Mobico Group Plc (MCG) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to our 2020 full year results presentation, albeit a week later than we were expecting. First and foremost, my heartfelt thank you to our 50,000 employees for their outstanding ongoing efforts and engagement in responding to such an unprecedented year and for their personal contribution in keeping society moving. At National Express, we are all convinced that mass transit transforms lives; and we are committed to deliver services offering leading safety, reliability and environmental standards. It is who we are and what we do every day. Also I would like to thank and recognize Chris Davies for the outstanding job that he has done in leading the company with a steady hand as interim CEO. I have now been in the post for 4 months, and I'm excited by what I have found and what we can do. We have an excellent platform for future growth, but our short-term priorities must ensure that we emerge from lockdown in our different geographies safely and in a way that maximizes the benefit to all our stakeholders: customers, staff, shareholders, regulators. I will first share with you my initial observations and priorities. Chris will take us through the financials, which show encouraging trends both in the fourth quarter and in the first 2 months of 2021. And I will then return to talk a little bit more about how we can build on the platform and look forward to growth in the future years. 2020 ended better than we might have hoped. After a strong start of the year, the impact of COVID caused us to take several actions to reduce costs and conserve cash. This included suspending the dividend, canceling discretionary spending, furloughing staff and reducing our network capacity. The success can be seen in the numbers with EBITDA towards the top of our expectations, net debt reduced to GBP 942 million, plenty of liquidity to fund the business and encouraging recovery which has continued into the first quarter of the current year. As I said, our priority is to ensure we reopen operations safely, securely, maintaining both our quality and reliability and importantly with much agility. This will enable us to capitalize on our position as the market restart. We have the capability, expertise and the financial strength to do so. We must focus what we can control. For that, we have identified per division to keep projects that will produce a big delta this year, [ and tirelessly ] focused on the execution to deliver our 2021 objectives. During the first few months, I have engaged with my colleagues across the group as well as other key stakeholders to fully understand our positioning and what is expected of us. In short: It is a great platform. We have a good balance of businesses. We have genuinely helped our customers and staff in the pandemic. We have a team who understand how to run a high-quality public transport business. And we are and will continue to play a role in increasing social mobility and protecting the environment. So my agenda will be all about improving what we have and evolving to serve our customers better in the future. This slide demonstrates how significantly the business has already changed, with contracted revenue now over 50% of total, providing an even more resilient base from which we can build. Before handing over to Chris, who will show you exactly how this resilience has helped us during 2020, let me share with you some of the key observations from my interactions with colleagues, customers and our shareholders. [ The overall tone ] is one of evolution; maintain the quality-led approach we have, especially in areas such as safety and customer experience. Our customers trust us, and that will allow us to extend our reach into different markets. Emissions reduction is important to everybody. And shareholders want us to act prudently repairing the balance sheet and reinstating the dividend whilst still capturing growth opportunities. Let me now hand over to Chris.

Let me start with a brief summary. 2020 was severely affected by the restrictions imposed to contain the pandemic, with group revenue down by 29% to just under GBP 2 billion. This near GBP 800 million revenue reduction was partially mitigated by decisive cost action, with only 40% flowing to reduced EBITDA. That means we delivered GBP 187 million of EBITDA, towards the top end of previous guidance and expectations, with an underlying operating loss of GBP 51 million. Free cash flow for the year was an outflow of GBP 179 million, all of which occurred in the first half, with a small inflow in the second half. Net debt has been reduced by GBP 300 million during the year after the share placing and hybrid issuance. At a statutory level, the group posted a loss for the year of GBP 327 million. So before we go any further, let me first deal with the separately disclosed items. We separately disclosed GBP 339 million of costs in the year, of which GBP 127 million flowed as cash. The big driver was, of course, COVID-related charges. And I will turn to these on the next slide, but let me quickly cover the others. GBP 53 million of intangible amortization is broadly flat year-on-year. In addition, GBP 14 million of restructuring costs were incurred to drive permanent structural cost reduction, and that will benefit us in full from 2021 onwards. GBP 263 million of the separately disclosed items and materially all of the cash outflow was directly driven by dealing with the pandemic. We incurred GBP 46 million of one-off costs such as compensation payments to third-party operators and providing for COVID-related insurance claims. GBP 28 million of this flowed as cash during the year. And to put that into context, that's about 1% of total cash cost for the year. The travel restrictions reduced operating mileage, and hence we were overhedged on fuel. GBP 17 million of fuel trades were recycled to the income statement, the majority of which has also flowed as cash in the year. Onerous contract provisions of GBP 133 million were recognized where contracts had limited time to expiry. Within this figure, dedicated assets were impaired where there is no other use for them. And the cash cost in the year therefore relates to the expenses of continuing to run those contracts that, although onerous from an accounting perspective, we expect to be able to renew profitably. GBP 99 million of noncash impairments were recorded for assets associated with other contracts that have now been terminated. And finally, we have adjusted short-term projections for WeDriveU due to COVID, reducing the value of the put liability and resulting in a credit to the P&L. Our medium-term expectations for this business remain unchanged. Finally, COVID-specific financing incurred GBP 8 million of interest. And to be clear: All of these separately disclosed items are excluded from gearing and interest cover calculations for the purpose of covenant testing, and I'll come to that a little later. This chart tells the story of the year in 4 quarters. We started the year very strongly with group revenue up 17% in January and February, driving a 7% growth in Q1, which you'll remember half of March was under lockdown. During the extensive first lockdown period, we were well supported by customers and governments in all of our markets. And for the group overall, that meant that, despite passenger numbers declining by nearly 80% during the second quarter, the revenue decline was limited to around 50%. As lockdowns were lifted in the summer, revenue started to recover steadily to a 37% reduction in Q3 and 32% reduction in Q4. And that trend has continued to improve in January and February this year. Now this chart shows a similar picture for EBITDA. As you can see, the group recorded positive EBITDA in every quarter, generating GBP 187 million for the full year, at the higher end of expectations. The greatest year-on-year decline of EBITDA in 2020 was since Q2, during the peak of the restrictions on mobility. Q3 is usually the group's least-profitable quarter because of the school holidays in North America. And by Q4, we were recovering more strongly and contributed nearly half of the full year's EBITDA, and this in turn contributed to the positive cash flow delivery in the second half. Now as I noted earlier, we took decisive action to limit the flow-through of lost revenue, both short-term variable cost savings and structural fixed cost reductions. Operating costs were originally budgeted to grow in line with double-digit revenue growth, but as the pandemic took hold, we reduced costs by around GBP 100 million per month relative to those originally budgeted levels. And variable costs were reduced in line with service reductions. All discretionary expenditure were stopped. And for several months, the Board and senior management agreed to pay sacrifices and salary deferral schemes, which were in place across the group. Significant numbers of employees were temporarily laid off or furloughed, up to 40,000 staff at peak from a global workforce around 55,000. And then we reviewed our fixed cost base, identifying around GBP 100 million of annualized savings which will be fully realized in 2021. Most of these savings have been driven by head count reductions in managerial, administrative and customer service roles; and through efficiency savings from process improvements. So let me turn now to performance by division. ALSA was performing very strongly ahead of the pandemic, with revenue up 23% in the first 2 months, but as the pandemic took hold, passenger numbers in Spain initially fell by more than 90% and were 44% down overall for the year. Morocco actually grew slightly, driven by the new contracts in Rabat and Casablanca. We renegotiated our Madrid contracts so that revenue is based on mileage rather than passengers carried, meaning that all Spanish urban services as well as a proportion of regional services carry no demand risk. Overall, therefore, around 40% of ALSA's revenue was protected, which helped limit year-on-year revenue decline to 33%. Wide-ranging actions were taken to reduce operating costs, so ALSA delivered underlying operating profit of EUR 7.5 million despite seeing revenue decline by over EUR 300 million. We completed the mobilization of Rabat and the first phase of our largest urban bus contract in Casablanca. We entered Portugal, provisionally winning contracts in Lisbon and Porto, with revenue of over EUR 44 million per year and limited demand risk. And in Spain, we retained our CalPita concession for a further 10 years, worth EUR 96 million over the life of the contract and cementing a long-term foothold in Galicia. North America was also performing strongly ahead of the pandemic, with revenue up 16%, but in March, we saw schools rapidly close, with no services running for the rest of the school year. Demand for our transit and shuttle services fell dramatically as well, volumes down around 80% at the low point. And as the second wave of COVID hit, there were significant delays to school start-ups, with only 26% of schools returning fully. We engaged our customers on a contract-by-contract basis, securing around 3/4 of pre-COVID revenue and operating around 2/3 of pre-COVID services. In transit, we renewed and expanded our Boston contract and renegotiated contracts in Chicago, moving to a fixed fee plus variable rate to mitigate risk. And over the year, we ran 61% of services, securing 80% of pre-COVID revenue. In shuttle, the strength of our customer relationships saw us secure 80% of pre-COVID revenue despite only operating 1/4 of services. Overall, therefore, this has resulted in a decline in revenue of 29% for the year. So a series of measures were taken to reduce costs, helping to deliver an underlying operating profit of $16 million despite revenue declining by over $450 million. During the year, we won significant new school bus contracts and secured rate increases on expiring contracts of 3.8%. And that translates to 3.1% across the full portfolio and compares with average wage increases of 2.7%. And that, coupled with significant funding commitments from the Biden administration, positions us well for recovery. So to the U.K. Our U.K. business was also performing well ahead of pandemic, with revenue up 5%. March saw passenger numbers drop dramatically. And in bus, we worked closely with Transport for West Midlands and the Department for Transport to ensure an appropriate service was provided. And funding was secured through the COVID bus services support grant to enable services to run at breakeven, under social distancing rules. And with patronage close to 60% of pre-pandemic levels, we have consistently operated services at a higher level than the industry average. Now with no such support available for coach, travel restrictions coupled with social distancing rules made operating services profitably next to impossible. We did our best to initially keep a basic level of service running and demand rebounded strongly when and where restrictions were first lifted. However, we have subsequently had to fully mothball the service, with nearly 90% of staff currently furloughed. Overall then, U.K. revenue declined by 35% in the year to GBP 388 million, with almost all of that decline in coach which was down 67%. In addition to temporary staff savings due to the furlough, we took rapid action to cut operating costs, most notably in our coach operations. And whilst the most significant saving was in payments to third-party operators, we did provide them with COVID support grants to cover a proportion of their fixed costs. And without making these payments, a number of our partners would have gone out of business, with significant implications for service resumption once mobility restrictions are lifted. So overall, the U.K. delivered an operating loss of GBP 49 million, all driven by coach. The U.K. is also well placed to recover strongly. Cost reduction initiatives executed in 2020 will deliver annualized savings of around GBP 30 million by 2021 and beyond, and new contracts won across the business will boost growth. Finally then, our German Rail business. It's built on its reputation for high performance and reliability, with the successful mobilization of our second and third services in the Rhine-Ruhr Express contract driving a 53% increase in revenue. I'll now turn to cash flow. I've provided the first and second half totals in the chart to show the progression during the year. The group generated EBITDA of GBP 187 million, of which around half was delivered in the second half despite mobility restrictions in each month. Now given the payment terms on fleet purchases, most of the GBP 216 million of maintenance capital cash flow was for capital additions made in the prior year, and around GBP 30 million of that relates to IFRS 16 lease additions. Capital additions for both maintenance and growth CapEx totaled GBP 210 million, a year-on-year reduction of over GBP 100 million, which will reduce cash outflow in 2021. The working capital outflow of GBP 78 million for the year represents a second half inflow of GBP 61 million after a GBP 140 million outflow in the first half. And over the full year, strong cash collection was more than offset by a change in the mix of revenue away from cash-upfront passenger revenue to subsidies and compensation paid in arrears. Net interest paid increased by nearly GBP 11 million to GBP 56 million, reflecting a few months of double carry of the 2020 bond. And the net impact of these factors was a free cash outflow of GBP 179 million in the year, an outflow of GBP 193 million in the first half and an inflow of GBP 14 million in the second half. So continuing with cash flow. Growth capital expenditure of GBP 35 million included vehicles for new contracts in ALSA and North America as well as the mobilization of the German Rail contracts. Now let me explain the acquisitions number, as clearly we have not acquired anything during the process. Prior to the pandemic, we acquired a coach company in the U.K. for GBP 25 million; and in addition, paid deferred compensation of GBP 27 million in respect of prior year acquisitions, primarily for the large, profitable and growing Chicago paratransit business. We did dispose of the small Dundee bus business during the year. Now as I outlined earlier, exceptional items generated a cash outflow of GBP 127 million. And offsetting all of that, we received GBP 230 million from the share placing in May, GBP 496 million from the hybrid issue in November, both of which have structurally reduced our debt. GBP 54 million of other cash flows is mainly FX, increasing the sterling value of euro-denominated debt. And hence, net funds inflow for the period was GBP 282 million, resulting in net debt falling to GBP 942 million. We remain committed to an investment-grade credit rating. Both Moody's and Fitch have twice reaffirmed their Baa2 and BBB investment-grade ratings during the year. And given the impact of the pandemic on EBITDA, we have again negotiated or renegotiated our covenants. The gearing covenant has been waived by lenders throughout 2020 and '21 and will next apply from June 2022. The interest cover covenant has been amended to 1.5x EBITDA for June 2021 and 2.5x for December '21. And in return, we have agreed to a quarterly GBP 250 million minimum liquidity test and a biannual GBP 1.6 billion maximum net debt test during the waiver period. And we've also agreed to pay no dividends during the period of the amendment if we are outside of pre-amendment levels. And as of 31st of December 2020, gearing was at 5.1x, and interest cover 2.7x EBITDA. We remain committed to returning gearing to between 1.5 and 2x EBITDA once activity levels have normalized. During 2020, we completed several significant refinancing events, further diversifying the sources of funding and providing additional liquidity and covenant support. In March, we secured GBP 600 million in the government's CCFF scheme and GBP 188 million of additional RCF funding as insurance. We issued GBP 300 million under the CCFF in April and repaid it in December; and will allow the facility to lapse this month, as we no longer require it. We drew down the USPP in the second quarter, providing GBP 406 million, maturing between 2027 and 2032. We also raised GBP 726 million through equity or equity-like instruments: firstly, the share placing in May of GBP 230 million; and secondly, through a hybrid instrument in November that raised GBP 496 million. And that hybrid has a first call date of February 2026 and a coupon of 4.25% payable annually. However, it has contractual terms which allow us to defer coupon payments and the repayment of the principal indefinitely. So at the year-end, we had available a total of GBP 1.9 billion in cash, undrawn committed facilities and the undrawn CCFF. And I do not expect to refinance the short-term COVID facilities, and hence we have no material refinancing requirements before 2023. So finally to guidance. I'm afraid I'm not yet able to reinstate guidance, as there is still too much COVID-related uncertainty out there making it impossible to accurately forecast financial performance. However, we've laid out detailed scenario modeling in our going-concern analysis that might help manage expectations. We anticipate the macro situation to be similar in the first half of 2021 to the second half of 2020 and therefore anticipate our performance to be likewise. If vaccines reduce infection rates by the summer, the lifting of mobility restrictions should enable a steady recovery in revenue throughout the second half. And under such a scenario, it is possible that, by December 2021, group revenue recovers to levels delivered in December 2019. We anticipate robust free cash flow in 2021 as EBITDA improves and we see the impact of the CapEx reduction in 2020 coupled with a more normalized level of working capital. To summarize then. We were performing strongly pre COVID. We took decisive action during the pandemic to protect the group, and we are well positioned for recovery. Our prospects remained strong, and I will hand you back to Ignacio to hear more about that.

Thanks, Chris. As I said earlier, we have a great business which we will be looking to evolve and grow. I'm a great believer in public transport, and we will build on our reputation to ensure we are always the partner of choice for both our customers and public administrators. We can and we will increase the sharing of the best practices across the group, making us more efficient and more innovative but without losing that important sense of local ownership. We can also look at the regional and operational adjacencies to grow the business further. ALSA is a particularly good example of this. It is multi country, multi region, from coach, bus, school bus, tourism coach, to private car hire. It is a model I hope we can replicate, yes. All these will be accomplished within a conservative balance sheet while still providing a healthy level of income for our shareholders. The biggest enabler of all of this is our people. And I want them to love and enjoy their jobs, knowing that transport can transform lives and they can have a personal impact in society. I want them to think and act like responsible owners, focus on what is right and be proud to be part of the National Express team. And that all employees have capable leaders who always support them in delivering excellence every day. HR and -- learning and development are key enablers for us. The key actions continue to revolve around capturing the immediate opportunities and maintaining the progress we made in 2020. In North America, it is all about securing more contracted profitable revenue, deploying the Driving Excellence program. In the U.K., it focuses on network efficiency, digital revenue management [ and/or ] move into zero emissions. For ALSA, it can be summed up in 2 words: mobilization and growth. 2021 is also all about continuing to work on the big deltas that can [ set up ] for recovery and capitalizing on efficiency gains and existing growth opportunities. In North America, this means completing the Driving Excellence program and the transit review while accelerating the growth plans for both transit and shuttle. In ALSA, this is a combination of the transformational plan to make the organization even leaner, more agile and closer to the customer; completing Casablanca mobilization; and mobilizing the new contracts won in Lisbon and Porto. In the U.K., we are extremely excited about the coach network redesign, which will translate into improved customer experience, cost efficiency and reduced environmental impact. We will offer more direct connections, reduced journey times, less mileage and even better punctuality. However, within our existing footprint, we have significant opportunities to broaden and deepen our penetration of existing markets; and this chart shows that clearly. Not every box will eventually be covered blue, but it is obvious that -- to us but just as we can create opportunities by sharing best practices. We can also use our skill sets to enable us to grow new market segments. We can do all of these while maintaining our focus on cash. Our capital allocation approach will allow us to effectively deleverage the balance sheet whilst also investing in the growth that will deliver superior returns. And when the recovery is well on track and it is prudent to do so, we will return to paying a dividend. Our sustainability agenda is also a key driver of our ambitions for the business. Not only do our operations deliver social and environmental benefits, but the way we go about running them can have a similar impact. If our services are safe, reliable, clean, accessible and affordable, then they will attract more customers and public institutions to want to use them. If our employees feel ownership and accountability for the plan, they will ensure it is delivered. And if we think ahead and invest in technology, then our fleet will have an increasingly smaller impact on the environment than it does now, leading back to more people wanting to use the service. Finally, to prove these are not just fine words, our reward structure will ensure that this happens. I was excited to be joining National Express 4 months ago. That excitement was justified. We have a platform to make a real difference both socially and economically. 2021 is about recovering from the pandemic, building our relationship with clients, winning and retaining contracts and continuing to strengthen the balance sheet. We have a proven resilience in adversity, and now we're set for recovery and growth. We came into this crisis in great shape with double-digit growth. And the team has done the right things during the pandemic, taking swift and bold decisions whilst remaining very closely engaged with employees and customers. We stand ready to support both public and private sector clients as they rebuild. We bolstered liquidity. We have a highly talented and entrepreneurial management team. We also have a full long-term growth agenda, which our stakeholders are helping to shape. And most importantly, we have a collective determination to succeed. Thank you. That concludes our presentation. Chris and I will now be happy to take your questions.

[Operator Instructions] And we will now take our first question. It comes from Owen Shirley of Berenberg.

Three, if that's okay, please. The first was getting a sense of how U.K. coach and ALSA coach businesses will rebuild. Would you be able to give us a sense perhaps of or a reminder of how passengers trended in those 2 businesses across the quarters of 2020 and how profitability was linked to those trends? The second question, one for Ignacio: If you had to pick a part of the business, one of the sort of subdivisions within a division, where you think the opportunity is largest, which would it be, and why? And then finally, on the Driving Excellence program, obviously the $40 million saving opportunity there seems quite material. Would you be able to give sense of some of the kind of real-world examples of where you think you can generate those savings?

Thank you, Owen. I will take -- the one referring to the coach, yes, it will be covered by Chris. And then I will take the other two, yes. Chris, please?

Yes, perfect. Thanks, Owen. Coach, as you know, is mothballed at the moment. In the first -- at the end of the first lockdown, we got back to about 32% of mileage and 20% of patronage quite quickly and then locked down again. We are opening on the 29th of March. We're opening with an 8% network and we're going to be fleet of foot. We can get from 8% back to full network in about 6 weeks. We'll open intercity branches, not airports initially, and we'll take it from there. ALSA wasn't far different. The only difference with ALSA coach is we didn't ever get to the full lockdown. And therefore, long haul in the first lockdown was down as much as 3%. We're down to 3% of patronage, got quickly back up to 45% around mid-August, was ticking over at about 20% in November and has slightly grown to about 25% now. So coach is coming back, or U.K. coach, from a mothball to an 8% in the next couple of weeks; long-haul ALSA from 25% as restrictions lift.

Thank you, Chris. I guess your 2 questions are related. So the largest opportunity that I see is based in North America. It is our largest division in terms of revenue. Also the team has been very successful in growing the business organic and through acquisitions, and it's where we find the largest opportunity. And the way we are going to crystallize that opportunity is about Driving Excellence, and it is a change program. It is transformational. And we are having -- we are accelerating. And it is well in place right now, the whole project -- management team, with clear teams, milestones, activity lists and deadlines. And to your question, Driving Excellence is about standardizing, is optimizing, is delivering best-in-class service. And that will translate into profitable growth through a better retention of customers and a better acquisition of new customers. So as I said, it's a change program that will put the -- what we call the customer service centers or depots at the heart of our business. As I said, we have grown, but we have over 250 CSCs. So everything we do outside the CSCs will be focused on supporting the field in delivering that operational excellence and growth that I have mentioned. So it will result in simplified and standardized processes and systems developing -- developed through the use of Lean Six Sigma principles to support those customer service centers, to drive our focus on customers, to deliver improved whole-asset-life asset utilization and to support the investment in -- of our people. So we are going to roll out a new operating system for school bus which will simplify all these activities and provide greater transparency on the operational performance and cost. Regarding the what I said on the fleet. We have created this like [ fleetco ] that will be responsible for managing and deploying and maintaining our assets through the whole life cycle with one single point of responsibility and accountability. That will deliver great results. We have opened parts reclamation centers to use better also the parts and the used parts and how -- the supply chain around that. We have defined a competency-based people framework to ensure that we are adequately staffed with the appropriate skills for drivers, technicians and the management to deliver that change. And it's a way to ensure the performance and drive this high-performance culture that we want to extend throughout the whole company. It's about, as I said, developing people, providing the right tools and strengthening the leadership.

We'll now take our next question. It comes from Joe Thomas of HSBC.

Ignacio, Chris, interested, Ignacio, on what you were just saying about the opportunity to have this [ fleetco ] in North America. Recall that -- well, I just wonder in light of that and as you look around the business more broadly. Are there any early thoughts on your ability to get capital out of the business and deliver sort of a high-returning business in the future? It would be interesting to know that. Secondly and, I suppose, also relating to capital and capital allocation, where do you see the opportunities for growth? There had been talk about growth opportunities emerging as a result of the crisis and more outsourcing and potential acquisitions. I'm just wondering where we are on that, if there's any sort of clear sight of how that might develop. And then just turning to the exceptionals this year, could you just clarify how much of a -- well, how much you're expecting, well, perhaps the -- whether you're expecting a cash drain from the exceptionals that you took last year into this year and whether there'll be any more exceptionals in 2021 also?

Excellent. Thank you, Joe, for the questions, good ones. The -- yes, on [ fleetco ], yes, we -- I mean what I just mentioned in North America is just having the accountability, a unique point of contact to manage that, but certainly one of the things that we think is at -- a game changer and transformational is to release capital and have other companies [indiscernible] the -- those buses, right? And so I will pass to Chris to explain a little bit the progress in that respect and the opportunities that we have. And then I will come back to the opportunity for growth and leave -- do you want to cover also the exceptionals? And then I will cover at the end the growth, yes.

Yes, yes, will do. Joe, the [ fleetco ] stuff, you and I have probably discussed over the last 3 years. And I genuinely think there is a movement in the market right now, so -- and electrification has created a catalyst for ownership change. I really do believe there is a desire to move more rapidly from internal combustion engines to zero emissions, and it requires some government support. And it requires, especially post COVID, some financial help. So there are a bunch of infrastructure funds, banks and other organizations at the moment that we are working with both in the U.K. and in the U.S. to get some pilot schemes off the ground. We're very close, very close, in the U.K. to a first model that will effectively have a -- think of it like a kind of almost like a [ rosco ] for buses is the best way I can describe it, with a middleman operation financing and providing the vehicles on an availability basis to operators. And don't have anything inked yet. We're tantalizingly close in the U.K. and we've got some opportunities that we're working on in the U.S., but it would fundamentally change where ownership lies. And that gives you the twin benefits of both a lower CapEx, a lower capital-intensive model, but also a faster move to decarbonization of the fleet. In terms of exceptionals, yes, look. There is a full couple of pages. I don't know. No one's had the time yet. I've tried to be very fulsome in note 4 to the account, but the cash drain in '21 really will come from only one place and that's the onerous contract provisions. So we've got a fairly large onerous contract provision built in 2020 of about GBP 130 million. About half of that has flowed to cash already in this year in -- sorry, in 2020. There is probably about the same again, a little less, to go in '21. Other than that, if you just look at those exceptionals, I mean, the kind of one-offs -- I don't see a huge number in '21, although for instance, in the U.K. coach business we are still paying a very diminished, but we are still paying a COVID support grant to third-party operators. We may end up overhedged on fuel again in a very downturn situation, although I don't expect to. And if we did, it wouldn't be of the magnitude we saw this year. And clearly, the asset impairments are noncash, anyway. So I'm thinking tens of millions of cash flow next year, no more.

Excellent. Thank you, Chris. So back on the opportunities for growth. I think there are great opportunities. I have 3 key priority focus. One is invest in people, and the other one is operational excellence. And the third one is profitable growth. And in that respect, I have to say that we have a very sound base. So if you think about it, we will have a bigger contractual base than we did in 2019. So when we -- pandemic is over, we will come up with already the Rabat and Casablanca contracts already mobilized and live. In next year, we will have Portugal, the new contracts won in Lisbon and Porto. We have the new RRX in Germany, and we also will have NEAT and NETS growing and WeDriveU. So in the short term, we do have a very strong pipeline. I think, with the work that has been done in the last 6 months, we have a better market intelligence than we have ever had. [ It will ] go to North America. The pipeline is very strong. We have good market intelligence. We have a clear strategy to focus on where the profitable growth and the profitable contracts are, where we can deliver [ actual value ]. We have WeDriveU, which is -- has a clear growth ambition and it's -- and delivering extremely good results. We have NETS and NEAT, as I mentioned, which is something we want to accelerate that growth. And we have a very strong pipeline of bids that we are participating internationally. So apart from those in Lisbon and Porto, we're also working on the regional tender for Madeira or the urban in Barcelos in Portugal. Soon will be coming the contracts of [ Coimbra and Leiria ]. We are participating in Chile, on a tender for the urban buses in Santiago. There's also some contract coming in, in Lima, Peru; Dubai. And we are participating also in France in some contracts, and also in Rome, so there is a very strong pipeline. The thing is that we have a laser focus to work and win those who are profitable and can deliver the returns that we expect. On the long term, it is exactly what we will do in our business review that we have just initiated. Basically it is very simple. It's to be crisper on where to compete and how to win. So it's also about the value proposition in each of the sectors and segments that we participate. And for that, I hope to be completed during the year and present to you during the market capital day.

Our next question comes from Gerald Khoo of Liberum.

I suppose [ leaving it ] three, if I can, a couple on CapEx. Obviously you had cut CapEx and understandably so during the pandemic. Is there going to be a requirement for a catch-up period of CapEx? Secondly, can you remind us whether you're still paying for your CapEx in arrears? Or has that arrangement unwound? And finally, on WeDriveU, what are the sort of corporate -- the original corporate customers telling you about their future plans, with the Silicon Valley corporate types? Are they still supporting you in full with -- has the emphasis moved on to growing the business elsewhere?

Thanks, Gerald. Chris, can you take those questions?

Yes. So I'll start with two, Gerald. It's the easiest one, yes. Our CapEx -- our payment terms pretty much across the group on vehicles are at least 12 months, in some cases 15, but as an average 12 months. So no change whatsoever. In terms of a need to catch up, we cut additions this year by GBP 100 million relative to our plans. I don't see an urgent need to put that back in. Effectively what that does, as you will be aware, is it ages the fleet a bit. So fleet age has probably crept up from 7.5 closer to 8 years through doing that. So it's not something we can't live with. And then I guess the bigger point, though, and especially if I think about U.K. bus and American school bus where we've typically had large asset-intensive businesses is it links back to Joe's question before. We'd like to find a way to get the vehicles on different terms, frankly, rather than just automatically going back to buying shiny new ones. Final one, WeDriveU. Look, it's been fabulous. The levels of customer support we've had in that business throughout 2020 have been, I mean, nothing short of amazing. We are still operating very limited service in -- right across the shuttle business at the moment. There are some customers that are up and operating, but we are currently operating probably less than 1/4 of the service and getting more than 2/3, close to 3/4, of the revenue we were getting before. I -- most of the customers are telling us that they anticipate coming back broadly in full and certainly not the rhetoric we hear here about work from home forever. I think it -- there will clearly be a transition in '21. I can't imagine it will suddenly fully switch back on, but if you think about Facebook, Google, those kind of companies, they are still buying commercial real estate on the West Coast. They are still buying new offices. And they require -- the level of service they've currently got, frankly, doesn't even catch up with the growth in personnel, so they -- the point I'm making is they probably require a step change in home working into the mix just to kind of keep with the volume of transit they've got in place.

We'll now take our next question. It comes from Becky Lane of Jefferies.

I've got 2 questions around the opportunities for growth that you've mentioned. The first is on North American student bus opportunity. So could you talk a little bit more about what you're seeing in terms of the competitive landscape, if anything, as of yet? I know you've had a couple of wins, so far. And then in regard to school bus, are you still engaging more with school bus on outsourcing? And do you think the focus in bidding competitions will change post COVID? And then secondly, could you talk a little bit about ALSA expansion strategy, obviously especially in the context of the new contract wins in Portugal? Which countries are the focus for National Express? And how should we think about the synergies across borders and therefore the drop-through [ of certain new ] contracts?

Thank you, Becky. I guess we have also Gary on the line, so he will take on the how that -- the pipeline looks on the school bus as and -- but maybe I can first answer regarding ALSA. I think, on the growth opportunities, as you said, we have a very strong pipeline of new opportunities and we are focused on mobilizing these new contracts. We will be reviewing during the -- our business review exactly where to compete and how to win, and we will update you on that on a -- later this year. So Gary?

So first, on the school bus competitive landscape. It's still we're still in the middle of the current bid season, but what we have seen is some disruption from COVID. So we've seen some contracts that have changed hands as a result of competitors hurting during COVID and also some customer issues as a result of negotiating COVID payments. So that has been a positive for us. And also we've seen -- and again, we're not through the bid season yet, but we have seen an increase in pricing. As far as outsourcing, we have seen an increase in interest in outsourcing from customers. We have not seen a lot of movement yet. School districts are very focused on getting kids back into class right now, rather than a focus on doing a bid for outsourcing. We have 3 active opportunities right now. My expectation would be, due to cost pressures and also some of the technical limitations that insourced customers have seen during the COVID pandemic, they'll need to upskill some of their talent. And I think we will see more outsourcing, but the priority right now is getting kids back into the classroom.

Thanks, Gary.

Our next question comes from Alex Paterson of Peel Hunt.

Can I just ask 2 questions, please? Firstly, are there any areas of your businesses that you're worried that may not recover in quite the same way that they were pre pandemic? So for example, do you think for school bus that some of the extracurricular activities may not recur? Does the shift to e-commerce mean you may see less demand, sort of it weakens and so on for retail in the regional bus business? Are there any areas you think there are challenges [ there ] from structural changes? And then secondly, just on acquisitions, do you think -- I mean you mentioned in relation to the balance sheet that you will be deleveraging through 2021. Do you think you have the capacity in that year to make further material acquisitions?

Thank you, Alex. The first one, on the areas, we don't see any specific areas. What we have acted very quickly is in the transit for small contracts that we have, and it's basically ensuring that we do stop those contracts that were -- where we have a very low margin or even loss making. And we have -- we are in the process of doing that. And we have already stopped that because we want to make sure that we have the right levels of returns for every business that we're up, but there is no big areas of business that we'll need to review. And that's very good news. The second one...

M&A capacity...

The M&A capacity. I think we are focusing now what we can control and really coming out from the pandemic in the best shapes. So there is a lot of internal opportunities, and this is where we are focused right now. We do have a pipeline. We always keep those binders of good opportunities which make sense for our customers, for our employees and for -- more importantly for our investors. We might have small acquisitions in the coming period but not anything of material size.

If I could just add, Alex, just on -- a bit of color on your first question because I kind of see where you're coming from there. We've got -- we're in a bit of a fortunate situation on the balance of our business and particularly around urban bus. So 90% of our urban bus passengers tell us they cannot work from home sustainably. That's very different than the urban bus passengers in London or very different to rail passengers into London. And if you think about the demise of the high street [ and ] online shopping, where we are in -- certainly in Birmingham but also some of the areas of Spain, we've got low-emission zones coming in that are going to take away cars. So we've got a nice [ contract ] against some of that, which is why I think we feel somewhat more positive.

It appears we have no further questions at this time. I would like to hand the call back to our speakers today for any additional comments or closing remarks.

Well, yes. Well, thank you very much to everyone for your attendance and questions. It was a true pleasure to be with you today. Let me then conclude with -- by reemphasizing the 4 key messages that I would like to -- you to take out of this session. So the first one is that we have a very experienced team who has coped firmly and swiftly with adversity. I am truly proud of it, and it's phenomenal to join a company with such a strong team. The second one is I'm encouraged by the start that we have made to current year and with the optimism with the vaccination programs that the government are translating. And the third one is that we are focusing on what we can control; as I said a couple of times, is about big deltas and those projects that will produce the biggest return, to be laser-focused on those, to having much agility for recovery. And I think we are very well prepared for that. And we need to deliver the budget. It's critical that we deliver 2021 and be in '22 at a good position at the 2019 level. And fourth, we are continuing to win business, as I said, and securing GBP 900 million of contracted revenue. So with that, I look forward to talking to you later, yes, in the year. And I hope the outlook will even be clearer. So thank you very much.

This concludes today's call. Thank you for your participation. You may now disconnect.