National Express. This is now a much improved business, back on a sound footing and with a strengthened management team, delivering stronger margins and better customer service. We will complete our business recovery programme ahead of schedule, and will look to grow our bus, coach and rail portfolio, leveraging our international presence, and delivering value for customers, stakeholders and investors alike."
National Express Group PLC
Jez Maiden, Group Finance Director 0121 460 8657
Anthony Vigor, Director of Policy & External Affairs 020 7805 3809
Stuart Morgan, Head of Investor Relations 0121 460 8657
Maitland 020 7379 5151
- Normalised profits are the statutory result excluding profit or loss on the sale of business, exceptional profit or loss on sale of non-current assets and charges for goodwill impairment, intangible asset amortisation, exceptional items and tax relief thereon, for continuing operations. The Board believes that the normalised result gives a better indication of the underlying performance of the Group.
- Current median market consensus for normalised profit before tax for 2010 is £154 million and in January 2010 was £141 million.
- Industry average margins for UK Bus businesses are estimated to be 11-12% based on the most recent comparator group results.
- Underlying revenue compares the current year with the prior year on a consistent basis, after adjusting for the impact of currency, acquisitions, disposals and rail franchises no longer operated.
- Industry best in class margin for the North America School Bus business is estimated to be 11-12%.