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 July 2014 to date (“the period”).
During the period, the Group has continued its strong progress. Profit before tax in the third quarter was nearly 15% higher than the same period last year, progressively recovering the one-offs and currency translation impacts experienced in the first half of the year through the delivery of revenue growth, performance improvements and cost efficiencies. We are on target to meet our profit and cash expectations for the full year.
Notable achievements have included:
- We have won new contracts and retained key concessions:
- Won a 10-year contract to run bus services in Bahrain, opening up the Middle East region for further growth;
- Retained and grown our largest Spanish concession to have come up for renewal so far – a €600 million total revenue contract for regional coach services in the Bilbao metropolitan region for up to 15 years;
- These achievements are built on the important successes earlier in the year, including: the retention of the 15 year, £4 billion Essex Thameside (‘c2c’) rail franchise; renewal of our largest US Transit contract (‘The Ride’ para-transit services in the Boston area); retention and significant growth of our Memphis School Bus contract, becoming our largest contract in the US; successfully commissioning our new Moroccan bus franchise in Tangiers.
- We have grown passenger numbers and revenue in every division this year:
- UK Bus has delivered 4% total revenue growth in the period and 3% year-to-date;
- Revenue is growing in Alsa with the successful roll out of revenue management in Spanish coach operations. Passenger volumes are now growing on all but one of the rail competed corridors and revenue has now recovered to the prior year level, delivering rapid progress;
- UK Coach has continued to build on last year’s success, carrying 5% more passengers in the core express network year to date;
- North America has grown its number of routes, on the back of 98% targeted contract retention in the recent bid season;
- UK Rail has grown both revenue and passenger numbers and is well advanced on new franchise mobilisation.
- We continue to focus on driving strong cash generation and capital discipline:
- We are on course to deliver our full year free cash flow target of £150 million, delivering nearly £500 million between 2012 and 2014;
- We are deploying capital selectively to protect and grow the business, investing in over 250 new buses over the next 12 months in UK Bus;
- Our core diversified markets limit exposure and provide good growth potential;
- We will continue to focus on cash generation in the coming years, developing capital light opportunities, reinvesting selectively in growth projects and driving shareholder value
Dean Finch, Group Chief Executive, commented:
“We have made good progress this quarter. We have won new contracts, renewed key concessions, and increased revenues in every division. Our profit last quarter was up on the same period in 2013, helping to offset the one-offs of the first half year. Our cash generation continues to be strong and will remain a focus for the business.
“This quarter again demonstrates that our strategy, rooted in excellent operational performance and customer service, is delivering retention and progression in our existing markets and securing expansion in to profitable new business. It is an approach we are determined to build on as we look at other opportunities in the coming months and years.”
The UK Bus division performed strongly in the period with growth in both revenue and profit. Commercial revenue grew by 4% in the period, with concessionary revenues 3% higher, and passenger numbers up 1% in the year to date. We are delighted that our pioneering partnership with Centro – especially through our ‘Transforming Bus Travel’ agreement – won the Transport Partnership of the Year at the recent National Transport Awards. This agreement provides a stability that has delivered record rises in passenger satisfaction measured in recent Passenger Focus surveys and encourages us to invest – we will replace more than 250 vehicles over the next 12 months.
Again, working closely with Centro, we are leading the industry with our partnership on smartcards. We have already seen revenue growth following the successful transition of multi-operator tickets to smartcards, and are progressively rolling out new ticket types onto our ‘Swift’ card. We believe that the growth of smartcards, and the improved customer data that they bring, will continue to be a key driver of revenue growth and customer satisfaction.
UK Bus has also increased sales of student travel products, implemented a JobCentre programme to assist job seekers and is growing its contract services – securing Commonwealth Games services, Coventry City FC travel and a tender for the new Jaguar i54 plant during the period. We are also progressively replacing the Midland Metro fleet with brand new, longer trams.
UK Coach continues to grow passenger numbers and revenue. A good summer performance saw core express passenger numbers rise 2% in the period. With last year’s major distribution wins now fully embedded, year to date core express revenue is up 5%. Building on a successful distribution partnership with the UK university admissions service, UCAS, we have added more university destinations.
UK Coach is also winning new contracts. We have signed a new distribution agreement with easyBus to utilise our core express services and are progressing a number of growth and contract opportunities in our airport business. The Kings Ferry has expanded its contract operations - including running services for the recent NATO summit in Wales – and is working closely with the UK Bus business to utilise spare fleet on contract wins.
Having reviewed the initial performance of our German Coach operation through its second summer, we concluded that pricing and volume were likely to remain unattractive and therefore discontinued these services.
Rail revenue has increased 5% year to date. c2c has maintained its industry-leading punctuality performance at 96.3%. Our leadership of the DfT’s smartcard project has seen c2c launch smart season tickets into London, following the successful roll out of day and off-peak tickets earlier this year.
Mobilisation plans for our new franchises are at an advanced stage and on target. The new Essex Thameside franchise for c2c starts on 9 November, with revenue initiatives and new customer information systems ready to launch. In Germany, the Rhine Münsterland Express will commence operations in December 2015 and we expect profitability to be ahead of plan. The first trains have already been delivered. We were disappointed not to be awarded the ScotRail franchise, after a very competitive bid that lost on the narrowest of margins, but we have an active pipeline of further rail opportunities in the UK and Germany.
Our North America business has been successful in securing profitable contracts, delivering high customer service and then retaining those contracts at bid renewal. The Memphis conversion contract is now our largest School Bus contract, growing three-fold on renewal this summer. The new contract started successfully in early August, helping drive 3% underlying revenue growth in North America in the period.
Similarly, the renewal and expansion of our largest Transit contract, providing para-transit services in the Boston area, has seen this 2011 acquisition almost fully paid back in cash generated. The renewal has been secured at a typical margin level for the market. We have also added an additional contract in Arizona during the period.
Year to date revenue is up over 1%. After the adverse revenue impact of the exceptional weather earlier in the year and our focus on increasing returns by exiting under-performing contracts, revenue is growing, driven by our success in winning new contracts, securing pricing improvements in existing contracts and through organic growth in existing routes. As a result, good progress is being achieved in recovering the adverse profit impact of the severe weather.
In Spain, domestic passenger volume was up 1%, reversing the earlier adverse trend. Intercity coach performance was particularly good, with improved consumer confidence evident and continued success from the roll out of revenue management on rail-competed routes – on the latter, average passenger volume was 2% higher in the period than the prior year and revenue has recovered to the prior year level.
Success in new wins and in contract retention continues. Start-up of the Tangiers concession drove Morocco revenue growth of almost 30% in the period. In the Basque region, Alsa renewed the Bizkaia concession, its second largest revenue contract. Acquired in 2008, Alsa has grown both profit and service level on this concession, securing Bizkaibus for a further 10 to 15 years. This emphasises Alsa’s success in winning, improving and retaining its key concessions. Spain also renewed a maintenance contract for 179 buses in Mallorca for a further 5 years. We continue to see new contract opportunities in Spain and Morocco.
Building on our Moroccan successes, in September we secured a contract to operate the Bahrain bus service, in joint venture with a local partner. The joint venture will operate 141 buses over a 10-year contract without passenger revenue risk, with further growth potential. This contract also opens up the Middle East for further expansion and we have already been shortlisted for another contract in the region.
Net debt at the end of September was £50 million lower than in September 2013 and we remain on track to deliver our target free cash flow of £150 million in 2014. We are deploying capital selectively to protect and grow the business, investing in replacement fleet as required. We will continue to focus on cash generation in the coming years, developing capital-light opportunities, reinvesting selectively in growth and driving shareholder value.
The Group will announce its results for the 12 months to 31 December 2014 on 26 February 2015. There is no scheduled trading update before that announcement.
National Express Group PLC
|Michelle Dovey, Director of Capital Markets||07767 603386|
|Anthony Vigor, Director of Policy and External Affairs||07767 425822|
|Nathalie Falco||020 7379 5151|
Unless otherwise indicated, revenue is stated on an underlying basis, which compares the current year with the prior year on a consistent basis, after adjusting for the impact of currency, acquisitions and disposals. In UK Bus, commercial revenue is that from fare-paying passengers and excludes concessions and contracted services. In UK Coach, core express revenue is that from the scheduled National Express network.
The c2c Public Performance Measure (PPM) of punctuality is stated on a moving annual average basis to 11 October 2014.
Profit is stated on a normalised basis, before exceptional costs and intangible asset amortisation (as defined in the press release for the Half Year results for the 6 months ended 30 June 2014).
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).