Mobico Group Plc (MCG) Earnings Call Transcript & Summary

Good morning, everyone, and thank you all for taking the time to join our 2023 half year results presentation. Mobico fulfills a crucial role, delivering an increased social mobility through safe, accessible, reliable, low-carbon mass transit. We're very proud that the transfer solutions we offer directly address some of the world's biggest challenges. I'm joined today by the wider senior leadership team, including the CEOs from each of our businesses. You know Paco, Eric? From obviously, from ALSA and Transit and Shuttle in the U.S. And I would like to offer a particular welcome to Tim Wertner and Alex Jensen, your present today. Tim is our newly appointed CEO of North America School Bus. Tim has significant transportation and logistics expertise across a large organization and joined us from FedEx. We're delighted that he has joined us to drive school bus business to achieve its true potential. After 13 years with the group, Thomas Stables, has decided to leave the business, and he will be succeeded by Alex. Alex, who was most recently with BP has an impressive track record of delivering commercial and operational transformation. And she will be joining September 3 or fourth. And in the interim, the business will be managed by Chris Hardy, who until recently was the MD of Coach. I will first talk about the important key messages that we would like to share before James Stamp, our Group CFO, walks through the financial and operational review. Later, I will return with the concluding remarks before we move to the Q&A. As I reflect on the first half of the year, it is clear that the team has been working incredibly hard and taking decisive actions in the context of a tough economic environment. I'm pleased with the progress we have made, which puts us firmly on the front foot for the future. Excluding the reduction of GBP 60 million COVID funding, group adjusted operating profit has increased by GBP 27 million. However, although revenues are showing good growth driven by underlying momentum, we have paced into cost pressures that have put a drag on first half profits. As James will discuss, we are confident that the decisive actions that we have taken give us a clear path to growing profits in H2 and beyond. My key message today is that I can see evidence that the Volvo strategy is delivering momentum in the underlying business, including through passenger growth, pricing power and pipeline conversion. I'll say more about each of these shortly. James will talk you through the numbers for H1 and why we expect H2 to be much stronger following the actions we have taken. Most importantly, a number of significant confirmed contributions in the second half, including price rises, identified cost savings will deliver a much higher weighting to the second half than we usually have. The cost saving program announced earlier in the year, targeting GBP 25 million of annualized savings is well progressed, and we will now deliver GBP 30 million. There will be a contribution of GBP 50 million in the second half of 2023. So the period end, we have also taken proactive steps to improve our debt maturity. We have refinanced our RCF to GBP 600 million, extending its debt maturity to 2028. Good progress is also being made with the refinancing of the GBP 400 million bond expiring in November 23, scheduled to take place in Q3 of this year. Our covenant gearing remains within the expected range at 2.8. So given the encouraging revenue momentum, together with the decisive actions we have taken on cost, we're pleased to provide full year 2023 EBIT guidance to be between GBP 200 million and GBP 215 million. James will shortly give you a lot of detail to help you at the first half and second half results and to explain why we are so confident in delivering the full year 2023 outcome that we now expect. But before he does that, we should remind ourselves of the vote strategy and its key characteristics, because it is through driving significant change in culture and purpose that we will ultimately deliver for stakeholders. A little later, I will revisit our pipeline and why we are so confident of its value. I will also talk about the whole portfolio of existing businesses and in particular, about the very healthy retention rates. The contract with a total value of GBP 1.4 billion being mobilized as we speak and an annual value of GBP 170 million. And/or continuing conversion from the strong pipeline at the high levels of return on capital employed. But first, I would like to mention a new contract recently one that exemplifies the importance of the bold and why and how we're winning in the priority markets and sectors that we selected in our strategy. This Slide 5 gives you the main characteristics of the contract I want to discuss. This is a good example of reinvigorating public transfer, where we have demonstrated our group credentials to win, plan, organize and operate safe, reliable public transfer networks in partnership with local authorities. This is important to win in Charleston for shuttle and transit involved a rapid mobilization over 4 months and began operating in July 23. The opportunity play for strength and our ability to bring together a multi-disciplined close management team to address the customers' needs quickly and effectively. In this approach, all the Evolve outcomes were met, the result a successful mobilization and a happy customer. And let me walk you through to them, being the safest to ensure our top cash safety performance, which you know that for us is a priority. We focus on training for drivers and maintenance technicians, including extensive training. So they were brought up to speed with our -- on our global safety management policies and operating practices. Being the most reliable or maintenance needs to spend time with maintenance technicians to rapidly map out their training requirements to bring their knowledge up to speed with our global standards. Digitally enabled, an important one. In addition, one of the major challenges in mobilization was the limited opportunity to start the new IT systems and the equipment, which was only possible once the outdone operation obviously has led the property on the eve of commencement of the date. And again, it's our capabilities as a company to solve that problem. We use our expertise to deploy rapid installation and testing followed by the training for new employees in the systems. We have a satisfied customer. We have great feedback from the client and look forward to transporting 4 million passengers annually in a growing region that's home to companies like Boeing, Mercedes and Volvo and what an environmental leader. In a fleet of 133 buses, the customer already operates 33 electric vehicles. So it's ambition in low-carbon transfer aligns closely to -- with our own and as a leader in the conversion of fleet to EVs where that is required, the customer knows it has a partner with both the expertise and desire to deliver solutions effectively. As the employer of choice, one of our major successes was more focused on retaining the incumbent employees from the upcoming operator. And ultimately, we're engaging with the incumbent employees and our explanation of what Mobico stands as a group was successful with all but 6 of the 130 drivers choosing to transfer to Mobico. And finally, we'll generate strong financial results on this asset-light contract. I'm also excited about how Evolve is delivering passenger growth. We've set out on this slide an update on the chart that we showed with the '22 full year results. It clearly shows the underlying momentum in passenger growth across the businesses with a year-on-year growth of 36% in our long distance Coach business, 11% in urban bus and 57% in Shuttle. The continuation of that positive passenger growth is a reflection of what I talked about earlier. We're fulfilling a crucial role delivering essential increased mobility through safe, accessible, reliable, low-carbon mass transit. Whilst passenger growth is an important driver of our business. It has to be in combination with progress in pricing. Because of the quality of our service we provide and the strength of our customer proposition, we have good pricing power that allows us to respond positively to industry-wide pressures, including inflation. It's also a measure of the quality of our business. This chart confirms some of the price rises we have been able to implement across the group, and we'll see the greatest impact of those in the second half of this year and beyond. It's one of the factors that supports the full year outlook. So as promised, we have delivered 2 years of double-digit price increases in School bus. I'm also pleased with the results of our Europe management discipline in Coach, balancing yield capacity and occupancy to drive the top line, 42% growth in U.K. Coach passengers, while increasing average ticket prices by 11% and occupancy by 3 percentage points. 28% in Spanish long-haul passengers while increasing yields 4% and occupancy 7 percentage points. In relation with dealing with headwinds and helping us to weather the worst of inflation, being able to raise prices with the agreement of our partners, is if required, help us to maintain services for a customer that might otherwise not be viable. In the U.K., we have raised prices from July 3. This is the first material price increase since 2018. We have worked with our partner, transport for West Midlands to secure a funding agreement that allows us to maintain the network. When we look at the future opportunities we have in front of us. I'm pleased that we are building a strong momentum from the pipeline. In the first half of the year, we have won 27 new contracts compared to 16 in half 1 of 2022. This is equivalent to over GBP 70 million of annualized revenue, more than double the prior period. It represents a win rate of 28% on bids that we submitted and were obviously awarded in the period, in the half. Again, this is up from 22% in prior year. And we have maintained our capital discipline with a ROCE of 28% on one contract, up from 15% in the prior year. Maintaining this cadence of wins is important, so it's encouraging to see, and we have continued to make select acquisitions with 3 new smaller but strategic completions in the first half in ALSA. On site with new contracts, it is important to note that the hard work of the team has been rewarded with high retention. In school bus, we had a 98% retention rate on contracts that we wanted to keep or up or out strategy means that underperforming contracts will require a significant step-up in profitability or pricing or otherwise, we are unlikely to renew them. There have been no material losses outside of the school bus, so almost 100% retention rate. And some of those retentions have been particularly significant. For example, in ALSA, we have had successful contract renewals in both regional services, Valencia-Alicante the discretionary services like Madrid Metro, Caesia BBVA, Arcelor, which together represent EUR 150 million of our contract value. While doing all this, I'm really proud that we are successfully mobilizing 1.4 billion worth of contracts as measured by total contract value in this year. That's equivalent to 170 million of annualized contract value. Again, we plan, mobilize and operate networks. This is what we do. Doing this successfully is key to winning and retaining business. I will now hand over to James, and he will take you through the financial and operational review.

Good morning, everyone. Thanks, Ignathio. This has been a challenging half, but one in which we've built momentum and taken actions to put us in a good place for the second half of the year and beyond. Top line growth has been significant, up GBP 245 million or 18.5% on a reported basis, and that's 14.4% on a like-for-like basis. And this really reflects 2 things: first, strong underlying growth in those businesses where we have exposure to passenger demand. And second, a continuing rebuild of the school bus business through pricing and route recovery. As we'll show on the next slide, we've rebuilt the business to offset the impact of GBP 60 million less of COVID funding in the year. Adjusted operating profit is down GBP 33 million because of the impact of COVID funding and wage inflation impacting before price recovery. But excluding the impact of COVID funding, adjusted operating profit grew by GBP 27 million. Free cash flow conversion remains strong and ahead of prior year at GBP 78 million, and our covenant gearing has reduced to 2.8x from 3.1x at 30th June 2022. Let me go into a bit more detail on this now. As I said, total organic revenues grew by 14.4% in half 1 compared to the same 6 months in prior year. Pleasingly, this growth is across all divisions and all driven by growing demand. ALSA revenues are up 21% as a result of increasing demand across all lines of business, but especially strong in long haul. U.K. revenues are up 20%, driven by 42% growth in coach passengers and commercial bus passengers exceeding 97% of pre-COVID levels. North America growth of 8% reflects continuing recovery in U.S. school bus as we work tirelessly to overcome driver shortages. And last, but certainly not least, growth in Germany is due to the award of the RRX Lot 1 contract currently on an emergency basis. Profits have lagged revenue growth, especially in the U.K. and North America, but with AlSA delivering profits 10% ahead of prior year. I'll now talk in more detail about our profit bridge between the first 6 months of this year and the comparable period in 2022. So what I'm presenting on this slide is how we bridge from GBP 91 million of profit in half 1 of 2022 to the result of GBP 58 million for the first 6 months of this year. There are 4 core components of the bridge. The removal of COVID funding, the impact of pricing actions we've already taken, growth that has been delivered and the impact of inflation before pricing recovery. So I'll take you through them. Starting with the light green block on the left-hand side, within the GBP 91 million of adjusted EBIT for half 1 of 2022 was a significant element of COVID-related funding, of which GBP 60 million was not repeated in 2023. COVID funding in the first half of 2023 has actually reduced to GBP 15 million. In the first half of this year, this funding has been more than offset by the underlying recovery in the business, including the impact of pricing benefits from the price increases pushed through in 2022 and business growth. These are highlighted in the middle 2 dark green blocks. However, in the first 6 months of 2023, we've seen the significant impact of 2 key issues. Firstly, we settled driver wages in U.K. bus at 16%, with that pay award backdated to 1st of January this year. As expected, this will be recovered through fare increases from 3rd of July 2023 and an improved funding package negotiated with our partners, which gives us much more certainty over FY '23 and FY '24 for us, for their network and for our passengers. Secondly, in 2022, you'll remember, we increased school bus wages by 10% and we repriced the first tranche, approximately 40% of our school bus contract in that year. And therefore, with repricing on the 60% of the contracts still to come. These 2 factors, along with other inflation, are highlighted by the light green block on the right-hand side of the chart. As I'll come to in a moment, the benefit of the next tranche of contracts to be repriced will impact positively on half 2 of this year. So what this chart shows is how we build from the half 1 profit of GBP 58 million to the result for the second half of the year. Moving from left to right on this chart, we've identified the main building blocks. First block, in a normal year, being an average of the 5 years up to and including 2019, we would have a somewhat less than half of our profits in the first 6 months. This swing is worth GBP 20 million to GBP 25 million in profit, which is the second block in the chart and is simply due to underlying seasonality, including the important impact of summer trading. Moving to the third block of this page, U.K. pricing. We've reached an agreement with WMCA, which will allow us to raise fares from 12.5% from 3rd of July, but without impacting funding arrangements. Moving on to School bus pricing. This shows the benefit we expect to achieve from the price increases I told you about previously, which is 13% on the expiring portfolio this year with 7.4% on the whole portfolio. This block shows the benefit net of further increases we expect in driver wages of between 4% and 5%. So we've been very successful in achieving price increases on 80% of the school bus portfolio, 40% in 2022 at 10%, 40% in this year, up 13%. Continuing on the next block shows the expected impact of in-year savings from our previously announced cost reduction program, we are confident of achieving GBP 15 million of in-year savings here. The next block shows the continued impact of business growth, put simply, more passengers, more services, more contracts. And in the penultimate block, we show a narrowing range of possible outcomes with respect to potential school bus route recovery, which will only be fully known when we are well into school start-up. The risk associated with this has reduced significantly, and the range of the remaining uncertainty now translates to roughly GBP 10 million to GBP 15 million. Moving to cost savings. At the Q1 trading update, we announced a cost saving program to unlock at least GBP 25 million of annualized benefit. Now the work here is ongoing, but we've made really good progress and fully expect to exceed GBP 25 million, reaching GBP 30 million on an annualized basis. Work has progressed well across all 4 areas of focus. However, as expected, our early work has been weighted towards identifying organizational design efficiencies among the nonfrontline workforce. To date, we've identified more than 200 positions equating to more than 10% of the non-frontline workforce but will regrettably have become redundant in the near term, but without impacting frontline services. Moving on to cash and gearing. And I'll start with free cash flow. As a reminder, we've consistently defined free cash flow as cash that is either available to reinvesting growth or pay down debt or pay dividends. The key bridging items between EBITDA and free cash flow are shown in the table. EBITDA is down, as we explained on the previous slide, but is expected to recover in line with EBIT in H2. Note again that last year, we had significant COVID funding in that number. Maintenance CapEx is down GBP 33 million year-on-year, and this is primarily because we accelerated CapEx at the end of last year, particularly to secure production slots. Working capital is well controlled, noting that last year's outflow was due to the receipt in cash of search funding in FY '21. Therefore, despite H1 suffering some significant headwinds, covenant gearing is reduced compared to H1 of 2022 and is stable compared to the full year. We expect further underlying improvement in gearing as we approach the end of the year, and our long-term targets are unchanged. Moving on to our debt maturity profile and liquidity where since the period end, we've made important progress. We ended the half with GBP 0.8 billion of cash and undrawn facilities, including within that GBP 311 million of cash. Our average debt maturity is 4.5 years, including the hybrid and the chart shows the debt maturity profile. The key development on here is that we took the opportunity to extend our revolving credit facility. Our RCF had previously been up for renewal in 2025 and now extends to 2028. Some key points to note here. The total facility size has increased to GBP 600 million, up from GBP 527 million. We've retained a core set of strong relationship banks. The margin is 55 bps over Sonya with only a modest 5 basis point increase in the margin from the previous facility. And crucially, the covenant tests and the way that the covenants are assessed remain unchanged, i.e., we have maintained a pre-IFRS 16 frozen GAAP basis. As a reminder, on the bond, we entered into a 36-month bridge-to-bond facility in December '22 in respect of the GBP 400 million bond due in November this year. We're well progressed with the bond process, and our expectation is that this will be refinanced later this year. Now given that 80% of our debt is at fixed rates and with the 20% that is swapped due to revert fix in 2025, we have very good visibility on our interest costs. As rates stand today, we expect interest to increase to about GBP 75 million in 2023 and then by a further GBP 7 million in 2024, in line with previous guidance. Turning to adjusted items. And I really think of these in 3 key buckets. The first bucket is the normal adjustment we make every year for intangible amortization of acquired businesses. As expected, this noncash charge remained broadly stable in H2 of 2023 on prior year. The second bucket includes the COVID-related provisions we've taken, including the remeasured onerous contract provisions but driver shortages in North America and the RRX Lot 2 and 3 contracts. Together, the charge for these half year for these items were GBP 6.2 million, down from GBP 27.9 million in half 1 of 2022. Cash utilization of these provisions was GBP 10.9 million in the half. Now the provision at June 30 is approximately GBP 30 million, of which approximately 2/3 relates to RRX, and that will unwind equally over the next 10 years, with the remaining 1/3 over the period, '23 to '25. The third bucket includes some other one-off costs. Firstly, the WeDriveU put liability adjustment reflects the finalization of the final payment for that business of GBP 57 million. This payment has been made as expected in July. There is no further overhang from the put liability and this will free up cash for growth next year. Second, there is a GBP 9 million repayment of Furlough money that we received in 2021. We've committed to repay this when we restarted the dividend. And third, we have restructuring and other costs of GBP 14 million, which includes costs associated with our cost reduction program. Turning briefly then to operations and starting with ALSA. ALSA has delivered record revenues and strong profit growth. The top line has been driven by strong growth in all lines of business. Long Haul revenues for half 1 are up 34% on prior year, driven by passenger volume recovery, up 28% and yields up 4% and with occupancy up 7 percentage points. We've seen continuing growth in regional and urban business with revenues up by 12% and 10%, respectively, on prior year, boosted by increased mobility, network increases and price protected contracts. Morocco is ahead of expectations, with revenue for half 1 growing strongly versus last year across all of our contracts. And as Ignathio said, we've made 3 small strategic acquisitions in Spain, providing entry, for example, into the civil bus market and complementing our regional basebtourism market in Northern Spain. Profit growth of 10% is a result of increased volumes and has been delivered alongside record levels of customer satisfaction. Now as Ignacio said, North America, we've made an important change to the leadership, and it's really great to have Tim with us today. Revenue growth was 8% in North America as services continue to recover. In school bus, in half 1, we had clear evidence that driver hiring and retention is working well with 277 net driver hires in the half, which compares to in half 1 of '22 and a net loss of nearly GBP 600 million in the year before that. This is driven by our reinvigorated hiring and training processes. Since the end of the last full year '22, '23, we continue that strong progress. Assuming retention rates are similar to last year, we have closed the gap to full driver availability by close to 2/3. In terms of training, we've converted more trainees into qualified drivers, and we've had more qualified drivers join us than in any of the last 3 years. What this done has allowed us to narrow down the range of outcomes associated with route reinstatement significantly. In transit and shuttle we've had 9 new contract wins, including the one described by Ignacio earlier. And finally, as I said, we now own 100% of WeDriveU. This brings the total purchase price for that business to $194 million and is generating average return on investment of 15%. And so new news on that front, having just spoke to Eric, who runs transit shuttle, we've just won an important new contract in North Chicago, which further strengthens our ever-growing Chicago hub and that's real-time news. In the U.K., we've restructured our operations under one combined management team. This will allow us to drive further efficiencies and growth. In Coach, there was strong growth in our core business, with revenues for half 1 up 57% on prior year, driven by passenger volume recovery, up 42% and yields up 11%, as Ignacio said. The intercity coach network is now back at 100% of pre-COVID levels with significant roof for growth across the rest of the network and with high levels of occupancy and further expansion planned. We've expanded our network since the start of the year, more than 8x more in terms of services offered than the rest of the market. Impressively, some of our core intercity flows are now well in excess of 2019 levels of passengers, for example, the services between London, Manchester, Bristol, Liverpool and Swansea are all up between 35% and 60% on 2019. I Meanwhile, Net Promoter Score of 40% demonstrates the benefit of the network redesigned for the customer. In Bus, U.K. bus was significantly impacted by the driver strike in Q1 and the associated wage settlement effective from 1st of January. However, we entered into this along with our partners, WMCA. We agreed that the short-term imperative was to protect services. As such, a funding package has been agreed with them and national government, which will recover costs along with a 12.5% fare increase effective third July. The funding package, which runs to the end of '24 includes both nationally and locally bridge schemes. This funding shows the commitment of national and local government to buy service to drive modal shift on to bigger sustainable networks as passenger volumes continue to grow. In Germany, revenues grew by 6%. The passenger volumes were boosted by the EUR 49 monthly travel initiative, which is a national initiative with price protection for the RME contract. Preparation for mobilization of RRX Lot 1 continues with operations continuing on an emergency basis at the moment. Germany continues to have an attractive pipeline of asset-light opportunities. Therefore, despite the headwinds impacting the first half of the year, we have a very good line of sight into the second half with a significant portion of the bridging items locked. As such, we expect full year 2023 EBIT to be between GBP 200 million and GBP 215 million. Now I'll hand back to Ignacio to wrap up before we move to Q&A.

Thank you, James. So I'll close with a reminder of those key messages that we run through at the start. In summary, it has undoubtedly been a tough half, but I'm confident that we have taken decisive actions that put us in a good place for the future. I'm pleased to see evidence again that the Evolve strategy is delivering momentum by acting decisively on the key things that drive performance and the business is delivering on passenger growth, pricing and pipeline conversion. The actions taken will deliver significant tailwinds in the second half that support a confident full year outlook. And we, therefore, provide guidance for 2023, as we have repeated on the presentation for full year EBIT to be between GBP 200 million and GBP 215 million. With that, we'll now open for questions from the room in the first instance and then before handing over to the moderator for online questions. Thank you.

It's Joe Thomas from HSBC. Could I just look at the profit bridge, again, please, James, and how you get from H1 to H2 and consider a few different bits and pieces. Firstly, I'd just like a little bit more color on subsidies and where they might move it in and out because it sounds like there are still some subsidies there that could -- I don't know exactly when they phase out, but James could give some visibility on that, how you thought about it. And then if we think about the growth element, so I hear what you say about pricing, et cetera, and cost savings. On the growth element, how is that coming out from contracts that you've already won compared to volume growth? And given that U.K. Bus is now largely recovered, where else -- is that growth coming from? So if you could give some detail around that, that would be helpful. And then the final question that I had really with respect to numbers was about the BCP fund. So you've obviously had a good result there with Transport for West Midlands, getting the subsidies agreed with the pricing going up. I just wonder the front-loaded that subsidy, so it's going into this year, next year. What happens? And how are you thinking about life beyond that?

In terms of subsidies, Joe, I mean, we had about GBP 15 million of COVID subsidy drop into half 1 of this year. It was GBP 75 million in the prior year, so 60. There is much more we are expecting to the COVID-related subsidy for the remainder of the year. subsidies in government income do form a continuing part of the business. They always have -- they are -- but we have a great deal of visibility of what they are. And that's effectively just government buying service, just like any other customer on. So we've moved from a position where we've taken emergency funding to protect service during COVID to the level that we were seeing before. In terms of growth, on the block that I showed, that's in the region of GBP 15 million to GBP 20 million. I'd say that roughly split half and half between new business and continuing growth in each of the businesses. I would just point to the fact that, Joe, I think you kind of alluded to were back to where we were before in U.K. Bus. I'm not seeing a plateau in passenger numbers. The slide that Ignacio showed, we're seeing continued momentum across all the businesses where we have retail exposure, whether it's AlSA Long Haul, -- also or U.K. urban bus and so forth. And we're seeing continued sequential improvement in those with further improvements to come. And if I look at the U.K. network, for example, we expect we're continuing to expand and grow that network. Your question on BCP funding. I'm really pleased that we secured an arrangement with our partners that allowed us to raise the prices and protect the total amount of the BCP funding, which allowed them to reinvest in protection of the network. As I've said before, the whole ethos of BCP was to grow the network to sustainable levels. And so by the end of the funding package, we'd expect commercial passenger growth to have increased to the point where we don't need that level of income anymore.

And for the last one, what is the future beyond that? Listen, I think the West Midland or partnership has been the reference of the enhanced partnership agreements that we have and actually, it's working well. Now we were demonstrating that we are recovering faster than the rest of the country, and that is important. And I have to say that I'm really proud and grateful to the West Midland because we share the same vision and purpose and the role, the critical role of public transport as an essential service as almost like a public service obligation. And in that respect, this is also why it has been topped this year because obviously, we started with the settlement, which was -- has delayed a little bit the closing of the arrangement in all the agreement because obviously, we need to see where we landed on the pay settlement. But again, it's -- right now, it's working well. Clearly, you see the evidence because we have closed a good agreement, which closes the gap on -- because if not, the alternative is basically a reduction of the network or a massive increase in the fares. So again, this is working well. You will ask how about franchises -- well franchises, Manchester is going on that, and we will see at this moment in time with the local government. They firmly believe in enhanced partnership, and that is the most cost-effective way to run a public transfer for the taxpayer. So that's what I would say.

Sorry, can I just follow up on that point? On the GBP 15 million of continuing covered subsidies, it doesn't sound like it's continuing COVID-related...

So 15% is the residual amount of the amount that we've recognized in half 1 of this year, I'm not expecting that to continue.

Sathish from Citigroup. I got 2 questions here. So firstly, on the school bus, there are actually 2 parts on that. In terms of sets funding, you had about 50 million in H1 and it completely unwind. How should we think about going into the second half of this year? Is there any further unwind on that? And then in terms of charter activities within the school bus, what is the recovery there where we are versus 2019 in terms of charter services? And again, sorry, the third part within the school buses, route recovery, where we are today? And how should we think about as the new school year starts again versus 2019 levels. And the second aspect is actually related to the U.K. business. Yield performance on the U.K. Coach has been strong versus, say, if you compare with ALSA, -- how much of that is actually related to the rail strikes that we had in the U.K. Can you quantify that as will our impact? And then the 16% wage deal, is it a multiyear deal? Or should we think about when is the next negotiation exactly up? And finally, you pushed prices up sort of this July. And what has been impact on like volume as such. Have you seen any price elasticity play out there so far?

Yes, the first one was on a school bus. That was very clear, not searches, we don't have anymore. So that's gone. The charge activity, now we're picking up charter activity and more field trips, which is something that was almost dead in the past. I know it is a clear focus of team. He's driving that. And although we are still well below 2019, we're growing at a rate of 20%, 25%. So that's very encouraging and should give us more room for growth. The rate recovery that was covered by James during the presentation. We have already covered 2/3 of the maximum drivers that we will need to cover the routes that we have available. It's progressing extremely well. At this moment in time where we still have 1 month, we're in a good place. Clearly, the work done last year is working well, and that's what I would say. So well set for. And also, remember, we talk about recruiting, retaining and recovering. And all those 3 aspects building blocks are working well. And also the retention, which is significantly important.

I think I'd add to that, you asked a question on the yield performance. Like we're getting some benefit from the rail strikes, but the real benefit for us is that people who've never used us before who used us first time in a rail strike, 12% of those have come back. And that's not on a rail strike day. That's real modal shift. The yield performance in the Coach business is really impressive. We said that it was 11% up on prior year. It's 20% up on 2019. So continuing strong performance. You asked about the wage dealing it's not a multiyear deal, it's a single year deal. And in terms of the price elasticity, look, we haven't raised fares in the bus business, but since 2018. I think that's the impressive thing to note. It's too early to say for sure, for the initial indications we've seen from the price rises on the 3rd of June or they're well within our range of expectations.

And yes, degree that building up again to where we were.

It's James Hollins from BNP Paribas. 2 for me, what strategic ones. I'd love to hear from Tim on the U.S. school really sort of classic question, what's top of the intro. What's your real focus for the rest of this year, what you'd like to change, what you'd love to get your hands on and maybe how you see the long-term evolution. And then, I guess, for Ignacio, the Evolve strategy, it seems like a while since we've had any updates on that. So if you'll forgive me, put it another way, how has the evolve strategy evolving?

Well, I will start with the last one before I pass it to. I mean, I must have done a very bad job you don't get -- I think we have delivered enough evidence that it is working. We have a much more focus on where we need to -- when we can grow what markets and segments we want to compete and how to win. And actually, we are converting that 5-month of opportunities. And in that respect, let me reemphasize. The company was growing extremely well through acquisitions. What we have reinforced, and again, this is a long cycle work, the organic growth. So we will -- we are massively reinforcing that capability again through a standardized sales processes, contract management, common systems to follow up on the pipeline. And we're growing and we're converting business. So that is very important because we will come to a point where we will complement that again with acquisitions in the future. So I think it is boding very well. In terms of effectiveness, we have plenty of evidence in all the different outcomes that we are massively improving. We are, for the first time, we have broken the silos, it on the divisions. And that is -- I mean, it is very, very important. We have a common culture now before we have divisional courses. Now we have a common purpose, a common vision, a common strategy that we follow up. What is the benefit of that? And last week, I was with the Spanish team who came here to work together with the U.K. team. They were looking on how to -- the best practice from the U.K. in terms of electric vehicles. We have used the best practices from North America on how to control the wages. ALSA, even they are doing extremely well, have mapped the processes and identify all that continuous improvement, all the quality-driven management framework that we have introduced, you see that. And you see it all over. Sometimes it's a continuous improvement, it's small opportunities, but they all add up -- and again, reinforcing capabilities within the team. Karim is here. We now have a HR process. We're working on the organizational design, removing layers to make it more effective, to be closer to the customers, to be closer to the employees. We measure customer satisfaction with it, but employment engagement. So there's a lot of evidence that it is working. And again, we have another period of sequential improvement. So I'm really thrilled and excited with this.

Well, first of all, I'm happy to be here. It's been a privilege for the 6 weeks I've been here. The fastest way you learn organization is to spend time with the front line. So my first 6, 7 weeks here, I've been spending a lot of time with the frontline employees in the organization. They'll tell you a lot if you spend the time on opportunities to improve. So really what I'm focused on, and I spent 30 years with FedEx running the U.S., so we have a large organization background in operations. So number one, laser-focused on being best of class. We have a strong brand in North America, and we can improve in certain areas. So completely focused on best-in-class. We know there's market share to be gained by focusing on best-in-class and delivering exceptional service. So I have the team really focusing on that. And the other thing is just efficiencies. Ignacio talked about some of the efficiencies that could be driven to the organization. So we're really focused on that, making sure that the 3Rs are there, right, recruitment, retention and the route recovery and then leveraging that to the bottom line and then making sure that we're driving lean principles. We're operating as efficient as we can to really, really take out some of the costs and redundancies. So really top line growth, best-in-class and then driving efficiencies.

Cullinane from RBC. 2 questions for me. Firstly, in U.S. school bus, are you structuring the contracts differently in terms of inflation pass-through. And one follow-up on the Evolve strategy is, your guidance to deliver over GBP 1 billion of free cash flow by 2027, still valid?

Yes, we are absolutely confident of our guidance for both in revenue, EBIT, absolute EBIT and cash flow, absolutely.