National Express Group PLC Interim Management Statement

National Express Group PLC (National Express or the Group) reports its Interim Management Statement for the period from January 1 2016 to April 30 2016 (the period).

Overview

The Group has made a strong start to the year, with total revenue up 11% in the period on a constant currency basis, including the benefit from acquisitions and the start of German rail operations in December 2015. After adjusting for these new operations, revenue was up 4% on an underlying basis. All divisions achieved an increase in revenue, supported by total underlying passenger growth across the Group of 3%. The Group remains on target to deliver its profit expectation and free cash flow and leverage targets for the year.

Highlights

Our strategy of consistently focusing on operational excellence to drive cash and returns, as well as opening up new growth opportunities, continues to deliver.

Delivering operational excellence

Group profit before tax is up year-on-year on a constant currency basis, despite higher bid costs and a significant increase in the c2c franchise premium.
UK Bus had commercial revenue growth of 3%, with passenger volumes broadly flat. These results demonstrate that our partnership-based strategy continues to yield results.
4% underlying revenue growth in UK Coach, which was achieved despite a notable reduction in passenger numbers immediately following the terrorist attacks in Brussels in late March. Despite this, passenger volumes grew by 6% in the period. We expect revenue growth to recover from this weak April through to the half year, based on improvements starting to be seen in advance bookings.
7% like-for-like growth in passenger journeys at c2c. Following a surge in demand after the introduction of a new timetable in December 2015, agreement has been reached with the Department for Transport to bring 24 carriages into service later this year, three years ahead of schedule and at no net incremental cost to the Group.
Passenger growth of 5% and revenue growth of 3% in Spain in the period, driven by further progress on Revenue Management as well as new contract wins and the acquisition of Herranz in December 2015.
Morocco saw more than 50 million passenger journeys during the period, a growth of 11% year-on-year. Our operations in all four cities grew passengers and revenue and we now carry more passengers in Morocco than Spain.
The North American School Bus bid season is well-progressed and has continued our very high retention rates, with 96% of contracts retained to-date. Where contracts have been renegotiated or renewed we have secured an average rate increase of 5%. This has resulted in an average increase across the entire portfolio of more than 3%. North America has had the best start to the year it has ever enjoyed, in part benefiting from less weather disruption than previous years.
Continued growth in Transit, including securing a three year extension and $2 million of additional revenue from new routes on the largest contract acquired as part of the Trans Express purchase in June 2015.
Successful mobilisation of German Rail operations: more than six million passengers carried already in 2016, in-line with expectations; punctuality and services operated already ahead of previous operator’s performance with a steady improvement over the period. Consequently we expect our German rail operations to break even in the current year.
Celebrated first full year of operations in Bahrain, where we now carry more than one million passengers on our buses every month.

Creating new business opportunities

Completed two acquisitions in North America during the period, adding 400 school buses (including 170 for special education contracts), 80 transit vehicles and $40 million of annualised revenue. These acquisitions have been made for a combined purchase price of $20 million.
UK Bus has signed corporate transport agreements with, amongst others, Amazon, Jaguar Land Rover and Birmingham Airport.
Progressing with clarification phase of East Anglia bid, on which a decision is expected in July.
Preparing to submit bids in June for Manchester Metrolink and a German rail bid, both of which are gross cost, capex-light contracts.
We continue to deal with legal and political processes in respect of the contracts awarded to us in Nuremburg and Porto. We now do not expect resolution before the second half of this year.

Generating superior cash and returns

We remain firmly committed to our full year targets of free cash flow of £100 million and leverage of 2-2.5 times EBITDA.

Dean Finch, group chief executive, commented, “I am pleased that we have carried our strong momentum from 2015 into the first third of this year, achieving growth in passenger numbers and an increase in revenues across all divisions. Our established businesses continue to grow, year-on-year, and our new businesses in Germany and Bahrain are already carrying millions of passengers, through a combination of innovation, partnership and customer service, underpinned by a relentless focus on operational excellence. We also believe this experience helps position us well for other emerging opportunities.

“It is these successes that convince us that our strategy of diversification into new markets in a measured way, when the conditions are right, remains the right one. We are building a business with a balanced risk profile and limited exposure to individual contracts. In North America, for example, over 90% of our revenue comes from contracts we have held on average for more than 10 years and where we wish to retain these contracts, we have consistently secured a success rate in excess of 95%. We will also continue to seek out long-term and capex-light opportunities which meet our strict financial criteria. We remain on track to meet our full year profit and cash flow expectations.”

There will be a conference call for investors and analysts at 0800 on 11 May 2016. Dial in details are as follows:

UK Toll Number: 02031394830
UK Toll-Free Number: 08082370030
Participant pin: 40873384#