Mobico Group Plc (MCG) Earnings Call Transcript & Summary

Good morning, and welcome to the National Express Q1 Trading Update. My name is Charlie and I'll be coordinating the call today. [Operator Instructions] I will now hand over to your host, James Stamp, Chief Financial Officer, to begin. James, please go ahead.

Thank you, Charlie, and good morning, everybody. This is James Dan here. I'll just give you a couple you've seen the announcement. I'll just give you a quick run-through of what I think the headlines are and then I cannot see Q&A. So, as I say, in the headline, we're really not expecting in order to move the numbers as a result of this update. Our outlook is unchanged. The key messages are that Q1 revenues are up significantly, both on a constant currency basis 17%, another reported basis 25% of $74 million. That is in line with our expectations. It partly reflects, of course, the fact that Q1 of prior year was impacted by Omicron. -- but underlying working a continuation of the positive trends that we've been seeing throughout the final 3 quarters of last year. [indiscernible] particularly continued very strong performance in our outer business. And within that, particularly within the long haul and Morocco. And good news, great very pleased that Porto is mobilizing in the year with expected operations starting towards the end of the year. In North America, we continue to see evidence of success of the Evolve strategy with wind in both transit and shuttle. And in the transit space, we won a significant contract in Charlotte, which is both power transit and fixed routes and was one of our key targets for the year very easy to see that. In the U.S. [indiscernible], we are, as we sit here today, where we are through with bid season, expecting to achieve 13% average price increases on those contracts that are up for expiry in this in seasoning. We're a good way through that head season, and that is a pleasing pricing outcome. In terms of recovery, we are in line with expectations, although they were, as we previously stated, limited expectations as we come toward out of the last calendar year and towards the end of this full year. We're still expecting the bulk of reinstatements to happen at the start of the next 4 years, so effectively by September, and there's a key summer recruitment and reinstatement period for as that. In the U.K., pleasing a strong recovery in U.K. Coach and in our German rail operations. The U.K. bus operations were impacted in Q1 by the 6-day cost driver strike. That's now settled. And of course, we are also expecting the real satisfactory in the impact of our associate associated pay segments. And what I would say, though, is when I look at the passenger recovery profile, excluding the debt we saw when there were limited operations over the 6 days, we are still seeing continued commercial passenger growth. And the final point I want to make before moving over to Q&A is that given the uncertainties that we see both industry-wide and macro-economic uncertainties, we are put in place a cost reduction and productivity improvement program to provide us with some river room Key to that is we're absolutely not going to be cutting into the front line roles or anything that generates our generate our ability to grow. It will be a program that provides streamlined the cost base to enable us to be even more competitive in the bids and operations that we're going for. So, with that, that's all I intended to say at the outset, and I'm happy to hand over to Q&A.

[Operator Instructions] Our first question today comes from Jarrod Castle of UBS.

Can you maybe just talk about the phasing of the GBP 25 million cost saving? How you see it playing you did say some of it would come through in second half of the year. And then just related to that, are there any implementation costs related to that scheme? And then also, just you're obviously getting some good increases in your school plus 13%. What are the settlements looking like for the drivers? And how is the recruiting of those drivers going? And then just lastly, anything on kind of contract book pipeline at the moment? How do you see the help of it...

Thanks for the question, Jarrod. In terms of the products, the cost savings and productivity improvement, I'm taking a target of at least GBP 25 million on an annualized basis, which are treating to will impact all in FY '24. Clearly, on trying to land a good proportion of that in this year as well. I've said no definitive targets on that as we work through the detail, I'll give you more update at the interims. Your question on implementation costs we look at implementation costs as we always do with any investment. If there is a case to be made, if there is a business case to improve profitability and satisfies our returns criteria for I think what [indiscernible] investment we will look at it. And again, I'll provide an update at half 1 on where we think that's going to go. Your question -- your second question then was, I think, on solos, yes, we are pleased with the 13% pricing outcome. That's an expectation as we read through the bid season. We have, as you would have expected, focus early on those contracts. We need to get the biggest increase, and we've seen some very significant increases on those as we work through the portfolio, some of those are more evergreen or have more CPI base in place in them, but our expectations of 13%. I am confident in that. The question you raised then is around the recruitment of drivers and restatements in Q1, we actually did continue to recruit which is a real estate roots, albeit as expected at a lower pace than we were doing in the back end of 2022. So, in Q1, we reinstated around about 200 groups and added about the same amount of drivers net. That's net drivers. And just to give you a bit of context, the equivalent number in the prior year was 36%. So, we're continuing to close that with gap, but we're looking to sum up on a significant reset. We haven't put through any further significant wage increases at this moment in time. Clearly, I don't know how that pans out in full load the softer but we're not seeing at the moment, I would characterize any increased pressure on recruitment -- and at the moment, all our planning is towards making sure we still drive the pipeline over the summer. Then your last question, I think, then was on the pipeline and the contract base. The pipeline remains essentially unchanged from where we work from where we reported it and update full year results back in March, still a significant amount of opportunity there and a continued amount of bidding activity on our side. And I called out in the announcement of the win in Charlotte, the wins in shuttle, which included expansion into the university segment, further each the investor segment and further diversification away from the pure technology clients with wins in the ways that Tesla are really pleasing. So, I think we're looking good on the pipeline. It's still very healthy and we continue to pursue it as hard as we can.

[Operator Instructions] Our next question comes from Gerald Khoo of Liberum.

Starting in North America. I think there was a little bit in the statement about net new business wins being slightly below expectations. I was just wondering why that was in what impacts the driver shortage in the school bus business is having on your ability to bid for new contracts and what impact that's having on contract churn rates. Related to that potential greater in North America. I think you talked about some potential challenges or cyclical pressure from technology customers on the shuttle side. I was wondering whether you could elaborate on that a bit, please? And finally, in the U.K., in the bus business, I was wondering whether you were willing to quantify the impact of the strike and so how much the weight settlement to end the strike is likely to cost, please?

Thanks, Gerald, for those questions. So, in North America, the expense of our net new business has been side below expectations. I'd actually characterize that girl as being the flip side of the price increases that we pushed through. So, it isn't really about encumbered by not having enough drivers. This is the normal bid season process where you aim to win some, you know you've got to lose some. I think we probably -- we've done better on pricing than we expected. We probably -- the flip side of that slightly works on the net new business wins. But it's not really social our ability to attract the drivers. I think probably some of the -- there has been less overall tendering activity as some of the clients have are waiting to see what the driver situation eases before they got the attendee contract. Some of the kind of losses that we've had in the mid-season will have been related to price, but that's as expected. I said, I think there are probably 2 sides of the same point. And your second question was around the shuttle business and cyclical pressure from technology customers. You're absolutely right, of course, there is -- what I would characterize as a technology recession in the U.S. and in North West Coast. We have seen some reductions in service from some of our customers. So not lost contracts, but where those contracts have the ability to flex volumes, we've seen some evidence of flexing the volumes, which are consistent with the type of workforce reductions we're seeing although the discussions we're having with our customers suggests that he is very much cyclical, but they are very much invested in and dedicated to their campuses and that's what the campus culture you have in the likes of [indiscernible] those some places. But it is clear that when they're making a current workforce layoffs, then that a resulting in a reduction in associated volumes. At a note, what we're seeing is the benefit of the diversification of the portfolio means we've now got more of the business outside of the tech sector where there isn't a recession. So, we're picking up new business with a lot of Tesla, which is we cities a bit our prison manufacturing clients and mean in the university segment, which are really driven by very, very different forces than what we're seeing in the tech sector. That is offsetting it. I mean the short or in the medium to long term, I would still expect to be some cyclical was from tech to start to recover, and we still have those contracts and the customers have the ability to rebuild those volumes. Your third question was about the U.K. bus strikes, I think. And yes, so I'm happy to quantify the impact of those. With the one-off impact, the impact of the lost revenue through the 6 strike days down our profit level is roughly EUR 2.5 million. And in terms of the ongoing impact of the wage second one, which was higher than we expected. We're factoring in another EUR 3 million net what expectations there. That is a number that takes the gross cost of the wage settlement and offset the things that we believe will naturally happen as a result of having significant higher wages, 2 key things there. First of all, [indiscernible] over time starts to get reduced. And the second thing is we've always seen that those higher wages are clearly the driver gap. So, we're able to reinstate in more frequency on the high-yielding routes. So, I'm still confident that with the U.K. business as a whole, we'll be able to make good on those -- on that kind of shortfall. And certainly, that's the target that I've been setting if that answers your question, Gerald.

Just a bit of a follow-up on that last point. To what extent are your hands tied in terms of fare increases for your deal with travel for West Midlands? And so, what sort of scope is there to reopen that...

Yes. Yes. Look, it's a good question. So, we've been talking to the [indiscernible] and from port portion of loans those negotiations are ongoing. I'm not able to give any specific updates at the moment. But I think it's fair to say that everyone recognizes that the pot of money that was originally [indiscernible] a bit of hot money. There's obvious to be carved up into buckets, one of which was related to sales increases. I think we've all seen is recognition of that possible money may need to be caught up in a different way. And clearly, if we can't come to an appropriate answer on through funding and it doesn't make sense for us to take that funding over raising the fares, and we still have the ability to do that. At the moment, we're not seeing that as necessary. And there's negotiations we have in is are going live. In fact, we work through the token yesterday about it. So, I will give an update [indiscernible] much clearer position by the half year, but I think we've got some tools that sale.

[Operator Instructions] Our next question comes from Joe Thomas of HSBC.

It's Joe here from HSBC. Just would be interested in your thoughts on [indiscernible]. And specifically, what are these you're targeting as we go through the summer and what we should keep our eye on? I mean, are you expecting to fill the entire gap this year or what are the sort of moving parts within that? And then just looking back to U.K. Bus, you've talked about effectively about a GBP 5 million headwind from strike, which is going to be one-off and then EUR 3 million, which sounds like it's more permanent from wage increases. Could you just talk around that sounds like it's being offset to the GBP 25 million cost plan that you've got in. Is there any sort of color you can give on how that cost plan is allocated? I mean will the bulk of it in the U.K.? And when will you be in a position to give us some more detail around the component part of our cost-saving program.

Yes. Thanks, Joe. Thanks for the question. Okay. So let me start with the rhythm statement. I think when we said we gave the update previously, we aim to -- we had -- we don't close to drive the gap by 1/3, and we closed the repat by quarter at year-end. My expectation is we're still targeting fuller segment for those contracts that we've gone for those contracts that we've retained during the summer. I can't sit here and tell you 100% certainty that we'll achieve full [indiscernible] but we certainly that's the target we're setting ourselves contractually and relationship wise, there's no reason to expect that we can't get the drivers because we can't be inspect rigs. I think what we've been really clear on is doing what we can to control what we can control. So, throughout the bid season, it's been a relentless focus on pricing and getting the pricing right for the renewing contracts, still continuing to refine our driver recruitment process, but we do offer that as we come into -- come towards the end of this full year, but then ramping up with all the learnings that we've taken from the [indiscernible] process so that we've got a fully planned -- a fully planned group reinstatement target for fully for this coming store yet. I would say on that, that again, this starts to see a much more normal business as usual for us. It is a normal thing in the School bus business than you lose drivers at the end of the school year and you recruit towards some of us, clearly, we're not paying drivers over on the period. What's normal about the last -- the last year in is having some thought there were significant driver sources during the full year whilst restating route. So, it feels more like business as usual. And therefore, that's why we're aiming to recruit as much of that recurs we can. But I will give you and everybody to cause an update as we get more clarity on the [indiscernible] land. The second question, Joe, is around the U.K. Bus business. It's -- and also about the productivity program. Again, let me say that in all our operations, and I would characterize U.K. bus has been very similar to this. Part of the DNA of the business is to eat inflation. That's what we do. We're always seeking out the productivity improvements. It's always part of the annual budgeting process that we see to find ways to offset cost inflation. Clearly, you completion this year is higher but still that the business the business is our past we're trying to recover as much of that. But the project group program is not just focused on the U.K. The group this is genuinely a green program and is focused on 5 key buckets really, and it's a good one across the way. So, you noise be as price but we're focusing on the organizational design. We're focusing on productivity improvements. That includes, for example, the kind of wage and late saving initiatives. We've rolled out successfully in North America in translating those across the group. We're looking hard at procurement and the cost base, looking at digital enablement. And then we have -- we're looking separately on how we can save charges of the some growth opportunities. So, it is a genuine provide program. It's there to help us as we move into price [indiscernible] in FY '23 as well. The scale of the scale of the headwinds in U.K. bus. It's a little higher than normal, but we always face some sort of [indiscernible] in intimation. So, I'm not [indiscernible], it's not the [indiscernible] reasonably taking a [indiscernible] cost program [indiscernible]. But I thought it was why like thing to do to perhaps something that recognized on voting that we face in the market.

[Operator Instructions] We have a question from Ruairi Cullinane of RBC.

I had a question on the U.K. And I was wondering what your expectations were beyond potential national funding settlement in bus beyond June of this year? And perhaps you could also sort of talk us through within the strong coach revenue growth and what contribution you saw from your airports routes?

Yes. Thanks, Ruairi. And the national -- the national funding segments in as a saw very line negotiations. I think we're looking at new funding streams, including potentially BRG 4. That is very much toward the politicians. And essentially, we're not banking on receiving that funding. But I think we would certainly hope that it's coming, and I think the industry is very clear that it is needed. We are focused, obviously, in the near term on the existing funding streams that we've got, including BSEP, making sure that we can access as much of that as possible in the line time frame. But the negotiations on future funding are online and continuing that we're playing an active role in driving those discussions. On coach revenue growth, I think we see certainly the city routes were the first to come back and followed by the Airports. We're seeing -- we are now seeing significant recovery in the Airports rig. So, where the state behind they are now tracking back towards where into city routes were maybe signs of recovery, particularly the London airports that we were probably lagging behind a little before. So that's now talent come through a lot better. And given our -- the men of our locking window, which is relatively short in that people do tend to go to fire bands. You don't tend to get really early signals of how the key summer trading season is going to go until a few weeks out. But everything we're seeing in terms of the underlying passenger demand is positive.

We currently have no further questions. I'll hand back over to the management team for any final remarks.

Thanks for the questions and for your time today. I hope that, that gives you the information that you needed, and I look forward to speaking to you all [indiscernible]...

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect.