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National Express (NEX)

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Thursday 22 October, 2009

National Express

Interim Management Statement

RNS Number : 1970B
National Express Group PLC
22 October 2009


National Express Group PLC

Interim Management Statement

National Express Group PLC ("National Express" or "the Group"), the international public transport operator, today releases its Interim Management Statement for the third quarter ended 30 September 2009.


Trading conditions have remained difficult during the third quarter with revenue slowing in a challenging economic environment. However, the Group continues to deliver a resilient operating performance. Cost saving programmes are on track to deliver £50 million of annualised savings. Our Bus, Coach and Rail operations are achieving excellence in service delivery. Our self help programme is delivering sustainable improvements in cash management. The Board is focused on our primary goal of strengthening the Group's balance sheet through a planned equity fundraising, to unlock future value generation across the Group.


Overall, the Board anticipates that the Group's normalised profit before tax* for the current year will be slightly below its previous expectations. This reflects higher interest costs, following an increase in debt margin from October, together with reduced profitability in North America from additional costs. Retained operations in the UK and Spain continue to perform resiliently.  


Total Group revenue in sterling terms in the third quarter was 1% lower than the prior year period. Year to date, Group revenue in sterling terms rose by 3%. With economic conditions remaining weak, revenue growth has slowed across all businesses. In underlying** terms year to date, UK Bus grew at 2%, despite unemployment in Birmingham of over 12%. Rail saw 1% growth in East Anglia and a solid performance in c2c, supported by increasing Olympic site traffic. North America grew at 4%. UK Coach underlying revenue was flat in the first 9 months, while Spain was 5% lower in the same period.

Cost saving programmes

The Group has successfully implemented cost reduction plans to help mitigate the impact of declining GDP and rising unemployment on revenues. This has focused on two key factors; reducing vehicle operating mileage to match demand and rationalising overhead costs.

Operating mileage has been reduced across Bus and Coach operations to counter the impact of lower passenger traffic. Spain has been particularly successful, reducing operating kilometres by 9% in the third quarter, ahead of the adverse revenue impact. UK Coach has an adaptable model, where the majority of coach provision is outsourced to third party operators. This has allowed the business to flex service provision while closely controlling cost, thereby improving margin year-on-year. In UK Rail, the focus has been on improved productivity and cost control. East Anglia has secured a wage cost settlement totalling 3.5% over two years, while revenue support, where 80% of any shortfall is met by the UK Department for Transport ("DfT"), also benefits this franchise.

All businesses are focused on delivering cost reduction through more efficient staffing and indirect cost savings. UK reorganisation was already delivering benefits in 2009 and a move to a simpler organisational structure will see a total of £25 million of annualised benefits delivered by the end of 2009. Spain continues to reduce its cost base, with over €20 million of annual savings delivered by year end, through changes in contracts, productivity improvements and reducing structural costs. This programme has reduced profit erosion during the recession, whilst positioning the business at a lower cost base to benefit from medium term economic recovery. 

The North America business has begun to make progress in reducing overall driver wages, the principal cost in service delivery, reducing costs as a proportion of revenue by 2% on prior year in the first full month of the new school year. However, additional costs, mostly due to a planned extension of the Business Transformation project to reduce delivery risk and manage cashflow more effectively, together with previously reported contract reductions, are adversely impacting profitability this year, which is expected to be behind prior year in sterling terms. 

Service delivery

Despite recessionary conditions, we have continued to deliver service improvements. UK Coach will open its brand new Birmingham coach station on time and ready for Christmas travellers. Stansted airport routes have returned to year-on-year growth, leveraging our new modern airport ticketing facility. Dedicated events traffic has continued to grow through the summer, with 12% growth in Wembley travel. In UK Bus, quality partnerships are allowing us to develop tailored plans with local authorities to match changing customer demand. Our latest partnership in South Birmingham launches on 25 October. Our retained Rail businesses, East Anglia and c2c, continue to deliver record service performance, with c2c first place in UK franchises since March 2009 and another record performance from East Anglia***. Through its multi-million pound investment partnership with the DfT, East Anglia will deliver 28,000 extra seats per week from December 2009, as part of the roll out of 188 extra carriages into service by December 2011. East Anglia has also achieved all its operational performance criteria in respect of the three year franchise extension from April 2011, which will be subject to formal review in November 2009. 

Discussions continue on the hand back of the East Coast rail franchise. At 30 September, £34 million of the available £40 million Group loan to this franchise had been utilised. Ongoing losses have been charged against the contract exit provision established at the half year. We are working towards agreeing a formal handback date for the franchise, prior to year end.

In Spain, reduced summer holiday travel adversely impacted long distance routes, while regional and urban services have seen smaller adverse revenue impacts. We also launched our new Clase Eurobus service between Asturias and Malaga. In North America, there was a successful operational start up to the new school year, benefiting from 75% of driver recruitment now being centralised under the Business Transformation programme. This programme has also made good progress in the further roll out of the centralised systems which are core to future benefit delivery. Margin improvement remains our key objective in this business.

Debt management

Our self help programme continues to focus on delivering cash management initiatives, aimed at maintaining compliance with the Group's key debt covenants. These initiatives include continued effective management of capital investment and working capital, suspension of dividend payments and additional asset sales. During the third quarter, the Group raised £15 million in a sale and leaseback of its new flagship coach and office facility in Birmingham.

Third quarter net debt increased in line with the normal seasonal pattern, reflecting new fleet investment and increased receivables required for the new school year in North America. Debt is expected to decline in the fourth quarter, although this will be subject to timing of East Coast payments and the impact of sterling's weakness, which added approximately £30 million to net debt translation in the third quarter. The Group retains strong committed facility headroom. 

In July 2009, the Board highlighted the need to strengthen the Group's balance sheet to relieve pressure on its banking covenants, from December 2009. Non-compliance with banking covenants would require the Group to work with its banking partners, incurring additional cost and creating significant uncertainty. In addition, delays created by the recent acquisition interest in the Group have resulted in a one per cent step-up in the interest margin payable by the Group from October 2009. Following withdrawal of the consortium interest on 16 October 2009, the Board is unanimously committed to strengthening its balance sheet through an equity fund raising. 

In the event of an equity fundraising, the Group's debt providers have, subject to certain conditions, agreed to extend the maturity on up to 50 per cent of the Group's €540 million facility, due to mature in September 2010, to March 2011. This would provide additional certainty of funding to the Group and should permit a refinancing in 2010 of remaining bank facilities, including the £800 million revolving credit facility due to mature in June 2011. 

It is the Board's current intention to execute an equity fund raising to strengthen the balance sheet ahead of the Group's year end. At the same time, the Board will continue to evaluate the value, risk and certainty offered by the preliminary proposal from Stagecoach Group PLC received on 16 October 2009 to acquire the Group in an all share transaction, while not putting at risk the Group's ability to execute a fundraising to strengthen the balance sheet by year end.

Chief Executive

We are making good progress in the search for a new Group Chief Executive and we will update the market in due course.

National Express Group's Executive Chairman, John Devaney, commented

"We are focused on delivering our refinancing, reducing and managing costs, driving revenue and delivering best in class customer experience. Despite the recession, we have delivered a resilient trading performance. We are moving forward, with our primary focus to refinance the Group."



National Express Group PLC

Jez Maiden, Group Finance Director    

020 7506 4324

Nicole Lander, Director of Communications

0121 460 8401


Neil Bennett/George Hudson    

020 7379 5151


* Normalised results are defined as the statutory result before the following as appropriate: profit or loss on the sale of businesses, exceptional profit or loss on disposal of non-current assets and charges for goodwill impairment, intangible asset amortisation, exceptional items and tax relief on qualifying exceptional items.

** Underlying revenue compares the current year with the prior year period on a consistent basis, including adjusting for the impact of currency, acquisitions and disposals, together with the estimated impact of advance travel.  

*** c2c delivered a Public Performance Measure (PPM) on a Moving Annual Average (MAA) basis of 95.9% to 17 October 2009. c2c has recorded first place in UK rail franchises for PPM since March 2009. c2c achieved first place for franchised train operating companies for overall satisfaction in the National Passenger Survey (2009). East Anglia achieved a PPM (MAA) of 91.0% to 17 October 2009, the highest level since the franchise was awarded.

This information is provided by RNS
The company news service from the London Stock Exchange

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