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National Express - COVID-19 update

RNS Number : 7140G
National Express Group PLC
19 March 2020





COVID-19 update


National Express Group ('The Group' or 'Group') provides an update on COVID-19, including the management actions and contract structures in place to help the business withstand this period of uncertainty.


Our over-riding priority during this period is to protect customers, colleagues and the business, so that we emerge out of it in as strong a position as possible. In all jurisdictions we are of course following government guidelines and advice.


The Group retains significant headroom through its committed facilities that underpins our resilience even in these exceptionally challenging times. The combination of our management actions and contract structures means we are still anticipating a small, but positive, cashflow in the coming months.


As a highly diversified business, National Express Group is currently experiencing different impacts from COVID-19 across its portfolio. While there has been a significant decline in passenger numbers in recent weeks, globally National Express Group has taken decisive action and has contractual protections in place to help withstand the downturn. Specifically, we have:

·     Already taken significant measures to reduce our cost base and protect our cash flow;

·     A diverse portfolio of contracts, many of which provide protections and minimum income guarantees that will help support our cost base in the coming months. Responses such as by the Spanish Government are also providing significant support to employee costs;

·     Worked closely with contracting authorities and local governments to maintain some payments during the disruption;

·     Significant liquidity headroom in our bank facilities. The UK Government's announcement of access to additional lines of credit for businesses like us will only strengthen this position.


Market specific information

The Group was trading strongly in the first two months of the year, with Group revenue up 17% compared to 2019, driven by ALSA up 24%, North America up 15% and the UK up 5%.


North America (accounted for 45% of Group revenue in 2019)

·     In School Bus, a large number of districts have so far announced closures for three weeks at least. We are currently contacting all customers on a contract-by-contract basis. So far we have resolution with 52% of our customer base and 86% of those have agreed to pay us either partially or in full for service. We note that now a number of states are issuing instructions to their districts to pay their contractors. The effect of which we anticipate will mean more customers agreeing to pay us.

·     Our major Para-Transit customers (which account for 90% of our Transit business) have kept a service operational with volumes currently down around 50%. Across all contracts variable costs continue to be paid in full, with a sizeable proportion of fixed costs being reimbursed while discussions to achieve full reimbursement continue.

·     Our shuttle business - predominantly WeDriveU - customers are continuing to pay us as normal, even when service has stopped or been interrupted.


ALSA (accounted for 30% of Group revenue in 2019)

·     A Royal Decree on the 15th March, alongside a 15 day state of emergency, restricted most travel in Spain. Consequently we are experiencing a c.70% decline in Spanish revenue.

·     Morocco has very recently brought in strict restrictions on movement and there is currently a c.40% reduction in revenue.

·     This is being mitigated through:

Swift action to reduce service levels. We have reduced levels on Spanish inter-city and regional services by 50%, with urban largely unaffected at this stage;

The allied temporary staff lay-offs have seen around half of our employees moved on to the government income protection scheme, where 70% of their salary during a lay-off is met by the Spanish state, allied to a suspension of employer tax payments. Further, the Spanish Government has also said that after the current outbreak is over, companies will be able to claim back the costs of those employees who did not enter the scheme.

·     Our contract structures also provide mitigation:

Around €200 million of Spanish contracts (around 20% of ALSA's total revenue) are gross cost;

We are currently in negotiations with the Madrid authorities to move the payment for our services there to a per kilometre basis;

Our largest Moroccan contract, Casablanca, is a gross cost contract, with ALSA only at risk on 10% of the revenue. Casablanca accounts for around half of Morocco's revenue. Beyond this, we are finding that the Moroccan authorities are being supportive and we expect them to be flexible in altering service when it is appropriate to do so;

Taken together this means that 40% of ALSA's revenue is protected from demand volatility.

·     In addition to these existing protections and mitigations, the Spanish Government has said that companies will be able to rebalance the economic equilibrium of contracts through an extension in their duration. This could extend the life of a number of our contracts and enable us to recoup lost revenue over the coming years.


UK (accounted for 22% of Group revenue in 2019)

·     Commercial bus revenue (which accounts for 70% of the business' revenue) has so far seen a decline of around 20%.

·     Concession income represents 19% of the business' revenue. So far we have seen around a 40% decline in OAP passenger numbers. However, for now at least, we continue to be paid by the concession reimbursement as normal from the West Midlands authority.

·     UK coach is experiencing a significant decline in passenger numbers.

·     These declines will be mitigated through significant network reductions, with UK coach reverting to a network similar to its Christmas Day service. This has the effect of removing up to 80% of capacity. UK bus is reducing its networks similar to a typical Sunday service, which amounts to the removal of around 40% of bus mileage.

·     UK coach is further protected given around 60% of services are delivered (and the associated costs incurred) by third party operators. We would expect to mitigate up to 70% of third party costs through this model.

·     Discussions are on-going with national government and local authorities to maintain existing payments (for example, concession income) and to enhance support for employee costs.


German Rail and Bahrain (accounted for 3% of Group revenue in 2019)

·     While both have seen significant reductions in passengers carried, they are mostly gross cost contracts and we expect the authorities to continue to pay in-line with the services delivered.


Management action to reduce costs and smooth cashflow

Across the Group we have taken swift action to stop all non-critical cashflow. All acquisition and capital expenditure programmes are on hold. All meetings and events and non-essential travel have been cancelled and all external spend is subject to increased scrutiny and reduced approval limits.


Among other prudent measures, executives across the Group have taken a pay deferral and sacrifice for the duration of the outbreak.


We are also discussing with relevant authorities how idle vehicles and drivers can be used to support local health and welfare services.



Following the recent refinancing, the Group currently has committed fixed borrowing facilities of more than £1.3 billion and will retain this level for at least the next 18 months. Current undrawn committed facilities total around £500 million.


In addition, the Group is in advanced discussions with our banking group to secure additional short-term facilities as further security should market conditions worsen. The UK Government's announcement of secured loan guarantees provides further assistance here. The Spanish Government has also indicated it is likely to provide similar support.



In our Preliminary results at the end of February we set out the intention to pay a final dividend of 11.19 pence. The Board will continue to reflect on the dividend in light of prevailing circumstances recognising how important the dividend is to our shareholders and will make a final decision as we approach the AGM on May 7th.


Dean Finch, Group Chief Executive, said:

"These are unprecedented times and have had an immediate and direct impact on our business. Nevertheless we are taking action everywhere to reduce our cost base, whilst both our contractual customers and governments are being very supportive.


"At this stage we cannot give precise guidance to what this means for our profitability this year, but our cash flow over the next three months is still anticipated to be positive even in light of the material downturn in passenger volumes. Our balance sheet is strong and we have borrowing headroom of around £500 million, while we are holding discussions to increase this further.

"National Express has a diverse portfolio of high quality transport assets that provide an essential service to millions of passengers daily. We will work through these challenges to continue to provide those services for the benefit of customers and shareholders alike and I would like to thank all our management and staff for their enormous efforts."



National Express Group PLC

Chris Davies, Group Finance Director

0121 460 8655

Anthony Vigor, Director of Policy and External Affairs

07767 425822



Neil Bennett

07900 000777

James McFarlane

07584 142665


Legal Entity Identifier: 213800A8IQEMY8PA5X34.

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Quick facts: National Express

Price: 181.6

Market: LSE
Market Cap: £1.12 billion

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