Mobico Group Plc (MCG) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and a warm welcome to the 2020 Annual General Meeting of National Express Group PLC. First, I will introduce myself and confirm who is in the room with me today. I am Sir John Armitt, Chairman of the company. I have been appointed as both the corporate representative and as a proxy to vote the shares of a large number of shareholders at today's meeting. As such, I form part of the quorum for today's meeting. I'm joined by Dean Finch, the Group Chief Executive.

Hello.

And Chris Davies, the Group Finance Director.

Hi.

Both Dean and Chris are shareholders in the company, so also form part of the quorum. Jennifer Myram, the company's secretary, is also with us today to assist with the proceedings.

Hello.

As the meeting is quorate, we may proceed to business. I will begin today by explaining why some shareholders are listening to today's proceedings via the webcast rather than being with us in the room. I'll then make some introductory remarks about the company's performance last year and the challenges it faces this year in the light of the coronavirus outbreak, before handing over to Dean, who will discuss our performance in more detail and will provide more information about how we are responding to COVID-19. Last, we will move on to the formal business of the meeting, where we will vote on 22 out of the 24 resolutions that were proposed in the Notice of Meeting. As we announced on the 2nd of April, the resolution to reelect Matt Ashley as a Director has been withdrawn since he has left the company. As we also announced on the 14th of April, the resolution to declare a final dividend has been withdrawn in light of COVID-19. Dean will say more about this. So a few words about the arrangements for today's meeting. Following the coronavirus outbreak, we had to restrict physical presence at today's meeting to ensure compliance with the U.K. government's stay-at-home measures and to ensure the health and safety of all of our shareholders and the company's officers who are here today. We set up the webcast facility to allow shareholders to listen to the proceedings. But as the company's Articles of Association do not currently permit shareholders to be present in person and vote at the meeting by electronic means, we have not set it up as an interactive webcast. Rather, we encouraged shareholders to participate in the meeting by submitting proxy votes in advance. I'm pleased to say that the proxy votes received, when combined with the votes I'm able to cast as corporate representative, represent nearly 82% of our total issued share capital. The votes on the resolutions today will therefore be representative for the views of our shareholders. We also gave shareholders the opportunity to ask questions in advance by e-mail. We have not, however, received any such questions. The explanation of these arrangements lead me on to my opening remarks. These are exceptional times. I would typically focus these comments on another record year in 2019 and a very strong start to the year in 2020. Then I would like to pay tribute to Dean Finch and the management team and everyone across the business for that performance. But as we know, this has all been overtaken by events. First, I would like to pass on the condolences of all the Board to the 6 employees who have lost their lives to COVID-19. They were all valued colleagues and cherished by family members and friends alike. We have, of course, provided immediate support to every family, and we will continue to offer any appropriate support. Sadly, there also remain employees receiving intensive care as well as a large number unwell or self-isolating. We wish them all the best for a speedy recovery. Dean will say more about the measures in place to ensure safe working. The Board is focused on working with the Executive Directors to ensure the business weathers the current challenges and emerges in a stronger position as possible. Again, Dean will say more about the detailed measures taken. This is the most challenging set of circumstances any of us on the Board have ever experienced. We have been very impressed with the swift action taken by all our businesses, whether reducing or even removing service or working with governments and customers to put measures in place to maintain higher levels of service to meet the key worker needs. And I would like to pay tribute to our staff, especially those on the frontline. The U.K. Chancellor described that our industry is a lifeline to the frontline. I thought that was a brilliant description. But equally, our employees are part of that frontline and ensure essential services stay open, whether it's enabling nurses and doctors to get to a hospital; care workers to care for the most vulnerable; or supermarket workers to get to and from work; our drivers, supported by engineers, cleaners, schedulers, the list goes on, are a fundamental part of the effort to overcome and come through this pandemic. While none of us can predict the future, I'm confident that we have measures in place to deal with the foreseeable challenges and promptly return to our place as the leading operator in all the markets we serve. That has included yesterday's successful placing of an additional 20% of shares, raising GBP 235 million of new capital for the business. This decision was not taken lightly. The Board gave it great consideration. As Dean will outline, it has given the business greater flexibility to address future uncertainty and capitalize on the emerging opportunities we are already seeing. We believe that post-COVID, there will also be a greater emphasis on companies having lower gearing. The Board, therefore, unanimously concluded that it was in the interest of all shareholders to proceed with the placing, as we believe it will hasten our ability to return to dividend payments that I know are so rightly valued. There may well still be some difficult times ahead for us but the qualities that made National Express a leader before the pandemic hit are the very qualities that will ensure we emerge out of it as strong as we possibly can. I'd now like to hand over to Dean Finch, our Group Chief Executive.

Thank you, John. I will begin by spending a few moments looking back at 2019, just to remind us of the performance of the year. Across the course of 2019, we enjoyed strong revenue growth. Revenue was up 10.2% in constant currency, supported by robust organic growth and also supported by bolt-on acquisitions. Every business saw growth. We also achieved record profits. Normalized operating profit was up 13.1% in constant currency, and we delivered a record statutory profit before tax of GBP 187 million. Operating margin increased to 10.8%. Of this profit, we generated GBP 179 million of free cash and our gearing at 2.4x reduced by 0.1x on an underlying basis. We reinvested GBP 166 million of the cash we generated and bought 9 businesses. Acquisitions continue to perform for us and are delivering returns of at least 15%. Overall, the group's return on capital employed at 12.4% was up 80 basis points on an underlying basis. But turning to the current year. The first 2 months of 2020, we saw 17% year-on-year revenue growth across the business, with every division trading strongly. However, by the end of March, lockdowns brought this down to 8.9% growth in constant currency. However, the business at this point in time is still generating a positive cash flow and a positive EBITDA. In terms of the operational picture across each of the businesses in North America, all schools are currently closed, and there is virtually no service operating. However, we are in discussions with all our customers in the U.S. and Canada, and there is a potential that some schools may reopen as early as July. In Transit, volumes are down around 75% and in shuttle, volumes are down 85%. In ALSA, across the whole of ALSA, around 30% of services are currently running. However, from next week, there will be a phased increase in urban and regional services in Spain, with long-haul beginning to start later. Social distancing measures will be put in place. In the U.K., around half of our bus operation is in service. However, we are in active lockdown discussions with the government. And we expect a rapid increase in service over the course of the coming weeks, where we should be putting into practice social distancing. Our coach service, however, was suspended from the 5th of April and remains currently suspended. In Bahrain, we are operating an emergency timetable and are running at around 30% of regular service. However, in Germany, service resumed on the 4th of May, and we are now back at almost full timetable services, with distancing in place. As you would expect, we have taken a number of steps to protect our staff and to preserve the business. All staff have been issued with PPE, including gloves, masks, hand sanitizers and wipes. Physical measures include cordoned-off areas behind drivers and plastic screens installed. We have also established an employee well-being program, which we call Common Well-being, and we have established this across the group to support those still employed and stay in touch with those that are furloughed. This includes assistance programs and advice, supported by weekly newsletters. In addition, twice-weekly calls from managers and regular surveys to see how our employees are feeling. To protect the financial side of the business, we have furloughed or temporarily made redundant over 40,000 staff. And this, together with other cost control measures, is saving us around about GBP 100 million per month. We have also found savings in our discretionary capital bill of around GBP 100 million, both this year and next. We immediately entered into negotiations with governments, authorities and customers across the world. And we are currently in receipt of support from the British, Spanish and Moroccan governments, plus continuing enhanced payments on school boards and PTAs in the U.S., Canada and Germany. We also immediately entered into discussions with our lenders and secured CCF funding to strengthen our liquidity as well as securing waivers. This means we currently have GBP 800 million of additional liquidity, meaning we have GBP 1.3 billion in cash and undrawn facilities before taking into account yesterday's pricing. In addition, we secured a gearing covenant waiver from our lenders. The results of all of this means that we currently are maintaining revenues at around half of pre-COVID levels. And as I said, both EBITDA and cash remain positive. Over the last 10 years, the business has transformed itself. An illustration of this is the significant improvement in our safety performance, which, as you can see, in terms of our safety measure, which is the fatality weighted index per million miles, this has dropped by over 90%. Our shareholder performance over the last 10 years was also good. We delivered a total shareholder return of 244%, which compares with the FTSE 250 of 209% and with the peer group of 40%. John mentioned the placing we made yesterday, where we raised 20% of our share capital, resulting in us receiving GBP 235 million. And our purpose behind this was to strengthen our balance sheet and lower our leverage. This is what our customers have asked for and feel is important. And this, I think, places the group in an excellent position to take advantage of growth opportunities once we exit from the COVID crisis. The Board has established a new target gearing level of 1.5 to 2x in range, and we target that to be achieved by the end of 2021. So we believe the successful placing, which was fully supported by shareholders in the U.K., raising GBP 235 million, will accelerate our recovery and hasten our opportunity to resume paying dividends again. Thank you very much, and I'll hand back to John.

Well, thank you, Dean. We'll now move on to the formal business of voting on the resolutions before the meeting. The notice of today's meeting was sent to shareholders on the 26th of March, and I propose with the consent of the shareholders present in person, to take the Notice of Meeting as read. [Voting]

I can confirm that the shareholders present have indicated their consent. So thank you for that. The notice included a total of 24 resolutions, of which 2 resolutions, #3 and #5, have since been withdrawn. For those of you listening via the webcast, you should now see on the screen in front of you a summary of all the resolutions being proposed. The Board unanimously supports each of these proposed resolutions and recommends that shareholders vote in favor of them. As explained in the notice of meeting, we will vote on the resolutions by way of a poll. That is on a 1 vote per 1 share basis. This allows both the shareholders present in person or by corporate representative today and all the shareholders who have submitted valid proxy votes in advance of the meeting to participate in the decision-making process. I appoint our registrar, who is working with us on today's meeting remotely as the polls' scrutineer. I would remind those of you listening via the webcast that you will not be able to vote via the webcast. But if you've appointed me as your corporate representative to vote on your behalf, or you have submitted a valid proxy vote, those votes will be counted. I now formally propose that each of the resolutions set out in the Notice of Meeting is put to the meeting as a separate resolution other than resolutions #5 -- 3 and 5, which are withdrawn and resolution 4, in respect of my own reelection, which I would ask Dean to propose.

I propose resolution 4.

Thank you, Dean. Resolutions numbers 1 to 19, excluding resolutions 3 and 5 are proposed as ordinary resolutions, which require a simple majority of the votes cast to be in favor of them to be passed. Resolutions numbers 20 to 24 are proposed as special resolutions which require 75% majority of the votes cast to be in favor of them to be passed. I'll now hand over to the company's secretary to carry out the poll. And for the benefits of those listening via webcast, she will explain how it is being conducted.

Thank you, Sir John. So I declare the poll open. Now what I'm doing is I'm handing out poll cards to each of Sir John, Dean and Chris to vote the shares that either they hold in their own name, or in respect of which they've been appointed as corporate representative or proxy to shareholders who are entitled to vote today but are not in the room. I'm handing 1 poll card to each of Dean and Chris for their own shareholdings. And I'm handing 2 for Sir John, 1 which has been populated with the details of shareholders and shares in respect of which he has been appointed as corporate representative. And the other, which has been populated with details of the shareholders and shares in respect of which he has been appointed proxy. I'm reminding Dean and Chris, who are voting their own shares, that if they have already submitted proxy votes, they do not need to complete their poll cards as those existing proxy votes count, unless they wish to change their votes. I'm reminding Sir John that he has -- that he must vote the shares he is voting as a corporate representative or proxy in the way that he has been directed to do so by the holders of such shares, or where he has been given discretion as to how to vote such shares, he may exercise discretion. I now invite each of them to complete their poll cards by casting their votes on each of the resolutions and then signing and returning the poll cards to me. I'll now pause while that happens. And while I collect the poll cards and count the votes. I will not take long. [Voting]

Thank you for waiting. And I declare the poll closed, and I'm handing the results of the poll to the Chairman, who will present the results.

Thank you, Jennifer. I'm pleased to confirm that all the resolutions proposed have been passed. For those of you listening by webcast, you should be able to see the voting results for each resolution on your screens now. Such voting results will also be announced to the London Stock Exchange and posted on the company's website as soon as practicable after this meeting. Ladies and gentlemen, that concludes the business of this AGM. I thank you for your continuing support for National Express, particularly in these current challenging times. And I look forward to the next opportunity when we can meet in person. I now declare the meeting closed.

Ladies and gentlemen, thank you for listening to today's webcast, which will now be closed.