National Express : Full Year Results for the year ended 31 December 2014

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, North America and the Middle East, together with rail services in the UK.

National Express delivered a strong performance in 2014. Both statutory and normalised profit before tax were higher than last year, with a strong second half performance more than off-setting the oneoff headwinds and currency translation effects that particularly impacted in the first half of the year. The Group has again delivered a very strong cash performance and reduced net debt by over £80 million during the course of the year. We have also renewed key concessions and made significant progress in new markets.

Strong financial performance, especially free cash flow

• Group revenue increased 2% to £1.87 billion on a constant currency basis; down 1% on a reported basis (2013: £1.89bn)
• Group normalised profit before tax rose 7% to £145.4 million on a constant currency basis; up 1% on a reported basis (2013: £143.7m)
• Statutory Group profit before tax grew by 3% to £66.5 million (2013: £64.4m); up 10% on a constant currency basis.
• Group ROCE increased to 12.4% (2013: 11.7%)
• Year-on-year EPS growth of 6% to 22.7 pence (2013: 21.5 pence)
• Free cash flow of £190 million is £40 million ahead of target and higher than last year (2013: £182.8m). Since 2009, National Express has generated £1billion of free cash
• Net debt reduced by over £80 million to £664.3 million (2013: £746.1m)
• Full year proposed dividend of 10.3 pence, up 3% year-on-year (2013: 10.0 pence).

Growth in revenue and passenger numbers in every division

• Continuing strong performance in UK Coach with passenger revenue up 4% and an operating margin over 10%
• Profit grew in North America on a constant currency basis, with a strong second half of the year off-setting the significant weather impact in the first half. In the last five years the North American School Bus business has more than doubled its profitability
• UK Bus continued to reap the benefits of its strong local partnerships with a 0.6% increase in commercial passengers and 2.8% increase in revenue
• As well as successfully launching the new c2c franchise, UK Rail grew both revenue (6%) and passenger numbers (2%)
• ALSA's revenue management has continued to deliver an improved performance against the ongoing rail competition - we have delivered passenger growth of 4% with revenue only 2% lower on the routes where we have introduced revenue management. Morocco continued its strong performance with a 22% increase in revenue with all three operations growing.

New contracts won, new markets opened and key concessions retained

• We have won our third and fourth German rail contracts, with our success in the Nuremberg SBahn.
• Our success in retaining the Essex Thameside (c2c) rail franchise secures our presence in UK rail through to 2029
• Through our successes in Germany and c2c we have now secured more than £6 billion of future revenue in rail
• We have recently successfully started the first phase of our 10-year contract for bus services in Bahrain, our first entry into the growing Middle Eastern market
• We have successfully retained and grown major contracts across the Group during 2014, including our largest US transit contract and largest Spanish concession to come up for renewal to date
• We have a new business pipeline of opportunities worth over £8 billion in annualised revenue.

Dean Finch, National Express Group Chief Executive, said:

"National Express has made significant progress over the past year. Every division is carrying more passengers and has grown revenue. We have successfully retained key existing contracts, recently won another two rail contracts in Germany and this month started operating our Bahrain bus contract. I am particularly pleased with our very strong cash performance, which has again exceeded our target.

"This strong performance means we are in an excellent position to continue to exploit new opportunities. Our North American business has more than doubled profitability in the last five years and provides us with a strong platform for further growth in the coming years. Coupled with the opportunity for further growth in German Rail and the Middle East, I am optimistic about the future prospects of the business."

During 2015 we expect our UK rail, bus and coach businesses to build on their good progress during 2014 and to continue to perform well with strong cash generation. In Spain the main contract renewal process starts this year but any impact from new terms for our larger concessions is unlikely to be felt until 2017. Whilst we expect some margin pressure on renewal as is normal, we believe ALSA can mitigate this risk through a combination of significant revenue and cost management actions, as well as securing new growth opportunities. We are determined to retain a significant market share in Spain and as market leaders have demonstrated our ability to compete effectively. We also expect the Group to continue to successfully exploit a number of important opportunities in the Middle East, North Africa and in Germany. We are currently working on an active pipeline worth £8 billion of annualised revenues.

The benefits from these new opportunities as well as our existing businesses will continue to be reflected in the strong cash generation, with a target of £100 million this year. We will continue to focus on margin and ROCE improvement and we are not anticipating there to be any exceptional costs from reorganisation or restructuring in 2015. As previously stated, we are changing the accounting treatment of bid costs to be included in normal operating costs.

The recent focus of our cash flow has been on debt reduction and growing our dividend. We increased investment in new business opportunities during 2014 and believe we are now in a strong position to exploit other new growth opportunities with a focus in North America, where we have more than doubled profitability in the past five years. While we will remain within our published target, we believe we have the opportunity to use our continued strong cash generation to invest in new growth opportunities that meet our strict financial and strategic criteria. There are excellent opportunities in the North American market given its highly fragmented nature and the continuing trend in conversions. The success of last year's bolt-on acquisition in Philadelphia and the largest ever conversion contract in Memphis demonstrates the opportunity here and we will continue to apply our proven model of excellence to deliver the services our customers value as well as generating good returns for our shareholders.

Financial summary

Enquiries:

Definitions

Unless otherwise stated, all operating profit, operating 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: IFRS result found in the third column, excluding intangible asset amortisation, loss on disposal of businesses, exceptional items and tax relief thereon. The Board believes that the normalised result gives a better indication of the underlying performance of the Group.

Underlying revenue compares the current year with prior year on a consistent basis, after adjusting for the impact of currency, acquisitions, disposals and rail franchises no longer operated. Like-for-like revenue measures underlying revenue after adjusting for increases or decreases in miles operated, typically used as a metric in urban bus operations.

Constant currency basis compares the current year's results with the prior year's results translated at the current year's exchange rate.

'Core non-rail' businesses are UK Bus, UK Coach, Spain (including Morocco) and North America (including Transit). It excludes German Coach.

Operating margin is the ratio of normalised operating profit to revenue.

'Return on capital employed' ('ROCE') is normalised operating profit divided by tangible and intangible assets for the core non-rail businesses.

'Return on assets' ('ROA') is normalised operating profit divided by tangible assets.

Operating cash flow is the cash flow equivalent of normalised operating profit. Free cash flow is the cash flow equivalent of normalised profit after tax. A reconciliation is set out in the table within the Finance Director's review.

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).

EPS generated by the Rail business is the normalised operating profit of the Rail division, taxed at the UK tax rate, divided by the basic number of shares in issue.

Non-rail EPS is Group normalised EPS minus the EPS generated by the rail business.

The annual punctuality measure for c2c is the moving annual average (MAA) public performance measure (PPM) to 4 January 2015.

Safety Incidents measure those for which the Group is responsible and is based on the Fatalities and Weighted Injuries Index used in the UK Rail industry.

EPS generated by the Rail business is the normalised operating profit of the Rail division, taxed at the UK tax rate, divided by the basic number of shares in issue.

Download the full release in PDF format