Release Date: August 21, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Full-year 2024 guidance is on track with adjusted EBIT between GBP185 million and GBP205 million.
- Record H1 results in ALSA and improvement in North America, alongside ongoing recovery in the UK and Germany.
- Significant contract wins with 123 new contracts, totaling GBP91 million per annum in revenue.
- Successful implementation of cost reduction programs, leading to improved profitability and cash flow.
- Positive momentum in passenger growth across key business segments, with double-digit growth in ALSA long haul and North America corporate shuttle.
Negative Points
- Higher finance costs and increased tax charges have led to a decline in earnings per share to 0.3p in the first half.
- No group dividend was paid at the half-year mark.
- Revenue reduction in Germany due to ongoing structural issues such as energy market volatility and train driver shortages.
- Adjusted operating loss in Germany continues to impact overall performance.
- Challenges in the UK bus segment, including constraints from contractual terms with Transport for West Midlands and the impact of the GBP2 fare cap initiative.
Q & A Highlights
Q: My first question is in German Rail, where the discussions with the PTA described having a critical impact upon delivery of full year '24. Please, could you remind us what is assumed within your guided range?
A: Good. I will start with the German Rail. When we say critical, it's for two reasons. The first one is, for us, important because we need to sustain the economics of the contract in the short term and the long term, but also, it's critical and important for the PTA who is also interested to maintain the sustainability of the contract and the sustainability of the industry as a whole. So today, we are reiterating our full year guidance. We are progressing through the negotiations time line with the PTAs, the PTAs are contractually required to seek an equitable solution and outcome. And I have to say that all parties are motivated to deliver acceptable solutions. We are not expecting any significant downside that would breach or a full year guidance and Germany have delivered to forecast and expectations in the first half.
Q: And then in UK bus, how will the 6% fare increase sort of interact with the UK government's GBP2 initiative and also the agreements you have with transport pool, West Midlands. I'm trying to be clear if the revenue upside will all accrue to you? And then finally, the long-term targets all unchanged?
A: If we move to the second question, the UK bus and the price increases is a very good point because, indeed, this is something that is already there and implemented and for the first time, by the way, the pricing impact is above the cost inflation. Of course, we have some headwinds compared to H1, but certainly is a very important factor. So as you know, we did secure 12.5% fare increase, which was implemented last year, and that has been reinforced now with a 6% as from July 30. Also, very important to highlight is that we have a new arrangement in place for automatic index-linked fare adjustments agreed for the future. So that is also a good protection going forward. And it is important to say that as we have done those price increases, we do still see a strong commercial packs, which is 15%, growth 8% when normalized for a strike versus last year. In respect to the agreement, the Hans partnership with the transport for West Midland, the current restrictions of the Hans partnership expired January 1. So that means that the UK bus will have options available to it potentially including fares and also network management. And all the government initiatives in terms of the GBP2 cap were part of it, and it is included into our numbers.
Q: The first one on the cost initiatives and cash improvement GBP25 million impact this year. Can you just maybe elaborate a little bit how you managed to achieve those cash improvements? And what are the moving parts there?
A: Sure. That's fine. So let's talk, first of all, about the cash improvement. So we are targeting a higher number than GBP25 million this year, but GBP25 million is ultimately our target, to make sure that we deliver that. This year, it will be a mixture of run rates and also some one-offs. We launched the initiatives in early June. And actually, by the end of June for the half year, we already included or at least achieved a GBP4 million improvement in terms of cash. The idea is various initiatives across the business where we can serve cash and use that to delever organically together with the deleverage we hope will come from North America school bus sale. Now it's a mixture of initiatives. When I talk about one-offs, that might be cash collections, which are long-standing, for example, or sale of very small assets or equipment but we're also then looking at efficiency on working capital, efficiency in purchasing CapEx and so it's a range of initiatives really. The key thing is that we have the engagement of the whole organization. We meet and talk about it weekly. We're really managing it closely. And as I said before, we're focusing on overshooting. As we go into next year, it's really key that this is a long-term structural change. And therefore, we're targeting GBP50 million, again, hoping to overshoot that, but in order to make sure we deliver the GBP50 million and by the end of next year, we expect that to be on a run rate basis in terms of our cash.
Q: And second question is on the CapEx. Again, if you can give some color on the CapEx for the rest of the year and maybe more broadly on a normalized basis in future years, how should we think about your CapEx in the new ossified model?
A: So just responding on the CapEx. So you'll see that we had higher levels of CapEx in the first half this year. And that's growth CapEx in particular and relates to the very successful bid season, which Ignacio will talk to you about shortly for North America. So GBP32 million of that relates broadly to North America school bus. The other piece is that we also have the CanaryBus acquisition in the first half, which is included. I think the key thing to think about is we will have broadly the same level of growth in maintenance CapEx in the second half. We are continuing to invest for growth. We're very focused on how we're spending that CapEx. So our approach now is also to look at those contract opportunities, and we're selecting from a very solid pipeline, the optimal contracts where we have the best profitability opportunities and really focusing on how we make that CapEx work hard, we're also looking at asset-light opportunities in some of our divisions. So overall, I think the way you should think about it is we continue to invest from a growth and maintenance point of view, we're making sure it works harder, and you can see that on our returning capital employed of 7.6%, which you can see in the figures.
Q: Can you talk a bit about this sustainable mobility law in Spain, what it is? And what would be the potential impact on your revenue from 2026 onwards?
A: Yes, the Sustainable Mobility Act or law, it is basically the review from the government to review the remapping of the concessions of the -- for long haul. At this moment in time, it's a parliamentary process. It is good because this provides a legal framework uncertainty to this transitory stage because as you will know, some of -- most of those concessions are expired. So the -- basically, what the government is doing and the ministry is reviewing what should be in the map, what should be taken by the central government, what should go to the general governments. And in that also is how is this going to be funded is very clear what the ministry will fund, then they need to agree on the funding for the regions. So that's where we are. Then obviously, once you get to that point, and this is -- the act is approved, then you need to work on the concessional map. And then, obviously
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
