National Express on track for improved profits

BIRMINGHAM-based transport group National Express has said it expects to see an improvement in its year-on-year first half profits after its strong start to the year continued.

The company, which operates bus and coach services across the UK, continental Europe/North Africa and North America, together with some UK rail services, said trading during the second quarter of the year had continued to be in line with expectations.

In a trading update ahead of its half year results, the firm said: “Revenue trends have been resilient, whilst progress on cost saving programmes and delivery of a stronger operational focus across the business has accelerated.

“As a result, 2010 first half normalised profit before tax is expected to show good progress over the prior year.”

Overall UK profitability continued to benefit from an improved margin in its rail operations. This follows its withdrawal from the loss-making East Coast franchise last year.

Bus operations, which include Travel West Midlands, are improving and it said underlying revenue was only marginally lower year-on-year.

It has implemented a margin improvement plan which includes fare increases, targeted fleet investment, measures to reduce driver wage costs and a consultation on reducing depot capacity. The measures are expected to begin improving margins during the second half.

Within coach operations, underlying revenue has grown 3% year-on-year, benefiting from strong Easter and May holiday travel.

However, it said first half margin would be affected by an increase in investment in marketing and new operations and services.

The group said it welcomed the new Government’s review of rail franchising and the cancellation of the reletting process for its current franchises would enable it to explore new opportunities.

Outside the UK, it said its Spanish coach operation was improving although underlying passenger revenue in the first half was expected to be broadly flat on 2009.

Margin improved due to network efficiencies together with a leveraging of the flexible cost base, while rail service reductions are also expected to have a positive impact on the business.

In North America, it said the outlook for underlying revenue growth in its bus operations remained strong with more than 1,600 new routes now secured for the new school year.

Cost savings have been implemented and these should help offset higher insurance and depreciation costs.

The group said that following  the successful issue of its £225m 10-year sterling bond earlier in June, it had received commitments from its core banking group to provide a committed unsecured £500m revolving credit facility through to 2014. This replaces the current £800m facility and the group said the move would enable it to complete its refinancing ahead of schedule.

Fuel hedging has also helped to stabilise operations, significantly reducing the group’s exposure to any volatility on the oil markets.

The group, which consumes around 222m litres of fuel a year, said it was 100% hedged for 2010 at an average price of 39p per litre, almost 90% hedged for 2011 at 41p and 35% hedged for 2012 at 42p. This compares to an average price of 50p in 2009.

Commenting on the situation, Dean Finch, group chief executive, said: “With fundamentally strong businesses across the group, National Express now has a greater operational focus. The initiatives we have put in place will progressively improve our performance from the second half year onwards, driving earnings and cash generation.”