National Express reports solid quarter despite tough UK conditions

Passenger transport operator National Express Group reported a 12.3% improvement in group normalised profit in a trading update for the three months to 30 September on Thursday, which translated to a 14.9% improvement at constant currency.

The FTSE 250 company said that was an improvement on the 11% growth it reported at the half-year.

Group revenue was up 6.4%, or 4.8% in constant currency, with the board claiming “strong” passenger growth across the group of 2.5%.

It said it was on course to deliver group profit, free cash and leverage targets for the year.

National Express said its international divisions continued to deliver “strong growth”, with Spanish bus division ALSA seeing a “particularly strong” summer performance with passenger numbers up 4.1% and underlying revenues rising 2.1%.

“This revenue increase consisted of growth in both Spain, particularly as the benefits of our real-time revenue management system (RMS) continue to be realised, and Morocco, as a new fare strategy reversed the declines seen in the first half of the year,” the board explained.

Occupancy rates on the routes with RMS in place again increased, up 2% year-on-year, and no Ministry of Public Works coach concession tenders had been started in the period, giving the board confidence that there would now not be any impact from the renewal process in 2018.

ALSA remained on course to deliver a record performance in the year, National Express claimed.

Its North America division saw revenue growth accelerate to 13.7% in the period, with both organic growth and strong progress in “interesting” new markets.

“We have significantly grown our presence in the charter market, through a combination of acquisition and organic growth,” the board said.

“We have a new national team in place focused on converting a strong pipeline of growth and see significant future potential here.”

It also continued to grow its North American transit business, winning a further five contracts in the current year.

Annualised revenue more than doubled in the last 18 months to more than $280m, and the company was said to have “many further opportunities” to pursue.

The period also saw “particularly pleasing” results in what the board called a challenging UK market, with both UK bus and UK coach driving growth in the period through “sophisticated pricing” and management action.

UK bus increased revenue per mile by 2.4% in the period, which was reportedly achieved by both growing like-for-like commercial patronage - up 0.6% in the period - and reducing service mileage by 2% to better match seasonal demand over the summer:

“Our low fare zones continue to be successful, with the first two driving a combined 4% patronage growth and a 2% increase in revenue; a further 13 pricing initiatives are now in place to promote further growth,” the board said.

“These actions are combining to deliver improving revenue growth every month and have seen UK bus' 1.4% decline in year-on-year revenues at the half year, change trajectory to a 0.2% increase in the period.”

National Express said the improved performance also translated to an increase in UK bus profit by £1m year-on-year in the period.

UK coach continued to grow both revenue - up 1.2% - and patronage - up 3.1% on core coach services - in the period.

The board said the division had responded to the challenges of competition and the impact of terrorist events, using its RMS to adapt pricing and drive passenger growth.

Both UK bus and UK coach saw “particularly strong” performances in September, giving the company further confidence for the rest of the year.

“Our focus on operational excellence drives our service performance to customers, sales growth and the operational efficiency that secures strong returns,” the National Express board said on its strategy.

It pointed out that both UK bus and UK coach now had 5-star British Safety Council and European Foundation for Quality Management ratings, which it claimed were “key indicators” of a well-run business.

“Across the Group we continue to invest in technology that drives service improvements and efficiencies,” it said, pointing to the DriveCam smart camera technology which was being rolled out, and was both reducing collisions and bringing down costs by around a third where installed.

The company’s real time active revenue management system in UK coach and ALSA continued to drive incremental revenue improvement and occupancy rates, and the company continued to grow digital sales, which the board said provided a “more efficient and targeted” method of sale.

More than 10% of UK bus' commercial revenue now came through the company’s m-ticketing mobile platform.

“Across the group we have also delivered significant cost savings in the year,” the board claimed, saying UK bus and UK coach had combined some back office functions and streamlined operations after the company’s exit from UK rail, delivering an annualised saving of £10m.

The North America operation had also undertaken an efficiency review, and secured $10m of annualised savings helping to offset wage pressures.

“These strong returns are being deployed to underpin investment in growth and acquire new businesses in our fastest growing markets,” the board explained.

“We continue to actively pursue further acquisitions in North America and ALSA, retaining our strict discipline on returns, with a number in advanced negotiations. Our recent acquisitions are also opening new growth opportunities.”

Its North American business' acquisition of the demand-responsive transport technology company Ecolane last year had brought in new contracts directly, and had also helped secure other transit contracts through joint bids, the board said, adding that there remained further opportunity there for group-wide collaboration.

In July, National Express completed the “significant acquisition” of Cook-DuPage Transportation, securing entry into the largest paratransit market in the US - Chicago.

Integration had reportedly progressed well, which the board said further strengthened National Express’ credentials in the sector.

In the period, ALSA won a sightseeing contract in Tenerife and began operating a bus rapid transit operation in Marrakesh, Morocco.

UK bus and UK coach secured additional contract work in the quarter as well, sometimes bidding jointly to offer “comprehensive credentials”.

Successes in the period included major staff bussing and British Airways interlining contracts, with the board saying it was active in further joint bids.

In German rail, passenger numbers grew 1% in the period and revenue increased 20.7% in constant currency, as the company continued to see the benefit of the recognition of prior years' revenues not included in the 2016 accounts.

The Rhine-Ruhr Express contracts mobilisation remained on-track.

“We have delivered another strong performance and remain on track to deliver our targets for the year,” said National Express group chief executive Dean Finch.

“I am pleased that we have both successfully addressed our challenges and exploited our strengths.

“We have reversed UK bus decline; continued to secure growth in UK coach despite the impact of terrorism; enjoyed perhaps our best summer in Spain; and secured a very strong school start up in North America, allied with the emergence of additional exciting growth opportunities.”

Finch said the company would retain a “relentless focus” on efficiency, delivering both competitive prices for customers and a strong cash flow.

“Through this I am confident that we will continue to deliver growth and the returns for further investment in both our fastest growing markets and the new technology which is already delivering real benefits and promises much more to come.

“This momentum will be further underpinned by the significant fuel cost savings we will see in 2018,” he added.

“Fundamentally, this underpins our determination to deliver ever-improving shareholder returns, building on our recent performance.”