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28 July 2022

National Express Group PLC: Half Year Results for the six months ended 30 June 2022

Evolve strategy delivering strong growth; momentum building across portfolio

	HY 2022	HY 2021	Change
Group Revenue	£1.32bn	£0.99bn	33.6%
Group EBITDA	£197.8m	£128.2m	54.3%
Group Underlying1 Operating Profit	£90.5m	£22.9m	295.3%
Group Underlying1 Profit Before Tax	£68.7m	£0.1m
Underlying basic1 EPS	6.2p	(2.1p)
Statutory
Group Operating Profit/(Loss)	£42.3m	(£26.1m)
Group Profit/(Loss) Before Tax	£20.5m	(£50.2m)
Group Profit/(Loss) After Tax	£15.8m	(£24.1m)
Basic EPS	0.4p	(5.8p)
Free cash flow2	£63.8m	£36.1m
Covenant Net Debt	£946.8m	£873.1m
Gearing	3.1x	5.6x

Strong revenue growth across the business

• Revenue increased by 34% to £1.3 billion, the highest in over a decade
• Momentum building across the business, with Q2 2022 stronger than Q1 2022

Well positioned for further growth

• Growing pipeline, with £2.1 billion of bidding and inorganic growth opportunities
• 16 new contracts won in the period, predominantly in North American Shuttle, Transit and ALSA totalling over £150 million in revenue over the lives of the contracts
• Entered Portugal with the successful mobilisation of Lisbon urban bus contract; Porto to mobilise in H1 2023

Profit and cash flow benefitting from operational leverage

• Underlying Operating Profit up nearly four-fold to £90.5 million; Group Underlying Operating Margin up to 7%
• Statutory Profit Before Tax up £70.7 million to £20.5 million
• Continued tight management of the cost base; fuel 100% hedged for 2022 and 75% for 2023; wage rises manageable across the Group
• 60% of Group revenue is contracted and subject to annual cost indexation; around half of this fully inflation- protected
• Pricing ahead of cost inflation on contract renewals in North American School Bus where wage inflation most acute; some margin pressure until all contracts renewed and driver vacancies filled
• Active revenue management in our coach businesses in UK and Spain; occupancy and yields rising and ahead of 2019 levels
• Delivered free cash flow of £63.8 million during the period; cash conversion of 70%

Driving decarbonisation at pace

• Fleet decarbonisation accelerating with plans approved for 1,500 ZEVs across the Group by 2024
• UK Bus on track to 50% ZEV by 2025 and 100% by 2030

Confident in prospects for full year

• Strong first half performance, recent contract wins and growing pipeline provides confidence in our full year guidance and beyond, although challenges from driver shortages in North America School Bus remain
• UK Coach recovery expected to build in second half; UK Division expected to return to full year profit
• Continue to anticipate reinstating a full year dividend in respect of FY 2022

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Ignacio Garat, National Express Group Chief Executive said:

"I am pleased to see momentum building across the Group, with strong growth in revenue, profit and cash in the first half. Our Evolve strategy is delivering results and we are increasingly demonstrating our ability to rapidly mobilise safe, high quality operations on which our customers can rely. We won 16 new contracts in the half, which will contribute over £150 million over their lives, and there is more to come. Our pipeline of growth opportunities now stands at more than £2 billion in annualised revenue.

The path ahead will not be without challenges. We believe, however, that we are well positioned in an inflationary environment; resilient to slowing economic growth; and are taking all the steps we can to mitigate the industry-wide shortage of School Bus drivers in the US. Whilst mindful of these challenges we maintain our full year guidance and continue to anticipate reinstating a full year dividend in respect of FY 2022.

What we do is ever more critical for today's world, providing part of the solution to both the climate crisis and cost of living crisis, enabling people to swap their private car journeys for public transport. I am confident that we have the team, the strategy and customer relationships to succeed, and I remain very excited about our future"

Enquiries

National Express Group PLC
Chris Davies, Group Chief Financial Officer	0121 460 8655
Alison Cole, Group Corporate Affairs and Sustainability Director	07552 267295
Louise Richardson, Head of Investor Relations	07827 807766
Headland
Henry Wallers	07876 562436
Matt Denham	07551 825496

Website

The full release and supplementary data will be available on our website from 7:00am (London time) on 28 July 2022. The web address is www.nationalexpressgroup.com/investors/results

There will be a webcast presentation for investors and analysts at 9.00am on 28 July 2022. Details are available from Headland: [e-mail]. The link to the webcast is shown below:

https://streamstudio.world-television.com/1355-2498-33046/en

Notes:

1. To supplement IFRS reporting, we also present our results (including EBITDA) on an underlying basis to show the performance of the business before separately disclosed items. These are detailed on page 15 and principally comprise intangible amortisation for acquired businesses, certain costs arising as a direct consequence of the pandemic and onerous contract charges in respect of driver shortages in North America. In addition to performance measures directly observable in the Group financial statements (IFRS measures), alternative financial measures are presented that are used internally by management as key measures to assess performance. Further explanation in relation to these measures can be found on pages 19-20.
2. 2021 free cash flow has been restated for the reclassification of £4.5m from payables to borrowings in respect of amounts under advance factoring arrangements as explained in our 2021 annual report.

Notes

Legal Entity Identifier: 213800A8IQEMY8PA5X34

Classification: 1.2 (with reference to DTR6 Annex 1R)

Forward looking statements and other important information

This document contains forward-looking statements with respect to the financial condition, results and business of National Express Group PLC. By their nature, forward-looking statements involve risk and uncertainty and there may be subsequent variations to estimates. National Express Group PLC's actual future results may differ materially from the results expressed or implied in these forward-looking statements. Unless otherwise required by applicable law, regulation or accounting standard, National Express does not undertake to update or revise any forward-lookingstatements, whether as a result of new information, future developments or otherwise. Forward-looking statements can be made in writing but also may be made verbally by members of the management of the Group (including without limitation, during management presentations to financial analysts) in connection with this document.

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Group Chief Executive's Statement

I am delighted to be reporting half year results which demonstrate the momentum in this business. Resurgent passenger demand has delivered very strong H1 revenue; and operational leverage, disciplined cost control and pricing power has enabled us to convert this to strong profitability and free cash flow.

Group revenue is up 34% to £1.3 billion which represents a record level of revenue, on a constant currency basis, for a half year since we exited UK Rail. We delivered strong growth across each of our businesses, but particularly so in our coach businesses in Spain and the UK as demand has rebounded strongly. We are starting to see the benefit from operational gearing with Underlying Operating Profit of £91 million ahead of the profit delivered for the whole of FY 2021 and up £68 million year on year as we return to scale. Underlying Operating Margin is almost 7%, up 450 basis points versus the same period last year, and well ahead of the 5.4% delivered in the second half of last year. Statutory profit before tax recovered from a loss of £50.2 million in the first half of last year to a profit of £20.5 million; an increase of £70.7 million. This improved profit performance has converted to cash, with the Group delivering free cash flow of £63.8 million in the period. There are significant challenges in respect of cost inflation and driver shortages, but we are navigating these.

We are making good progress against our Evolve strategy. We have a pipeline of opportunities representing more than £2 billion in annualised revenue and we are starting to convert them, winning 16 contracts in the year totalling over £150 million in lifetime revenue. The successful mobilisations in both Portugal and Germany in the period are increasingly differentiating us from the competition as we target new markets, and this reputation has taken us to the final stage of the Dubai tender.

Put simply, there is more to do, but this business has momentum:

• demand for travel is rebounding and the prospects for public transport are improving;
• there is an attractive growth pipeline and we are winning new contracts to drive growth; and
• we are working hard to deliver on Evolve; differentiating us in the eyes of our customers to win more of this growth.

Accelerating momentum driving record revenue

We are seeing a continuing recovery in demand across the Group with growth in passenger journeys of 29% across the Group in the first half. In addition to this, we are winning contracts in each of our businesses. With a strong and growing pipeline of bidding and inorganic opportunities, I am confident that we will see further growth over the second half of the year and beyond.

In North America, our Shuttle business has generated revenue up 28% both through organic growth and through continuing success in contract wins where we have won nine new contracts during the first half. School Bus also grew revenue by 8%, despite driver shortages preventing us from running around 10% of routes. Transit revenue is up 5% and will continue to build as we have won a new five plus two-year extension paratransit contract in Richmond, Virginia, worth over £67 million, which will start operating in December.

In ALSA, we saw growth across all business lines, with standout results in both in Long Haul and Morocco. Our Long Haul revenue grew by 172% on rebounding passenger demand; and in Morocco we have delivered record revenue and passenger numbers, partly due to the mobilisation of Casablanca, but also with strong organic growth across the rest of the cities. Our first contract in Portugal, in Lisbon, mobilised in June, with that contract worth €26 million in annualised revenue, for the next seven years. Our second contract, Porto, will start operations in the first half of 2023, worth €17 million in annualised revenue, also for seven years. In addition, we entered the paratransit market in Spain through the acquisition of Vitalia, in what is an attractive and growing market worth €1.4 billion. These are good examples of Evolve in action, adding both a new adjacent geography and a new segment to ALSA, both markets that I believe will offer a number of attractive growth opportunities for us from these initial steps.

In the UK, similar to what we are seeing in ALSA, our coach business is experiencing a very strong recovery in demand. UK Coach revenue is up 359% with airports reopening and surging demand for intercity travel. We expect the recovery in demand to continue over our key summer trading period and are continuing to ramp up capacity to meet this demand. Our bus operations are also seeing a continuing recovery in demand, with passenger journeys ahead of the industry average, and up 65% year on year.

In Germany, revenue grew 59% with the emergency award of two contracts at the start of the year delivering €100 million of annualised revenue.

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Profit and cash flow benefitting from operational leverage, cost control and pricing power

Underlying Operating Profit has improved in every business across the Group, with the operational gearing impact from the strong revenue performance delivering an even greater recovery in profit and margin.

ALSA has delivered the strongest performance driven by resurgent demand for long haul and strong growth in Morocco, tripling the level of Underlying Operating Profit delivered in H1 2021 and growing Underlying Operating Margin to 11.3%, up 530 basis points year-on-year.

North America has also delivered an improved profit performance in the first half, with the utilisation of CERTS funding in the first half helping to offset the impact of ongoing industry-wide driver shortages in School Bus.

It is encouraging the see profit recovering in the UK. Whilst our UK Bus continues to perform slightly ahead of the rest of the market, we recorded a loss in the first half driven by our Coach business as the first quarter was heavily impacted by Omicron. The second quarter has built strongly with momentum accelerating month by month exiting the first half with June revenue growth of 306% and yields up 39% year on year. Put simply, we delivered good first half results, despite the UK performance in Q1, and its recovery provides a strong tailwind to the second half.

We are actively managing the challenges of cost inflation across the Group, both directly through disciplined control of our cost base and through ensuring we are optimising occupancy and yield. The rising yields in our coach businesses demonstrate our ability to flex pricing to rapidly adapt to changing travel patterns. Our UK Coach business delivered a 20% increase in yield year on year, whilst ALSA's Long Haul delivered a 19% increase in revenue per Km, a record result. Our contracted businesses typically benefit from a good level of protection against inflation, containing either annual fixed price or inflation-linked price increases, and in some cases a direct pass through of cost.

Cost inflation is most acute in our North American School Bus business where we are increasing driver wages by up to 12%, on average, to combat shortages. We expect to continue to recoup these increased costs as we renew contracts over the next two years, with the 2022/2023 school bid season achieving rate increases ahead of cost inflation. This, with a combination of inflation-based indexation and off-cycle negotiated uplifts on the contracts not yet due for renewal, mitigates the impact in the short-term, but we do expect North America margins to decline in 2023 before recovering subsequently once a greater proportion of contracts have been renewed at higher rates. Accordingly, we have recognised a provision for a small number of loss-making contracts.

Continued strategic progress

In 2021 we launched our Evolve strategy based on five compelling customer propositions, and we have made good progress in the first half of the year across each of our Divisions.

1. 'Reinvigorating public transport'- A prime example of this is the successful mobilisation of our first contract in Portugal which was delivered on time and ahead of other operators. We are also seeing progress in recently mobilised contracts, including in Rabat and Casablanca where financial and operational metrics are ahead of our expectations. All of this further enhances our reputation for reliability as we bid to operate contracts in new markets.
2. 'Multi-modalexpansion'- In the UK, our Transport Solutions business has launched operations in the West Midlands, leveraging off existing infrastructure, strengthening our bidding capabilities in the region and beyond, with the UK private hire and corporate shuttle markets worth £3 billion.
3. 'Delivering operational transformation'- When the local Passenger Transport Authorities in Germany were looking for an operator to mobilise two failing contracts, they came to us. Our reputation for reliability and efficiency were driving factors in the emergency award, which will generate €200 million of additional revenue through to December 2023, while the successful mobilisation of those contracts at very short notice will strengthen our credentials for future bids.
4. 'Filling the transit gap' - Our Shuttle business in North America has won nine new contracts in the first half of the year while our Transport Solutions business in the UK has won four new contracts. With the ongoing rail dispute leading to significant disruption in the UK this summer, we are likely to see further short-term contract awards to provide bussing for stranded travellers.
5. 'Compound and consolidate' - Our recent acquisition of a paratransit business in Madrid not only provides a new market entry and modal solution offering for ALSA, but also enables us to leverage off our existing infrastructure across a number of cities and regions in Spain, helping to drive efficiencies.

The 16 new contract wins this half show how Evolve is helping to drive growth across the Group. I am really encouraged to see that our strong pipeline of bidding and inorganic opportunities continues to grow, with a total

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pipeline of more than £2 billion in annualised revenue coming to market over the next 18 months. For example, we are one of only two bidders left in the process for a 10-year contract to operate urban buses in Dubai worth £160 million revenue a year and which would represent another new market for us.

I am also pleased to report continuing progress in our goal to become 'the environmental leader' with plans approved for 1,500 ZEVs by 2024. In the UK funding has been secured for 124 hydrogen buses, and as the leader in Coventry, the first electric city, we will have 130 buses operating by the end of this year. Our UK Bus business is on track to be operating a 50% ZEV fleet by 2025 and 100% by 2030.

We are also making progress in North America where ZEV funding schemes are becoming more widely available, with a $5 billion Clean School Bus Program in the US and a $2.75 billion Zero Emission Transit Fund in Canada being prime examples. We are actively working with our customers to gain access to these funds, with a target to secure funding for 400 electric school buses. Building on our experience in the UK, we are working with partners to structure an ownership model which not only avoids up-front capital and defrays technology risk, but also enables a faster track to achieving our decarbonisation targets.

We are seeing early signs that electric buses are helping to drive modal shift, with both patronage and customer satisfaction higher on our ZEVs. What's more, we are also seeing greater operating efficiencies being delivered by our ZEVs than we had previously forecast, significantly improving the Total Cost of Ownership, now around 15% lower than a diesel bus.

We continue to develop our digital capabilities across the Group in order to deliver improved efficiencies, operating and safety standards, as well as enhancing customer experience. In North America we are making good progress with the roll out of Bytecurve, now in around 50% of our locations, enabling us to automate and optimise many processes such as daily scheduling and dispatch and driver attendance records, driving efficiencies and improving service for our customers. In the UK, we have implemented the latest technology in driver training with virtual reality driving simulation, enabling new drivers to learn about safety awareness, perception and performance before they go out on the road, significantly reducing risk while also enabling dynamic testing. In ALSA, a newly established AI team is partnering with IBM to develop and build models to assess common driver behaviours and risk profiles to inform future training needs. Also in ALSA, we continue to roll out the Mobility as a Service (MaaS) app, Mobi4U, now in 13 towns and cities in Spain and Morocco, and we are leveraging this experience in UK Bus where we are developing a MaaS app, in partnership with TfWM.

It's pleasing to see further improvements in safety, where our Fatalities Weighted Index per million miles score has improved by 50% year on year, while Morocco delivered a 28% improvement in at-fault accidents year on year, demonstrating the considerable improvements made in Rabat and Casablanca since we took over operations in those two cities - Rabat saw 41% reduction year on year, while Casablanca saw a 40% reduction. We are also seeing improving customer satisfaction scores with, for example, ALSA seeing a 5% improvement year on year in their CSI score, while UK Coach has seen a 7% improvement in the Net Promoter Score.

Confident in prospects with full year guidance maintained

In summary, I am pleased with what we have delivered in the first half, but there is more to come. We expect to see continued improvement in the second half of the year, particularly in the UK as demand for our Coach service continues to build back strongly.

Driver recruitment in North America School Bus remains the key factor in near-term performance. We are hopeful that the wage increase of up to 12%, on average, will deliver a significant increase in School Bus drivers for the new school year and with it an increase in services operated under normal conditions. We are working closely with our customers to ensure as smooth a start as possible to the new school year. The margin guidance previously communicated, of sequential improvement in margins from 2021 levels with a 2022 Underlying Operating Margin of around 7%, included the impact of investing in wage increase ahead of contract renewals and the impact of lost routes whilst we recruit drivers, and I remain confident that we will recoup this, at the latest, through the contract renewal cycle.

Overall we expect Group margin for the full year to be slightly ahead of the first half. This assumes that the wage investments we are making in North America School Bus are sufficient and that they enable us to recover around a third of the lost routes experienced in the first half. Clearly there is both upside and downside risk to this assumption, but we are well-positioned to navigate the challenge.

With a strong pipeline of growth opportunities worth over £2 billion in annualised revenue over the next 18 months and our successful track record for winning new contracts, I am confident that we will continue to win further new contracts in the coming year. Coupled with this, I believe that we will see an acceleration in modal

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