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Edited Transcript of NEX.L earnings conference call or presentation 27-Feb-20 9:00am GMT

Full Year 2019 National Express Group PLC Earnings Presentation

London Mar 25, 2020 (Thomson StreetEvents) -- Edited Transcript of National Express Group PLC earnings conference call or presentation Thursday, February 27, 2020 at 9:00:00am GMT

TEXT version of Transcript


Corporate Participants


* Alberto Pérez

ALSA Grupo S.L.U. - General Director of Morocco

* Chris Davies

National Express Group PLC - Group Finance Director & Executive Director

* Dean Finch

National Express Group PLC - Group CEO & Executive Director

* Tom Stables

National Express Group PLC - MD of UK & Germany


Conference Call Participants


* Gerald Nicholas Khoo

Liberum Capital Limited, Research Division - Transport Analyst

* Joseph Philip Thomas

HSBC, Research Division - Analyst

* Dennis Carlson

WeDriveU, Inc. - Chairman & CEO




Chris Davies, National Express Group PLC - Group Finance Director & Executive Director [1]


Good morning. I wasn't actually waiting for a response, but they do. I'm delighted to be here, again, presenting another strong set of results for National Express. Same as ever, I'm going to take you through a summary of the performance for the year before handing over to Dean for a little more color. We've also, today, got Alberto, who runs our Moroccan business, who will give you a deeper dive into Morocco; and Dennis is back to give an update on WeDriveU in its kind of first year as part of the group.

Starting with the key highlights. Again, we have generated strong revenue growth. We've delivered double-digit constant currency revenue growth with all divisions growing. That revenue growth has flowed to record profits. All divisions have grown profit year-on-year, driving group normalized operating profit up 13.1% on a constant currency basis and delivering a full year record for statutory PBT of GBP 187 million.

We converted those profits to cash, continuing to grow, generate strong cash flows, beating our guidance by delivering nearly GBP 180 million of free cash. And reported gearing is up slightly at 2.4x EBITDA, but excluding the impact of IFRS 16, which I will come on to in a minute, underlying gearing is down. And that would have been kind of 2.2x in old money.

We're reinvesting and returning that cash so that strong cash generation funds future growth and allows us to continue to invest in compounding acquisitions, and we completed 9 deals in 2019. And our disciplined approach to using that capital has driven a strong ROCE performance of 12.4%. That is an underlying increase of 80 basis points before IFRS 16.

And finally, a strong performance is reflected in the proposed increase of 10% in the dividend we announced this morning.

So I've mentioned it twice, before I do again, let me just deal with IFRS 16. It is a significant accounting standard. It does change reported numbers, but it does not change business economics. For us, therefore, the impact is on the screen. It adds about GBP 213 million to our debt as operating leases come on the balance sheet. It adds about GBP 55 million to EBITDA, and a broadly equivalent increase in maintenance CapEx, such that the impact on free cash is negligible.

The component -- the combination of those 2, as I say, adds about 0.2x to our gearing number. And then that up-weight in the balance sheet pulls 80 basis points of ROCE. In the income statement, it adds about GBP 7.6 million to operating profit, with an equal and opposite impact in interest, such that there is a nil effect at PBT. And finally, it drives an operating margin increase of about 30 basis points.

So I hope that's clear, it's in the slide pack, and that's the last I want to talk about here.

So financial highlights. At the top line, revenue increased by GBP 294 million to GBP 2.74 billion, a 12% increase or 10.2% at constant currency. As usual, as I go into profit, we talk about statutory and normalized, chiefly to remove the impact of the amortization of acquired intangibles to give a better signal of the underlying business.

Normalized operating profit for the full year increased by 14.6% on a reported basis, 13.1% on constant currency to GBP 295 million. Our normalized profit before tax is up 9.1% or 7.8% on a constant currency basis to GBP 240 million. And normalized earnings per share is up 1.6% -- or 1.6p to 34.5p.

Now there are 2 factors driving that slightly lower earnings growth than profit growth. First, the effective tax rate for the group for the year is nudged up from 22.3% to 23.0% driven by the mix of jurisdictions in which we're making the profit, higher profit jurisdictions of North America and Spain; and secondly, the impact of the 40% of WeDriveU that the group does not own, driving an increase in minorities. That is a kind of 1-year impact and will unwind in the coming years as those options are executed and exercised.

Turning to cash. Free cash flow of nearly GBP 180 million is a good beat of our previous guidance, down on last year reflecting the normalization of maintenance CapEx that I talked about this time last year. And finally, reported net debt is up by GBP 290 million. But as I've said, about 3/4 of that is an IFRS 16 adjustment.

Just very briefly on revenue, just to show you the kind of balance on revenue. We grew, as I said, by 10.2%, boosted by -- on constant currency terms, boosted by GBP 39 million of FX, and then fairly balanced across the continuing business and the acquisitions we made in the year. So the continuing business grew revenue at pretty healthy 4.4%, and then boosted by another GBP 145 million from the acquisitions, with WeDriveU you being a big slug of that, that Dennis will talk to in a minute.

I think I've just double-clicked a slide there. Interesting. Wait, I've got a slide missing. All right. Well, I'll talk to it anyway.

In your packs, you have a bridge of profit before tax. If you don't, on the screen. And what I've done in your packs is I've bridged PBT rather than bridge operating profit, as I typically do. And that is to eliminate the impact of IFRS 16, where it is 0, as you can see, but also it gives me an opportunity to talk about interest in the year. The continuing business grew by GBP 46 million, and grew across all divisions. And when I say continuing business, that is the net of the flow-through of revenue growth and charges that we've broken out in terms of driver wages, weather, et cetera. If you net all of that, you get to an organic growth of about 3%.

Driver wage control continues to be a key focus for the group, particularly in North America, where we've recently initiated more centralized control over those overcharged hours. And notwithstanding that, wage inflation in North America impacted us by about GBP 28 million -- sorry, wage, overall, GBP 28 million, majority of that in North America, where we saw wage increases by about 3.4%, which is pretty much in line with where we guided earlier.

We do have a bit of higher hedged fuel prices on the year, impacted us by about GBP 6 million. Most of that is in Morocco, where local legislation prevents me from hedging as far forward as I can in America or Spain or the U.K.

And then, 2019, saw particularly adverse weather in North America, where loss days impacted us by about GBP 6 million on the year. So that organic growth was boosted by GBP 19 million of acquisitions, which I'll come on to in a minute.

Underlying interest, so the overall interest charge that I hope you can see in your pack, that's not up here on the screen, was about 50-50, IFRS 16 and underlying -- the underlying charges are up with that slight increase of net debt and a proportional move of that -- of our borrowings towards sterling.

So this slide, which you've now been staring at for longer than I anticipated, shows how that broke by division. So if I start with ALSA, strong revenue growth of 11.7% in constant currency, almost all of which was organic. The 3 acquisitions we made came very late in the year and impacted very little. Rabat and Casablanca were mobilized late in the year as well. They've contributed about 1.8% to that revenue growth, and when fully mobilized, the annualized revenue in Morocco is now about EUR 150 million.

Operating profit was up 4.9%. Margin remained strong at 13.3%, but is down a tad year-on-year, a, due to that hedged fuel price issue in Morocco, which will come through in this year; and b, Rabat and Casablanca, whilst in their first year of mobilization, add a decent slug of revenue, very little in profit as we're mobilizing and getting up to scale.

North America grew by 11.1% in constant currency, driven by a very strong top line performance in WeDriveU that Dennis will talk about in a few minutes, but complementing a robust continuing business performance. In school bus, we again managed a very disciplined bid season, again, prioritizing returns over retention. We realized an average price increase of 5.9% for those contracts up for renewal, and that equates to 3.9% across the portfolio, contrasting with that 3.4% wage increase.

It does inevitably lead to some loss of less profitable contracts, and retention was 92% for the school year we're in. The acquisition of WeDriveU has transformed the footprint of our transit business, and it's now delivering an annualized revenue of around $0.5 billion.

So overall, North American operating profit is up 21.4%, and pleasingly grew operating margin to 10%, an underlying increase of 50 basis points once you strip out the IFRS 16 noise.

In the U.K., our business grew 3.9%, both our bus and coach operations delivered growth in revenue and commercial passengers in the year. Particularly pleasing is the 3.6% growth in our core coach services, with a record number of passengers driven by the continuing contribution from RMS as well as some very targeted marketing campaigns.

Performance in the bus business is good with commercial revenue per mile up 3.2%, and overall, therefore, our U.K. operating profit increased by 6.5%, and operating margin increased by 40 basis points to 14.2%.

And then just to finish off on German rail, a good performance in German rail. Reported revenue is up by 1/3, as we mobilize our second Rhine-Ruhr Express franchise, and we boosted revenue in our existing RME franchise. And we're particularly pleased with the start we've had on RRX, which does look in stark contrast to the mobilization of some other international players out there. Profit is up to EUR 5.7 million, an increase of about EUR 2 million as we continually find ways to squeeze up the lifetime profitability of these German contracts.

So just to round off on the income statements. Net finance costs, as I said, are up by about GBP 17 million. Half of that is IFRS 16, and is the quid pro quo of the operating profit boost, and the other half, as I say, driven by higher borrowings and more of those denominated in sterling. There are a couple of technical issues I could talk about, if you want to, in the break, around pensions, but broadly, that is the driver. And as I said earlier, minority interests are up year-on-year, driven by the 40% of WeDriveU the group does not own, and that should unwind over time.

We're pleased -- very pleased, in the current environment to be able to propose another 10% dividend increase, while still remaining well inside our 2x cover promise.

So turning to cash. We've again delivered strong free cash flow ahead of expectations at nearly GBP 180 million. As I mentioned earlier, about half of that GBP 108 million increase in EBITDA was driven by IFRS 16, and that's broadly offset then by the increase in maintenance CapEx. So it has a broadly 0 impact on free cash flow. So underlying EBITDA growth of GBP 53 million is very pleasing, offset slightly as previously guided by a normalized level of maintenance CapEx as well as some working capital growth to fund the growth in new contracts, specifically in Morocco and German rail. Net interest paid is up, as I explained earlier. And I'll just go on to how we use the cash.

So growth CapEx at GBP 42 million is slightly higher than you have seen in previous years. And that is primarily vehicles for new contracts in WeDriveU and for Rabat. Investment in digital initiatives in the U.K. and cost association -- cost associated with the mobilization of contracts in RRX.

And then we've continued our compounding growth strategy, as I said earlier, with a total consideration of around GBP 166 million on acquisitions. We completed 9 in the year. By far, the most significant of which was WeDriveU, and I will leave that to Dennis to talk about. But in addition to WeDriveU in North America, we picked up another 2 smaller transit businesses, giving us entry into university and nonemergency medical markets, where we'll work alongside Dennis' team to sort of open those new markets up. Also a small charter coach business and a very small school bus tuck-in.

In Spain, our acquisition strategy kind of helps us to diversify the business. And in 2019, we acquired a small chauffeur business, which expands our footprint in Galicia. And you will remember a year or 2 years ago, I think, we took our first step into Galicia that we've been trying to get into for a while. And now building that out as a hub, as you've seen us do elsewhere.

But also, we -- a tourist charter business, providing entry into Aragon, where we were not previously, and a bus business, providing entry into the Canary Islands, where we have not been previously. So beginning to open up more geographies within Spain.

And then finally, we acquired an accessible transport business in the West Midlands, which again, opens up a new segment for our West Midlands business.

Cash inflow there of GBP 21.7 million for disposals, reflects the sale of Ecolane. So we sold that business for a significant multiple on what we acquired it for, and we've retained a stake in the technology fund that we sell the business to, so we can continue to use the software at preferential rates. And the net of all of those effects is a funds outflow of about GBP 76 million on the year.

And just to illustrate that graphically, as I said before, if you eliminate IFRS 16, and had we not closed any acquisitions, we could have taken the debt levels down in the business. But clearly, and while we've said -- and as you've heard me say before, whilst capital is readily available and keenly priced, and while we have a good platform of potential acquisitions that we can deliver 15% returns on, that is the strategy we will continue to deploy in line with our gearing guidance.

Still on the balance sheet. This has been a busy year for my treasury team, many of whom are here, along with the banks that have helped them deliver some of that on the chart. We further diversified the sources of funding and pushed out liquidity all the way out until 2032, at frankly, what are historically low rates.

In October, we issued a series of U.S. private placements totaling just over GBP 400 million, denominated in dollars, euros and sterling, maturities between 2027 and 2032, at an astonishing average coupon rate of 1.9%.

In November, we finished that financing activity with a GBP 250 million bond maturing in 2028 and with a coupon of 2.4%. And together, those have increased the tenor and decreased the average rate of our borrowing. And there's some detail in the appendix, if you want to see how that all plays out.

And finally, and before handing over to Dean, just to talk about the year we're in. We are very pleased with our 2019 results, and we think it sets the foundation to be confident going into this year, 2020. 2020, will see strong revenue growth from the group, and that's a combination of robust organics, the annualization of some of the big contracts that we'll hear about from Alberto, and selective acquisitions, which will continue to form part of the group's strategy.

And whilst we expect some margin pressure, margin progression in most components of our business, e.g., in America, school bus will grow margin, there will be some mix impact between those. So as we grow the often lower capital-intensive businesses such as transit in North America, there will be some offsets. But notwithstanding all of that, we fully expect to deliver robust reported strong constant currency growth. And for those of you who I've talked to this morning, sticking to our consensus out there is effectively a constant currency upgrade of GBP 7 million, GBP 8 million, GBP 9 million that we're giving you this morning.

Just filling in and closing off with a few of the points there. Net maintenance CapEx will continue at around 1.1x depreciation, about GBP 230 million. The tax rate -- normalized tax rate, somewhere between 23% and 24%. Full year free cash for the year about GBP 160 million and dividend cover to remain within the 2x earnings level. And the reason I put the FX up in the chart is to say, look, my crystal ball is no better than yours. But again, to reiterate, we will eat the movement to today in FX and retain our -- stick with consensus where it is, effectively upgrading at constant currency.

And with that, let me hand over to Dean.


Dean Finch, National Express Group PLC - Group CEO & Executive Director [2]


Thanks, Chris. Good morning, all. Thanks for joining us. So as usual, I shall give a brief overview of each part of the business, together with my outlook for the current year before handing over to Alberto, and then Dennis, who will talk to us about the exciting developments in Morocco and WeDriveU before opening up to Q&A. These are not the swords that they put in my back, by the way.

So turning to my first slide. If I may, I will dwell for a moment or two on what makes us tick. As the first chart demonstrates, through a relentless focus over the last decade, we have transformed the safety performance of the group, notching up an 88% improvement in our measure of safety on a per-million-mile basis. And of all the improvements we have made over the years, this is the one I'm proudest of. I believe it's embedded throughout the organization and defines our culture. I believe it makes profoundly good business sense and leads to many good things, including more customers, better services, lower costs, lower risks, a better reputation and more profits. And some of this you will see as we go through our slides this morning.

And secondly, as I'm sure many of you do not need reminding, we made the strategic decision to withdraw from the U.K. rail market and increase our international diversification over this period. And then, finally, over the last 10 years, we have delivered for shareholders with a 244% TSR compared to 209% for FTSE 250 and 40% for our peer group. There is more to come from us.

Turning to North America, and again, if we pause for a moment to look at the change in the business over the last 10 years, we have gone from being just a school bus business to now having a rapidly growing transit and shuttle business worth over 1/3 of our total revenues. This transforms the return characteristics of the business. We have also fundamentally improved the safety performance of the business, and in such a tough environment, this is critical. Our claim handlers tell us that our average cost per claim in 2019 was less than half of a peer group of 13 other industry players. In 2019, we spent approximately $60 million on the cost of claims. So scale it up and do the maths.

North America had a great year. Profits grew in excess of 20% and the margin improved to 10%. WeDriveU grew by nearly 40% on a like-for-like basis, and more on this later. In transit, we renewed a number of our largest contracts, with rate and volume increases worth around $1 billion to us over the lives of these contracts.

In school bus, we are currently achieving over 90% of retention rates and have won some important new contracts on improved terms in new states. And pleasingly, we have made real progress in terms of customer satisfaction. Now over 55% of our school bus customers rate us as 5-star or highly satisfied, up from 32% 2 years ago. So we've nearly doubled that.

And this is translating into better rate increases. Last year, rates on renewals increased by 3.9% versus wage increases of 3.4%. We believe we have the best-trained drivers in the industry who are subjected to the strictest monitoring standards and who are driving vehicles equipped with the most advanced safety technology in the industry. This is helping to keep our customers happy, win new work and improve our margins.

We also transformed our control of driver wages in the year through our master scheduling program, and this made an important contribution to the results as well as driving up on-time performance. This is becoming embedded in the business, and is helping us to grow our profits. So for example, in 2019, it helped reduced our cost by $10 million as well as improve service to our customers.

Turning to ALSA. It was a golden year for ALSA, with very strong organic growth. Passengers grew across the business by over 12%. And if we spend a moment to look backwards over the last 10 years, we have doubled revenues from EUR 0.5 billion a year to now EUR 1 billion a year.

In 2010, ALSA was very dependent on the long-haul concessions, which then accounted for 2/3 of revenues. This year, we expect the premium concessions to account for less than 20% of ALSA's total revenues. And this is actually also reflected in the group position. In 2010, the profits generated by these contracts generated over 68% of group statutory operating profit. This year, they will generate less than 20% of group statutory operating profit.

In 2010, we had 1 city in Morocco, now we have 6, and we are the largest operator in the country. There is no yield management back then, nor was there any business in Switzerland. It is now a very modern business operating in multiple countries with a highly competent management team that is hungry for growth. And as I said, in 2019, ALSA achieved excellent growth, with almost all of it being organically driven.

The key highlights of the year were, obviously, the contract wins in Casablanca and Rabat that have given us over EUR 2 billion more in committed revenues over the next 15 to 22 years. But we also renewed Bilbao on good terms and extended our contract in Madrid for another 5 years, which is worth over EUR 0.5 billion to us over that period. Finally, as Chris said, we made 3 small acquisitions in the period, 2 of them giving us strategic growth opportunities in Aragon and in the Canary Islands.

Dwelling on the long-haul concession renewal process for a moment, the authorities did launch 2 small competitions at the end -- right at the end of 2019, one of which was a contract where we are incumbent. However, this was immediately subject to an appeal, which is currently before the courts.

Turning to the U.K. and Germany. Again, if we look back over the last decade, the U.K. witnessed what was probably our most important strategic decision, which was getting out of U.K. rail. But in addition, we overcame the loss of CSOG, which was a heavy blow at the time and we modernized transforming ourselves both digitally. Now over 2/3 of our bus passengers use contactless and, in terms of smart pricing, through the use of artificial intelligence.

Turning to our 2019 performance, we added around 1 million bus passengers. This is not a business in decline, and we notched up an overall margin in excess of 14%. The British Safety Council said that our bus business was the safest transport operation that they audited anywhere in the world last year. Bus entered the accessible transport market through the acquisition of ATG.

Finally, bus further strengthened its partnership with TfWM and the Mayor. Now if I can just read from a quote he kindly gave us yesterday. This is from Andy Street. "National Express have already done a brilliant job of upgrading their buses, while keeping prices low, and the West Midlands' combined authority and I will do all we can to support them to reach their 0 pledge by 2030. No one is calling for regulation in our cities."

Coach enjoyed a brilliant year, growing passengers by nearly 5% as well as winning its first-ever contract overseas. And finally, we began operating new services in RRX very successfully and have received fulsome praise from the PTA.

I've got your profit bridge. It must be the virus, don't you think? Well done, boys. Well done. We found it in the end. I can talk to it if you like.


Chris Davies, National Express Group PLC - Group Finance Director & Executive Director [3]


Yes. Go ahead.


Dean Finch, National Express Group PLC - Group CEO & Executive Director [4]


Having now built for ourselves a reputation as a safe and reliable partner that relentlessly focuses on excellence and continuous improvement with a good environmental record, for example, Sustainalytics already rank us in the fourth percentile of over 12,000 companies in their global universe, we believe that we are well placed to seize the opportunities of the next decade, where environmental and social concerns will be at the forefront of all of our minds.

Cities around the world are committing to huge environmental and social changes with radical agendas supported by central government funding. We are seeing this in London, Birmingham, Barcelona, Madrid, Marrakech, San Francisco, Washington, L.A. and New York, to name a few. These cities will grow rapidly, and so will the demand for clean public transport.

Public authorities will turn more and more to trusted partners for their transport needs. And so because of this, we have renewed our vision and purpose, which I set out here. And to paraphrase, our vision is to be the world's premier mass transit operator, leading in safety, reliability and environmental standards that customers trust and value. Our belief is that we should drive modal shift from cars to quality transit because it is fundamental to a clean, green and prosperous future, and our purpose is to help lead this modal shift by making our services highly attractive for our customers whoever they are.

So we are starting from a good position where we believe that, as a transport operator, we are part of the solution not the problem. For instance, each bus takes up to 75 cars off the road, each coach takes up to a mile of traffic off the road. And so the commitment we are making now is to never buy another diesel bus in the U.K. and to lead the transition to 0-emission coaches, with a target for our first electric coaches here in service next year. And our ambition is for the U.K. bus business to be 0 emissions by 2030 and for coach to be 0 emissions by 2035. And we're also backing this up, putting our money where our mouth is by linking our pay to these targets.

As in all things in life, nothing comes for free. And although we believe there is a good long-term business case for this in the short run, we believe that this commitment is going to cost us about GBP 10 million per annum in additional capital spend over the next few years. That is already in the guidance. Any assistance from the electric city scheme recently announced by the British government would serve to reduce this capital cost and accelerate rollout.

We believe that this is the right thing to do, and there is a sound business case for making this investment. Although the cost per bus is around about GBP 150,000 higher, maintenance cost halves, and we believe that we shall need fewer buses.

So looking ahead, I'm very excited about our opportunities for continued growth. The business is in great shape and in good health, with highly-talented management teams in each of the divisions, free from distractions and hungry for growth. In North America, we will continue to grow our transit and shuttle operations, which Dennis will cover in more detail in a moment or two.

The renewal of CDT and Boston will deliver growth this year. In school bus, we have a number of things that will drive profit improvement this year, continued delivery of the master schedule program will give us efficiency in direct wages.

We are fundamentally overhauling how we recruit and train our drivers, and this should lead to real gains for the business this year, I believe.

Our investment in ByteCurve will enable us to integrate dispatch operations and scheduling for the first time, thus driving more efficiencies. And we have recently established parts reclamation centers in the business, which will also help us drive efficiency in maintenance costs.

In the U.K., we are launching a range of new routes and services in both bus and coach as well as deploying AI to help us drive more organic growth. We shall also be growing our contracted revenues with, for example, the launch of our new Dublin Airport services. We should also be working closely in partnership with the West Midlands to drive growth through the recently announced electric city program and the infrastructure fund. ALSA will see strong growth as a result of Rabat and Casablanca, whilst also pursuing new growth opportunities in Galicia, Aragon and the Canary Islands.

Finally, we have a pipeline of M&A opportunities as well as organic bid opportunities around the group that we shall pursue. All this gives us the confidence to maintain our earnings guidance for the current year. As Chris has already mentioned, despite the strengthening of sterling, since you put your forecast together last year, meaning we are upgrading our earnings forecast in constant currency.

Obviously, I do not have a crystal ball, and I cannot impact -- predict the impact of the recent outbreak of coronavirus on us. But in my experience, similar issues in the past have only a limited impact on the business for a relatively short period of time.

So thank you for listening to me. And now I'll hand over, firstly, to Alberto, and then Dennis, before opening us up to questions.


Alberto Pérez, ALSA Grupo S.L.U. - General Director of Morocco [5]


Thank you, Dean. Good morning. I'm really delighted to be today with you to present to you an overview of our business in Morocco.

We started our operations in Morocco in 1999, when we were awarded with our first urban transport contract in the city of Marrakech. And we can divide our -- this 20-year history in Morocco in 2 different periods. The first one, going from 1999 until 2009 period in which we were focused on the organic growth in this city.

During these 10 years, we had the time to know the country, to understand the local customer, to develop a business model adapted to local needs, and to build the reputation that will enable us to grow in other cities later.

The second one, going from 2010 until today, in which we took advantage of this experience and reputation accumulated during the first period, and we concentrated our efforts on inorganic growth. And that is how, through international tenders, we were able to win new contracts. Agadir in 2010, Tangier in 2014, Khouribga in 2015 and Rabat and Casablanca in 2019.

Combining organic and inorganic growth, we have been able to achieve an average revenue growth of 18% during this period, this 20 years, and 15% average growth in number of passengers. Just the integration of our 2 last operations, Rabat and Casablanca last year, implies multiplying by 3 the annualized revenue.

Due to this progressive growth that will lead to an increase of volume of 50% with respect to 2019, we become now the largest transport operator in Morocco, operating more than 1,700 buses, transporting more than 350 million customers, running 140 million kilometers, and all these with a staff of nearly 7,000 employees.

Over the years, we have succeeded to position the company as a trusted partner, and these fact is playing a crucial role when an authority has to take the decision of replacing an operator. And this trust has been built on a set of different levers. Our technical skills to adapt the service to local needs by restructuring transport networks, our willingness to offer quality services an -- at an affordable fare, taking into account socioeconomic profile of the cities, our flexibility to adapt the contracts to new city needs, our experience in dealing with social and labor issues during transition periods in a small -- in a smooth way, the implementation of the same safety standards exactly as we do in any other company within the group, our orientation to reach win-win partnerships with authorities, principally during the negotiation process of a new contract, and also our capacity of innovation, implementing state-of-the-art technologies onboard as GPS, CCTV, smart cards, et cetera.

One example of what we deliver to cities is the recent case of Rabat, where we were -- we have recently set up a totally brand-new transport system. The 21st of August last year, we put into service 350 new buses, integrating the latest technologies in terms of safety and comfort, and now, the Rabat fleet is considered the best fleet in Morocco. On top of good quality buses, our maintenance plan has delivered a level of fleet availability above 95%, and this is an essential element for the reliability of our service. Last August, we hired 1,500 employees from the incumbent, employees that never had a single training hour. And in just 6 months, we were able to provide 7,000 training hours for our staff.

At the same time, in just this 6 months of operations, we have fully implemented our DOH safety program. We are also redesigning the transport network, balancing citizens' needs and efficiency in the allocation of resources. And we also have reached a new deal with the staff and develop a new relationship with salaries linked to productivity and offering opportunities of professional promotion for all of them.

What we have done during the mobilization period in Rabat has significantly raised the safety standards in the city. But it is also what we have done before in the rest of the cities we operate in Morocco. As you can see in the chart, we've been awarded several times in Morocco and abroad. But maybe the most important award is the Prince Michael International Road Safety Award that we got 4 years ago.

Therefore, we have a business model that works very well in Morocco, a model that works very well for us because we are making money in Morocco, but also a model that works for authorities and customers because they receive a high-quality and safe service at an affordable fare. And this model is operational in our 6 Moroccan cities, offering transport services to 12.5 million people, that represents 36% of the Moroccan population. But we still have new opportunities in other Moroccan cities that will be tendered in the next years, as you can see on the slide, as well as opportunities in the intercity business, where we are actively looking for acquisitions.

As a summary of this 20 years of history in Morocco, we can say that, first of all, Morocco is a very good country to invest in, with stable currency and fast-growing cities. We will continue to look for long-term relationships with both authorities and customers. We implement in our Moroccan operations the same standards in terms of safety, quality of service or compliance as in any other company around the world. We are seen by authorities as a problem solver, smoothly managing staff issues during the transition periods, raising the quality of service and helping authorities to replace difficult incumbents sometimes.

We have a significant community impact, and an example of this is the new road safety school in Marrakech, where we will train 20,000 kids per year, that means 200,000 people in 10 years, a whole generation. We will continue with our innovation contribution as we are going to do in Rabat and Casablanca, put into service electric buses as we already did in Marrakech where we operate the BRT with electric buses. We have never lost a contract in 20 years. And we are replacing big transport operators like Veolia in Rabat, RATP in Casablanca, Grupo Ruiz in Tangier, and that's something that shows how the doors are opened for us in Morocco.

With this vision, with this strategy, we are sure that we will have many business opportunities in Morocco in the near future. Thank you very much.


Dennis Carlson, WeDriveU, Inc. - Chairman & CEO [6]


Good morning, and good to see you all again. My name is Dennis Carlson, and I'm the founder and CEO of WeDriveU. As you probably know, WeDriveU heads the newly established shuttle division for National Express in North America. I'd like to take a few minutes and review with you our 2019 results and share with you why we are in a great position to go after many more opportunities in 2020 and beyond.

As you can see from the bar chart, we grew 38% -- our sales grew 38% from $140 million in 2018 to $193 million in 2019. Our 3-year CAGR is 51%, with revenue growing from $56 million in 2016 to our current run rate. WeDriveU is the shuttle solutions provider to many of the world's fastest-growing and most sophisticated companies. Our biggest customers include Facebook, Google, Tesla and Amazon. What started out as a necessity to recruit and retain engineering talent in the Silicon Valley has now expanded to markets with similar hiring and commuting challenges, such as Seattle, Los Angeles, Boston and Austin, Texas.

Our customer success team continually looks for ways to improve value for our accounts by focusing on passenger experience and by reducing cost per rider. For example, we track all route usage. If a route exceeds 80% capacity, we suggest the client would use a larger vehicle on the route or we add another vehicle. Conversely, if usage drops, we suggest to downsize the vehicle size or simply eliminate the route. Our customer satisfaction is running at 84%, and our customer success team is currently on a road show, visiting all of our customers and markets around the United States. As an example of our customer loyalty, I'd like to report, we recently renewed our largest contract. Our coach services at Facebook and Silicon Valley renewed for another 3 years.

Let's take a look at our addressable market. Prior to the investment by National Express, WeDriveU served a $2 billion corporate shuttle market. We have now entered 2 parallel shuttle markets, the $1.5 billion university market and the $1.7 billion hospital market. Our total addressable market has grown 2.5x from $2 billion to over $5 billion. As we aggressively pursue the university and hospital sectors, we are bringing the expertise, innovation we gained from the corporate market. We are differentiating our services in 3 ways: through technology, dedicated program management, and a customer success team with the experience in transportation demand management and rider engagement.

As a testament to this differentiation, we are now running the Northwestern University and Hospital shuttle, following the acquisition of its operator by National Express. Northwestern's transportation service manager, Paul Merkey recently said, "WeDriveU took over the operations from our previous vendor. And in the last 7 to 8 months, they've been a really great partner for us, and we're looking forward to continuing that going forward." I'm happy to announce our pipeline is strong with over $200 million in revenue opportunities, and we have a broader base of targets, both geographically and in a mix of opportunities, and we've already made significant inroads to the university sector.

With these exciting results and a robust pipeline, we're in great shape to grow the shuttle business by meeting a leaner and stronger organization and by leveraging the National Express footprint. We've been able to reduce costs by leveraging the National Express legal, recruiting and IT teams. For example, we reduced legal expense alone by $200,000. And as we bid opportunities, we received extensive help from the National Express Real Estate Department in identifying suitable properties for parking and maintenance facilities. Once we've identified the best property, the National Express maintenance department has provided the knowledge and expertise to bid the maintenance then staff these locations with trained and certified technicians. We've developed broader corporate relationships, particularly in insurance and banking, and we have identified additional saving opportunities in fleet procurement and with fueling vendors. National Express advises on our evaluation of cutting-edge technologies for our customers, such as electric buses and autonomous vehicles.

I would like to point out that the National Express standards make us stronger. Its best-in-class safety program is raising our standards with the safety-first focus and its metrics-driven approach. I personally find it very compelling that National Express starts every meeting with safety reporting. We've taken each of these safety initiatives to heart, and now we truly are a more safety-focused organization as we implement driver coaching and gamification to incentivize the highest performance. The National Express footprint gave us immediate scale throughout the United States, and we've already expanded that footprint in the Midwest. As we expand services to the Eastern U.S., we continue to leverage the National Express locations as a base for new business. As we bid new opportunities, National Express has helped us with university market domain expertise and optimizing our bidding process to focus on strong financial returns. And as we sell in the large programs, we often encounter charter cross-selling opportunities, which National Express can serve with existing operations.

So let me summarize. In summary, WeDriveU has demonstrated excellent growth with many of the most sophisticated and demanding corporate brands in the world. We have a stronger business pipeline, and are posed to expand our capabilities to the university and hospital markets, which more than doubles our total addressable market. And finally, the National Express partnership has triggered exciting new opportunities, while allowing us to benefit from their relationships and scale to operate more effectively and efficiently.

Thank you for your time.


Dean Finch, National Express Group PLC - Group CEO & Executive Director [7]


Thanks, Dennis. Thanks, Alberto. I think to drive the point home, really, these guys are winning because they are the best in the business, they are high-quality operators, whose vision and values are aligned to the rest of the group. And customers are going to them to solve their problems, and you can see why. I think particularly, with the slides that Alberto showed on the ALSA effect on safety stats in Morocco, what he really means is those are lives saved. There are people alive today in those cities who would not be alive because ALSA are operating in those cities. And from that, you can see perhaps why they choose us as a trusted partner. I think it also demonstrates the strength and depth in our teams.

So thank you very much for listening to us, and now I'll open it up to any questions. Joe?


Questions and Answers


Joseph Philip Thomas, HSBC, Research Division - Analyst [1]


It's Joe Thomas from HSBC. A couple on the U.S. and one on Morocco, if that's okay. On the U.S., I'm just wondering about the shape of the business with respect to school bus and transit. I hope you could comment on a couple of things. One, was acquisitions this year, there was only 1 school bus acquisition. Historically, it's tended to be -- there's been tended to be more. And I'm just wondering if that's happenstance or if that's because the available returns have gone down or if that's because of a change in strategic direction. And then the second thing is in the U.S. As you think about the organic growth profile -- or the organic profit growth profile there, how are you viewing the sort of long-term mix between transit and the school bus business? I guess we're waiting for school buses to bottom out in terms of volumes, but it's being offset by some growth in transit. So just some thoughts around that.

And secondly, on -- I'm sorry, finally, on Morocco, obviously, you've done an incredible job of signing all those contracts. I just wondered if there's any detail you can give us around the scale of those contracts that were on the chart that you gave us. And if there's any sort of natural limit to the number of contracts that you can have with those different city regions?


Dean Finch, National Express Group PLC - Group CEO & Executive Director [2]


Okay. Thanks, Joe. I think as we probably -- I won't say there will be no more school bus acquisitions ever again. If we like -- we're opportunistic. If it works for us, and we think it's a good market and it tucks in well to the business we've got, we'll go for it if it's the right price. But I think, as we've probably been signaling for some time now, we want to diversify away from school bus. We are satisfied with the business we've got and the returns we get from it. But we think they're, in terms of straightforward objective capital allocation decision, the return characteristics of high-quality, transit and shuttle operations probably look a bit better. That ebbs and flows through time, but I would suggest that you will probably see more of a shift through time. It is our stated ambition to double again the size of the transit and shuttle business over the next few years. And that will automatically result in a further diversification of the business in the U.S.

But on the other hand, as I said, I wouldn't rule out further school bus acquisitions. But we're tough on return requirements. The business -- I mean, we've got some phenomenal parts of the school bus business in our portfolio, and then we've got some bits of it that are less than phenomenal. And some customers, we very much enjoy working for and want to keep and others perhaps less so. And we're just robust when it comes to pricing on renewals. And for the -- I think the risk we bear, we -- and the reputational risk we bear as well in terms of carrying 1 million kids a day in the U.S., we want returns for it. And if those customers are less interested in the quality aspects of the business and more interested in price, that's not a business for us. So hopefully, that's answered that.

On Morocco, well, as you can see, Alberto is -- nothing short of world domination is going to satisfy him. And he's steamrolling ahead doing that. We've asked the authorities at, is there a cap on what we can have in the country, and Alberto, why don't you tell Joe what you told me yesterday?


Alberto Pérez, ALSA Grupo S.L.U. - General Director of Morocco [3]


What I can say is that we had other competitors in the past, now we are probably the only international operator in Morocco. We have another local competitor in a very bad situation, quitting contracts and -- well, leaving the authority in a very bad position. So from my point of view, they need us. If we are not so ambitious to try to be the King of Morocco and just go step-by-step, trying to help the authority, trying to reach beneficial agreements for both parts, who will be able to earn money to satisfy our customers and the authorities, and it's the case now in another city that we don't operate. This local operator stopped the activity in December, just like this, because he was losing money and that's it. And the authority in that city called us. We didn't go there to try to get a new contract.

And I think that this is what is going to happen in the next years. I don't think that the market is limited. We -- I talked about new tenders coming next year, but we have the intercity market, which is enormous, and we never tried it. So I continue to be very optimistic. We didn't talk about trams and other urban transport modes. So as a conclusion, I can say that we are very confident about the future growth in Morocco.


Dean Finch, National Express Group PLC - Group CEO & Executive Director [4]


So we've seen that far, it's worth about EUR 150 million a year to us at the moment. That could easily double again over time. And then there are adjacencies on top of that, that we feel, both geographically and product line-wise, we can -- we could expand into. So the focus is on being a good operator, not being greedy, but being sensible, doing what we need to do for the authorities, being focused on returns. And there's a good growth path there for us. Thank you. Gerald, please?


Gerald Nicholas Khoo, Liberum Capital Limited, Research Division - Transport Analyst [5]


Gerald Khoo from Liberum here. A couple of questions for me. In -- with regards to North America, you talked about a change to drive our equipment strategy or process. I was wondering whether you could elaborate a bit more on what's -- what you're doing that's different there and why that delivers a better outcome?

And secondly, on Spain, obviously, there's been -- yet, another change in governments there. I was just wondering what your thoughts were on the political environment with regards to, okay, is it still a good place to do business? Is there going to be pressure on the private sector? What do you think that's going to happen to the tender process? And basically, what do you think the outlook is based on the election outcome?


Dean Finch, National Express Group PLC - Group CEO & Executive Director [6]


Okay. Thanks, Gerald. So I'm hugely excited about the driver recruitment opportunity. I'm driving these guys nuts, but we lost GBP 21 million of revenue in Q3 and Q4 that we could have had if we could have recruited up the drivers. So we're having a fundamental root and branch review of how we recruit and train drivers. And essentially what that means is we are centralizing and we're working with the authorities to change signing authorities. So if I take Toronto, for instance, we have currently doubled. We've managed to persuade the authorities on Ontario to allow us to be self-regulators, and that's the first for the state, the province. And that's a big move, because these guys, they are the bottlenecks. And you maybe only got a handful of these state officials who can actually sign off that a driver has passed all the checks, all the regulatory requirements and get into service. So we sometimes have banks of drivers sat on the bench, waiting for the authorities to sign that up.

So there's a small change in Toronto alone that I find hugely exciting, that will enable us to pick up organic route growth, I believe, in the start of a new school year. We're streamlining the process. We're taking days out of the process without reducing the quality of the training we're giving, and we're actually centralizing the pipeline process. So hard work. It's all in the detail, just like master scheduling was and is. But I personally, this is a big, big aim of mine for this year, and I'm hugely excited by it.

Turning to Spain, well, probably more taxation. How stable is it? Hard to say. Obviously, they are -- it's a minority government, reliant upon a separatist party to get that budget through. That seems challenging to me. I do fundamentally believe it's still a great place to do business. We -- though you will see us do more of the same as we have done, and I tried to highlight in my speech earlier, we have successfully diversified away from the long-haul business. We went through 2019 pretty much seeing no movement on that at all. 2 days before Christmas, some officials within the ministry decided they had to kick-start the process again, kick-start the process. Within a matter of days, it have been appealed, the 2 small bids have been appealed and halted. It doesn't mean they won't renew again tomorrow, but you see a pattern here.

I think my guidance is as it's always been. I have been saying it now 8 or 9 years, but I still believe it, that if and when they come to the market, we should expect some margin compression. However, as I think we demonstrate in these results, and we demonstrated in previous results, this is something we feel perfectly capable of dealing with and continuing to grow both in ALSA and across the group. And there are plenty of really good opportunities for continued growth. Alberto's highlighted Morocco. We could have spent another hour this morning talking about urban, for instance, where we have very successfully grown urban. I kind of hinted a bit about it when I talked about Bilbao, I talked about Galicia, I talked about Aragon, I talked about the Canary Islands. We -- although ALSA is the premier brand and the dominant operator in certain parts of Spain, that doesn't mean by any means, it is everywhere. And we see real opportunities in certain geographies, certain cities, certain islands of Spain that will continue to see us drive highly profitable growth. And these are the guys to do it.

Do we have any other questions? Go on.


Gerald Nicholas Khoo, Liberum Capital Limited, Research Division - Transport Analyst [7]


Gerald Khoo from Liberum again. Only two last time, so I've come back with another two. Morocco, obviously, you've talked about the large number of opportunities coming up in the next few years. Can you just run us through the -- what the tender process is? I think one of your contracts is up for renewal this year, judging by that chart. So are these sort of price-driven, quality-driven contracts? What settles? Who wins these contracts? And when might we hear about something?

And on the electrification issue, you've talked about not buying another diesel bus in the U.K. I know that there's -- some of your existing cable lift will effectively be retired early, it would be my sense, if you're going to get 0 emissions by 2030. And actually, I'm not sure what -- whether the strategy is hybrid electric in the interim or pure electric straight on. But is there a risk of write-offs or accelerated depreciation either from existing cable that will still -- would otherwise have been in service beyond 2030 or things that you're having to buy as interim capacity?


Dean Finch, National Express Group PLC - Group CEO & Executive Director [8]


So just dealing with Morocco tenders first. Yes, interesting. So price is not typically the governing factor. As with all things, price is an issue. But I think when authorities are going to Alberto seeking assistance, they have the ambition to improve the service for their cities and for their people. And that is the prime motivation typically for contract award and change. Being, in no doubt, in cities like Casablanca and also in Rabat, how important socially the provision of a quality bus service is to everyone. It's frankly, the difference between working and not working, and it made a huge difference to the quality of life, and I'm sorry to run the point home, but actually to life itself. And perhaps some of our competitors in the country have been not as humble as they might have been, and not as focused on the service as they might have been, and they've been kicked out. And Morocco is probably no different to DfT-style timescales in running tenders. They set time scales out there, but they're elastic. So it's been a feature of my life when I've been expecting something to be determined and maybe a year later, is determined a year later than I was expected. Equally, I wake up one morning, and he wants to buy 700 buses. So more of that will come.

Look, I mean, we -- there will be a depreciation increase in the books because the vehicle cost is higher. But we think this is not going to have a material impact on the margin, and we will manage this very sensibly, not least because maintenance cost halves, I think that the -- there is an opportunity on vehicle count too. Because we need fewer vehicles, we think, in the new world that we're proposing here. Our thinking at the moment is very much EV, but we're open to hybrids as well. Hybrid, I think -- can't rule out that we will do some more hybrids until the range issue is solved. But precisely where we are at the moment, we've got about 1,600 buses in service in the West Midlands, about more than 700 of those now. The range is easily dealt with by the range of what's available on the market today. That is changing rapidly through time. We are taking a punt that they will sell -- that battery technology will continue to move forward over the next few years and deal with the range issue, but it also presupposes that the services are as operated -- continue to be operated as they are today.

And Tom has got some views on that. Did you want to chime in here, Tom?


Tom Stables, National Express Group PLC - MD of UK & Germany [9]


I think as far as the source about how we redesign the services to cope if the range isn't there. So we've looked at a couple of depots, and we know we can manage, as Dean says, within the constraints of the current vehicles with reengineering the service because they are that much more reliable. They have less downtime, so you can make it work very effectively.


Dean Finch, National Express Group PLC - Group CEO & Executive Director [10]


Yes. I mean, it's more challenging for Coach at the moment. We ran some trials last year, and we figure we can do the airport services with them. Long haul, though, is a bigger challenge. But even with the airport services, there's still a manufacturing issue to resolve because the battery is absorbing about 1/3 of luggage capacity on the vehicles. So that does need to be solved. But I'm confident it will be.

And look, this is something our customers want. And we figured, well, we better get on with it. The Mayor has not hidden his ambition to make Birmingham clean. And this is us getting ahead of that. And yes, we're also -- let's see where we get to with the electric city spend. And also, it's also the infrastructure commitment here that I think is important. And I mean by that, the money that's available for low priority schemes. We've got a bit of that last year. I think this sets us up very nicely to play right into that agenda to secure more funding for the West Midlands in partnership with the combined authority to speed up services and where we do that, we get great growth.


Okay. Thank you very much, indeed.