National Express Group PLC (LON:NEX) have today provided full year results for the year ended 31st December 2020.
Resilience in adversity; prepared for recovery and growth
Following a strong start to the year, 2020 was dominated by the impact of Covid-19 across all of our businesses as governments across the world curbed travel to restrict the spread of the virus. Our priorities were the safety and wellbeing of our customers and employees as well as protecting the financial position of the Group. Across the business we have reduced costs, exited certain contracts and accessed government support schemes, to ensure that when we emerge from the pandemic the Group will be leaner, fitter and financially stronger. Our confidence for the future has been reinforced by the improvement in EBITDA and cash generation we delivered in the fourth quarter, the strongest quarterly performance for the year. After taking action to strengthen the balance sheet, we have ample liquidity and headroom to lending covenants and the ability to continue to invest in the growth of the business. With lockdowns and restrictions still in place in many territories, the outlook for the current year and the timing of the recovery remain difficult to predict, but it is encouraging that we continue to win new and retain existing contracts. Furthermore, when travel restrictions have been lifted, we have seen a rapid recovery in demand.
|Group Underlying1 Operating (Loss)/Profit||(£50.8m)||£295.3m|
|Group Underlying1 PBT||(£106.1m)||£240.0m|
|Underlying basic1 EPS||(14.6p)||34.5p|
|Group Operating (loss)/profit||(£381.4m)||£242.3m|
|Free cash flow||(£178.7m)||£178.7m|
Financial and Operating highlights
· Very strong performance pre pandemic, with revenue up 17% in the first two months
· Proactive engagement with customers and authorities to limit revenue reduction and wide-ranging cost reductions to limit avoidable losses
· Group EBITDA for the year of £186.6 million towards the top end of the guidance we gave in November
· After separately disclosed items, a statutory loss of £326.7 million
· Trajectory building with the fourth quarter being the strongest this year for EBITDA and with positive free cash flow generated in the second half
· Material structural cost savings in every division
· £1.9bn in cash and undrawn committed facilities
· Net debt reduced by £400 million in second half to £941.6 million
· C.£900 million of new contracts won across all Divisions including a first entry into Portugal
· Further progress on decarbonisation targets with the introduction of EV and hydrogen buses
Ignacio Garat, National Express Group Chief Executive said:
“I am immensely proud of the performance of the National Express team in tackling the challenges faced in the past year and I have been impressed by the professionalism and dedication of my colleagues across the Group, who have done an outstanding job in delivering safe and reliable services for our customers during the most testing of times.
I am also grateful for the support we have received from both customers and authorities, which demonstrates not only the essential nature of our services but also the strength of the relationships that we have built and the extent to which we are perceived as a trusted partner. This partnership approach, and the non-discretionary nature of the majority of our services positions us well for a strong recovery as travel restrictions are lifted in the months ahead. This is boosted by the sustainable cost savings made, and new contracts won during the period.
As a business we have an important role to play in modern society and I want us to continue to be at the forefront of the debate on climate change and the role we can play in social mobility. We have a strong and diverse international transport platform that has demonstrated its resilience in recent months. We have a clear set of priorities to ensure we will return to growth in a prudent and safe manner. We will be competing to win”
1. To supplement IFRS reporting, we also present our results on an Underlying basis to show the performance of the business before intangible amortisation for acquired businesses. Given the unprecedented nature of the Covid-19 pandemic in this period, we have also excluded certain costs arising as a direct consequence of the pandemic from Underlying results (detail is provided on 16). In addition to performance measures directly observable in the Group financial statements (IFRS measures), alternative financial measures are presented that are used internally by management as key measures to assess performance. Further explanation in relation to these measures can be found on pages 23-24.
2. 2019 net debt is re-presented for the transfer of £17.5 million out of net debt in respect of vehicle leases entered into in 2019 to fulfil contracts that have been deemed to be in scope of IFRIC 12. The effect of this re-presentation is to reduce 2019 closing net debt by £17.5 million compared with the previously reported figures.
Group Chief Executive’s Statement
I was delighted to be appointed Chief Executive Officer in November 2020. Whilst I join the company in testing times, my first few months have served to reinforce my belief that National Express is a strong business, with a highly diversified international portfolio of quality businesses with a fantastic reputation for safety, operational excellence and customer service, led by strong management teams with powerful growth potential. I am also excited because public transportation plays a critical role in driving social mobility as well as tackling the environmental challenges of air quality and congestion in our cities.
The travel restrictions imposed across the world in response to the Covid-19 pandemic have taken a severe toll on public transport and as such, the financial results this year have been materially depressed. Notwithstanding the challenges imposed by lockdowns, our colleagues have done an outstanding job of keeping services running as and when restrictions have allowed, keeping customers safe and mobile, often with very short notice.
I am also proud to see the way our teams across the world made enormous efforts to assist with food parcel deliveries, emergency transit and numerous other valuable community services during periods of lockdown.
Early engagement with colleagues across the Group has been key. I have conducted nearly 200 one-to-one meetings with management and connected directly with over 2,000 employees at multiple levels in each of our businesses, in person where local conditions have allowed and also by virtual means. This has given me a great insight into how each business operates and I have been impressed by the passion and dedication of the colleagues I have met. I have also met and listened to key stakeholders, including shareholders, customers and government officials, all of whom have provided a valuable external perspective and given me an understanding of their expectations and desires. It is clear to me what our priorities are:
· to continue to protect the safety and welfare of both our customers and employees;
· to ensure that as we emerge from “lockdown” we maintain our strong operational platform and the highest standards of safety;
· to continue to remove unnecessary cost and maintain the savings we have already achieved; and
· to take decisive action where we have contracts and businesses that do not meet our returns criteria and exit them where necessary.
I am pleased to report that this is already underway and we have identified, and accelerated the execution of, divisional ‘big deltas’ that will drive further operational performance improvement in 2021. For example, in North America, we have launched the ‘Driving Excellence’ programme to standardise and optimise operating processes across School Bus depots with encouraging early signs of performance improvements. Running in parallel to these initiatives we will be retaining our focus on the relentless optimisation of capital deployment across the business. We have exited some non-core businesses in our North American Transit business and our small bus operation in Dundee.
Finally, whilst I do not believe there is a pressing need for radical change, I have initiated a wide-ranging business review to identify areas where we can improve our existing businesses and unleash the potential for sustainable growth. We want to ensure we “compete to win”. The key areas we are looking at include:
· where we participate: identifying areas we can grow services in existing geographies as well as potential new geographies we should target;
· what we offer where we participate: what our go to market strategies need to be; and
· how we operate: optimising processes and better leveraging digital capabilities as the “NX way”.
We will give further details of our plans once the reviews are complete.
Assessing the business
As I said above, I believe National Express is a great business with many strengths and opportunities. We have three strong divisions, all with leading positions in their respective markets and with multiple growth opportunities ahead. There is a good balance of B2B and B2C services across the Group and a strong base of contracted revenue, an increasing proportion of which is subject to little or no demand risk.
The Group’s long standing strategic priorities of operational excellence, leveraging technology, and driving compounding growth have delivered strongly over the years and lay a solid foundation for post-Covid recovery. The unrelenting focus on customer satisfaction and industry-leading safety credentials further underpin the strength of this business.
Building on a strong tradition of operational excellence, there is scope to narrow the span of performance across the Group – to learn from the best of internal class and to leverage these learnings more widely. We are continuing to implement greater standardisation of operating procedures and processes across the Group.
I also believe that digital will continue to play a key role in improving performance, both operationally and commercially. We have already seen great benefits as a result of the investments made in safety technology; customer facing applications such as enhanced websites, mobile apps and contactless payment systems; and commercial tools including our CRM and Revenue Management systems. Investment in these areas will continue.
Beyond the numbers
National Express will continue to focus on growing revenue, profit and cash flow to generate superior shareholder returns, but our performance is rooted in something much deeper than simply generating financial results.
Public transport has a vital role to play in tackling the global challenge of climate change, with the provision of high quality, cleaner and greener buses and coaches providing solutions for congested and polluted cities and social mobility for their citizens. National Express has already announced its ambition to move to a fully zero emission fleet in the UK and we have made good progress in the last year with our first electric buses now running across our networks in the West Midlands. There are exciting developments coming for 2021, with Coventry as the first electric bus city and the mobilisation of an ambitious hydrogen bus operation in Birmingham. Our ambition for the UK is just the start and we will set similarly ambitious targets for all parts of the Group this year. We are already operating zero emissions vehicles in ALSA (where we are testing electric buses against hydrogen) and in North America where we are operating a trial operation in New York ahead of the Biden administration’s ambitions regarding the electrification of 500,000 school buses.
Our impact goes wider than helping to reduce pollution and congestion. Safety is already deeply embedded within our culture and I see this as an ongoing priority for the benefit of both our customers and employees. It is pleasing to see the Group’s safety excellence continuing to be recognised with both UK bus and coach retaining their five star ratings on safety audits conducted by the British Safety Council and the Director of Safety for WeDriveU being recognised as a “Rising Star of Safety” by the US National Safety Council.
National Express was the first public transport operator to become a Living Wage Foundation accredited employer and we need to ensure that we continue to provide well paid and rewarding careers for our staff. Our ongoing work on Diversity and Inclusion as part of a wider focus on employee engagement is equally important in ensuring we continue to attract, develop and retain the best people to continue to deliver great business results. We have increased the focus on employee communication in these unprecedented times, ensuring that despite home-working and furloughs, we continue to engage with our talented colleagues and are doing all we can to ensure consistent resumption on activities when restrictions are lifted.
Looking to the future
This is a great business that was performing strongly ahead of the pandemic. We have acted swiftly and decisively, and we are well positioned to emerge strongly as the impact of Covid-19 recedes. Vaccination programmes are picking up pace and we see an improving trajectory in each of our businesses as the year progresses. None of the macro trends in favour of public transport have been changed by Covid-19 and there are three fundamental reasons for my optimism in the continued success of National Express.
Firstly, public transport matters. Put simply, well run, quality public transport can transform lives. We enable people to travel to work, school and leisure activities by providing safe, reliable and great value services in a way that helps them reduce their carbon footprint. In these unprecedented times, this kind of social mobility is even more important in enabling economic recovery by providing safe access to work, education, retail and leisure.
Secondly, Governments are looking for ways to retain the gains made in air quality in 2020. This will continue to drive Government policy commitments around clean air and public transportation funding such as the Birmingham Clean Air Zone, low emission zones (LEZs) already operating in Madrid and Barcelona and with plans being developed for all cities and towns with more than 50,000 inhabitants to set up LEZs by 2023, while in the US President Biden has declared a policy objective for all new school buses to be zero emission by 2030. All of these create growth opportunities for the Group.
Thirdly, we continue to see opportunities for further diversification, either from filling the spaces in our current markets with services we offer elsewhere (such as our entry into paratransit in the UK last year) or into new proximate markets such as Portugal and France. Throughout the pandemic, our strong reputation for service and safety and our close relationships with customers and partners has been demonstrated by new and retained contract wins and will continue to provide a great platform for future growth.
It is encouraging to see that when restrictions have been lifted, demand for our services has quickly returned and I am confident of a full recovery over time, with many of the actions we have taken in the past year resulting in a more efficient business able to grow at pace.
Revenue for the year declined 29% vs. 2019 driven by the extreme travel restrictions in response to the pandemic. After significant cost reduction activity, this flowed to EBITDA of £186.6 million, at the higher end of guidance, with the trajectory of both revenue and EBITDA delivery improving each quarter. This means that after last year’s record £295.3 million Underlying Operating Profit, the Group delivered an Underlying Operating Loss in 2020 of £50.8 million and a statutory loss after tax of £326.7 million (2019: £148.3m profit). The Balance Sheet was strengthened with £1.5 billion of new equity and committed borrowing facilities and net debt has been reduced by over £280 million year-on-year with £1.9 billion in cash and undrawn committed facilities available at the year end.
Performing strongly before Covid
The year started very strongly, with revenue up 17% in the first two months of the year and with all businesses performing well: In ALSA, revenue grew by 23%, driven by underlying growth of 6% boosted by the new contracts in Rabat and Casablanca; in North America revenue was up 16%, largely driven by growth in our transit and shuttle businesses, where the renewal of our two largest transit contracts in the fourth quarter of 2019 flowed through and the acquisition of WeDriveU in April 2019 boosted growth; and our UK businesses saw revenue grow by over 5%, with broad-based underlying growth in both our bus and coach businesses augmented by the acquisition of National Express Accessible Transport (NEAT) in August 2019.
Navigating the crisis
Covid-19 had an immediate and unprecedented impact on all our businesses from March onwards, with an 80% drop in passenger demand following the introduction of lockdown measures. We took swift action to protect the safety and wellbeing of customers and colleagues, with PPE promptly distributed, cleaning regimes enhanced, and vehicle layouts reconfigured to enable social distancing. Wherever possible colleagues have been encouraged to work from home, with technology and processes rapidly deployed, while employee welfare programmes have been enhanced. Across the Group services were repurposed to meet community needs such as food parcel delivery, health worker shuttles and medical transport.
We proactively engaged with customers and authorities in order to secure support and limit revenue loss and we took swift and decisive action to adjust the cost base to limit the flow-through of revenue decline. While revenue declined by around £790 million, only around 40% of this flowed to reduced EBITDA as a result of a number of wide-ranging cost reduction measures. At the peak, 40,000 employees across the Group were either furloughed or temporarily laid off, helping to drive out over £300 million of operating costs from the business in the second quarter. We have also sought to ensure that the Group had sufficient liquidity and a strengthened Balance Sheet to navigate the crisis. During the year liquidity was boosted with over £1.5 billion of new facilities including the equity raise, and covenants have been renegotiated with the gearing covenant test waived by lenders until June 2022.
All of these measures have served not only to protect our business but will also assist in the return to normal levels of service across each of the businesses. Momentum has built throughout the second half of the year and we have seen an improving trajectory, with revenue, EBITDA and cash generation at their strongest levels in the fourth quarter of the year.
Positioning for the future
As a result of the actions we have taken and the learnings we have developed through 2020, the business is now well-placed to react to future changes to the operating environment and is poised to return to sustainable growth. In particular, I would note four areas this has manifested itself:
Firstly, we have developed a greater agility to respond rapidly to changing restrictions. This has been most evident in our long-distance operations in the UK and Spain where discretionary travel has seen the greatest impact in terms of revenue decline. As the first lockdown hit, we mothballed our UK coach network and significantly reduced services in our Spanish long-haul operations. As restrictions were lifted over the summer, services were promptly scaled back up in both the UK and Spain and pleasingly we saw demand returning rapidly. Both networks have been subsequently scaled up and back down in response to changing patterns of local lockdowns. Vehicles in our National Express Transport Solutions (‘NETS’) business were repurposed to provide extra capacity in our UK bus operations as customer demand for buses combined with social distancing measures drove network requirements to a peak of 103% of pre-Covid levels. In North America we have had to be fleet of foot in responding to rapidly changing patterns of school returns, flexing staffing levels up and down depending on the levels of payments forthcoming from school boards.
Secondly, we have reduced fixed costs and improved processes that will continue to benefit the Group as restrictions are lifted. We are taking out a significant portion of structural costs from across the business as well as improving the efficiency of a number of operating processes, for example through the ‘Driving Excellence’ programme of process optimisation across our portfolio of school bus depots in North America. Each division has made permanent reductions to central costs, redesigning and relocating support operations for lasting benefit. These are significant restructuring programmes, delivering annualised cost savings of c.£100 million when fully implemented.
Thirdly, we are continuing to win business through the crisis, securing nearly £900 million of contracted revenue. We won new contracts in Portugal in Lisbon and Porto (awarded on a provisional basis), worth nearly £270 million, gaining access to a new market for us. Both of these contracts are set to start operating in the fourth quarter of this year and run for seven years. In North America, we have won significant school bus contracts in Idaho, Alaska and California and in Transit we won a capital-light paratransit contract for up to five years in California. In the UK, our NETS business secured a major contract to run employee shuttle services for the world’s largest online retailer, while NEAT secured its first accessible transport contracts outside of the West Midlands.
Finally, good progress has been made in the year on our environmental ambitions, with 29 electric buses now running across our networks in the West Midlands and more to come. Looking ahead, Coventry is set to become the first electric bus city with significant funding secured for up to 170 EVs over the next two to three years; and our UK bus business won the bid to operate the new hydrogen-powered bus service in Birmingham, with our first 20 vehicles ordered, funded by Birmingham City Council, and entering service later in 2021.
We were delighted to welcome the Prime Minister to our operations in Coventry this week, and show him our electric buses in action. Last year we committed to never again buy a diesel bus in the UK, and we are well on track to deliver our target of a fully zero emission bus fleet by 2030. We fully embrace the national bus strategy and the proposals for operators to work in partnership with local authorities to deliver cleaner, greener public transport solutions. This is exactly the partnership approach that has worked so well for many years across the West Midlands, where we have continually improved services while keeping fares down.
I have been impressed by the overall stability and resilience of the business in the face of unprecedented challenge. Strong customer relationships have enabled revenue to perform well ahead of the significant reductions in patronage driven by travel restrictions, and disciplined cost management has limited the extent to which this revenue decline has flowed to profit and cash. However, the situation we find ourselves in is not one that we can ultimately control and the timing of full recovery remains uncertain as we are still subject to lockdowns and related restrictions in every market we operate in.
I believe that the trajectory is improving, with the fourth quarter of 2020 our strongest of the year and the global vaccination roll-out accelerating. We have seen this momentum continuing into 2021 with slowly improving revenue trends and positive EBITDA in January and February. Further, we have sufficient liquidity to see us through our most pessimistic scenarios and have further strengthened our Balance Sheet in 2020.
Given the unprecedented financial implications of the pandemic, the Board has not recommended a dividend in 2020. We understand the importance to shareholders of reinstating dividend payments as soon as economic conditions allow. It is clear that 2021 will represent a ‘transition year’ to a post-pandemic future and much will depend on the effectiveness of mass vaccination programmes to enable travel restrictions to be lifted. Against that backdrop the Board has determined the Group will resume dividend payments as soon as it is prudent to do so.
18 March 2021
|Year ended 31 December||2020|
|Underlying Operating Profit||£6.7||£109.5|
|Statutory Operating (Loss)/Profit||(£93.5)||£93.8|
|Underlying Operating Profit||€7.5||€124.9|
|Statutory Operating (Loss)/Profit||(€105.2)||€106.9|
|Underlying Operating Margin||1.2%||13.3%|
ALSA was performing very strongly ahead of the pandemic, with revenue up 23% in the first two months of the year, driven by underlying growth of over 6% boosted by the new contracts in Rabat and Casablanca and acquisitions made in 2019. Our Spanish business was performing strongly across all segments but particularly in long haul where revenue was up 7%, passenger journeys up 5% and occupancy up 2%.
Navigating the crisis
As the first lockdown hit, we saw an immediate impact with passenger numbers falling by more than 90% in Spain. Demand came back quickly when restrictions were lifted but reduced just as quickly when they were re-imposed. Overall for the year, passenger journeys were down by 44% in Spain, and were particularly badly impacted by restricted inter-regional travel on our long haul routes, with a 62% year-on-year reduction. Patronage in Morocco grew slightly driven by the new contracts in Rabat and Casablanca. Overall, and taking into account the fact that around 40% of ALSA’s revenue is protected, year-on-year revenue decline was 33%. Wide-ranging actions were taken in order to reduce operating costs, which helped to deliver Underlying Operating Profit of €7.5 million (2019: €124.9m) despite seeing revenue decline by over €310 million. After accounting for separately disclosed items of €112.6 million of which €93.5 million represented one-off Covid-related exceptional items (detailed on page 17, the segmental result for the year was an operating loss of €105.2 million (2019: profit of €106.9m).
Protecting staff and customers
Our first priority was to protect our employees and customers, and to that end we rapidly implemented a number of measures:
· rapid provision of PPE and revised cleaning protocols;
· the provision of Covid tests to nearly 7,000 employees in Spain and Morocco;
· new policies and processes rapidly deployed to facilitate remote working;
· the roll-out of ‘For Your Health’ and ‘ALSA Helps You’ weekly communications to all staff;
· the redesign and update of websites to feature travel restrictions, rules and recommendations for passengers, ALSA safety measures, changes and cancellations, and FAQs;
· revised communication on buses and stations enforcing the mandatory use of face masks and related safety guidelines, and reassuring passengers on air quality and renewal; and
· monitoring social distancing measures on fleet and stations through mystery shopper audits.
In our urban bus operations in Spain, terms were renegotiated for our Madrid Consortium contracts such that revenue is based on mileage operated rather than passengers carried, meaning that all urban services in Spain as well as a proportion of regional services carry no demand risk. Across ALSA, therefore, over 40% of revenue is now sheltered from demand risk and this figure will increase once Casablanca is fully mobilised in 2021. We have also worked closely with the Ministry of Transport throughout the year to ensure that when successive lockdowns and travel restrictions were implemented and subsequently lifted, service levels on our regulated long haul routes were flexed to the appropriate level. Working with all the relevant authorities, we received revenue subsidies representing around 3% of revenue in 2020 and we will continue to work to secure further subsidies in 2021. In addition to the revenue support, in flexing service levels to meet changing levels of travel restriction, we have made use of the Government’s ERTE (furlough) scheme to enable staffing levels to vary with volume. At the peak of the first lockdown, over 11,000 ALSA employees were furloughed.
Reducing the cost base
In addition to the temporary staff savings enabled by the ERTE scheme, we took rapid and decisive action to cut operating costs. Direct operating costs such as fuel and maintenance were reduced in line with service reduction and all discretionary costs were stopped. We also reconfigured services to utilise internal resources and hence materially reduced third party operator costs – a material saving that will continue into 2021. In addition, ALSA initiated a major restructuring programme to reduce central costs by up to 50%, the benefits of which will be fully felt in 2021. This initiative has involved a full review of central functions with the integration and streamlining of a number of teams to improve processes and increase efficiency. Together, the structural cost reductions across ALSA will reduce annual operating costs by €25 million.
Supporting the community
Throughout the crisis we have sought to provide assistance in the communities we serve, for example:
· the ‘Travelling with a Companion’ initiative provided free tickets for assistants accompanying passengers with learning disabilities;
· the ‘Madrid Thanks You’ initiative offering substantial discounts for key workers and medical staff;
· ALSA employees across Spain have delivered thousands of kilos of food parcels to food banks, homeless shelters and other emergency operations;
· we have supported a large number of employees in volunteering to support the Red Cross help people through the pandemic; and
· provision of buses to the army, to help transfer Covid patients and medical staff.
Preparing for the future
In addition to the cost reductions noted above that will continue to provide a benefit in 2021, we have continued to win and retain contracts as well as taking a number of other actions in 2020 that position the business for a strong rebound once restrictions are lifted.
During the year we successfully completed the mobilisation of Rabat and mobilised the first phase of our largest urban bus contract in Casablanca (which made a positive profit contribution in its first year). We will complete mobilisation of our operations in Casablanca with 700 new buses to be delivered in 2021, the first 400 of which start service in March, transforming the quality and safety of transport for our customers in this city.
We have successfully opened new markets in 2020. We have provisionally won new contracts in Portugal in Lisbon and Porto, with revenue of €44 million per annum and limited demand risk, providing access to a new market for us. Both of these contracts are set to start operating in the fourth quarter of 2021 and run for seven years. We also successfully mobilised our first urban bus contract in France which started operating in December. We have a strong pipeline of opportunities for 2021, including further revenue protected contracts.
In Spain, we retained our CalPita regional concession in Galicia for a further 10 years, worth €96 million over the life of the contract. This is particularly significant as Galicia is a region where ALSA had no presence prior to the strategic acquisition of CalPita in 2018, and it is pleasing to see we now have a long-term foothold in this region. The long haul concession renewal process restarted in 2020 and was then subsequently cancelled, as the authorities absorb the impact of the pandemic on transport, with no stated intention to restart the process in the near term. This will allow a level of stability to build back service levels as travel restrictions are lifted.
We are working towards a greener future, with the ambition to be the environmental benchmark in public transportation in Spain. To that end, we have added a small number of electric buses in 2020 and are also trialling hydrogen buses in Madrid. Further investment is planned for 2021 and beyond as we progressively move our urban fleet to zero emission vehicles.
We have also continued to invest in improving our digital capabilities and during the year we have invested in a new website and customer app, with enhanced functionality, improved customer experience and faster purchasing. This helped drive digital revenue up to 48% of ALSA’s total (up 7% year-on-year). 2021 will see digitalisation of sales extended to some regional routes and ALSA will join forces with Mastercard in a bid to promote social mobility in public transport, with contactless payment made via the ALSA app, driving further digitalisation of sales and further cost efficiencies.
|Year ended 31 December||2020|
|Underlying Operating Profit||£12.4||£123.0|
|Statutory Operating (Loss)/Profit||(£176.0)||£88.0|
|Underlying Operating Profit||US$15.9||US$157.0*|
|Statutory Operating (Loss)/Profit||(US$226.1)||US$112.3|
|Underlying Operating Margin||1.4%||10.0%|
* Revenue and Underlying Operating Profit at constant currency, adjusting for Canadian Dollar to US Dollar foreign exchange rate movement in the year
North America was performing strongly ahead of the pandemic, with revenue up 16% in the first two months of the year, largely driven by continuing growth in our transit and shuttle businesses. The renewal and expansion of our two largest transit contracts in the fourth quarter of 2019 flowed through to the start of the year, while the acquisition of WeDriveU in April 2019 also boosted growth (and was itself growing revenue by over 20% in the first two months).
Navigating the crisis
As the first lockdown hit in March, we saw schools rapidly close with no services running from mid-March through to the end of the 2019/2020 school year, while demand for our transit and shuttle services fell dramatically in the second quarter with volumes declining by around 75% and 85% respectively at the low point. As the second wave of Covid-19 cases hit in July, we saw significant delays to the school start back, with only 26% of schools returning fully. Whilst we have secured significant revenue from customers where services have not operated, this has resulted in a decline in revenue of 29% for the year. A series of measures were taken to reduce costs, which helped to deliver Underlying Operating Profit of $15.9 million (2019: $157.0m) despite revenue declining by over $450 million. After accounting for separately disclosed items of $242.0 million of which $200.1 million represented one-off Covid-related exceptional costs (detailed on page 17) the segmental result for the year was an operating loss of $226.1 million (2019: profit of $112.3m).
Protecting staff and customers
Our first priority was to protect our employees and customers, and to that end we rapidly implemented a number of measures:
· rapid provision of PPE and revised cleaning protocols;
· setting up the ‘coronainfo’ service to share our response to the virus and educate our employees on how to prevent its spread;
· establishing a crisis reporting protocol for all Covid-19 positive tests as well as potential exposures;
· establishing daily screening procedures to prevent those with symptoms from entering our workplace and criteria they must certify prior to returning to the workplace;
· establishing and communicating social distancing guidelines and maximum capacities for each work area;
· creating customised Covid-19 Prevention Plans at each depot;
· working with districts to establish protocols for social distancing and provision of sanitiser on our vehicles;
· thorough disinfecting of each bus twice daily and conducting spot-disinfecting of high-touch areas on the vehicle during routes; and
· spot-checks to enforce district and client procedures for wearing of masks by passengers.
In School Bus, we immediately engaged our customers on a contract by contract basis, negotiating and securing 61% of pre-Covid revenues for the second quarter. Ahead of the start back to the new school year, we agreed a tiered approach with any customers not returning to full classroom operating, explicitly linking services retained to revenue secured and temporarily laying off staff where revenue support was not forthcoming. Through the new school year we secured 73% of revenue with around 68% of services running in Q3, rising to 75% in Q4, through a combination of traditional and hybrid (mixture of traditional and online) learning.
In our transit operations, we worked with customers to amend contracts to allow for more flexibility to respond to rapid changes in volumes and demand including re-balancing of fixed and variable components of our remuneration. We renewed and expanded our Boston contract in in 2020 with 150 more (customer supplied) vehicles and renegotiated contracts in Chicago, moving to a fixed fee plus variable rate model to mitigate risk under new or changing service levels. For the year as a whole across Transit, we ran around 61% of service (up to 72% by the year end) and secured 80% of pre-Covid revenue. In Shuttle, the strength of our customer relationships saw us secure 80% of pre-Covid revenue despite only 24% of services operating.
We received a total of $24 million in government grants under the US CARES Act and the Canadian Emergency Wage Subsidy programme, with these grants helping to support the continued employment and retention of our drivers and support staff during the periods of reduction in service caused by the pandemic.
Reducing the cost base
We took swift action to reduce variable costs in line with service reductions. Where customers have not paid to retain staff, employees have been temporarily laid off, benefitting from improved welfare payments during the pandemic. At peak during the second quarter of 2020, we had temporarily laid off nearly 24,000 of our employees (over 80% of our workforce). In addition to flexing variable costs, we removed $20 million of annualised fixed costs, predominantly through a reduction in headcount in central and support roles. During the year we undertook a full review of the contracts within our transit operations, and have taken steps to sell or shut down those operations where we do not believe that we can recover the impact of the pandemic in a reasonable period of time. The contracts in this category related to regional coach, retail taxi operations and some low margin fixed route contracts.
Supporting the community
Through these testing times we have also supported our local communities in many ways including:
· the delivery of over half a million meals across a number of states to vulnerable people and families in need;
· delivery of school homework packs and lesson plans in Tennessee and Kansas; and
· providing shuttle services for key workers to hospitals in Chicago and employees in the biotech and manufacturing sectors in California.
Preparing for the future
Clearly, the new administration’s pledge to get children back into schools in its first 100 days is a very positive development as is the desire to electrify the entire nation’s fleet of school buses. Funding packages are being finalised to help drive both of these outcomes.
In addition to the cost reductions noted above that will continue to provide a benefit in 2021, we have continued to win and retain contracts. In addition, although revenue will be reduced as a result of the transit exits, the elimination of loss-making and low margin contracts as well as the impact of restructuring and sustainable cost control will improve ongoing profitability.
We won significant new school bus contracts in Boise, Idaho (150 buses); Fairbanks, Alaska (10-year contract, 150 buses); a 90-bus contract in Oakland, California; a 70-bus contract in Norwalk, Connecticut; a 100-bus contract in House Springs, Missouri; and most recently another 10-year contract in Alaska which starts in 2022. In addition, we won a 100-bus school bus contract where a small operator went into liquidation (in New York) and another where a competitor fell out with the customer in dealing with Covid-19 pressures (in Michigan, 60 buses). We also won a capex-light paratransit contract in Fresno, California, for up to five years. These wins were partially offset by losses of contracts where we could not meet expected returns thresholds; our overall retention rate was 91%.
In terms of school bus bidding, during the 2020/21 bid season we secured rate increases on expiring contracts of 3.8% which translated into 3.1% across the full portfolio, compared with average wage increases of 2.7%. In the current bid season for the school year 2021/22, 28% of the portfolio is expected to go to bid with some likely to negotiate extended contracts, and initial signs are positive on both pricing and wage demands. Earlier in the year, we saw an increase in the number of school boards contacting us to explore potential outsourcing of their in-house services. Not surprisingly, in the last few months, school boards have focused on the day-to-day challenges of school restart and changing requirements in the face of rising Covid cases. Going forward, we believe that the pressures brought about by Covid-19 with regard to logistical challenges and school board budgets are likely to see some school boards move to outsource their school bus services. This, in combination with the ongoing pressure on smaller operators, should provide opportunities for future growth.
We continue to see plenty of growth opportunities in our shuttle business, where our customers are continuing to grow and are taking on additional office space to accommodate a growing workforce, despite some level of continued home-working. We have continued to win new shuttle contracts, most notably a five-year contract with Genentech, as well as a five-year contract with Gilead Sciences (further expanding our reach into the pharmaceutical sector), and have increased our exposure to the universities sector, winning a five-year contract with Princeton University. We see significant scope to expand in both the universities and hospitals sectors, with a strong pipeline of bid opportunities in the next 12 months.
Building on our tradition of operational excellence, we have initiated an ambitious programme – ‘Driving Excellence’ – to optimise and standardise operations across all of our school bus depots in 2021 and believe that the elimination of waste, improved asset utilisation, direct and indirect cost reduction, and process simplification and standardisation can deliver annualised benefits of around $40 million once fully implemented.
Finally, significant funding packages have been made available under the Coronavirus Response and Relief Supplemental Appropriations Act of 20201 (CRSSA) – December 2020, which will underpin the profitable recovery in our sectors:
· the extension and expansion of the Employee Retention Tax Credit (ERTC) will help to maintain the flexibility in the cost base to respond to changing service across schools;
· transportation-specific packages include funding for multiple modes of transport, the most pertinent to us being $2 billion in relief for coaches and school buses; and $14 billion to provide operational aid to transit agencies; and
· education funding of $82 billion to be used on a variety of services that underpin the ongoing functionality of school districts, colleges and universities.
In addition there are numerous local funding packages to assist with the electrification of the fleet.
|Year ended 31 December||2020|
|Underlying Operating Profit||(49.0)||85.0|
|Statutory Operating (Loss)/Profit||(99.4)||84.1|
|Underlying Operating Margin||(12.6)%||14.2%|
Our UK business was performing well ahead of the pandemic, with revenue up by 5% in the first two months of the year. Broad-based growth in both our bus and coach businesses was augmented by the acquisition of National Express Accessible Transport (NEAT) in August 2019.
Navigating the crisis
As the first lockdown hit in March, we saw an immediate impact in both bus and coach with passenger numbers dropping dramatically. At the peak of the lockdown our bus operations saw patronage fall by more than 80% with 47% of service operating, while in coach, the nationwide travel ban effectively cut demand to zero. Demand came back quickly when restrictions were lifted but reduced just as quickly when they were re-imposed. For the year as a whole, passenger numbers were down 47% in our bus operations and 71% in our core coach operations. Overall, and taking into account the fact that our bus operations received revenue support through the COVID-19 Bus Services Support Grant (‘CBSSG’), revenue declined by 35% in the year to £388.2 million, with almost all of the revenue decline seen in our coach operations, down 67%. Wide-ranging measures were taken to reduce variable costs, made all the more necessary due to the imposition of social distancing on public transport which has enforced occupancy well below levels required to break-even. This has been particularly acute in our coach business, with the decline in revenue for the UK as a whole of over £210 million resulting in an operating loss of £49.0 million (2019: operating profit £85.0m), all of which was driven by performance of coach. After accounting for separately disclosed items of £50.4 million of which £49.9 million represented one-off Covid-related exceptional costs (detailed on page 18) the segmental result for the year was an operating loss of £99.4 million (2019: profit of £84.1m).
Protecting staff and customers
Our first priority was to protect our employees and customers and to that end we rapidly implemented a number of measures:
· rapid provision of PPE and revised cleaning protocols;
· nightly fogging to deep clean vehicles and introduction of UVC air-con filtration systems;
· reconfiguring vehicle layouts to allow reduced seating capacity to comply with social distancing requirements;
· enforcing social distancing and mandatory wearing of face masks for customers on board, at bus stops and in our bus and coach stations;
· redesigning boarding procedures for coach passengers;
· monitoring passenger numbers on board buses, implementing dynamic duplicate services where necessary for social distancing;
· securing priority Covid testing for bus drivers as front-line key workers;
· temperature screening of employees and customers before boarding our coach services;
· installing protective screens on vehicles for drivers and in coach stations for customer facing staff; and
· issuing weekly email updates to all colleagues including latest health and safety advice and FAQs.
In our UK bus operations we have proactively engaged and worked closely with Transport for West Midlands (TfWM) and the Department for Transport (DfT) to ensure the appropriate levels of service were provided in a socially distanced environment in line with changing travel restrictions. Funding was secured through the CBSSG to enable services to run at breakeven, with the DfT recognising the vital role bus services provide for local communities and economies. Even at the peak of the first lockdown we operated 47% of services, rising to 103% of pre-pandemic service levels in the third quarter. With patronage close to 60% of pre pandemic levels in the Autumn, we have consistently operated services at a higher occupancy level than the industry average.
We have also made use of the Government’s Covid Job Retention Scheme (CJRS) or ‘furlough’, most notably in our coach business where travel restrictions and lockdowns have severely reduced demand. In the first lockdown we suspended services for the whole of the second quarter and placed colleagues onto the furlough scheme, up to 96% of coach employees at the peak. While a reduced and socially distanced service resumed over the summer, subsequent restrictions have seen more staff return to furlough with around 87% of coach employees currently furloughed. We also made use of the furlough scheme in bus in the second quarter when service levels were running at 47% of pre-Covid levels, but with service levels quickly returning to pre-Covid levels, this support was not required in the second half of the year.
In total, we have received revenue support of £83.2 million through the CBSSG in England, with a further £1.5 million from the equivalent arrangement in Scotland, together with cost support of £27.1 million through the CJRS. In partnership with TfWM, we are also currently in negotiations with the DfT to secure future funding through new recovery partnerships whilst the impact of Covid-related travel restrictions and social distancing persists.
Reducing the cost base
In addition to the temporary staff savings enabled through the Government’s CJRS, we took rapid action to cut operating costs, most notably in our coach operations where operating costs have been reduced wherever possible to reflect service reductions. Whilst the most significant cost saving was in payments made to third party coach operators, we have provided specific Covid support grants to these operators to cover a proportion of their fixed costs. We believe that without making these payments to our partner operators, a number of them would have gone out of business with significant implications for service resumption once restrictions are lifted.
In addition, we introduced a number of cost initiatives which will also flow into 2021 and beyond including: the closure of our Bordesley depot, with all employees and services transferred to other sites; the consolidation of our coach and bus head offices into one single site, providing not only cost savings but also better opportunities for collaborative working; network redesigns enabling more efficient services; the outsourcing of non-core functions such as cleaning and fuelling; and further digitalisation efficiencies through digital tickets and also engineering processes. These combined initiatives should deliver annualised cost savings of around £30 million.
We also made the strategic decision to dispose of our small, remote bus operations in Dundee.
Supporting the community
Throughout the crisis we have provided assistance to the communities we serve: our NEAT operations provided direct shuttle services for NHS workers to hospitals; transported the children of key workers to school; delivered food parcels to vulnerable children and families in need; and most recently, we have been transporting vulnerable and elderly people to vaccination centres.
Preparing for the future
In addition to the cost reductions noted above that will continue to provide a benefit in 2021, we have taken a number of actions in 2020 that position our UK businesses for growth once restrictions are lifted.
We restructured our non-scheduled coach operations to form a single operation, launching National Express Transport Solutions (NETS) to leverage our brand and presence in the fragmented commuter, corporate shuttle, private hire and holidays markets. And we are already seeing early success with a significant pick-up in advance holiday bookings – with nearly three times the normal level of advance bookings seen in the first two months of the year, with customer confidence boosted by the rapid roll-out of vaccines across the UK.
Our NETS business secured a major contract for employee shuttle services with a major retailer. Significantly, this is the first time this retailer has contracted with a single supplier for these services. Our accessible transport business, NEAT has won new contracts outside of the West Midlands for the first time, extending the footprint into Warwickshire with two new contracts – and we see further opportunities ahead in this £900 million market. Bus has won some small new contracts and tenders as well as launching a number of new commercial routes, including an express service from Walsall to Wolverhampton.
Our coach operations have had to be very agile in the last year in response to constant changes in travel restrictions, with services flexing up and down, often at very short notice. Bolstered by these learnings coach stands ready to rapidly ramp up services once restrictions are lifted, and our experience in the last year demonstrates that there is pent-up demand for our services. Our investment over the years in network management tools and processes means that we can dynamically optimise as the service scales back and we are targeting an 8% reduction on annualised network costs as we build back to full scale to deliver c.£10 million of the cost savings noted above.
We have made good progress on our environmental ambitions. Not only have we launched the first 29 electric buses (EVs) on our bus networks in the West Midlands, but working in partnership with TfWM, Coventry is set to become the first electric bus city in the UK. This will secure funding for up to 170 EVs, with the new fleet starting to be delivered in 2022, not only bringing significant environmental benefits to Coventry but also reducing operating costs in our business. We are also delighted to have won the bid to operate 20 new hydrogen Platinum buses in Birmingham, all funded by Birmingham City Council (BCC), and entering service later in 2021. We continue to work with the Mayor, Councils and TfWM to secure additional funding for further zero emission buses, with the ambition for the West Midlands to become the first zero emissions region in the UK. June 2021 will see the launch of the Clean Air Zone in Birmingham and we are working closely with both BCC and TfWM to optimise the modal shift away from cars onto buses.
The investment we have made in digital in recent years is continuing to drive a greater proportion of sales via digital platforms, with over 70% of customers now purchasing digital tickets in bus, helping to reduce costs. 2021 will see the launch of new and more flexible contactless products with weekly and three-day price capping, adding to our already popular daily capped product (the first and largest of its kind outside London), making it easier and cheaper for customers to travel on our services. And we have raised the level of digital capability across the UK, implementing a common UK website platform which has enabled rapid roll-out of new websites across each of our businesses, improving the performance and security of our websites and lowering costs.
Reported revenue is up 52.8% to €156.6 million (2019: €102.5m), reflecting the start-up of two services in 2019 for Rhine-Ruhr Express (RRX) services, with a third service mobilised in December 2020. The Underlying Operating Loss of €5.5 million in 2020 compared with the 2019 Underlying Operating Profit €5.7 million is driven by contract accounting. In essence the positive adjustments to full lifetime contract profitability that were made in 2019 have been offset by a similar size reduction this year as we flow through the impact of the pandemic. Without these accounting adjustments, the business generated a small underlying operating profit in both years.
As an immediate response to the pandemic, services on our networks were reduced to around 70% of pre-Covid levels in March and April. However since May, our rail operations have run services at 100% of their pre-Covid levels with 29 million passenger journeys made during the year.
Our German Rail operations have built on their reputation for high performance and reliability with the successful mobilisation of the third service in our RRX contract; crucially ensuring no issues on driver recruitment and training; and helping to further strengthen our relationship with the local passenger transport authorities (PTAs); positioning the Group well for future growth.