National Express Group PLC Interim Management Statement
National Express Group PLC ("National Express" or "the Group") is a leading international public transport group with bus, coach and rail services in the UK, Continental Europe, North Africa and North America. It today reports its Interim Management Statement for the period from 1 January 2014 to date.
Since the start of 2014, underlying trading has been positive and the Group is on track to deliver its earnings expectations for the year.
Group revenue in the period was up 2% (in constant currency). All UK divisions have delivered strong growth, supported by rising passenger demand. Underlying revenue in ALSA declined 1%, with signs of improved consumer confidence in Spain and continued growth in Morocco. Underlying revenue in North America rose 2%, with continued progress in our programme to enhance capital returns.
The first quarter saw two specific challenges in North America and Spain. North America was adversely impacted by severe weather, with the majority of “snow days” expected to be recovered in the second quarter. ALSA experienced strike action affecting the Madrid urban operation. Across the Group, we are delivering cost efficiencies which, together with strong UK growth, are expected to recover the profit impact of these events within 2014 and benefit long-term profitability.
In 2014 we are also focused on developing our pipeline of contract opportunities. Success so far has included retaining key contracts in current businesses in Europe and North America, submitting bids to win major new business in existing markets, and opening up new international opportunities for National Express.
Key developments during the period have included:
- 5% revenue growth in the UK businesses driven by a 4% increase in passengers
- 9% core revenue growth in UK Coach
- Implementation of yield management in ALSA to combat rail competition
- 18% revenue growth in Morocco, with scale-up of our new concession in Tangiers, supported by 120 new buses
- Retention of our largest North American contract, providing para-transit services in Boston
- Good progress in implementing our strategy in North America School Bus:
- Delivering strong contract retention and better renewal pricing
- Replacing poor margin business with contracts generating higher returns
- Third successful bolt-on acquisition in recent months adding 350 buses to our operation in Philadelphia
- Two further high quality UK Rail bids submitted, in addition to Essex Thameside
- Selected as preferred bidder in bus contract competitions in both new and existing markets
- Potential for substantial fuel duty recovery in Spain.
Dean Finch, Group Chief Executive, commented:
"We are on track to deliver the Board’s expectations for the year. While we have faced specific challenges, such as the exceptional US weather and strike action in Spain, we have taken substantial steps to address their impact, including a renewed focus on cost efficiencies. We are also driving our strategy to develop opportunities in existing and new markets and I am particularly pleased by our progress in the UK, especially the increase in the number of passengers travelling with us. In the last few months we have secured important new contracts, including substantial new business in North America, and also submitted three high quality UK rail bids. Our cash generation remains strong and I believe we have the right strategy in place to deliver substantial value for our shareholders."
In UK Bus, like-for-like commercial revenue grew by 3%. Good growth in commercial passenger volume, also up 3% in the period, reflected improved service delivery, with better punctuality and fewer complaints. Our West Midlands operation delivered a significant improvement in customer satisfaction in the latest annual Passenger Focus survey of the UK bus industry. We have also increased sales in loyalty products, including travelcards and smartcards, with a commensurate reduction in yield. Alongside continued investment in our ‘Transforming Bus Travel’ partnership with Centro, we are driving cost efficiency and growing profit in the division.
UK Coach continues to perform well. Core express revenue growth was 9%, with passenger volume up 9%. Fares are attractively priced, journey times are faster and punctuality has risen through our investment in network control and real-time vehicle tracking. We have responded to recent rail disruption with additional services; Cornwall-London volume grew by 40%. Volume over the important Easter holiday period was excellent, with revenue 14% higher year-on-year. We are also building our contracting business, securing a new five year contract to provide airside services at Gatwick Airport. In Germany, we continue to build our coach operations, with excellent customer satisfaction ratings supporting growing passenger volume.
Rail revenue increased by 4% in the period. c2c has maintained its position as the top-performing UK franchise, with punctuality of 96.7%. We have now submitted high quality bids for all three of the UK rail franchises for which we were shortlisted – Essex Thameside, Crossrail and Scotrail. In Germany, we continue to mobilise the Rhine Münsterland Express ahead of its start up in December 2015, and we have an active pipeline of further bids and opportunities, including the Berlin Ringbahn for which we have been shortlisted.
Underlying revenue in Spanish domestic transport decreased 1% in the period. Morocco saw total revenue growth of 18%.
In Spain passenger volume was slightly below prior year, offset by better pricing. National intercity routes have continued to see competition from discounted high speed rail on selected routes, but our new yield management approach is starting to drive volume recovery. Consumer confidence is improving and Easter volume was good. Regional coach services are growing and urban services in Spain have continued to be resilient. Madrid bus services were affected by strike action in March and early April, following the implementation of savings due to fewer services being required. We expect the strike cost to be offset through other cost efficiencies delivered from our restructuring programme, ‘ALSA Futura’.
Urban revenue in Morocco continues to grow strongly – we have invested in 20 new buses to meet demand in Agadir and will introduce 120 new vehicles in June to scale up the recently won Tangiers concession. We continue to see a number of potential growth opportunities in Morocco and elsewhere.
Following a decision by the European Court rejecting a fuel duty levied in Spain between 2005 and 2012, ALSA will be submitting claims to the Spanish Court for recovery of duty paid. As and when the receipt of any recovery becomes virtually certain, such amount will be reflected in the Group’s accounts as an exceptional credit.
Total revenue in North America School Bus was 1% lower in the period (at constant exchange rates), reflecting the impact of sustained severe weather in the first quarter. Excluding this impact, underlying revenue growth for the current school year grew by 2%.
US$15 million of revenue was lost to snow across School Bus and Transit in the first quarter of 2014, the majority of which is being recovered by extending school in the second quarter. Increased weather-related operating costs (eg fuel consumption, snow clearance, maintenance and labour) are not recovered and are expected to result in a US$6 million adverse impact on operating profit in the first half year of 2014.
Our strategy in School Bus is to replace poor margin business with contracts generating higher returns. Firstly, we are delivering excellent customer service and have so far achieved 98% renewal of targeted contracts, with average pricing over 2% higher. Secondly, we have identified those contracts which will be exited due to poor returns unless we can achieve better pricing, relinquishing contracts for 550 buses this year. Thirdly, we are targeting replacement business with better returns and have completed a third bolt-on acquisition in recent months, adding 350 buses to our existing operation in Philadelphia. We expect this growth, together with ongoing cost efficiencies, to help offset the impact of poor weather in 2014 and improve long-term profitability.
The Transit business has grown revenue by 13% and renewed its largest para-transit contract, with the Massachusetts Bay Transportation Authority’s “The Ride”. The contract has annual revenue of US$35 million for an initial 5 year period, plus a two-year extension option, securing up to US$250 million of revenue. National Express has operated this service since it acquired the business in 2012.
Financial position and outlook
Net debt at the end of April 2014 had risen in line with normal seasonal working capital requirements and to fund investment opportunities. Debt is expected to decline by 30 June towards the level at last year end, although snow recovery days in North America in May and June will increase contract receivables. We are on target to generate £150 million of free cash flow in 2014.
We continue to develop exciting contract opportunities in new and existing markets, where we have been selected as preferred bidder in bus contract competitions. As part of our broader strategy, this targeted growth will deliver enhanced shareholder returns in the future.
The Group will announce its results for the six months to 30 June 2014 on Wednesday 30 July 2014. There is no scheduled trading update before that announcement.
National Express Group PLC
|Jez Maiden, Group Finance Director }||07770 701797|
|Stuart Morgan, Head of Investor Relations }|
|Anthony Vigor, Director of Policy and External Affairs||07767 425822|
|Rebecca Mitchell||07951 057351|
- Underlying revenue compares the current year with the prior year on a consistent basis, after adjusting for the impact of currency, acquisitions and disposals, industrial action in Madrid and severe weather in North America.
- Like-for-like revenue adjusts underlying revenue for the impact of changes in mileage operated.
- Profit is stated on a normalised basis, before exceptional costs and intangible asset amortisation.
- Net debt is defined as cash and cash equivalents (cash overnight deposits and other short-term deposits), and other debt receivables, offset by borrowings (loan notes, bank loans and finance lease obligations) and other debt payable (excluding accrued interest).
- Punctuality is measured as a moving annual average to 26 April 2014.