Chief Executive Officer's statement

Over and above this, demand for transport is expected to increase by up to 30% by 2030, putting more pressure on roads, and increasing congestion and air pollution. At the same time, the world needs to cut carbon emissions to achieve our shared climate goals. Private cars are the primary driver of carbon emissions: pre-pandemic, cars generated 70% of surface transport emissions in the EU. Modern diesel cars each produce more nitrogen dioxide than a modern diesel bus full of passengers. More importantly, as we transition to a Zero Emission Vehicle future, a passenger taking a journey on an electric bus rather than in an electric car can save well over 10 times total lifetime carbon emissions, and that bus can take 70 cars off the road, significantly reducing congestion and freeing up liveable spaces.

Modal shift from private cars to public transport therefore remains the single most important driver of reduced emissions and congestion. Governments around the world are increasingly aware of this and are adjusting policy towards greater use of public transport to meet their decarbonisation and clean air targets.

In 2021 we launched our Evolve strategy, rooted in our vision to be the world’s premier shared mobility operator with leading levels of safety, reliability and environmental standards that customers trust and value. This, in turn, is embedded in our purpose, to lead the modal shift from cars to shared mobility. A 1% modal shift from cars to buses would increase bus passenger journeys by 23% and Evolve provides clarity in terms of both the significant potential growth ahead and the path towards it. At our Capital Markets Day in October we set ambitious targets for the years ahead:

• A further £1 billion of revenue growth by 2027 compared with 2022. 
• Operating profit margin averaging around 9% over the coming years, with more than £100 million of additional profit in 2027 compared with 2022.
• Cash conversion averaging over 80% a year, with a target to generate at least £1.25 billion of free cash between 2022 and 2027 inclusive.

Core to Evolve are five compelling customer propositions, each enabled by our focused application of technology, delivering superior outcomes for all our stakeholders. We have already made progress in 2021 in each of the five customer propositions.

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The majority of our businesses rapidly returned to 80% or more of pre-pandemic patronage at peak last year. We will inevitably see some unevenness over the year ahead, but we now have six quarters of increasingly positive demand trajectory to build from. Whilst the impact on the Group is expected to be limited, we note the tragic events unfolding in Ukraine and our sympathies go to those affected. Fuel prices have risen significantly in recent days, but we had already fully hedged our fuel requirements for 2022 and the increased cost of operating a private car has the potential to drive modal shift into public transport.

We expect to continue to rebuild our revenue base during 2022 as we position the business for accelerated growth going forwards, and anticipate delivering revenue close to 2019 levels in 2022.

As set out at the launch of Evolve at our Capital Markets Day, we expect an average profit margin of 9% in the period 2022 to 2027, and to have fully recovered to pre-pandemic margin levels of around 10% in the later stages of that period. However, in the short term we expect the recovery in profitability to lag our revenue recovery, and hence for margins initially to be below our target 2022 to 2027 average, due to the additional investment required to rebuild patronage; the current shortage of drivers we are experiencing in our North America School Bus operations; and an elevated level of cost inflation that has partially offset the structural cost reductions we have made.

We remain focused on return on investment and cash generation, and anticipate free cash flow conversion in 2022 at around the pre-pandemic average of at least 60%, with ongoing actions to minimise maintenance capex and utilise availability arrangements to source vehicles. Over the medium term we are targeting an average free cash flow conversion of at least 80% for 2022 to 2027, as set out at our Capital Markets Day