Overview

The year started extremely well with outstanding results in January and February. Covid-19 then had an immediate and unprecedented impact on all of our businesses from March onwards. We took swift and decisive action to protect the safety of customers and colleagues and the Group’s financial position. This included working very closely with customers and authorities to reduce service and negotiate extra support and payments. While patronage fell 80% during lockdown, mileage was reduced by nearly 80% and we still secured 50% of expected revenue and remained EBITDA positive. We boosted liquidity and secured £1.5 billion of new sources of funds since the start of the lockdown, including a £230 million Placing to strengthen our balance sheet.  While unable to predict when pre-pandemic levels of demand will return we remain optimistic about the future as high quality, clean and green mass transit must be at the heart of the global recovery.

Covid-19 and management actions

• Pre-pandemic performance was particularly strong. Building on last year’s record results revenue was up 17% in constant currency in January and February.
• An unprecedented and immediate drop in passenger demand of 80% following lockdown was mitigated by strong and proactive customer engagement to limit revenue loss to 50%, coupled with swift action to significantly reduce service and thereby save variable costs as far as was possible so that we remained EBITDA positive and generated a £270 million cash inflow in Q2:
  • Service reduction after lockdown – with mileage cut by nearly 80% – included the prompt suspension, and near suspension, of UK and Spanish coach operations respectively, to cut costs and protect Group cash;
  • Customers were proactively engaged to secure contracted revenues (e.g. School Bus, Transit and Shuttle), amend contracted terms (e.g. Madrid) or negotiate exceptional governmental support (e.g. UK bus).
• The safety and welfare of our customers and colleagues has remained our priority with:
  • Enhanced cleaning regimes and reconfigured vehicle layouts quickly established;
  • PPE promptly distributed, including face masks for colleagues that wanted them, ahead of public health guidance;
  • Employee welfare programme enhanced, including for furloughed colleagues;
  • Tragically, we have lost 12 colleagues to Covid-19 during the pandemic. We have offered all the appropriate support we can provide to every affected family.
• Across the Group services were repurposed to meet community need, such as: food parcel delivery; health worker shuttles; and, medical transport:
  • To help our customers, our Job Retention Bonus will be used to reduce bus fares when Covid-19 restrictions are lifted.
• Swift and decisive action has been taken to protect the financial position of the Group including:
  • Liquidity boosted by both £800 million of new facilities (including £600 million from UK Coronavirus Corporate Finance Facility (CCFF)) and the successful draw-down of £417 million USPP. The Group has a total of £1.7 billion in cash, committed facilities and the undrawn component of the CCFF. In total, together with the £230 million Placing, £1.5 billion of new sources of funds have been secured since the start of the lockdown;
  • Covenants renegotiated out to the 30 June 2021 tests:
    • Gearing covenant waived by lenders for the 30 June 2020, 31 December 2020 and 30 June 2021 periods;
    • Interest cover covenant amended to 1.5x for December 2020 and 2.5x for June 2021.
  • We were delighted to receive strong shareholder support for the £230 million Placing to reduce leverage and fund new high-return contract wins;
• Financing augmented with management action to cut costs across the Group:
  • Over 40,000 employees across the Group either furloughed or temporarily laid-off where such schemes did not exist, at the peak;
  • Over £100 million cut in capital expenditure against plan;
  • Over £300 million of operating costs removed from the business in Q2;
  • The Board, the executive management and the senior management team have all accepted salary sacrifices.

Financial summary

• Together these swift and decisive actions generated EBITDA of nearly £90 million in the period, including £13.9 million in Q2.
• Significantly, our cost cutting and customer relationship focus also saw a £270 million cash inflow during Q2.

	HY 2020	HY 2019	Change	Change at constant currency
Group revenue	£1.03bn	£1.34bn	(22.7%)	(23.6%)
Group EBITDA	£88.3m	£243.0m	(£154.7m)
Group Underlying Operating Profit	(£30.6m)	£139.3m	(£169.9m)
Group Underlying PBT	(£60.7m)	£114.6m	(£175.3m)
Statutory
Group statutory operating profit	(£89.7m)	£113.1m	(£202.8m)
Group statutory PBT	(£122.2m)	£88.4m	(£210.6m)
Group PAT	(£91.0m)	£69.2m	(£160.2m)
Statutory basic EPS	(17.3p)	13.1p	n/a
Free cash flow	(£193.0m)	£95.6m	(£288.6m)
Net debt	£1,340.3m	£1,276.3m	£64.0m

Restart, demand returning and future opportunity

• Gradual service restart showing encouraging early signs of demand returning as restrictions are eased.
• Activity remains, nonetheless, at much suppressed levels. In every market we focus on proactive customer communication and service flexibility to maintain contracted payments and meet demand efficiently.
• We have taken action to renegotiate our covenants and our current worst case and reverse stress testing scenarios (which include consideration of a similar lockdown in Q4 2020 to Q2 2020 and only a very gradual recovery over 2021) demonstrate we are able to navigate the amended December 2020 and June 2021 tests as a result of further planned significant savings in both operating and capital costs:
  • We do not know when demand will return to pre-pandemic levels but as a management team we will continue to take action to strengthen the balance sheet, improve liquidity, cut capital and operational costs and work closely with customers as is necessary to protect the business.
• We are confident that our strong reputation for service and safety, close relationships with customers and improved balance sheet mean we will be well-placed to prosper post-pandemic. Our stand-out wins in the period have secured over £650 million of total contracted revenue and demonstrate how our reputation remains very strong during such difficult times and provides a strong platform for the future:
  • Retained our Madrid-Toledo long haul concession for a further six years, with the highest ever technical score;
  • Retained our CalPita regional concession for at least a further 10 years, with an outstanding technical score;
  • Significant school bus wins in: Boise, Idaho; Fairbanks, Alaska; and, Oakland, California, in a positive bid season;
  • Won a 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). We have also seen an increase in school boards contacting us to explore the potential outsourcing of their in-house services. In all three areas we expect similar opportunities to accelerate over the next two years;
  • Won a para-transit contract for up to five years in North Carolina. This is for 53 vehicles, and is capital-light.
• We remain excited by the long-term opportunity. The global recovery must be powered by a more efficient economy that is cleaner and greener. High quality mass transit will be a necessity. National Express’ Vision to be the world’s premier mass transit operator offering leading safety, reliability and environmental standards that customers trust and value puts us at the forefront. Furthermore, with the financial strains caused by Covid-19 likely to lead to a reduction in the provision of supply across all our markets, we believe that there will be opportunities for operators that are able to survive the crisis.

Dean Finch, National Express Group Chief Executive, said:

“This has been an unprecedented period for us all and I am very proud of the response of colleagues across National Express. We worked quickly to put safety measures in place to protect customers and colleagues. Tragically we have lost valued colleagues to Covid-19 and have supported each family.

“During the lockdowns we proactively communicated with customers to vary service and negotiate additional support and payments. We have also secured exceptional governmental funding across all of our major markets and made use of furlough schemes. We were swift to save operating costs as we have nimbly reduced service. Alongside the actions taken to secure additional liquidity, covenant waivers and our recent Placing, the Group has significantly strengthened its financial position to navigate the pandemic. The decisive actions taken by our management team have no doubt secured the Group’s continuing future.

“As we have restarted services, we have again worked closely with customers and ensured safety is paramount. While there are some signs of demand returning, levels are both significantly reduced and subject to variability given local lockdowns, the impact of quarantines and uncertainty over the extent of US school re-openings. We do not know when pre-pandemic levels of demand will return but have developed plans to respond to future scenarios and maintain safe and efficient operations thereby ensuring the continued financial well-being of the Group.

“We remain fundamentally positive about the future. The diversification of the Group in recent years has provided resilience during the pandemic, as risk has been spread. In addition, we believe our leadership positions in many diverse and attractive markets are likely to strengthen, as other operators are unable to withstand the impact of the pandemic.

“When we do emerge out of the pandemic the world will be confronted with the need to power an economic recovery with high quality, cleaner and greener public transport at its heart. The alternative is inefficient, congested towns and cities with dirty air. As our stand-out successes in Spanish concession renewals and recent North American School Bus bids have shown, National Express’ reputation for operational and customer excellence – alongside our strengthened balance sheet – means we are well positioned to prosper in the future.”

Trading outlook

Given the uncertainty on the impact and duration of Covid-19, National Express is not currently providing profit guidance for 2020.

Operational highlights

The tables below summarise the extent of service reduction in lockdown and the current return of demand. In each section the key operational considerations are highlighted. Together this demonstrates: how in many markets we have worked with customers and relevant authorities to secure contracted payments or exceptional support to maintain our crucial services; where we have revenue risk, we acted quickly (and will continue to act quickly) to reduce service to protect earnings; and, the encouraging early signs of demand returning.

ALSA

Segment	Lockdown	Current situation
Long haul	Near shutdown: c.5% service operating   3% patronage	40% service operating   45% patronage
Regional	52% service operating   9% patronage	c.80% service operating   54% patronage
Urban	c.60% service operating   8% patronage	100% service operating   62% patronage
Morocco	30% service operating   10% patronage	c.90% service operating   65% patronage

* All figures are compared to 2019

• ALSA does not have any revenue risk in 40% of its contracts (principally 60% of regional and 100% of urban contracts). In its other contracts ALSA has a flexible model that closely aligns service to demand in discussion with customers.
• The business continues to benefit from very strong customer relationships. Examples include: the Madrid Consortium contract being moved to a per kilometre basis to ensure the service is economic during the pandemic; and, on-going discussions for new contracts in Morocco.
• The Spanish Government remain supportive of public transport, for example:
  • We believe the Spanish employee furlough scheme is likely to continue applying if services require further change (e.g. local lockdowns or demand drops);
  • Discussions have started (and funds created) to compensate operators for revenue loss during the pandemic. This could be direct financial compensation and/or changes to contract length or capital requirements.
• Further concession tenders in Spain (national or regional) are not expected this year and possibly longer, as authorities absorb the impact of the pandemic on transport.
• Morocco remains a strong market. The current operational picture is varied with Marrakesh and Tangiers impacted by the drop in tourism but Rabat and Casablanca performing ahead of pre-Covid levels.

North America

Segment	Lockdown	Current situation
School Bus	Suspension from 13 March     60% of revenue secured	Significantly reduced summer school and charter work.   School restart a changing picture, although we have started some services already. Our current assessment of contracts, by revenue, is: 39% start on-time; 61% delayed (of which 78% have identified an average delay of 16.8 days; 22% indefinitely online).
Transit	Fixed route: c.65% of service operated; 65% of revenue secured   Paratransit trips 25%; 68% of revenue secured	Fixed route: 85% of service operated       Paratransit trips 50%
Shuttle	7% of service operating; 78% of revenue secured	23% of services operating

* All figures are compared to 2019

• While some schools have started to go back, the precise restart schedule is frequently changing. We are proactively communicating with customers to make sure we are ready for restart or can vary costs in line with delays.
• We had an encouraging bid season and expect to be roughly flat for buses. We secured good rate increases of 4.4% on expiring contracts, or 3.4% for our full portfolio.
• In Transit, fixed route contracts are gross cost and therefore offer protection. Two of our three largest paratransit contracts moved to fixed fee plus variable rate model to mitigate risk under new or changing service levels. We are negotiating with other customers for a similar move.
• Across both fixed route and paratransit customers paid for service using the federal CARES Act funding which is in place until at least the end of the year.
• In Shuttle, our very strong relations with customers gives us confidence that similar levels of revenue will be secured until the end of Q3. After this, revenue is more dependent on office return, with some employers looking to move to on-demand services.
• We have continued to win new Shuttle contracts and are in active discussions with a number of corporate and university clients. In some cases we are being approached as the incumbent is unable to supply the necessary number of vehicles to maintain social distancing.

UK

Segment	Lockdown	Current situation
WM bus	47% service operating   14% patronage	101% service operating   53% patronage
Dundee bus	c.40% service operating   15% patronage	c.90% service operating    47% patronage
Coach	Core coach shutdown 5/4-1/7     0% patronage	32% mileage operating, with c.15% daily seats   c.20% patronage

* All figures are compared to 2019

• Both UK bus businesses’ costs are underwritten by their respective national transport authority. The Department for Transport has confirmed the West Midlands arrangements will remain in place “until a time when the funding is no longer needed”; and, in Dundee, the current funding arrangement is in place until November, at least.
• We maintain strong local relations with key stakeholders and were pleased with the Mayor of the West Midlands, Andy Street’s, commendation: "National Express have done a great job managing demand throughout the pandemic."
• Significant funds are available in both markets for bus investment, recognising its crucial role in the city-regions’ future. A £260 million bus prioritisation programme that we are helping to design is already underway in the West Midlands.
• In UK coach the initial rapid growth in demand to current levels led to an acceleration of further service restarts. The business is vulnerable to local lockdowns and quarantining impacting demand, but its flexible model allows service adjustments in response and the partner operator structure shares risk.
• National Express Transport Solutions has been launched to leverage our national brand and presence in the fragmented commuter, corporate shuttle and private hire markets.

Other international

Segment	Lockdown	Current situation
German Rail	c.75% service operating from 22/3 until 3/5   21% patronage	100% service operating     70% patronage
Bahrain Bus	c.25% service operating	c.95% of service operating

* All figures are compared to 2019

• Our German Rail contracts offer revenue protections: RRX is a full gross cost contract; RME is a net cost contract but with some protections.
• The German government has created a fund to compensate public transport operators for Covid-19's impact. We have already started negotiations for compensation onRME, as RRX is already protected as a gross cost contract.
• Bahrain is a gross cost contract. Our close working with the Bahraini Ministry of Transport has seen a prompt return to 95% of service in line with local health guidance. 

 

Enquiries

National Express Group PLC
Chris Davies, Group Finance Director	0121 460 8655
Anthony Vigor, Director of Policy and External Affairs	07767 425822
Louise Richardson, Head of Investor Relations	07827 807766
Maitland
Neil Bennett	0207 379 5151
James McFarlane	07584 142665

There will be a webcast presentation for investors and analysts at 9.00am on 13 August 2020. Details are available from Audrey Da Costa at Maitland.

Download full announcement in PDF format

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 below). Unless otherwise noted, all reference to profit measures throughout this review are for underlying operations for both the current and prior year which the Board believe gives the most comparable year-on-year indication of the operating performance of the Group. 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. Definitions of these measures can be found on page 17.

Notes

Legal Entity Identifier: 213800A8IQEMY8PA5X34 Classification: 1.2 (with reference to DTR6 Annex 1R)

CAUTIONARY STATEMENT

Certain statements contained in this half-year report constitute "forward-looking statements" with respect to the financial condition, performance, strategic initiatives, objectives, results of operations and business of the Company. All statements other than statements of historical facts included in this half-year report are, or may be deemed to be, forward-looking statements.  Without limitation, any statements preceded or followed by or that include the words ''targets'', ''plans'', ''believes'', ''expects'', ''aims'', ''intends'', ''anticipates'', ''estimates'', ''projects'', ''will'', ''may'', "would", "could" or "should", or words or terms of similar substance or the negative thereof, are forward-looking statements.  Forward-looking statements include statements relating to the following: (i) future capital expenditures, expenses, revenues, earnings, synergies, economic performance, indebtedness, financial condition, dividend policy, losses and future prospects; and (ii) business and management strategies and the expansion and growth of the Company's operations. Such forward-looking statements involve risks and uncertainties that could significantly affect expected results and are based on certain key assumptions. Many factors could cause actual results, performance or achievements to differ materially from those projected or implied in any forward-looking statements. The important factors that could cause the Company's actual results, performance or achievements to differ materially from those in the forward-looking statements include, among others, economic and business cycles, the terms and conditions of the Company's financing arrangements, foreign currency rate fluctuations, competition in the Company's principal markets, acquisitions or disposals of businesses or assets and trends in the Company's principal industries. Due to such uncertainties and risks, readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements in this half-year report may not occur. The forward-looking statements contained in this half-year report speak only as of the date of this half-year report.