
Tom Stables Managing Director, UK and Germany Bus and Coach UK
Year ended 31 December | 2019 £m | 2018 £m |
Revenue | 599.7 | 577.0 |
Normalised operating profit | 85.0 | 79.9 |
Operating margin | 14.2% | 13.8% |
Overview
Our UK businesses had a good year. Both the bus and coach businesses delivered revenue, profit and commercial passenger growth. They also combined this with expansion into new markets. Our coach business again set new records for revenue and passengers and, with its success at Dublin Airport, secured its first operational contract outside of the UK. Our bus business continues to buck industry trends, with commercial growth in the West Midlands adding nearly one million extra passengers and new routes launched. This is alongside the expansion into the accessible transport market with our acquisition of the 400 vehicle ATG businesses (now re-branded National Express Accessible Transport (NEAT)).
These successes are reflected in the financial results. Overall, UK revenue increased by 3.9% to £599.7 million (2018: £577.0m). Normalised operating profit grew by 6.5% to £85.0 million (2018: £79.9m). This profit figure includes a similar level of property sale receipts as last year. Operating margin has increased by 40 basis points to 14.2% (2018: 13.8%). This increase is attributable to IFRS 16, with cost inflation offset by a continued focus on operational excellence and efficiency.
As the recent government announcement of a £5 billion fund to increase support for bus priority schemes and new zero emission vehicles demonstrates, public transport is seen as an increasingly important part of the response to public policy challenges. Indeed, within the West Midlands both the Mayor and Birmingham City Council have recently set out very pro-public transport policies. We continue to value our strong partnership working as this is helping to secure passenger growth and significant investment in local services. As our electric vehicle plans demonstrate, it gives us confidence to make important investment commitments as we believe, by working in partnership the West Midlands, we will continue to lead the industry in service improvement and growth.
£m | |
2018 normalised operating profit | 80 |
Growth in the continuing business | 6 |
Driver wages | (3) |
IFRS 16 | 2 |
2019 normalised operating profit | 85 |
Operational excellence: the foundation of sustained growth
Both of our UK businesses have focused on delivering excellent services to customers in an efficient way, at prices they value. The success of this is evident in the record number of core coach passengers of 21.5 million, including the largest single day ever on Boxing Day. Surveys show that nearly 300,000 more people are considering using National Express coach services than in the year before. Our bus services helped the West Midlands have the fastest passenger growth of any major city region in the country. In its most recent Transport Focus independent customer survey our West Midlands bus business secured its best ever scores for drivers and value for money. As well as attracting more, happier, customers, we are operating ever-more efficient services, with commercial revenue per mile up 4.8% in core coach and 3.2% in West Midlands bus.
Our focus on excellence also entails, as a priority, safety. Both businesses now have DriveCam and speed monitoring programmes fully installed (with the recent NEAT acquisition to have them in place this year). The year-on-year reductions in speeding and the zero fatalities in the UK (and, indeed, across the Group) are testament to the benefits of the investment. Both businesses have secured the British Safety Council’s (BSC) highest accolade: the Sword of Honour. For coach this is the fifth consecutive time; for bus it is the fourth. Indeed, UK bus was also judged to be the safest public transport company of all those the BSC audited across the world in 2019.
As further evidence of our commitment, both UK businesses have five-star EFQM ratings, with coach winning the British Quality Foundation’s 2019 UK Excellence Award for a large company.
Technology investment to underpin excellence, efficiency and innovation
We continue to invest in the technology and management systems to deliver the excellence and efficiency driving the performance above, as well as innovations that will help power future growth. Both businesses have benefitted from industryleading pricing technology, whether RMS in coach or the installation of the largest contactless payment network outside of London in West Midlands bus. The benefit for coach is seen with both core passengers (4.0%) and revenue (3.6%) growing, with particularly successful performances at peak periods: a record Christmas and a strong summer. Further evidence is seen in the occupancy rate growing again in 2019, up 2.4% to 60.9%. This figure has grown from 54% in 2016, demonstrating the consistent focus on improvement and efficiency that underpins the business’ growth.
Bus now has two thirds of passenger journeys on digital tickets, which is allowing more sophisticated price targeting with products for specific competitive corridors or groups deployed quickly. The technology also generates significant data that is used to track product effectiveness (including the quick withdrawal or revision) and helps plan services to better meet changing demand and revise our network.
Coach now has 71% of its revenue secured through digital channels, demonstrating the importance of our continued investment in our web and app presence. During 2019 coach issued 100 upgrades to its website and app, helping the app alone to grow revenue by 16% as the shift to mobile devices continues. The technology investment is also allowing coach to secure a growing number of carefully selected commercial partnerships – now up to 139, including with 24 universities – that help sell our tickets to individuals or groups we might otherwise find hard to reach. In addition, ancillary sales in the digital booking process continue to prove a good source of growth, with revenue up 9% in 2019.
During the year, we further expanded our data analytics and AI capabilities to drive operational improvements and secure efficiency savings. This has been pursued through both internal excellence programmes and our National Express Innovation and Science (NXIS) initiative where we set challenges for – often small, start-up – companies to identify solutions to business problems. In bus, for example, a NXIS challenge has seen the very successful pilot of a company using AI and big data analysis to optimise running times and driver hours. As this pilot is rolled out more widely, we believe there is scope for further significant savings.
We are also determined to lead the switch to zero emission vehicles. This is both the right thing to do – given the climate change and clean air challenge – and increasingly what our key stakeholders want. Indeed, both our coach and bus businesses are at the forefront of the adoption of Euro 6 vehicles, with their fleets fully compliant by this year and April 2021 respectively. We will shortly take receipt of 29 electric double decker buses in the West Midlands and ran a pilot of an electric coach on an airport service in January 2020. As our new environmental commitments set out in the Group Chief Executive’s review demonstrate, we are determined to cement our position as an industry leader, deliver significant benefits to the communities we serve and align our ambitions with the aspirations of our key stakeholders.
Targeted growth through strategic acquisition and market diversification
We expect both of our UK businesses to sustain their organic growth in the year.
Bus added 19 new routes in 2019, through a combination of local tendered contract wins and starting new services to towns in the shire counties surrounding the West Midlands metropolitan area. Another new route – to Nuneaton – has already been launched in 2020, and in its early weeks is performing ahead of expectations. As we continue to grow our commercial passengers, we will look at further new route opportunities, alongside further growth in corporate sales. Added investment in this team is delivering, with now over 480 corporate clients.
Coach will continue to refine its RMS and digital revenue to secure organic growth through sophisticated pricing and marketing. Nine new routes were launched in 2019 as the business looks to efficiently drive further growth. The new services at Dublin Airport – an up to three-year contract, operated in partnership with Ireland’s largest domestic operator – will provide the opportunity for growth in this adjacent market. The innovative neon on-demand product has had some notable successes in the year, as it fills a gap in high demand festivals and events that the scheduled network is less able to efficiently meet on its own. We are confident this will continue its growth in 2020.
Our UK businesses have also been combining to deliver services in a more efficient manner. At Glastonbury, for example, our bus business ran shuttles to the festival site from Bristol, complementing and integrating with our traditional coach service. This both helped drive a 7% increase in revenue compared with 2017 and secured a higher profit, thereby setting new records for both. Our coach businesses have also recently combined their private hire services under one brand and are already seeing an increase in bookings. We are confident this is a market segment that will continue to grow and offers good opportunities in the future.
Demonstrable successes from our Bus Alliance – such as passenger growth on another new bus lane (Harborne) where we have invested in Platinum vehicles – have helped the region secure £30 million for bus prioritisation in the 2019 Spending Round, the only city region to do so. We are already working closely with the relevant local authorities ahead of the planned Clean Air Zone’s introduction in Birmingham later this year, to ensure we are part of the solution, encouraging car drivers to shift to environmentally friendly buses.
Our NEAT acquisition has drawn on a combination of strong local management and expertise developed in our North American paratransit business to recently enjoy the best operational performance in three years. This has already secured further local contracts and we will look to grow NEAT further, including outside of the West Midlands.
It is because of this success – and the opportunity presented by the ambitions set out in Birmingham’s Draft Transport Plan and the increasingly pro-mass transit trend in local transport policy – that we are determined to be seen as a trusted partner. In an era of increased concerns around climate change, clean air, congestion and inclusive growth, being recognised as a quality mass transit operator that local authorities can trust to help solve their policy challenges will help us drive further growth and shareholder returns.