National Express Driving Cash And The Route To Growth

Driving cash and the route to growth
National Express Group's, (NEX) full year results demonstrated that the group successfully delivered on its goals for 2013. Revenue growth was achieved in all divisions (adjusting for the impact of the NXEA exit in 2012) and cost efficiencies largely offset the previously flagged headwinds for 2013. The outperformance in cash generation and improving return on capital show the strategy to deliver higher-margin, capital-light business growth is having a positive impact on the financials. With new market opportunities (£1.8bn) secured and a growing £10bn pipeline being pursued, all three strategic priorities are being successfully executed.

Targets exceeded despite headwinds
National Express exceeded its 2013 targets, despite the earlier indicated £50m of profit headwinds. Group revenues increased by 3% to £1.89bn, driven by a strong 7% increase in non-rail revenue, including a strong performance from UK Coach following a difficult 2012. The group achieved best-in-class ROCE of 11.1%, ahead of the target to improve on 2012’s 10.6% with a good core performance, and cost and synergy savings contributing some £51m increase in profits to offset the headwinds. With cash generation of £180m, well above the target £125-150m, net debt was reduced by a further £80m and net debt:EBITDA was 2.5x.

Strategy delivering now and for the future
The group has a clear strategy based around three key targets: driving operational excellence; generating superior cash and returns; and creating new growth opportunities. These results show the group has delivered across each of these strategic thrusts. With 2014 likely to see further progress as non-rail continues to deliver, new markets begin to contribute and rail start to recover, we expect profits to move forward once again. Likewise, with targeted capex deployment, we anticipate a further reduction in net debt of c £80m.

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