Mobico Group Plc (MCG) Earnings Call Transcript & Summary

Good morning, and thank you for joining us for our 2024 half year results. Before I take you through the results, I would like to welcome Helen Cowen. For those who didn't have the chance to meet Helen at our AGM, Helen is our new group CFO, who has joined us for the long term and is already making an impact. We have formed a strong partnership visiting our markets together and engaging in highly constructive discussions with customers and our teams. Helen is already bringing clarity and effectiveness to our reporting on how we best deploy capital to generate returns with a key focus on deleverage. Later in the presentation, Helen will talk more about our focus on cash and our commitment to debt reduction, as well as our financial priorities for the balance of this year and beyond. Before I hand over to Helen, I would like to share our key messages from the half year results. Firstly, I can confirm full year 2024 guidance is on track with adjusted EBIT of between GBP 185 million and GBP 205 million, with an improvement in covenant gearing relative to full year '23, targeted at 31st December 2024. In Germany, critical discussions are progressing with PTAs on opportunities to address underlying issues and commercial viability of contracts. The leverage is another key priority and focus area. I'm pleased to inform you that the performances process for North America School Bus is underway and progressing in line with expectations. We have also been refining our plans for reduction in debt with a clear pathway to organic debt reduction, by the end of 2024 with company-wide initiatives. Helen as our new CFO, has been focused on deleveraging initiatives to improve our cash position, both in the short term and medium term. So we will cover this with you later in the presentation. All options that help earlier debt reduction are under active consideration. Profit and cash improvement initiatives are on target or comprehensive initiatives to improve profitability are progressing well and delivering slightly earlier than expected in the first half and on track for full year delivery. It's worth noting that the accelerated programs are going on simple cost cutting and represent important enablers of our evolving strategy, making the respective businesses stronger as a consequence. For example, in ALSA, improvement in how we schedule, utilize, drive vehicles supported by technology and driver training has reduced fuel consumption and improved fleet efficiency, generating sustainable savings. Turning to operational performance, record H1 results in ALSA and the improvement in North America were delivered alongside ongoing recovery in U.K. and Germany. Finally, we are seeing continuing positive momentum in passenger growth. We have secured significant contract wins and retained and mobilized new business across the group. In the next three slides, I want to specifically focus on improved passenger demand, pricing improvement and contract wins. Let me begin now with the passenger demand. Mobico plays an important role in the model shift towards public transfer solutions and both strategy is mapping well to customer trends. This slide highlights the underlying growth in passenger numbers across our portfolio. Although we have encountered some challenges, underlying momentum is strong. Passenger demand has grown within key business segments year-on-year with double digit growth in ALSA long haul and North America corporate shuttle. ALSA long haul was boosted by a repeat of the multi-voucher scheme and corporate shuttle increased ridership and new wins has consolidated its market-leading position in North America. As a business, we need to maximize the share of those passenger miles, converting passenger growth into profitability and generating cash. Let me turn to pricing. Overall, half year revenue growth reflects pricing actions already delivered. Importantly, we focus on pricing or services correctly, especially where we are subject to inflationary cost pressures, enabling us to meet customer expectations while we're making a positive return. We have, therefore, become more disciplined in applying first increases. For example, for ALSA long haul, we achieved a 6.8% increase in average ticket prices on 9 main corridors in H1 '24 versus last year. In School Bus, for the renewing contracts of school year 2024, we increased rates by 13.1%, translating into 7.5% on average across the whole business. In U.K. Bus, we have been constrained by our contractual terms with transfer for West Midland for a number of years. However, we successfully raised prices by 12.5% 1st July 2023. Turning now to U.K. Coach, where average ticket prices rose 5.7% in H1 '24 versus H1 '23, excluding rail strike impact. In H2, we will benefit from further School Bus pricing increases of 10.2% on this year's renewing contract equating to 6% overall. We also benefit from a 6% fare rise in U.K. Bus. In H2, both U.K. Coach and ALSA long haul will be focusing on dynamic real-time pricing led by customer demand. These examples are tangible evidence of our turnaround laying the foundations for future profitability. Now finally, let's turn to contract wins. At the group level, we have won 123 new contracts ahead of the same point last year. Revenue values of GBP 91 million per annum versus GBP 72 million compared to H1 last year and total incremental contract values of GBP 622 million. Average EBIT margins on those contracts are 11% with 30% ROCE. Conversion rates on bids submitted and awarded was 025%. I am particularly proud of our WeDriveU contract win in Washington, where we have retained and significantly expanded our asset-light Washington metropolitan area transport authority, WMATA, paratransit contract. We displaced transit and a local operator to become the sole provider in this network with a total contract value of circa GBP 700 million over the extended 10-year period with average annual revenues increasing by GBP 36 million to approximately GBP 70 million and 30% ROCE. Impressively, services were successfully mobilized within 26 days. The contract retention and extension is particularly important because it has validated our customer offering and demonstrated that, once again, we can mobilize major new businesses quickly and effectively. In the ramp-up to launch, we recruited 1,000 new drivers, met challenging delivery deadlines, including two further contracts that launched on the same day. WMATA will become our largest single contract in North America, and one of the largest in the group, a flagship for a business which we will continue to build upon. To summarize, before I hand over to Helen, we have made important progress in the last few months. Our guidance towards full year 2024 adjusted EBIT remains unchanged with an improvement in covenant gearing targeted at 31st December 2024 relative to full year '23. The formal sales process for North America School Bus is underway and progressing in line with our expectations. We have also been refining our plans for organic debt reduction with a clear pathway to the end of 2024. As I've said before, our options that help earlier debt reduction are under active consideration. Our comprehensive initiatives to improve profitability are progressing well, and delivery is slightly earlier than expected in first half and are on track for full new year delivery. Finally, we continue to grow, and we have secured significant contract wins and retained a mobilized new business across the group. Helen will now take you through the financials in more detail.

Thank you, Ignacio, and good morning, everyone. Since joining Mobico in May, taking on the CFO role after the AGM in June, I've had a good handover with the former CFO and a smooth transition period. Together with Ignacio, we visited key markets, building our working relationship. We visited Germany, Spain, North America School Bus, Transition shuttle and spent time with the team in the West Midlands. It's been a key priority for me to get to know the finance team across the business. And I've been able to identify where we can improve and strengthen the team. I've already made some important changes, adding resource while reducing duplication. I have added technical expertise and we've equipped ourselves to deliver the School Bus transaction while staying focused on the core business delivery. We've been building teamwork, improving communication and collaborating well both within finance and also across the business. I'm sure that the Accelerate project continues to have robust finance support and I'm pleased to share that the cost reduction programs are on track for the full year with some timing differences between Accelerate 1 and 2. My absolute focus is on profitable growth and a reduction in debt. To deliver improved profitability and enable deleverage, I focus on organic cash conservation as well as the funds that will be generated by the planned sale of North America School Bus. I'd now like to take you through the financial summary of results, which shows a comparison in the half year 2023 on a restated basis, in line with the full year '23 restatement that we took you through in detail at the full year '23 results. At the half year, we've delivered strong top line growth, 5.4% versus the previous year. This was achieved across the business in ALSA, North America and the U.K. with a reduction in revenue in Germany. As you've heard from Ignacio, this is fueled by an increase in passenger numbers and some impact from fare increases. For example, we're seeing the benefit from fare increases we made 1 year ago in U.K. Bus and North America School Bus. We're also well positioned to optimize market growth. Let's now look at the group operating profit. You can already see the impact of our programs in the half year results, delivering GBP 71.2 million in the first half, a 23.8% increase. It's important to say that we remain on guidance in the range of GBP 185 million to GBP 205 million group operating profit. Earnings per share has fallen to 0.3p in the first half due to higher finance costs offsetting the EBIT upside as well as higher year-on-year tax charges. No group dividend has been paid at the half year. Some new news, we're pleased to share the launch of a series of cash conservation initiatives that only kicked off in June. I'll talk more about this shortly. We can already see the impact of positive trading on cash flow, which has funded the CanaryBus acquisition in the first half. Return on capital employed delivered 7.8% versus 7% in the full year 2023 versus 6% this time last year. We continue to focus on contracts with improved profitability in relation to the CapEx we've invested. Covenant gearing at the half year '24 is 2.8x a positive development versus 3x at the year-end '23. This is a function of our increased profitability while holding covenant debt flat to the year-end 2023. So a strong first half on track to guidance. So let's turn and look at our performance by division. Mobico's strength is in its portfolio approach. So while Germany and the U.K. recovering, we're delivering profitable growth in ALSA and North America. However, we can see growth in the U.K. top line. And as we complete our cost restructuring and improved level of profitability, we'll follow over time. In summary, we're achieving revenue growth across 93% of our business, double-digit profit growth is present in 74% of the business. We'll now turn our attention to cash. Our EBITDA showed strong profit development due to robust decision-making around M&A and capital investment. In the second half, we'll continue to invest, and our total growth CapEx, including M&A will only be slightly lower than the first half this year. This reflects our continued commitment to investing growth for the years ahead. Our investment strategy enables Mobico to compete strongly, selecting and winning the most profitable contracts. Working capital has improved GBP 27 million year-on-year, primarily due to a stronger discipline around cash collection. This is partly an acceleration from the second half, but overall, a benefit to the full year. Critically, this has been achieved without any compromise to our customer relationships. This is reflected in the free cash flow generation of GBP 90.5 million versus GBP 79.7 million a year ago. Moving now to net debt. We've extended the core RCF facility for a further year with GBP 571 million of the facility now maturing in 2029. The group has a further one-year extension option available next year that will take us to 2030. In summary, covenant net debt is stable versus the full year 2023 of a higher profit base with leverage of 2.8x. Our focus now is to deliver covenant gearing below the 3x level for the full year 2024 i.e., lower than the full year 2023. Now I'd like to share some more detail on our debt reduction as promised. Our key focus as a team over the next 2 years and beyond. Clearly, the successful disposal of North America School Bus is our priority. However, in parallel, we're working on new initiatives to conserve cash and also reduce our debt organically. This is business-wide with a pipeline of initiatives greater than our target to ensure we deliver. To stay on track, we review progress weekly and discuss at every senior leadership meeting, we project manage closely with a high level of ownership and engagement throughout the business. We have made a strong start. And despite the long journey beginning in June, we've already achieved GBP 4 million of cash of our year-end target of GBP 25 million. Next year, we're targeting a run rate improvement of GBP 50 million and the underlying corresponding reduction in debt. We're pulling together with a renewed focus on cash and profit which means organic deleverage becomes much more achievable. Despite the new initiatives on cash, the Accelerate program continues to deliver improved profitability with no loss of focus. You'll recall our four key areas: organizational design, procurement, productivity and digital enablement. These work streams underpin recovery and resilience across our portfolio. And as you can see, Accelerate 1.0 and Accelerate 2 target GBP 30 million and GBP 10 million, respectively, by the year-end 2024. By full year 2025, we target an annual run rate of GBP 50 million savings from Accelerate and to be clear, this is in addition to the GBP 50 million cash savings targeted. So to bring all this together, I'd like to summarize. We're working on the North America School Bus disposal. We're keeping up momentum on cost reduction. We're restructuring for the medium and the long term. We have an absolute focus on profitable growth and we will deleverage through organic cash management. We see the evidence that our business is growing, delivering profits and developing stronger cash generation with greater resilience. Thank you. I'll now hand back to Ignacio to take you through the operational review in more detail.

Thank you, Helen. Turning to our operational highlights. H1 has seen intensive activity, focusing on turnaround actions. We're working relentlessly to improve profitability whilst also strengthening the business building capability while taking out costs and ensuring profit compares to cash. As a result, underlying performance is steadily improving. As CEO, I'm particularly proud of the following: ALSA has delivered record first half results, underpinning the overall growth of the group. WeDriveU and the School Bus have won and gained route through this bidding season. Our WeDriveU contract win in Washington, where we have retained and significantly expanded our asset-light WMATA paratransit contract. In School Bus, the number of routes won were greater than those lost for the first time in over a decade. The leadership changes in both U.K., Germany and the school bus that I shared last time we met, are bedded in and working well. Turning to ALSA. ALSA has led the group in H1 '24 building on its strong 2023 delivery. In terms of H1, key achievements include operating profit growth of 47% versus H1 '23, reflecting a strong performance in both Morocco. Revenue in ALSA overall with a 13% improvement year-on-year. strong performance in region with revenue of 14.2% higher than H1 '23 and international business, including Portugal, up 87.8% on H1 '23. Focus areas in H2 include delivery of long-haul summer trading, reinforced by the young-summer ticket scheme, which has been renewed for summer 2024. The successful integration and growth of the CanaryBus business. And ALSA is relentless in its drive for excellence with constant improvement in operations and diversification. This will ensure that ALSA remains in prime position as a leader in the evolving markets. Our ability to adapt quickly to recent pressures from high-speed rail is testament to this. We're confident we're able to manage our position in the long-haul market. We expect momentum across the business to continue in H2 2024. Turning to North America, there is clear progress across the businesses. The achievements for School Bus include, a new leadership team has made dramatic improvements, resulting in a strong bidding season for school year '24, '25, where the number of our routes won was greater than those lost for the first time in over a decade. This is a direct result of much more focused commercial and winning teams, improved operational KPIs, including ability to mobilize on-time performance and safety resulting in new and returning customers. In H1 2024, School Bus recruited 21% more drivers compared with H1 2023. Also, the business is now far more adept at identifying and tracking underutilized fleet, improved fleet allocation of vehicles or cascading vehicles between customers is improving asset utilization, cash flow and customer satisfaction. 500 such vehicle movements took place in H1 with more planned for H2 '24. Focus areas in H2 for School Bus, the sales process is progressing and on track, delivery of an efficient school year '24, '25 started. We anticipate no significant driver issues when the new school year is launched in September, a key win in the current environment and a critical success factor in our industry, and seeing the benefit from the already agreed above inflation price increases on renewing contracts. Moving to Transit and Shuttle business. Now unified under the single WeDriveU brand, the business is generating solid organic growth, the building resilience and diversifying its customer base. Key achievements include as discussed on Slide 6, WeDriveU has won high-profile contracts and further retentions and mobilizations, consolidating WeDriveU's market leading position in corporate shuttle. 9 new contracts won in H1 2024, will deliver annual revenue of GBP 67 million and total additional contract revenue of GBP 500 million. As we move into H2, we will continue to enhance profitability of lower-margin contracts whilst driving momentum from new contract wins. We'll continue to benefit from H1 operational efficiencies delivered by eliminating duplicative roles and establishing a central services model within WeDriveU. Turning to the U.K. Alex and the team have been focused on restructuring both the U.K. Bus and Coach businesses over the last 12 months executing major organizational change. U.K. Bus key achievements include increase in U.K. bus revenue driven by continued strong passenger growth and fare increases of 12.5% implemented in July 2023 and a 6% rise effective from 30th June 2024. For H2, full year 2024 will be further fueled by the 6% fare increase that I just mentioned. Recently, agreed automatic index-linked adjustments will make the recovery of inflationary costs more structured and predictable. Importantly, when the current restriction placed on us with transfer for West Midland expire at the end of this year, U.K. Bus will have options available to develop profitability potentially to include fares and route management. Looking to the future in terms of prospective franchising, we have a strong relationship with our transport authority customers and preparations continue should franchising materialize. Either way, we won't see any impact until late '26, '27, and our priority remains the customer. Key achievements in U.K. Coach include operational improvements reflected a better margin of network versus demand. Regional intercity and regional airport routes have performed well. And the key focus areas in H2 for U.K. Coach on track to restore NXTS business to a profitable run rate in H2 2024 following the losses incurred in full year '23. For the network and fleet optimization, building on actions delivered on H1 to improve profitability. Finally, on the operational reviews, let's take a look at Germany. Passenger volumes were boosted by the German government 49-year monthly travel initiative now extended until the end of 2024. I'm delighted that our new MD of German Rail, Michael Hetzer, brings important sector experience at the crucial time. Three main structural issues continue to impact our German business and the weather sector, energy market volatility, industry-wide disruption to the train driver market and persistent levels of inflation. And these have contributed to decline in the adjusted operating loss in H1 2024 compared to the prior year. Looking forward to H2, the business continues to work to solve the significant challenges facing the industry. In parallel, we continue to focus on closing the remaining driver gap. We're improving productivity to help mitigate the impact of direct shortages and in particular, we have increased our '24 training course capacity this year by 45% with 92 drivers currently in active training. Finally, as I said in my introduction, we have started critical discussions with the PTAs on opportunities to address the underlying issues. So to summarize, full year 2024 guidance of between GBP 185 million and GBP 205 million is unchanged and on track with an improvement in covenant gearing relative to full year '23 targeted at 31 December 2024. In Germany, critical discussions are progressing with the PTAs. The leverage is an important priority and focus area. The sales process for North America School Bus is underway and progressing in line with our expectations. We have plans in place for organic debt reduction by the end of 2024. Profit and cash improvement initiatives are on track. We are seeing continuing positive faster demand. We continue to grow and have secured significant contract wins as well as retaining and mobilizing new business across the group. And finally, let me reiterate, once again, our full year 2024 guidance is unchanged, and as a management team, we're fully focused on debt reduction. With that, thank you for your attention, and we will now move to Q&A.

[Operator Instructions] Our first question today comes from Ruairi Cullinane from RBC.

My first question is in German rail where the discussions with the PTA described having a critical impact upon delivery of full year '24. Please could you remind us what is assumed within your guided range? And then in U.K. Bus, how will the 6% fare increase sort of interact with the U.K. government's to pound their initiative and also the agreements you have with transport pool, West Midlands. I'm trying to be clear if the revenue upside will all accrue to you? And then finally, the long-term targets all unchanged?

Good. I will start with the German rail. When we say critical, it's for two reasons. The first one is, for us, important because we need to sustain the economics of the contract in the short term and the long term, but also, it's critical and important for the PTA who is also interested to maintain the sustainability of the contract and the sustainability of the industry as a whole. So today, we are reiterating our full year guidance. We are progressing through the negotiations time line with the PTAs, the PTAs are contractually required to seek an equitable solution and outcome. And I have to say that all parties are motivated to deliver acceptable solutions. We are not expecting any significant downside that would breach or a full year guidance and Germany have delivered to forecast and expectations in the first half.

If I can just add to that. So you will see from the first half results that Germany have delivered the GBP 5 million loss, which previously we've made reference to as the full year guidance for Germany. We expect to be on track with that. This is simply the normal cycle of the German contracts. So we incur cost increases, particularly on wages in terms of labor and also energy cost assumptions. That's all very usual. We take those costs through the first half, and we recover them through the second half as part of the normal negotiations with the PTA. We're on track in those negotiations. As Ignacio said, we're expected to have aligned objectives where we're trying to reach a sustainable and equitable solution. So we expect to recover those costs. We may have an upside, which relates to costs that we incurred at the last part of last year, but we've not included those in our assumptions. So we've simply included recovery of the cost impact that you see in the first half. We remain on guidance full year of GBP 5 million loss for Germany.

If we move to the second question, the U.K. Bus and the price increases is a very good point because, indeed, this is something that is already there and implemented and for the first time, by the way, the pricing impact is above the cost inflation. Of course, we have some headwinds compared to H1, but certainly is a very important factor. So as you know, we did secure 12.5% fare increase, which was implemented last year, and that has been reinforced now with a 6% as from July 30. Also, very important to highlight is that we have a new arrangement in place for automatic index-linked fare adjustments agreed for the future. So that is also a good protection going forward. And it is important to say that as we have done those price increases, we do still see a strong commercial packs, which is 15%, growth 8% when normalized for a strike versus last year. In respect to the agreement, the Hans partnership with the transport for West Midland, the current restrictions of the Hans partnership expired January 1. So that means that the U.K. bus will have options available to it potentially including fares and also network management. And all the government initiatives in terms of the 2 pound cap were part of it, and it is included into our numbers.

Can I talk about the long-term guidance?

Yes.

So we remain on track for the same long-term guidance. So there's no change there either to profit or to the gearing targets that we have going into '26 and '27. We're making good progress, as Ignacio talked about on various initiatives. We do have some initial initiatives, which we'll come on and talk about. And as we mentioned in the presentation, around cash conservation and paying down debt. But at this -- and we are targeting a higher amount than that. But at this stage, we have haven't changed our guidance going forward.

Our next question is from Anton Proutorov from Citigroup.

Probably two for Helen. The first one on the cost initiatives and cash improvement GBP 25 million impact this year. Can you just maybe elaborate a little bit how you managed to achieve those cash improvements? And what are the moving parts there? And second question is on the CapEx. Again, if you can give some color on the CapEx for the rest of the year and maybe more broadly on a normalized basis in future years, how should we think about your CapEx in the new ossified model?

Sure. That's fine. So let's talk, first of all, about the cash improvement. So we are targeting a higher number than GBP 25 million this year, but GBP 25 million is ultimately our target, to make sure that we deliver that. This year, it will be a mixture of run rates and also some one-offs. We launched the initiatives in early June. And actually, by the end of June for the half year, we already included or at least achieved a GBP 4 million improvement in terms of cash. The idea is various initiatives across the business where we can serve cash and use that to delever organically together with the deleverage we hope will come from North America school bus sale. Now it's a mixture of initiatives. When I talk about one-offs, that might be cash collections, which are long-standing, for example, or sale of very small assets or equipment but we're also then looking at efficiency on working capital, efficiency in purchasing CapEx and so it's a range of initiatives really. The key thing is that we have the engagement of the whole organization. We meet and talk about it weekly. We're really managing it closely. And as I said before, we're focusing on overshooting. As we go into next year, it's really key that this is a long-term structural change. And therefore, we're targeting GBP 50 million, again, hoping to overshoot that, but in order to make sure we deliver the GBP 50 million and by the end of next year, we expect that to be on a run rate basis in terms of our cash. If I come on to the second question in terms of covenants. So we want to improve on our gearing -- our covenant gearing by the end of this year. We hope to improve -- we will improve versus the 3x. We probably won't be more specific than that. We have a number of moving parts. And it's probably also fair to say that with the impending potential sale of School Bus, that will affect some of the calculations, but we remain on guidance for those covenants. And longer term, we continue to hope to delever and that's, again, on an organic basis, quite apart from selling North America School Bus. So no formal change to the guidance, but we're very focused on deleverage, and we'll be creating as much headroom as possible. It's probably also worth saying that we intend to retain the hybrid debt instrument. And therefore, that gives us the flexibility that we need, although longer term, we'll look at the cost of debt and of course, the covenant measures that accompany that.

[Operator Instructions] Our next question is from Othmane Bricha from Bank of America Merrill Lynch.

I just want to follow up on the earlier question on CapEx. How should we think about H2 and a normalized basis? And my second question would be on the North America School Bus business is how should we think about the level of sales for this next season?

So just responding on the CapEx. So you'll see that we had higher levels of CapEx in the first half this year. And that's growth CapEx in particular and relates to the very successful bid season, which Ignacio will talk to you about shortly for North America. So GBP 32 million of that relates broadly to North America School Bus. The other piece is that we also have the CanaryBus acquisition in the first half, which is included. I think the key thing to think about is we will have broadly the same level of growth in maintenance CapEx in the second half. We are continuing to invest for growth. We're very focused on how we're spending that CapEx. So our approach now is also to look at those contract opportunities, and we're selecting from a very solid pipeline, the optimal contracts where we have the best profitability opportunities and really focusing on how we make that CapEx work hard, we're also looking at asset-light opportunities in some of our divisions. So overall, I think the way you should think about it is we continue to invest from a growth and maintenance point of view, we're making sure it works harder, and you can see that on our returning capital employed of 7.6%, which you can see in the figures.

Regarding the School Bus, I'm really pleased. I have to say with the impact of the new management team who has a real grip on the business on the operations and on the growth. It is as School Bus as you have seen, is recovering strongly and delivering a very strong startup. We had a record one last school year, and we are well set for another school, a very strong start-up and bid season was a very good one. For the first time in a decade, we had positive route growth, which combined with the secured price increases that we have mentioned, which has been 10.2% for expiring contracts. I think 6% overall will make -- boost the revenue growth. Again, in terms of the driver shortages, we don't expect any significant shortage. It was a great job done by the team, we recruited 21% more drivers than the previous year in this half -- first half. And so as I say, very strong recovery and all set for another very good and robust school year start-up.

And another question on ALSA long haul. Can you talk a bit about this sustainable mobility law in Spain, what it is? And what would be the potential impact on your revenue from 2026 onwards?

Yes, the Sustainable Mobility Act or law, it is basically the review from the government to review the remapping of the concessions of the -- for long haul. At this moment in time, it's a parliamentary process. It is good because this provides a legal framework uncertainty to this transitory stage because as you will know, some of -- most of those concessions are expired. So the -- basically, what the government is doing and the ministry is reviewing what should be in the map, what should be taken by the central government, what should go to the general governments. And in that also is how is this going to be funded is very clear what the ministry will fund, then they need to agree on the funding for the regions. So that's where we are. Then obviously, once you get to that point, and this is -- the act is approved, then you need to work on the concessional map. And then, obviously, you have the next steps, which will be drafting the tendering document, going out to the tender and conclude the tender, award the tenders and then have a mobilization period, which we expect to be faced. Too early to understand because until we don't know the concessional map, but ALSA has a very -- is a best-in-class service provider, which -- and I would say that we have been absolutely diversifying the revenue streams and from a very high percentage of our revenue, it's around 17% of our revenue these days. and we continue with the strategy to diversify those business for when the time comes early '27 that we're well prepared and -- to maintain our profitability as a business.

And one more. Can you quantify the M&A impact of CanaryBus acquisition on your first half revenue results?

Yes. I mean what I will say is that CanaryBus has absolutely met the case. It slightly exceeded the buy case and we've been able to deliver both the revenue and also the EBIT. I need to come back to you on the specifics. So perhaps we come back to that a little later.

Our next question comes from Alex Paterson at Peel Hunt.

Yes. Well done on the first half, the ALSA team in particular. I've got questions in three areas. So if I just give them to you. I just -- on the U.K., the first area, would you be able to talk a little bit about driver inflation, so increasing sort of wage costs for them, what we should expect, what the outlook is for rail replacement in the second half. And kind of if we look at that U.K. business, although you have grown your revenue, actually the losses increased. And so how should we think about that in the second half, NXTS is getting to profitability. Now are you going to be able to materially improve them, should we think about getting to breakeven in that whole business -- in the whole area in the second half? Can you say a bit more about that? Secondly, just on the CapEx cash savings. Forgive me, but is this a sort of a timing difference? Is this you're not replacing fleet? Or are you getting better pricing? And on the asset-light options, is that focusing on growing in different areas like, for instance, WeDriveU or is it greater use of something like Zenobe's offering? And then finally, on the hybrid, please, could you remind me on your flexibility for redeeming that after the first call date? Can you do it sort of any date or are there specific dates that you have to redeem it on?

Great. The first one was on the U.K. And we have stated in the presentation, we have identifiable upside in the H2, basically coming from price increases and the already in motion and execution cost savings actions. Do you want to take us through, Helen, maybe some of the details around U.K.?

Yes, sure. So in terms of balance of the year, first thing I would say is that in the first half, what you can't see is the impact of the rail strike. So we are GBP 7 million lower in the first half in terms of the profit that we've received for rail strikes year-on-year. And so therefore, what that obscures is our losses in the first half are actually GBP 5 million lower. So we've got an improvement, let's say, in the first half, which is hidden. We then, in the second half, have the impact of the price increases coming through, both in '23 and also in June this year, which they're coming through well. The cost savings, the passenger customer demand that we're managing and also the benefits of Accelerate. So all of those mean that in the full year for the U.K., we expect to move into profitability certainly for the business as a whole and we will continue to see the benefits of that as we go into the full year next year. So we're on a good track. We are meeting expectations for the U.K. It's not without risk, but we're managing that risk well and we see that all the actions are being taken that need to happen in order to recover -- achieve recovery in the U.K. business. So I think we're on a good track, and we should feel more confident looking into the future.

I would add to that, the NXTS, as you know, that we have incurred loss last year and we committed that we were going to turn around that business and we are well on track on that. We're on current on that turnaround and the losses of '23 on a run rate basis by the end of '24.

Should I comment on CapEx?

Yes.

So you asked a question about CapEx and are we getting efficiencies on CapEx potentially because we're spending less or through Zenobe and so on. I think the key thing is we talk about asset light. Yes, we are talking about WeDriveU, for example. So we do have asset-light contracts where we still deliver a very good return. So we are talking in absolute terms in terms of CapEx, regardless of how it's financed, that's how we think about it. I think the second part of your question, which you mentioned first, yes, of course, we do try and get the best deals in terms of how we are buying our vehicles and our infrastructure. We do try and negotiate hard, and we've got a very strong procurement. We hold themselves to account to deliver year-on-year benefits, but we're also thinking we cascade vehicles. So for example, when we think about vehicle allocation, do we have vehicles in the business that we can deploy elsewhere, which means we don't need to buy new vehicles. Some contracts require new vehicles or certainly renewal periods, which we respect, of course, but not in all cases. So it's really about maximizing the utilization of the assets that we have and that we purchase as well as buying efficiencies regardless of how we finance it.

Do you want to talk over the hybrid?

Yes. And on hybrid, I'll come back to you on specific dates. But at the moment, we don't intend to redeem the hybrid, it's an important part of our debt structure going forward. I think it offers us very important flexibility. We have priced in the step-up in the interest charge within our forward-looking cash forecast. So we -- that easily gives us the headroom that we need from a liquidity point of view, in particular, and obviously, it's not part of our covenant calculation. So it is a part of our debt structure, we intend to retain going forward. We'll always, of course, consider that debt stack and we will continue to review, but we have no intentions to redeem at the moment. If you would still like the dates, and I will come back to you on that as a follow-up.

Yes. The first non-call date is November 25.

Yes. So I think what I meant was if from November 25, can you redeem it on any date you like? Or are there -- is it like an annual thing or whatever. Forgive me, I can't remember. I just wondered that so.

Yes. No, no problem. We'll check and we'll come back to you.

Our next question is from Jack Cummings of Berenberg.

Three, please. Just firstly, you saw some margin expansion in the North America division. Could you give any color on the difference in margins between School Bus and WeDriveU? Secondly, on ALSA, the margin in H1 was pretty strong. Is this margin sustainable looking ahead? And should we expect to see margin expansion in H2 on H1 as is normally the case in the division? And then just finally, on the conversion rate of bids, it reached 25% where do you think this could get to? How much upside is there and it's been steadily increasing over the past 18 months. Why and how are you winning more business today versus, say, a year ago?

Super. Regarding North America, yes, we have both School Bus and WeDriveU. As you know, we have combined under one name. WeDriveU transit and shuttle and I'm absolutely pleased and delighted and excited with that top line growth that we're having. And we -- I mean, part of the -- if you look at the new business that we have announced today, 9 of those contracts and GBP 67 million were coming from WeDriveU and it is important to mention that, for example, the very exciting thing is that it is for the first time as a company that we grow organically in transit. So this is very, very good. In terms of margin, of course, you can expect the margins to be around 7%, 8% in the combined WeDriveU business given the asset-light nature of that business. and School Bus, we still need to go through a complete school year. But given the asset intensity of that business, you expect a higher margins in those business and around 10%. On ALSA, it is true, obviously, that with the strong growth and the boost this year coming from the renewal of the young-summer and the multi-voucher. Obviously, this has an impact on the margins. But as I said before, ALSA is a best-in-class business run by a very experienced management, and we do expect to maintain the double-digit margin that we have traditionally have. And then on conversion rate, yes, 25%, we think is very healthy. We are -- we continue to be as disciplined as we have been, but we have reinforced the challenge that we put and how selective we are with the new opportunities. If you see, we have been ranging from 25% to 28% conversion rate, and we want to keep that conversion rate, and we are always eager to improve on that. What I would say is out of the GBP 2.2 billion of pipeline that we have, we consider pipeline 18 months period on the tenders that are coming out. Basically, more than half of it is organic growth, of which most part of it, GBP 900 million is asset-light opportunity. So that really encourages us with or credentials with our track record with -- that we can keep those conversions, and we can keep those profitable growth and contract coming in. And as a reminder, as I said, we -- the new business that we have brought on board has 11% average margin and 30% return on capital employed, which is very important and significant.

If I may just come back on the CanaryBus question, a few questions ago. So yes, as I said, we're delivering on the business case. We are slightly ahead. You asked the statistics on those, which I believe we've released previously. So our annual revenue for 2024 was GBP 63 million, EUR 73.8 million, and our annual EBIT will be GBP 9.1 million or EUR 10.7 million and we are slightly -- just very slightly ahead of that business case. I think the other thing that's very important is just the integration of the business, how it's being led and managed. So that's all very positive. And I think it's going extremely well and the team and ALSA are doing a very good job there.

And this is very important to note because clearly, ALSA has a very good track record but a very clear playbook on how the acquisition, how they are done, how they're integrated very quickly and how to extract synergies very quickly. So all the acquisitions that we have been doing in the last 2 years are really accretive from the first year.

We have a follow-up question from Anton Proutorov from Citigroup.

Yes. My question has been asked.

We'll move on to the next question, which is a follow-up from Ruairi Cullinane, RBC.

Just a quick question. Please, can you talk us through the decline in provisions on the balance sheet in H1?

I probably need to come back to you on that actually in terms of talking to the detail of the decline in provisions. We know we've got the natural unwinding of the previous provision taken against Germany. And we know that we have some other smaller items, but I probably need to come back to you with that level of detail.

[Operator Instructions] There are no further questions on the call, so I will hand back to Ignacio to wrap up.

Well, thank you again, everybody, for taking the time to join us and for your questions. If you do have any further questions over the next few days, please do get in touch, and we look forward to seeing you all again in a few months. So goodbye.

Thank you very much.

Thank you.