Corporate news

National Express Group PLC (“National Express” or the “Group”), a leading international public transport group, operates bus and coach services in the UK, continental Europe/North Africa and North America, together with rail services in the UK.

Operating highlights

National Express has continued to make progress in challenging economic conditions. The first half year saw non-rail profitability maintained despite the considerable headwinds of the previously anticipated loss of UK Government subsidy for Coach concessions and the onset of recession in Spain. As expected, rail profits have fallen following the hand back of East Anglia.

Delivering returns

• Increase in operating margin¹  to 11.3% (2011: 10.5%)
• UK Bus margin and profit continue to grow
• Strong operating cash generation, with 125% conversion of operating profit

Managing in uncertain times

• Stable profit in Spain, despite challenging economic environment and localised industrial action, with excellent cash collection. Expansion of bus operations in Morocco, renewal of Granada bus station concession and acquisition of a concession in Bilbao

Pursuing growth

• North America has grown profit and enjoyed another successful bid season with a retention rate of 97% and new bid wins of 1,300 buses (2011: 1,000)
• Integration of the Petermann acquisition progressing smoothly and the business is performing well
• Acquisition of Transit businesses in North America with annual revenues of $30 million and a bid pipeline of $130 million now established 
• Successful prequalification for Essex Thameside and Great Western, plus four German rail routes

Financial highlights

• Underlying Group revenue up 3%
• Group operating profit of £105.5 million, with non-rail operating profit broadly flat at £90.0 million
• Group profit before tax down £13.5 million to £82.0 million, reflecting the end of the East Anglia rail franchise
• Statutory profit of £32.1 million
• Group basic earnings per share (EPS) of 12.6 pence, with non-rail EPS maintained at 10.0p
• Group net debt increased by £196.0 million during first half year to £829.7 million, reflecting acquisitions and the East Anglia rail handover, with gearing in line with Board policy at 2.47 times EBITDA
• Interim dividend increased by 5% to 3.15 pence.

Financial summary

Dean Finch, National Express Group Chief Executive, commented:

"The first half of 2012 has seen a resilient underlying performance across the Group, considering the headwinds we have faced. This reflects a reassuringly stable performance in Spain, accompanied by good growth in UK Bus and North America, with lower profits in our Rail and UK Coach businesses, as expected.

This trend is expected to continue in the second half of the year, with further progress from UK Bus and our recent North America acquisitions. UK Coach will still face headwinds but should progressively mitigate concession funding changes. ALSA’s flexible operating model and experienced management team is best placed to cope with the uncertainties presented by the economic crisis in Spain. Across the Group, we continue to drive operational efficiency, cost control and incremental revenue growth, focusing on improving returns on invested capital and creating long term economic value for shareholders.

Looking further ahead, we have a pipeline of emerging opportunities across the portfolio of businesses, building on organic growth, as well as new contract bid prospects in rail, bus and school bus services. Our new North American transit business and emerging opportunities in Continental Europe will support this. National Express owns and operates some high quality assets in a number of different markets and is well placed to exploit the emerging opportunities in these difficult times and continue to grow the business.”

Board changes

John Devaney has informed the Board that he wishes to retire from the Board in early 2013 in order to focus on his other business commitments as Chairman of Cobham plc and NATS and to spend more time pursuing his private equity interests. The Board has accordingly commenced a search for a replacement independent non­executive Chairman, which will be overseen by Tim Score, the Senior Independent Director, and Jorge Cosmen, the Deputy Chairman. A further announcement will be made in due course.

John Devaney said: "I have thoroughly enjoyed my tenure at National Express and feel proud to have been part of the team that steered the business through its difficulties three years ago and helped transform it into the strong business it is today. With the Group now thriving, I feel that next year will be the right time to step down and, by announcing this now, it will give the Board ample time to identify my successor.”

Jorge Cosmen, Deputy Chairman, said: "John has been a tremendous chairman for National Express and a valued colleague and, on behalf of the whole Board, I would like to thank him for his successful stewardship of the Group."

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Definitions

• Underlying revenue is measured on a consistent basis year-on-year, after adjusting for the impact of currency (£11.1m), acquisitions (£21.5m), disposals (£nil) and rail franchises no longer operated (£219.0m).

• Unless otherwise stated, all profit, margin and EPS data refer to normalised results, which can be found on the face of the Group Income Statement in the first column. The definition of normalised profit is as follows: Statutory result excluding profit or loss on the sale of business, exceptional profit or loss on sale of non-current assets and charges for goodwill impairment, intangible asset amortisation, exceptional items and tax relief thereon, for continuing operations. The Board believes that the normalised result gives a better indication of the underlying performance of the Group.

• Operating margin is the ratio of normalised operating profit to revenue for continuing businesses.

• Operating cash flow is intended to be the cash flow equivalent of normalised operating profit. A reconciliation is set out in the table within the Cash management section below.

• Net debt is defined as cash and cash equivalents (cash overnight deposits and other short-term deposits), and other debt receivables, offset by borrowings (loan notes, bank loans and finance lease obligations) and other debt payable (excluding accrued interest).

• EBITDA is ‘Earnings Before Interest, Tax, Depreciation and Amortisation’. It is calculated by taking normalised operating profit and adding depreciation, fixed asset grant amortisation, normalised profit on disposal of non-current assets and share-based payments. It is defined in line with the Group’s banking documentation.

• The EPS generated by the Rail business is calculated using the normalised operating profit of the Rail division plus the estimated interest saved on cash relating to rail season tickets, taxed at the Group’s effective tax rate.

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¹Unless otherwise stated, all profit, margin and EPS data refer to normalised results. See definitions for further detail.