Investor presentation Spring/Summer 2016
Cautionary statement This Review is intended to focus on matters which are relevant to the interests of shareholders in the Company. The purpose of the Review is to assist shareholders in assessing the strategies adopted and performance delivered by the Company and the potential for those strategies to succeed. It should not be relied upon by any other party or for any other purpose. Forward looking statements are made in good faith, based on a number of assumptions concerning future events and information available to Directors at the time of their approval of this report. These forward looking statements should be treated with caution due to the inherent uncertainties underlying any such forward looking information. The user of these accounts should not rely unduly on these forward looking statements, which are not a guarantee of performance and which are subject to a number of uncertainties and other facts, many of which are outside of the Company’s control and could cause actual events to differ materially from those in these statements. No guarantee can be given of future results, levels of activity, performance or achievements Unless otherwise stated, all profit, margin and EPS data refer to normalised results, which can be found on the face of the Group Income Statement in the first column. The definition of normalised profit is as follows: IFRS result excluding charges for intangible asset amortisation, exceptional items and tax relief thereon. The Board believes that the normalised result gives a better indication of the underlying performance of the Group. 2
Contents o Group strategy, investment case and business model o Our markets o Strategic focus and areas for growth o Divisional highlights – Full year 2015 o Financial results – Full year 2015 o Appendix 3
Group strategy Investment case Business model 4
Group strategy Three key focus areas Delivering Generating Creating new operational superior cash & business excellence returns opportunities Driving revenue A strong cash flow & Our unique portfolio growth & margin improving return on of international bus, progression in our the capital we invest coach & rail core divisions by will drive better businesses gives delivering excellent returns for our National Express a customer service shareholders significant opportunity to grow The ability to deliver strong cash flows & shareholder returns is based upon our focus on operational excellence 5
Investment case Our diversity is our strength o Best in class public transport operator with differentiated proposition to deliver sustainable, long-term shareholder value: o Well balanced and diversified portfolio o Strong recurring revenue streams from perpetuity businesses and established contract markets o Strong free cash flow helping to drive organic growth and position us for growth in new markets: o Fast developing pipeline of substantial capital-light growth opportunities; successful conversion of pipeline in German rail and the Middle East o Bolt-on acquisition opportunities in North America o Stable, long-term financing and commitment to investment grade rating o Dividend policy: 2x Group earnings 6
Business model Using operational excellence… …to serve our customers … and create profit and cash, generating long-term shareholder value 7
Business model Differentiating through diversification Balanced portfolio with attractive geographic & modal exposure National Express o Diversified portfolio with leading positions in Group Revenue £1.9bn many of our markets o Lower geographical and regulatory exposure Diversified revenue stream (1) to any one market o Deep understanding of & expertise in 9% 26% Spain managing regulated concessions 15% N America UK Bus o Ability to apply our experience & expertise to 15% 35% UK Coach build revenue & profit streams in new markets Rail o Morocco experience entry into Diversified modal breadth (1) Middle East o Successful UK rail franchise entry 9% Bus 24% into German rail School Bus 32% o Rail – revenue & profit stream secured Coach Rail 35% through to 2029 in UK & to 2033 in Germany (1) Data: 2015 8
Delivering on our strategy Strong track record on improving returns Focus on operational excellence is delivering sustainable & growing returns Free Cash Flow* ROCE* £m % 11.7 167.1 164.8 111.0 10.8 10.7 2013 2014 2015 2013 2014 2015 Dividend per share Earnings per share* p p 11.33 23.4 19.2 18.9 10.3 10.0 2013 2014 2015 2013 2014 2015 *Historical results restated to adjust for the impact of the Rail and Middle east bid costs previously treated as exceptional items 9
Our markets 10
Our markets Attractive markets with opportunity for growth Rail Spain & North UK Bus UK Morocco America Coach Regional Bus UK & £4.8bn Bus & Coach School Bus Germany Scheduled & Transit market Coach € 3.8bn (excluding £8.5bn UK market $24bn £300m London) market € 9bn market 30% market 80% local share 14% market 60% share Germany market share share Capital intensive…………...............Capital Light 11
Our markets Spain & Morocco Market size • € 3.8bn Features • Regulated & highly segmented market with 3 levels of Government regulation; national, regional & urban • Each concession is exclusive to the operator Competition • Intercity competition from state-backed rail & low cost airlines • Concessions awarded through competitive public tender, typically 10 years Growth drivers • Concession renewals, urban contract wins in Spain & Morocco ALSA has leading position in a highly fragmented market National Express adding value through quality of service with ALSA the top rated transport company in Spain Introduction of RMS providing competitive advantage 12
Our markets North America Market size • $24bn – 32% outsourced, 68% in-house Features • Fragmented market with top 4 players accounting for nearly 50% • Low barriers to entry but hard to get scale • Local relationships are key Competition • Bigger players - access to capital, geographical reach & scale advantages • Top 6 players – First Student, National Express, STA, Illinois Central, Krapf, Cook Illinois Growth drivers • Price increases on renewal & market share shift - organic & acquisitions National Express is second largest player with 14% market share & best in class margins National Express adding value through quality, safety and reliability resulting in industry leading retention rates 13
Our markets UK Bus Market size • £4.8bn Features • Primarily de-regulated with low barriers to entry Competition • National & local bus operators, car & rail • Top 5 players – Stagecoach, FirstGroup, Go-Ahead, Arriva, National Express Growth drivers • Increasing passenger volumes through modal shift Largest 5 operators represent around 70% of UK de-regulated bus market National Express adding value through our pioneering partnership approach with local transport authority, working together in passengers’ interests 14
Our markets UK Coach Market size • £300m Features • Highly de-regulated • Operators able to compete flexibly on selected routes Competition • Selective competition from rail, large bus operators & localised services • Main competitor is Megabus (Stagecoach) but on limited number of routes Growth drivers • Increasing passenger volumes through competitive pricing, better distribution channels, enhanced digital marketing & revenue management systems National Express only true national player with 60% market share 80% operated by third-party operators National Express adding value through innovative marketing using our enhanced CRM systems and customer database of 14m 15
Our markets Rail Market size • UK £8.5bn, Germany € 9bn Features • Regulated in the UK • Franchise lengths of between 7-15 years – pricing & quality key focus • Liberalising German market with DB needing to exit 40% of market share Competition • Increased international competition in UK franchise bidding • Domestic & international competition in Germany as market liberalises Growth drivers • Bidding for UK & German franchises National Express rail revenues secured through to 2029 in the UK & through to 2033 in Germany National Express adding value through innovative marketing techniques & the introduction of pioneering initiatives e.g. automatic compensation scheme 16
Strategic focus & growth opportunities 17
Group strategy Three key focus areas Delivering Generating Creating new operational superior cash & business excellence returns opportunities o Improving customer o Digital marketing driving o Capital light opportunities service sales & improving in new markets such as o Raising safety standards efficiency Germany and Bahrain o Ongoing focus on cost o Growing existing through technology & training efficiency businesses through new o A safer business pleases o Implementing enhanced contract wins o Bolt-on acquisitions in customers and drives RMS to stimulate volume passenger growth growth and optimise North America & Spain yields The ability to deliver strong cash flows & shareholder returns is based upon our focus on operational excellence 18
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