TIDMNEX
RNS Number : 8961N
National Express Group PLC
07 June 2022
National Express Group PLC
Trading Update
7 June 2022
Further to its full year results announced on 10 March 2022 and
its Trading Update on 26 April 2022, National Express Group PLC
("National Express" or "the Group") provides an update on current
trading and reinstates short-term guidance.
Ongoing Revenue Recovery
-- Revenue continues to track close to 2019 (pre-pandemic)
levels, progressing strongly to anticipated 2022 full year revenue
of around GBP2.7bn:
o ALSA revenue recovering more strongly than previously expected
and is already c.15% ahead of pre-pandemic levels driven by strong
organic growth in Morocco and a faster-than-anticipated recovery in
Spanish Long Haul. Our Spanish Urban Bus business is
revenue-protected.
o UK revenue performing in line with expectations and continuing
to build, with Bus patronage currently at c.85% of pre pandemic
levels and Coach recovery faster than expected. A number of major
intercity routes have already fully recovered and our airport
volumes are currently at around two thirds of pre-pandemic level
and continuing to build back strongly, including strong volumes
over the recent Jubilee bank holiday weekend. We are rapidly adding
capacity to flex back up to this improving demand and position the
network for an expected strong summer.
o German Rail revenue is nearly four times pre-pandemic levels
driven by the new contracts.
o In North America, Shuttle revenue is above 90% of pre-pandemic
levels as our customers return to their offices with organic
ridership growth offsetting flexible working patterns. Transit is
continuing to recover in line with our expectations with volumes
now at 82%. As previously highlighted, School Bus continues to be
challenging, with ongoing industry-wide driver shortages resulting
in around 10% of our contracted routes not being run currently.
-- We are progressing well with decarbonisation of the fleet.
For example, through our Bus Alliance partnership with Transport
for West Midlands, the West Midlands has secured more funding than
any other city region from the various government funding rounds.
This includes funding for over 300 ZEVs and doubling the length of
bus lanes over the next three years.
o Our initial tranche of zero emmission vehicles in UK Bus are
outperforming expectations and driving both cost efficiencies and
revenue growth. By Christmas this year we will have an additional
130 EVs on the road, helping deliver the UK's first all-electric
bus city, in Coventry, with further initiatives ongoing.
Reinstatement of Short-term Margin Guidance
-- In the medium-term the Group is confident in delivering at
least GBP1bn of revenue growth from 2022 to 2027. As per our
Capital Markets Day, we expect an average profit margin of 9% in
the period 2022 to 2027, and recovery to pre-pandemic margin levels
of around 10% in the later stages of that period. This is expected
to drive significantly more than GBP100m of EBIT growth over the
same period.
-- As set out in our full year results outlook, in the
short-term, we expect the recovery in profitability to lag our
revenue recovery, and hence for margins initially to be below our
target 2022-2027 average. The Group continues to expect to deliver
a sequential improvement in margins from 2021 levels, with a 2022
margin of around 7%. As guided previously, the pace of the Group's
short-term margin recovery continues to be a function of:
o Unprecedented levels of wage inflation in US School Bus amidst
industry wide driver shortages. The group is anticipating average
wages rises of around 12% for the upcoming School Year. For the
c.40% of the portfolio that is currently being renewed in 2022, the
business is re-contracting at rates slightly above cost inflation,
evidencing the quality of our service offering and customer
relationships. We expect to re-contract at least in line with wage
inflation across the remainder of contracts as they renew, with a
further c.30% of the portfolio up for renewal by the start of the
23/24 school year. Investing ahead of these renewals will put short
term pressure on School Bus margins in both 2022 and 2023.
o UK demand recovery, underpinned by continuing to provide great
value travel at a time when consumers' spending power is being
squeezed. Our low fares (the best value of any major city) drive
both revenue and patronage and work alongside active government
measures to encourage modal shift.
-- In the medium-term we expect average margins to continue to be impacted by:
o An ongoing mix shift towards lower margin, but higher ROCE
businesses particularly with the growth of German Rail and asset
light US Transit contracts.
o The transition from outright purchases to availability
contracts as we continue to decarbonise the fleet, materially
reducing upfront cash outflow and improving return on invested
capital (with an availability charge slightly higher than
historical depreciation).
-- Going forwards, the Group expects 2023 margins to improve
further on 2022 and towards our 9% target average margin, with
further improvement thereafter towards pre-pandemic margin levels,
consistent with previous guidance.
Cash Flow Generation and Capital Allocation
-- The Group is confident in delivering at least GBP1.25bn of
free cash flow between 2022 and 2027 with cash conversion growing
to around 80%. Cash conversion in 2022 is expected to be close to
2019 levels, building over the next five years, driven by:
o continued sequential EBITDA growth; whilst
o holding maintenance capital expenditure at or below 2019
levels (of approximately GBP210m a year) over the next few years as
we grow the business through asset-light contracts and utilise
availability contracts to accelerate the transition to ZEVs.
-- The Group is rigorous in its capital allocation, reinvesting free cash flow generation into:
o attractive organic and inorganic opportunities, prioritising a
strong return on invested capital;
o balance sheet deleveraging towards our 1.5-2.0x target;
and
o delivering growing returns to shareholders.
-- The Group's intention continues to be to reinstate a dividend
in respect of the full year 2022 results.
Enquiries
National Express Group PLC
Chris Davies, Chief Financial Officer 0121 460 8655
Louise Richardson, Head of Investor Relations 07827 807766
Maitland/AMO
Neil Bennett 020 7379 5151
James McFarlane 07584 142 665
About National Express
National Express is a leading mass transit provider with bus,
coach and rail services in the UK, North America, continental
Europe, North Africa, and the Middle East.
Notes
Legal Entity Identifier: 213800A8IQEMY8PA5X34
Cautionary Note Regarding Forward Looking Statements
This announcement, oral statements regarding its contents and
other information published by National Express may contain certain
forward looking statements with respect to the financial condition,
strategies, objectives, results of operations and businesses of
National Express and its group. These forward looking statements
can be identified by the fact that they do not relate only to
historical or current facts. Forward looking statements are
prospective in nature and are not based on historical facts, but
rather on current expectations and projections of the management of
National Express about future events, and are therefore subject to
risks and uncertainties which could cause actual results to differ
materially from the future results expressed or implied by the
forward looking statements. Forward looking statements often use
words such as "anticipate", "target", "expect", "estimate",
"intend", "plan", "goal", "believe", "hope", "aims", "continue",
"will", "may", "should", "would", "could", or other words of
similar meaning. These statements are based on assumptions and
assessments made by National Express in light of its experience and
its perception of historical trends, current conditions, future
developments and other factors it believes appropriate. By their
nature, forward looking statements involve risk and uncertainty,
because they relate to events and depend on circumstances that will
occur in the future and the factors described in the context of
such forward looking statements in this announcement could cause
actual results and developments to differ materially from those
expressed in or implied by such forward looking statements.
Although it is believed that the expectations reflected in such
forward looking statements are reasonable, no assurance can be
given that such expectations will prove to have been correct and
readers are therefore cautioned not to place undue reliance on
these forward looking statements. There are several factors which
could cause actual results to differ materially from those
expressed or implied in forward looking statements. Among the
factors that could cause actual results to differ materially from
those described in the forward looking statements are changes in
the global, political, economic, business, competitive, market and
regulatory forces, future exchange and interest rates, changes in
tax rates and future business combinations or dispositions. For a
discussion of important factors which could cause actual results to
differ from forward looking statements in relation to National
Express Group, refer to the annual report and accounts of National
Express Group for the financial year ended 31 December 2021. Each
forward looking statement speaks only as at the date of this
announcement. Neither National Express nor any member of its group
assumes any obligation to update or correct the information
contained in this announcement (whether as a result of new
information, future events or otherwise), except as required by
applicable law.
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