Records achieved; new ambitions set
I am pleased to report another record set of results. All of our key financial metrics are strong and our growth prospects positive. I will provide further detail on them in the following sections. I wanted to firstly outline how our strategy has delivered this success and then set out how our ambition is being raised as we seek to meet the challenges of a new era dominated by broader concerns, such as carbon, clean air and inclusive growth. This is an agenda I welcome as both timely and one that I believe National Express is very well placed to prosper in.
Our consistent, sustained, growth over recent years has been delivered through a relentless focus on operational excellence. This requires each business to rigorously identify what existing and potential customers want and relentlessly ensure we meet these demands in the best and most efficient manner. Where we get that right, we have our best opportunity to secure both happy customers and our strongest returns. It is pleasing, therefore, that both ALSA and North America have had record years, alongside a strong UK performance.
Significant passenger growth (up 5.1% across the Group year-on-year) and important contract retention (in, for example, Boston, Chicago and Bilbao), coupled with a strong Group operating margin, are testament to the success of this approach. Most importantly, the continued improvement in safety performance – with our best ever Fatalities and Weighted Injuries Index score and first responsible fatality-free year on record – demonstrate that our investment, enhanced management systems and culture are delivering crucial improvements. These improvements, most importantly, protect lives, but also reduce insurance costs.
We have continued to expand into new complementary markets, helping to drive future growth. Our experience in Morocco has been a stand-out achievement. ALSA is now the country’s largest operator of urban buses; indeed, we now operate more buses in Morocco than we do in the UK. The successful mobilisation of two major contracts in Rabat and Casablanca has cemented our reputation as the operator to trust. This is a reputation I hope will secure further growth in Morocco.
Our significant acquisition of WeDriveU (WDU) – Silicon Valley’s premier employee shuttle operator – has integrated very well and is outperforming its ambitious revenue targets, with growth of over 30% in 2019. The team is pursuing growth opportunities beyond its traditional geographical and sectoral focuses, by leveraging the National Express brand and network. As part of our growing North America transit operations, we are targeting $1 billion of annual revenue, up from today’s $550 million annualised figure. The divisional reviews contain more detail on our other acquisitions made during the year and we continue to maintain a strong pipeline of acquisition and new contract opportunities.
Raising our ambition for a new era National Express has transformed itself in the last 10 years, turning around a business in deep crisis to one that is consistently delivering record-breaking results and strong returns. Building on these firm foundations, the next decade presents a different set of challenges and, I firmly believe, opportunities.
Customers, government and investors are demanding – rightly – that companies meet the growing challenges around climate change, clean air, congestion and inclusive growth. This is an agenda we embrace. We believe that high quality mass transit is a solution to these challenges. To meet them, National Express has raised its ambition: to be the world’s leading mass transit operator.
To achieve this ambition we will build on the progress we have already made. Our ambition is to build on our safety improvements to become the world’s safest operator. Having pioneered new ways of partnership working – for example, the multiple award-winning West Midlands Bus Alliance – we want to be seen as the trusted partner for customers and governments, consistently delivering excellent services.
We are at an inflection point. As the political priorities and policies of cities from Birmingham to Barcelona show, there is a demand for bold leadership. This is why National Express is building on its existing leadership as the first UK transport group to sign up to the United Nations’ Sectoral Decarbonisation Approach, to pledge that we will:
- never buy another diesel bus in the UK;
- lead the transition to zero emission coaches, with a target for our first electric coaches in service next year;
- set ambitions for our UK bus and UK coach businesses to be zero emission by 2030 and 2035 respectively; and
- include environmental targets as 25% of the long-term incentive plan for all senior executives.
These targets will be subject to annual review, including broadening them to include similarly ambitious pledges in our other divisions.
We are determined to grasp this opportunity and be seen as the trusted partner consistently delivering excellent mass transit to build cleaner, greener and more liveable cities. To deliver this will require a continued focus on operational excellence. It will also be enabled by investment in technology – and the associated management systems – that drives excellence, efficiency and innovation. We firmly believe that it will also open up new sources of growth to complement the strong pipeline we have in place and a continued determination to drive organic growth.
This is perhaps the most exciting time to be in mass transit in at least a generation.
Financial performance highlights
National Express had a very strong year across all key financial metrics. Group revenue increased by 10.2% on a constant currency basis (12.0% on a reported basis). Revenue growth has been delivered across each division with performance particularly strong in our overseas businesses – both North America and ALSA enjoyed record growth of 11.1% and 11.7% respectively, on a constant currency basis.
Group normalised operating profit increased by 13.1% to a new record of £295.3 million on a constant currency basis, up 14.6% on a reported basis (2018: £257.7m). Both North America and ALSA again set new records, with North America achieving the highest rate of profit growth at 21.4% in constant currency.
These results benefitted from £3 million of currency translation, driven by the weakening of Sterling against the US Dollar. Normalised profit before tax increased by 7.8% on a constant currency basis, and 9.1% on a reported basis, to a new record of £240.0 million (2018: £220.0m). Group statutory profit before tax also increased by 5.2% to another new record of £187.0 million (2018: £177.7m). Group normalised operating margin is up 30 basis points year-on-year to 10.8% (2018: 10.5%). Excluding the impact of IFRS 16, Group margin is flat as North America’s increase has been offset by higher Moroccan fuel costs alongside the mobilisation of the Rabat and Casablanca contracts.
We have sustained our consistent record in recent years of strong and growing shareholder returns. Our free cash flow has beaten expectations at £178.7 million (2018: £198.6m), despite increased investment in the year. Normalised earnings per share (EPS) again grew, up 4.9% to 34.5 pence (2018: 32.9p). EPS growth is lower than profit growth as the 40% of WDU that the Group does not own is attributable to the minority owner. This impact will unwind as the Group takes up its options.
This performance again allows us to propose a 10% increase in the full year dividend to 16.35 pence (2018: 14.86p).
I remain confident in our growth prospects. Across the Group our focus on operational excellence combined with strategic acquisitions will continue to drive growth and shareholder returns.
We maintain a good momentum into 2020. We will benefit from a full year of earnings from our significant contract retentions – on improved terms – in Boston, Chicago and Bilbao, alongside the contribution from major new operations in Rabat and Casablanca. Our 2019 acquisitions, especially WDU, will add further growth and we retain a strong pipeline of further opportunities in all divisions. We will remain focused on securing organic growth across the Group and combine this with close cost control – through examples such as the Master Schedule programme in North America – to drive cash generation and maintain strong margins.
As our refreshed Vision and Values demonstrate, we will continue to adopt a partnership approach. In an era of increased focus on climate change, clean air and congestion, recent announcements of pro-mass transit policies by national and local governments demonstrate the opportunity of being seen as a trusted, high quality operator. We therefore continue to invest in our industry-leading safety and excellence programmes to ensure we are seen as a partner to solve these challenges. Our zero emission commitments are a clear example of this.
From our foundation of consistently strong financial performance we continue to focus on operational excellence, combined with strategic acquisitions, to drive future expansion and secure sustainable and growing shareholder returns.
Group Chief Executive
27 February 2029