National Express posts strong numbers, drops Nuremberg contract

Passenger transport operator National Express Group posted a trading update for the three months to 30 September on Monday, with the board reporting “strong progress” as both revenue and profit grew year-on-year in constant currencies.

The FTSE 250 company said operating profit was up 9% in the third quarter, driven by particularly strong performances in its overseas businesses, through both organic growth and the benefit of acquisitions.

It said year to date, like-for-like group operating profit was 5% higher on a constant currency basis and up 12% on a reported basis, boosted by foreign currency movements on overseas earnings and after a significant increase in the c2c franchise premium.

The group claimed to be on course to at least deliver its targets for profit, cash flow and gearing for the year.

Group revenue was up 11% year-to-date on a constant currency basis and up 17% on a reported basis, supported by underlying passenger growth across the group of 3% with total passenger growth of 6%.

National Express said group profit before tax was up 9% in the period on a constant currency basis and up 5% year to date, despite a significant increase in the c2c franchise premium.

Year to date group profit before tax was up 15% on a reported basis.

The company claimed to remain on target to generate at least £100m of free cash flow for the year, and expected to close the year with gearing within its target range of 2x-2.5x net debt to EBITDA.

Subject to market conditions, National Express said it is planning to refinance its £350m bond shortly, to achieve significant savings in interest costs.

As a result, however, there would be a 'double interest cost' of approximately £2m in 2016.

It wasn’t all rosy however, as National Express

In February 2015, the Bavarian Railway Authority (BEG) announced its intention to award National Express the Nuremberg S-Bahn suburban rail contract.

A central aspect of the bid was the introduction of new trains at the start of the contract in December 2018, the board said.

“However, the lengthy challenge by the incumbent operator, Deutsche Bahn, has meant that the introduction of these new trains, to significantly improve the service experienced by customers and underpin passenger growth, would be substantially delayed and could also lead to National Express incurring prohibitive additional cost,” the board explained in a statement.

“We have therefore informed BEG that it is no longer in the interest of National Express and our shareholders to proceed, [and] the authority understands and respects our decision.”

National Express said it remained fully committed to the German rail market and was planning to submit a number of bids within the next year.

“With two thirds of our earnings generated outside of the UK this geographic diversity, combined with a focus on operational excellence and the deployment of technology, continues to deliver good growth, a strong cash flow and opens new market opportunities,” said group chief executive Dean Finch.

“We will stick to our fundamental principles of safe and punctual operations at affordable prices with particular emphasis on controlling costs to generate cash and keep fares low.

"The combination of our relatively resilient UK performance together with the strong growth we are seeing from our international operations enables us to selectively invest in growth opportunities subject to our strict financial criteria and continue to deliver attractive and sustainable returns to shareholders.”