National Express pulls the plug on UK rail industry

Birmingham-based public transport group National Express is turning its back on the UK rail sector in favour of more lucrative investment opportunities abroad.

In its full year results statement, the company confirmed that it would use some of the proceeds of the sale of its c2c franchise to Trenitalia to pay off debt rather than re-invest in the railways.

It completed the c2c sale earlier this month, receiving £108m (with £35m being designated for inter-company loans).

“National Express is very proud of its record on c2c, turning it in to consistently the best performing railway in the UK. We handover c2c: with a record number of passengers; holding both the period and annual punctuality records; securing its highest customer satisfaction scores for three years; and, leading the industry on customer service standards, such as with automatic delay repay,” said chief executive Dean Finch.

However, he added: “The current UK rail market is one that we believe is not as attractive as our other growth opportunities. By securing the proceeds from c2c’s sale and using them to pay down debt while assessing where to best invest in our fastest growing markets, I firmly believe we have a real opportunity to generate significant shareholder value.

“Further, despite significant organic growth on c2c, the commitments to substantial investment in fleet and property and a growing premium were emerging as a risk. The slowdown in UK rail passenger growth is likely to present significant challenges to many operators with very high premium obligations. By moving swiftly and firmly, we have both removed this risk and replaced it with the opportunity for further targeted investment.”

He confirmed that the company remained committed to its German rail operations, where there were more attractive opportunities.

Overall, Mr Finch said the group’s diversified portfolio had delivered a strong performance in 2016, with both revenue and profits up on a constant currency and statutory basis, together with improving returns and strong cash generation.

“We have seen particularly strong growth in our overseas markets both from acquisitions and organically. As we enter 2017, we have a number of tailwinds including the benefits from our successful refinancing of our bond, the full year effect of acquisitions and lower fuel costs,” he said.

“We have a clear strategy for growth and remain focused on disciplined capital allocation, with a strong pipeline of opportunities for 2017 and beyond. The strength of our business, coupled with the removal of our c2c franchise commitments, means we are both raising our annual free cash flow guidance to £120m and we propose a 10% increase in the final dividend.”

Group revenue rose 20% (10.6% on a constant currency basis) to £2.10bn (2015: £1.75bn). Group normalised operating profit rose 14.2% (4.8% on a constant currency basis) to £219m (2015: £191.8m).

Close