Mobico Group Plc (MCG) Earnings Call Transcript & Summary

Good morning, and thank you for joining us for our 2020 Half Year Results Presentation. As this is the last set of results that I will be presenting as CEO of National Express, it goes without saying that I wish that I was not speaking to you this morning, whilst in the midst of a global pandemic. However, I firmly believe that National Express is only in a strong position to navigate the consequences of this pandemic as a result of the strategic direction that we have pursued over the last 10 years. Our position is further strengthened because of our unrelenting focus on service and safety for the benefit of our customers because of the very strong support we enjoy from our investors and because of the very strong management team that I am leaving behind. At the onset to this pandemic, we took swift and decisive action to protect the business, and throughout the last 6 months, we have enjoyed and continue to enjoy proactive and productive discussions with all of our customers and authorities. I am confident that these actions will both see National Express safely through these challenging times and also enable it to emphatically win in the post-COVID world. Although January now seems a lifetime ago, we started the year in the strongest possible position. And through January and February, saw very strong revenue across -- growth across all of our businesses. In February, we took the opportunity to restate our vision, values and purpose with our ambition to be the world's safest and greenest mass transit operator, whilst also being the trusted partner of choice for our customers. I firmly believe that this is the right vision for our business and that our purpose and values are going to be ever more important in the post-COVID world. Next slide, please. I'm extremely proud of the swift and decisive actions taken by our management team to protect the business as we face the unprecedented virtual cessation of our operations almost overnight. But by the end of March, we were facing an 80% drop in demand with the complete cessation of demand in some of our markets. The team acted extremely quickly to balance service reductions with the reduction in demand, we saw mileage cut by almost 80%. We immediately engaged all of our contractual customers in proactive and ultimately productive discussions that saw time and again, customers wanting to support us over and above their contractual obligations. As a result of this, despite the 80% drop in demand, we managed to secure 50% of our ongoing revenues during lockdown. At the same time, we did everything possible to support the well-being of both customers and our colleagues through enhanced cleaning regimes and the redesign of our vehicles through -- as well as through the provision of PPE. Next slide, please. As a result of the actions we have taken, we were able to cut GBP 100 million from our CapEx plan this year, cut operating costs by GBP 300 million and furloughed or laid off 40,000 employees. In consequence, we were able to secure significant continuing revenues, maintain a positive EBITDA in Q2, whilst also generating a GBP 270 million cash inflow during Q2. We also took significant steps to protect the business by securing GBP 1.5 billion in new debt and equity. As a result of this, at the end of June, we had GBP 1.7 billion in cash committed to the facilities in CCFF funds. We have also now, on 2 separate occasions, renegotiated our covenants that put us in a strong position over the course of the next 12 months. We are extremely grateful for the support we have received from our shareholders in May through the placing. This money has enabled us to confidently continue with our new contracts in both Rabat and Casablanca, whilst at the same time, win new work, both in school bus, transit and shuttle. Next slide, please. We are beginning to see our services resume across all our markets. Where we see restrictions eased, we are seeing strong evidence that demand returns. It is impossible to predict when demand will return to pre-pandemic levels. Indeed, some of our markets may see permanent structural changes and more homeworking, for example. However, in recent days alone, we have seen how important schools are to the future well-being of all the societies we serve. And it is also true to say that in many of our markets, many of our customers are not able to work from home. So whilst I expect challenges ahead, I also expect a continuing strong underpinning to our core markets as well as emerging new opportunities. National Express will continue to tightly manage those variables that are in its control. For instance, closely managing mileage and demand, whilst also proactively pursuing new opportunities. Throughout this pandemic, I have been struck by the significant flexibility of our operating model, and our considerable ability to take out costs in the absence of demand, whether this is in school bus, or in coach, for instance. I've also been struck by the very strong and proactive support we have received from our customers whether this is in Spain, in the West Midlands, transit, shuttle, Morocco or Germany. The vast majority of our customers have been unhesitating in their support for us, which indicates our strategy of service and safety. Finally, I would also draw your attention to the very strong support of the public transport received from central governments, thus demonstrating the crucial role we play in society. I shall now hand over to Chris.

Thanks, Dean. I'll start with the financial highlights on Slide 9, please. At the top line, revenue decreased by GBP 303 million to just over GBP 1 billion, a decrease of 23% in reported terms and 24% in constant currency. But as usual, we report both statutory and underlying results to give a better signal of the underlying business. This year, we have separately reported the directly attributable impacts of responding to the COVID crisis during the period, and we've incurred net costs of GBP 29 million as a result of the actions taken as follows: we incurred around GBP 33 million of costs in respect of one-off items such as temperature checkers, antiviral fogging machines, COVID-related insurance charges, cancellation charges and compensation payments to -- made to third-party operators that ensured we can restart the U.K. coach network. We've also recorded onerous contract provisions and some related asset impairment charges totaling around GBP 19 million, and we've incurred costs associated with the discontinuation of surplus fuel trades of around GBP 11 million. But those charges were then partially offset by a gain of GBP 34 million on the remeasurement of the WeDriveU put option due to the short-term impact on growth prospects. And whilst we continue to believe that the medium-term prospects with WeDriveU are sound, it's clear that COVID will make it very hard to hit the stretch plan in the next 3 years. Pleasingly, despite the loss of more than GBP 300 million in revenue, we delivered a positive EBITDA of GBP 88 million in the first half, delivering positive EBITDA throughout the lockdown in Q2. However, despite significant cost savings, and I'll come on to those later, GBP 170 million of that revenue decline did flow to the bottom line driving an operating loss of GBP 30.6 million. Turning to cash. Free cash outflow of GBP 193 million was driven by the significant reduction in revenue during the period. And finally, net debt is broadly flat at GBP 1.3 billion, boosted by the proceeds of the recent share placing. Next slide, please, Slide 10. This slide shows revenue changes by month. And as Dean said, having delivered double-digit revenue growth in 2019. We started the year very strongly, growing revenue by 16% in January, 18% in February. And the business was at that point, performing strongly across each division and in every business line before we entered lockdowns across the world. During the second quarter, with every country we operated under strict lockdown, revenue was down around 1/2 versus 2019, and this drove the overall 24% decline in first half revenue. On the graph, you can see the step-up in July, where we delivered revenue around 1/3 down on 2019. And although I should note that social distancing measures placed a cap on both revenue and EBITDA recovery in our U.K. business whilst they are in place. Slide 11, please. This slide highlights the cost savings. So immediately, as the impact of the pandemic took hold in late March, we took action to reduce operating costs by around GBP 100 million per month relative to our budgeted levels. All variable costs were reduced in line with service reductions, and all discretionary expenditure was stopped. The Board and senior management agreed to pay sacrifices and salary deferral schemes were widely established across the group. Significant numbers of employees were temporarily laid off or furloughed, utilizing government income protection schemes where available. And at peak, we had furloughed or temporarily laid off over 40,000 staff from a global workforce of around 52,000. Staff-related cost reduction, therefore, accounted for over half of the total savings in that period. All those actions combined to reduce our first half cost base relative to last year by GBP 147 million, limiting the flow-through from the COVID-driven revenue decline by about 1/2. Next slide, please. Just finishing off on the income statement. Net finance costs increased by a little over GBP 4 million, which was driven by the partial double carry of sterling bonds during the period after the successful refinancing late last year. And our underlying effective tax rate for the year is forecast to be around 16% with the change year-on-year reflecting the treatment of taxable losses, in the half that generates a tax credit of just shy of GBP 10 million. Next slide, please, and I'll just talk a little about the divisions. Revenue decline in all of our divisions, other than German rail, where 72% growth was driven by the mobilization of the Rhine-Ruhr Express franchise on which we take no revenue risk. And the successful mobilization of this franchise stands in stark contrast to the experiences of other international operators in Germany this year. To ALSA, revenue declined 31% over the period to GBP 267 million. Pre-COVID, the business was performing very strongly with revenue up 23% in the first 2 months of the year, driven by underlying growth of 6%, boosted by new contracts in Rabat and Casablanca. Throughout the lockdown period, long-haul operations were severely impacted with revenue reduced more than 90%, driven by the strict travel restrictions. In our urban bus businesses, a significant portion of revenue is protected, the services paid on a per-kilometer basis, and their revenue declined by just 16%. In Morocco, revenue increased by 58% with the new contracts in Rabat and Casablanca, the latter with revenue protected, more than offsetting the reduction in the other cities during the period of lockdown. And overall, therefore, ALSA recorded a loss of GBP 7.1 million. In North America, revenue declined by 20% to GBP 514 million. Pre-COVID, again, the business was strong, it was performing strongly with revenue up nearly 16% in the first 2 months of the year. The renewal and expansion of our 2 largest transit contracts in the fourth quarter of 2019 flowed through to the start of the year, and WeDriveU was driving revenue growth 20% during those months. Of course, all schools were closed from late March onwards, and we carried no students in the second quarter. We also faced a significant reduction in demand in both our transit and shuttle operations. However, we received significant revenue support from customers negotiating 60% of pre-COVID-19 revenue expectations in school bus, 65% in transit and 78% in shuttle. Overall, our North American operations delivered a small operating profit of GBP 7.6 million as the revenue support outlined was boosted by the significant [Audio Gap]. In the U.K., revenue has declined by 1/3 to GBP 190 million. Again, pre-COVID business was performing well with revenue up over 4% in the first 2 months of the year with growth in both bus and coach. The U.K. coach business, as Dean said, was mothballed from the 5th of April for the remainder of the period following government advice to avoid travel. And as a result, revenue for the first half declined by 58%. In our bus operations, revenue declined by only 7%, and this was because -- despite significantly reduced levels of patronage during lockdown, nearly 90% of this lowest point. We received around GBP 27 million from the COVID-19 Bus Services Support Grant, which effectively underwrites a breakeven EBIT position. Overall, our U.K. operations recorded a loss of GBP 15.5 million, primarily in the coach business. Next slide, please, and I'll talk about cash. Notwithstanding the severe revenue reduction driven by COVID, the group generated positive EBITDA of GBP 88 million in the first half, of which GBP 14 million was generated throughout the lockdown period in the second quarter. The majority of the GBP 113 million maintenance CapEx you see on this slide was in respect of fleet replacement in ALSA in North America and was done prior to lockdown after which all new CapEx was put on hold. We recorded a working capital outflow of GBP 140 million during the period. This was driven by a longer working capital cycle as standard revenue streams were replaced by COVID-specific reimbursement packages, which have a longer payment cycle. And also by reduced payables as a result of significant [Audio Gap]. Net interest paid increased by GBP 6 million, driven by the partial double carry of bonds, together with interest in relation to the CCFF program that Dean referred to. And the impact of all these factors is a free cash outflow of GBP 193 million. Next slide, please, Slide 15, net debt. Growth CapEx during the period is primarily the mobilization of the contracts in German rail that I spoke about earlier. In January, we acquired a coach company in the U.K. for a total consideration of GBP 25 million and GBP 7.5 million deferred. The balance of the figure you see here is deferred consideration in respect of acquisitions made in America in prior years. We, of course, subsequently paused our acquisition strategy to conserve cash in the current environment. The share placing in May delivered GBP 230 million of net proceeds, which as previously announced, has been utilized to reduce leverage and to take advantage of growth opportunities as we exit COVID. As Dean said, this gave us the flexibility to pick up new opportunities we see emerging as well as continue with the mobilization of Rabat, Casablanca and recent school bus wins. A cash outflow of GBP 40 million was recorded primarily in respect of the separately disclosed COVID-related items I mentioned earlier. And finally, an FX outflow of GBP 47 million principally reflects the significant movement in the closing rates on the U.S. dollar. And as a result, effectively half of our movement in net debt is driven by FX. Next slide, please, Slide 16. Given the material impact of COVID on EBITDA generation, we have renegotiated our covenants. And following the original waivers obtained in April, we have recently obtained further amendments and our covenant tests are now as follows: the gearing covenant has been waived by the lenders for June 2020, December 2020 and June 2021. And as such, the next time gearing will be tested is in December 2021. The interest covenant has been amended to 1.5x for December '20 and 2.5x to June '21, reverting to 3.5x in December 2021. In return for these waivers and amendments to the covenants, the group has agreed to quarterly minimum liquidity tests and a biannual maximum net debt test over the next 12 months. Importantly, this means the group can continue to trade without any material uncertainty as we navigate this crisis. For the half then, interest covenant was 5.9x, well within covenant levels and gearing was 3.8x, although, as I said, that test has been waived until December 2021. We remain committed to our investment-grade ratings. And following their recent upgrades, both Moody's and Fitch recently reaffirmed our ratings at Baa2 and BBB, respectively. Next slide, please, liquidity, Slide 17. A key priority through this crisis has been to improve our liquidity profile. In October 2019, we issued a series of private placements totaling GBP 417 million with maturities ranging from 2027 to 2032. We utilized the delayed draw facility to minimize the carry cost, and these facilities ultimately drew in May and June of this year, replacing 2 maturing bonds. However, we believe we were the first company ever to have to renegotiate covenant amendments before drawing down funds in the USPP market. So to provide a level of insurance, we put in place some short-term facilities whilst we negotiated. We obtained funding of up to GBP 600 million under the Bank of England's CCFF scheme, of which GBP 300 million was drawn in March for 12 months. And in addition, we secured GBP 188 million of additional revolving credit facilities. In total, therefore, the group has GBP 3 billion of debt capital and committed facilities with an average maturity of 4.8 years. And having recently bolstered them and generated positive cash flow through the second quarter, we now have significant levels of cash and undrawn committed facilities totaling GBP 1.7 billion, including the undrawn portion of CCFF. On the graph, the significant majority of the 2021 maturities you see on that slide are the short-term COVID insurance facilities I've just mentioned. There is no pressing need to refinance any of those, and the next material refinancing, therefore, will be the 2023 maturity of the group's GBP 400 million bond. And just turning to Slide 18. And in summary, therefore, before I hand back to Dean to close. Bringing it all together: one, we came into this crisis in great shape with double-digit growth across the group. Two, we did the right things during lockdown. We bolstered liquidity. We took rapid and decisive action on costs, and we stayed close to customers to negotiate support. Three, we are starting to see encouraging increases in demand as restrictions are lifted. And if I can just jump to five for a second, the fundamentals of our business model remains strong, and we're confident about future prospects, and Dean will elaborate on this in a few seconds. But back to four, the route from here to there remains uncertain and is primarily driven by factors outside of our control, the extent of any further lockdowns, the levels of social distancing, the balance of public fear of travel versus pent-up desire to travel and the extent to which people will return to work versus continuing to work from home. We have removed guidance, and we continue to do so. There are just too many variables outside of our control. Not least to the extent to which U.S. schools remain to -- return to normality in the upcoming academic year. There is extensive scenario modeling in the release, when you get time, that gives you an indication of how things may pan out. And finally, in telling you that we have passed our going concern test without any material uncertainty, we've effectively outlined there for you an EBITDA flow. Beyond that, I'm afraid, it's not that we will not guide you, we simply cannot. I'll now hand back to Dean to outline the opportunities ahead of us.

Thanks, Chris. The pandemic has unquestionably been the greatest challenge National Express has faced in its history, forcing us to suspend 80% of our services across the group. That said, in many ways, it has provided a validation for the operational and financial strategy that we have pursued over the last decade. That our diversification and also securing long-term contracted revenues in our key markets, whilst also building robust investor support. This has meant that despite the lockdown, we have continued to collect 50% of our income, whilst also being able to access significant pools of additional debt and equity capital to see us through this pandemic. This and the prompt and immediate action we took when the pandemic struck has secured the survival of the business. I am confident there is a plan in place for the group to navigate a repeat of even the worst of the lockdown we saw in Q2 over the course of the next 12 months. What is more, once these troubling times are safely navigated, I believe that National Express is well placed to thrive on the significant opportunities in the months and years ahead, thanks to the entrepreneurial strength of the management team that I leave behind me. Indeed, the fact that we have won GBP 650 million of new lifetime contracted revenues during this period, including from operators that have gone out of business or where others have fallen out with customers in how to deal with COVID-19, demonstrates that our strong reputation continues to stand us in good stead. I suspect that not all transport groups, either large or small, survive the pandemic in their current form. And customers will turn to the strongest and the best operators to secure long-term services. Our services are rebuilding and safe, mass transport is a vital economic and sustainable enabler of economic growth. This fundamental -- this fundamentally remains a well-diversified and positioned group. The early decisive action we took to secure liquidity, strengthen our balance sheet and maintain close engagement with customers and authorities means this business is well placed for the future. We have extremely valuable operations across all of our markets, and stand ready to support both public and private sector clients as they rebuild. Thank you. And I will now hand over for questions.

[Operator Instructions] And we will take our first question from Sathish Sivakumar with Citigroup.

I have a few questions. Firstly, yes, all the best, Dean. Could you please update on the appointment of new CEO, guide on this search process both internally and externally? Secondly, can you please comment on the pricing on contract renewals? And also, how is the pricing on new bids compared to ongoing contracts?

Thank you. Well, as you would imagine, none of us on this call are engaged in the appointment process for the new CEO. However, what I can tell you is that the Board is actively engaged, [indiscernible] are appointed. And I imagine that the group will be in a position to make an announcement about who will be the new CEO over the course of the next couple of months. So I anticipate a fairly swift announcement there. In terms of pricing on renewals, we've done pretty well. We've done pretty well throughout. If we just take school, for instance, we've done pretty well through the big season this year, both in terms of retention and in terms of pricing. And pricing on renewals are currently running at about 4.4% on new business, which will give us a good leg up on the overall total revenue base. However, I emphasize that this is very much a moving picture. There will be pluses and minuses as we just talk to our customers about return to school over the course of the next few weeks. It's an incredibly complicated situation that moves on a daily basis as each state is doing it slightly differently and taking a different approach. And there's even different approaches, as you might imagine, within states. This means that probably we're going to run more services to get the same volume of children to school, which will mean staggered start times and different operations throughout the week. And obviously, there is a discussion to be had there as we will be running more mileage to transport the same volume of peoples to school. So we're not in a position at this stage to say what that means for the business. We'll know -- we'll have a much better position where -- we'll be in a much better position to say what that means in a month or so of time.

So just 1 follow-up on the second point, on the pricing. On your ongoing contract, as you go for some negotiation with your existing customers, have they been asked to bring down the pricing? Have you seen any discussion around pricing? And also secondly, in the past, labor markets, the driver labor market used to be very tight and you've seen inflation coming through that. And how is the market looking right now given that what we are seeing on the unemployment side?

Well, I think there's going to be a -- the pricing is firm with customers. And I imagine there's going to be a positive delta between the margin the group -- the pricing the group achieves on contract renewal and pay inflation over the course of the next 12 months.

And we take our next question from Joe Thomas, a private investor.

It's Joe Thomas from HSBC here. Just -- again, just following up on the U.S. school bus point. Appreciate, Dean, that it's early days, but as you're losing some days at the start of the year as schools, some delay in return. Do you think there's any likelihood that they might sort of add them back on to the end of the school year, I mean, a bit like they have with snow days in the past? And just also on schools. In this sort of uncertain period and where schools are delaying, are the terms as they were more or less during lockdown where you were getting still well remunerated by your customers? So they were the questions on school buses. I'd just also like to understand, on WeDriveU, you're saying that revenue is secured or underpinned into Q3. I just wonder how -- as you move to a more demand-responsive model, what that means for that business and how you look to develop it? And then finally, can you -- just within the context of renegotiated covenants, et cetera. Can you just clarify if that has any implications on your ability to pay dividends and so on and what you might think there?

Joe, well, there is some -- yes, I mean, in a number of our contracts, there are a guaranteed minimum number of days. Although as you can see from the release, the reality is that they now be already exceeded. I'm afraid -- it's really impossible for us to give guidance at this point in time. You've all seen the exacerbation of the health pandemic in the U.S. during July, which has inevitably had knock-on consequences throughout the economy and of course, for schools. And there's a massive, massive debate going on in North America about schools at the moment. Where I take significant heart is that what I'm seeing is notwithstanding the politics of a presidential election, that children are very much front and center of all political debates. And even more broadly, societal debate about what is important. And there is a -- notwithstanding the strength of the teaching unions in the U.S., which is not to be underestimated in these things. There is, nevertheless, a very strong focus on the overwhelming majority of schools to get them back. It really is impossible to say at the moment where this debate will end for us because it represents 350 different discussions with different [Audio Gap]. But with the vast majority of them, the focus is to get them back as swiftly as possible and to keep them running. And as I was trying to allude to, it does mean that we have to shift same volume of peoples, but -- in the same number of buses, but we have to more -- run more mileage to get them to school because of social distancing on the buses. And there -- as much as that may represent a risk, it also represents an opportunity on the upside for the group. And more, I think -- again, I was trying to hint at this through my speech, is that there's an awful lot of troubled operators out there. And normally, we see school season operate from January through to really April, maybe a bit into May depending on where the cycle goes. This year, I think that is going to be an ongoing debate as other operators fail and schools look to alternative suppliers. So I think during the course of the autumn, unusually, I expect it is possible that we will continue to pick up more work as the situation is very much in flux. So given all of that, that's going on, I'm afraid we just can't give guidance at the moment. And it's also, I think -- we just simply can't say whether the terms are going to be the same as they were in Q2. I mean, frankly, I'd be surprised if they worsen. I hope they will be better because actually, we could get more volume of work, but we'll have to see. On WeDriveU, I mean, well, I think what you'll see with WeDriveU is, again, some pluses and minuses. I think with some of the core customers, we might see a bit of a volume reduction as they restructure the business and see that people don't spend so much time in their offices. But on the other hand, I think we could see more dedicated services being run. And we continue to see great interest from customers about the provision of dedicated employee shuttle services as a solution for them to get the employees they need in and out of wherever they're working. And I can see there is going to be a focus on this, not just in the corporate, but also in the hospital and the education sectors, university sectors in the U.S. So I think WeDriveU has performed fantastically during lockdown, almost not missing a beat. And I still think it is a great business model that will have a good place in our future. I'll ask Chris to comment about covenants.

Yes. On the covenants, Joe, we are -- for the periods that covenants have been amended, i.e., up to June of '21, if we go over the 3.5 -- so notwithstanding the fact, 3.5 gearing has been waived. If we are over that, we cannot pay a dividend.

And we take our next question from Gerald Khoo with Liberum.

A few from me. I'll start with the usual one, Spanish long distance concessions. It looks like you've retained 1 contract in the period. I was just wondering if the tender process is still ongoing despite the pandemic or has it around or halt? In U.K. Coach, I was wondering if you can give an indication of what proportion of your subcontractors, by capacity, have you provided financial support to. And what your thoughts are in terms of how long you continue that for? And roughly for both U.K. Coach and Spanish long distance coach, what are your thoughts in terms of the ramp-up in capacity over Q3, Q4 and going into next year, sort of both percentage versus normal? And -- yes, I shall leave that there.

Yes, the tender process has ground to a halt again in Spain. And I just cannot see that resuming for the foreseeable future. I expect there will be considerable delays. So we'll see where that goes. Probably, dare I say it, the next CEO will be still talking about Spanish concession renewals when he or she [Audio Gap] decade has gone, couldn't possibly comment. In terms of the -- I mean we -- look, we stratified -- I can't give you a number because -- off the top of my head because I don't know it. But what we did do is we stratified our operators between those that did have access to finance and those that didn't. And between, frankly, those which were good operators and those that were not. And where those operators were the star operators that we wanted to see them continue to function for us post this pandemic, what we basically covered was their fixed costs to keep them running, to keep them alive. And that's what we did. So probably it got down to, towards the end, about 20% of what we would ordinarily pay them. And that obviously continues to be the case where we're not operating because we are still only running about 30% mileage at the moment. That will ramp up, I think. But it will -- I imagine it will ramp up and down because we're ramping up again during August since we got back on the 1st of July, things have moved quite fast, it's about 10% or more a week. And we'll see that in -- each will peak in August. And then obviously, as summer holidays pass, that will run down again, I imagine. And then it will rise up again during the course of the Christmas holidays and down again for the new year and then up again. So I think it will be cyclical during the course of the next 12 months or so until we get back to normality.

And we will take our next question from Stephanie D'Ath with RBC.

My first question, please, is on free cash flow. You said earlier you expect it to largely reverse in the second half and be about GBP 200 million in cash consumption in the first half as minimum CapEx and working capital inflow. Could you confirm that the working capital headwind will no longer be a headwind going forward despite the fact you mentioned, the fact it could hurt some slightly. And in terms of CapEx, could you confirm you still expect about GBP 150 million maintenance CapEx for the full year against the GBP 130 million spent in the first half? My second question is regarding the OpEx cost savings that you achieved of about GBP 100 million per month relative to budgeted levels. Is that something you believe you can maintain in the third and fourth quarter? Or as you are at the service levels, you won't be able to achieve the same savings. And then thirdly, could you please comment on consensus EBITDA expectations? So I believe they are about GBP 500 million for 2021 and GBP 550 million for 2022, which are about, yes, same level as last year. And from your May scenario analysis, you were mentioning you expects about 40% decline this year and level next year. I believe you haven't confirmed this scenario analysis for this time of the year. But if you could just please comment on how you feel -- if you feel comfortable with those.

Yes. Thanks, Stephanie. It's Chris. I'll take those. So free cash flow in the second half. So there are elements that we are certain of, i.e., we won't be spending any material CapEx. So that comes into your sub-question of CapEx is about GBP 150 million, sounds like a reasonable number. There are elements, of course, that we are still modeling. So as you know, part of what drove the cash flow -- the working capital outflow in the first half was a switch from passenger revenue to longer cash cycle of subsidy revenue. To the extent that, that switches back, obviously, that's beneficial to the extent that it stays the same, obviously not so beneficial. So it is -- that piece of it is tied up in the overall variability that Dean has highlighted. That said, I do expect that the factors within our control will see us rain that outflow back in, in the second half. The OpEx savings of GBP 100 million a month, as you say, are against budgeted levels. And as I said, 50% of that GBP 100 million -- a little over 50% was staff cost reductions. Clearly, our ability to make staff cost reductions of that magnitude was driven by the extent to which we were locked down. And as the business ramps up, those ramp up. There are some meaningful and sustainable costs that we've taken out of the business. But now, GBP 100 million a month level is not the sustainable level as the business ramps back up. And quite frankly, if the business were all the way back up, the lion's share of that would be back as we get back up in investing. And on consensus, I don't even know what consensus EBITDA is out there in the market anymore. In fact, I read one of the notes from one of you guys this morning that referenced a consensus provider that I've never even heard of. So again, Stephanie, what I said earlier was, you've effectively got a floor that you can reverse engineer from the fact that we've got a clean going concern statement and you can key off the interest cover. And I'm afraid, much above that, I'm just not going to be drawn. So I just don't know. I'm not being induced. There are just -- if you think about the volatility that Dean was articulating there, you're easily into plus or minus fifties and hundreds.

[Operator Instructions] And we will take our next question from Alex Paterson with Peel Hunt.

I've got 4 questions, please. Firstly, on the school bus side. Would you be able to just clarify exactly what you mean by when you're running more mileage to transport the same number of peoples, you don't know exactly what that's going to mean for the business. Is that to say that you have a contract for x amount of money for x peoples and so on. And that you're looking to make sure that you recover the incremental costs in running those additional services. I wonder if you could give a bit more color on that, please. Secondly, on German rail, you talked about discussions that you're going into. Is that involving some degree of catch-up payments? And if so, would you be able to give a quantification of that, approximately? Thirdly, just on your hedging, you sort of talked about, for instance, 80% for 2021. Would that be on a sort of an expected sort of full mileage, i.e. if you took 2019 and you grew it as you would be expecting, is that the kind of numbers that we're looking at there? And then lastly, have you done all of the sort of restructuring that you would expect to, therefore, have you charged all of the restructuring costs? Or are there kind of more to come in that respect?

So I'll take 1, 2 and 4 and pass to Chris for the 3 on hedging. Yes, you're right. On many of our school bus contracts, they are either on a mileage basis or they are on a trip basis. And so therefore, if we are being asked to run more mileage or to run more trips, then that is out with the contract, and we'd expect to be paid for that. In German rail -- well, in terms of catch-up payments, I think that the authorities have held is pretty whole there. So I think it's not so much that as looking to rebase some of the contracts. The authorities are talking to us about how they rebase some of these contracts going forward because they want to do that. So they're opening up negotiations with us to achieve that whereby they are taking the revenue risk. So that should see some of our contracts derisked there, which is obviously an opportunity -- a positive opportunity for the group. And on restructuring, I would imagine that we will continue to have more restructuring costs during the second half. So no, there's not the full story yet.

Yes, quite so. Alex, I think your reference on German rail was what was I referencing to on phasing. So in the first half, we've got some COVID assessment [ assistant ] on German rail, just like on the other contracts. And at the half year, we're still dotting eyes and crossing teas. So frankly, just hadn't passed the IFRS 15 revenue recognition test. So that I'm expecting to see back in the second half, and we'll be back on the kind of small profit, hopefully, in German rail rather than the disparity between revenue and profit you see right now. We are hedged -- the 80% hedging I'm talking about is on a pulled-back volume number, not on a full 2021 volume number. So reading the -- between the lines of your question, I am not anticipating having to do anything. But of course, as we've said, we're not giving you guidance on 2021. If volumes come down because of all the aspects Dean talked about earlier, then we just pull back the hedging again. But at the moment, we're 80% hedged against a rather pulled-down '21 expectation.

Understood. And if I might just ask a quick follow-up on German rail. The -- when you're talking about rebasing, this is the volume of passengers and passenger revenues, is it? Rather than any sort of change in the service level or anything like that?

Well, I imagine there's going to be changes in service levels as well because -- but that's a minor thing, which is a moving piece all the time. So I mean, particularly, a number of authorities in Germany are looking differently at how they operate these contracts in terms of whether you take -- whether the gross cost or net cost of contracts with revenue risk. And what we are seeing is the market -- certainly our processes are moving away from net cost contracts with the operator being carrying the majority or all of the revenue risk than maybe towards a more -- either gross cost basis or gross cost with some revenue incentives. And so yes, we're fine with that.

Great. And Dean, if we don't speak again, good luck in your future endeavors.

Thank you very much. Thank you, Alex.

And we take follow-up question from Joe Thomas with HSBC.

Sorry, I got a couple, if that's okay. Just on the contract wins you referenced the GBP 650 million in the statement. Can you just give some -- that's obviously a good number. I'm just wondering how that's split between sort of new contracts and retained contracts. And indeed, how you see the outlook for -- there's obviously opportunity out there. I just wonder if there's -- to what extent you actually can give some sort of idea about the quantum of opportunity that's out there? And secondly, on the coach business. I'm just interested in the economies, up for just [ in banging ] here. On the economics of that business with social distancing and what it will take to get that business to make, I don't know, sensible profit margins again.

So the -- I mean probably about a couple of hundred million is retained in the GBP 650 million and the balance is new. I do think that there's going to be some good opportunities across our markets as we go through the winter and spring. We certainly continue to see -- I alluded to this when I was talking about the school bus, in particular. But I mean it's very early in the season for us to be seeing incoming about outsourcing. But -- in fact, I've never seen it at this time of the year before. But that is happening. And operators, so we take the long island contract we've won. That operator went out of business. And there were a couple of contracts there that went to the market, we picked up one. We were conservative in our pricing. So we didn't pick them up both, but I think that was the right thing for us to do. I mean it's certainly, I think, very easy at the moment to pick up volume of work, but you've got to pick it up at the right price and the right risk dimension as well. So we're being prudent there in terms of winning work. So we make sure we're winning them up at the right margin and at the right price. The scale of the opportunity depends on really some of these -- how some of these operators fair over the next few months. A lot are in trouble and are tethering. And we could range from a small number to a big number of opportunity in the marketplace, which with a good management team and the right funding, would be a good place for the business to be to go and pick up some of this work. So that -- I remain excited by that. I think there's some really good opportunities out there. You're right on coach. I mean it's pretty challenging when you're running a bus only 50% of capacity, then you ain't going to make a lot of money, you're not losing money either. But we need to see that social distancing relaxed. We've seen it in Spain. So there's no -- now on long haul, there is no requirement for social distancing on the bus. And so therefore, Spain can return to profitability. U.K. is not in that position yet. When it does, we will see the business return to profitability.

And as we have no further questions, I would like to turn the call back over to our speakers for any additional or closing remarks.

Okay. Well, thank you very much for joining us this morning. For those of you who've put up with me for 10.5 years, you have my utmost sympathy and commiseration. I'm sure you're pleased to see the back of me. But thank you for supporting me. Thank you.

Thanks all.