First Quarter 2011 Interim Management Statement
05 May 2011
External Link: www.nationalexpress.com
Group revenue up 5% on prior year with revenue growth in all five divisions
Normalised profit before tax up 30%; operating profit growth in all divisions
£30 million net capital expenditure, supporting growth in Spain and North America
Further risk reduction delivered; deficit funding plan agreed on UK Bus pension plan
Group on course significantly to improve financial performance in 2011
Dean Finch, Group Chief Executive, commented:
“National Express has delivered a strong first quarter, with improving revenue growth and a significant increase in profitability that builds on the foundations for success we laid in 2010. Our continued cost control initiatives and increased investment programme are both bearing fruit and demonstrate that our strategy is sound and will deliver significant shareholder value over the long term.”
The Group has delivered a strong first quarter, with improving revenue growth and sustained progress in profitability. This progress reflects both the annualised benefit of successful business recovery actions in 2010 and new initiatives introduced in 2011. Robust cost control has combined with successful development of organic growth opportunities across the Group. Trading over Easter has remained good and the outlook for the financial year remains encouraging with the Group on track to significantly improve financial performance in 2011.
Transport revenue in the Alsa business grew by over 3%, continuing the recovery seen in the fourth quarter of 2010. The inter-city division saw growth on routes serving Madrid and improved pricing versus rail. The urban division saw growth from new business, particularly Agadir, which continues to build towards full capacity, whilst existing contract volumes remained robust.
Operating mileage increased by 2% reflecting the continued recovery in demand. With continued delivery of effective cost control, margin was maintained. A significant new partnership contract to operate the Madrid tourist bus service was secured during the quarter, adding to existing services in Mallorca, Malaga, Granada and Marrakesh.
Revenue increased in the North America school bus business by 7%, benefitting from previous contract wins for the current school year, a continuation in organic growth in existing contracts and improved charter volume. In addition, the recent New Jersey acquisition is being integrated and the bidding season for the next school year continues to progress well. Contract retention remains well above 95% and, whilst the bidding process is not yet complete, to date we have secured 350 net new routes, including six conversion contracts, the latter representing a significant increase over recent years.
Building on the $25 million annual cost saving delivered in 2010, a further $6 million of annual cost savings has already been secured in 2011, and the division is on track to deliver the targeted saving of $15 million for the year. Margin in the first quarter improved by almost one percentage point.
Commercial revenue in the West Midlands rose by 7%, with concessionary revenue slightly lower year-on-year, and overall revenue for the division 4% higher. Passenger volume declined slightly, reflecting lower mileage operated and as the West Midlands region slowly recovers from recession, but this was more than offset by rebalancing of the fare basket. A £20 million annual investment in fleet, as part of a five year replacement programme, is underway, which will see 120 new buses added this year and which is expected to drive long term volume recovery through improved customer service.
Cost control is crucial to delivery of a best in class margin in the UK Bus division; successful delivery of network optimisation, driver wage efficiency and progress on the lean engineering programme saw first quarter margin over 4 percentage points higher year-on-year. The majority of employees are now covered by a two-year, 2% per annum pay deal, whilst agreement was reached with the pension scheme trustees over a deficit recovery plan which will see the Company pay £5.5 million per annum, reducing future funding risk and following the successful agreement of a similar plan for the Coach pension scheme in 2010.
Revenue growth in UK Coach was 3%. Growth of 6% in the core express network reflected both improving yield and strong passenger journey demand, with only Stansted airport traffic weaker. This good progress was supported by rising customer satisfaction. Targeted service and marketing investment, alongside the roll out of tracking technology to all services, supported margin improvement during this seasonally quieter quarter. The overall level of rail replacement and airport contract business was lower than prior year. Coach demand has remained firm over the extended Easter holiday period.
Demand has continued to grow in the UK Rail business with revenue 8% higher. Both the East Anglia and c2c franchises have continued to perform well, with c2c’s operational delivery remaining outstanding. Profitability has continued to improve.
Following the disappointing news that the Group had not prequalified for the short-period management contract for Greater Anglia, the East Anglia franchise will terminate on 5 February 2012. Following positive feedback from the UK Department for Transport, we are working to improve our ability to secure future franchises, whilst recognising that continued operation in rail remains an option, rather than a necessity, for the Group and that the success of the UK Bus and Coach businesses is not dependent on a continued presence in rail.
The Group has invested £30 million in the first quarter in fleet replacement and new growth opportunities. Cash generation remains good, maintaining the Group’s commitment to driving value creation through strong cash conversion. Fitch Ratings recently reaffirmed the Group’s stable outlook and investment grade debt rating.
The previously announced process to bring additional non-executive expertise onto the Board is progressing well. The Board hopes to complete the selection process within the near future, with the successful candidates having relevant continental European and North American business experience to complement the Board’s existing skill set.
NOTES TO EDITORS
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