Mobico Group Plc (NXPGF) Q3 FY2025 Earnings Call Transcript & Summary

Good morning, everyone. Welcome to our Q3 2025 trading update. I'm Phil White. I'm joined today by Brian Egan. As you can see from the announcement this morning, group revenue year-to-date has increased by over 5% versus the prior year, and we're on track to deliver on full year operating profit guidance but towards the lower end of the GBP 180 million to GBP 195 million range. As you expect, ALSA is again performing strongly with 4% growth against a very strong quarter last year. At WeDriveU, we are working very hard to minimize our losses on the WMATA contract. The client has reduced volumes further post the quarter end, and we expect losses on the contract to continue, albeit at a lower level until both parties come to a solution. In the U.K., we have 2 businesses, as you know, Coach and Bus. In terms of Coach, revenue declined by over 7%. It's a result of a couple of things really. We've exited our loss-making entities in our Transport Solutions private hire business in H1, where we lost reducing -- sorry, resulting in reduced revenue of about GBP 6 million. Passenger numbers on our National Express Coaches have held up despite increased competition. However, yields are down. We have since disposed of the remaining loss-making businesses in Transport Solutions, including Clarks of London and Kings Ferry. At U.K. Bus, commercial revenue and passenger numbers have declined by nearly 4% amid lower consumer confidence more broadly across the U.K. Bus market. And we're still in discussions with Transport for the West Midlands regarding the transition to franchising from 2027. In Germany, Germany has seen strong revenue growth for the quarter, but there's still underlying issues with the business, and they're still there. Again, we are continuing discussions with the 5 PTAs about the viability of our 3 contracts, but we remain confident of an outcome that suits all parties, but I can't say any more at the moment. As far as the hybrid is concerned, as per today's announcement, we have decided not to exercise our voluntary option to redeem the perpetual bond or hybrid as we call it. We now view this as an equity instrument and an important part of our capital structure. The coupon will be reset in February with the first payment of the new rate due in February 2027. We have good news on our auditors, which is a strange thing to have to say, but we've long last concluded the process of appointing a Big 4 auditor, KPMG, following the announcement of resignation by Deloitte in April this year. As a result of this change, which was very late, our year-end will move from December 31 to March 31, which gives KPMG the time to understand our business before they conduct their first full year audit in March. And lastly, we plan to publish 12-month accounts, which will be unaudited as at 31st of December 2025. Thank you, and open to questions, guys.

Thank you, Phil. Our first question comes from Alex Paterson with Peel Hunt. What progress are you making on margins and achieving the GBP 180 million to GBP 195 million adjusted operating profit and your covenant gearing of circa 2.5x.

Okay. Thank you very much, Alex. So first of all, in terms of guidance, we've guided that we will be in the range of GBP 180 million to GBP 195 million, which is the forecast guidance we started the year out with. However, it will be at the lower end of that range. In terms of covenant gearing, because we're at the lower end of the range, the covenant gearing at the end of December is likely to be a little bit higher than the 2.5x. So it's probably somewhere 2.6x, 2.7x. In terms of cost takeout, we have had significant cost takeout. We are working hard now with [indiscernible] to work with us. We are making a very good progress to take out cost. A lot of it will be taken out this year, more going into next year. And this will help to take pressure off any challenges we have in terms of our margins and also to make sure that going forward that we have a stronger EBITDA.

Thank you, Brian. A follow-up question from Alex. How do you plan to monetize the U.K. Bus assets? Is there any time frame for disposals and indications of values that you can share with us?

At the moment, we're still talking to Transport in the West Midlands on this. Our intention and our hope is to monetize the U.K. Bus assets before franchising, but I can't say any more at the moment because we're still in discussions.

Thank you, Phil. And one final question from Alex on our credit rating. Fitch has just downgraded your credit rating and retained a negative watch. So what impact will this have on your financing costs and ability to refinance in the future?

I think it's going to have very little impact. I mean the reality is that the Fitch rating has placed us 2 notches above Moody's. So I mean I think that in itself sort of gives a little bit of an indication of the progress that we're making. But in terms of the impact on our financing, I think at the moment, it doesn't really have much impact, except hopefully give you a little bit more confidence that we're on the right path.

A question from Prithvi Vetsa of Bank of America. On the German rail settlement, why is it taking so long to reach an agreement? And can you give us some color on the discussions there?

I'll take that one. In the U.K. -- on the U.K. Bus, we're dealing with one PTA. And dealing with PTAs will do a very different but difficult job to us with a different decision process. In Germany, we're discussing the future with 5 PTAs. So you can understand the process is much lower. And it's not an easy process, and it's taking some time. But again, that is all I can say at the moment.

And a sort of follow-up on that from Prithvi. Is there a parent company guarantee that is making it difficult to exit the contracts?

So the answer is that there is a parent guarantee, but that really isn't central to the discussions.

Thank you, Brian. Again, a question from Prithvi. Switching over to the hybrids. Do we intend to pay the coupons next year?

So you'll see in the announcement that we have decided that we will not be repaying the hybrid loans. However, we still have to make a decision on the coupon that will be made in advance of the deadline which is February. So we'll make an announcement on that closer to the date.

Final question from Prithvi. Switching over to the U.S. Has there been any progress in improving the margins with the Washington contract?

We've certainly done a lot of work on the operational side of the business. We have made quite a bit of improvement over our costs and also the level of losses that we were making in the first half. Those losses have been reduced quite considerably, but they're expected to continue for a while yet.

So maybe just to give a number. I mean, we were losing over 1 million a month. We're now losing about 750,000 a month, and that's with the reduced volumes. So there is an improvement, albeit that we continue to lose money at the contract.

Thanks, Brian. Two questions from Berenberg, Jack Cummings. What drove the ALSA revenue slowdown? Was it primarily the tough comparative period?

Jack, we still got strong growth in ALSA, and it's nearly 5%. It's just that the comparable period last year, there was massive growth, I think, nearly 20%, which resulted from the free multi-voucher scheme on long-haul travel. So the results are a bit distorted, but we're still happy with the growth we're achieving in ALSA.

And Jack's second question, could you quantify the extent of cost savings you expect to achieve as part of the large-scale cost reduction program?

So I mean we haven't given a number out at the moment. We're still working on this with [indiscernible] but it is going to be a very sizable cost saving. Right across the company head office all of the divisions, it would be the tens of millions, but we haven't got a number that we can disclose it...

One of the questions was, can you clarify the change in the financial year? And when will the audit accounts be published?

Okay. So we've appointed KPMG as our new auditors. Because it is so late in the year, it is impossible for them to resource at 31st of December audit. So the year-end has been moved to the 31st of March in order to facilitate that. However, we will be still publishing unaudited accounts at the 31st of December. I'm sorry, I should say, and the objective -- the intention is that we will publish the December accounts towards the end of February.

Are we aiming for July...

We have to confirm a date for that. So the end of July -- end of June, early July.

And then another one is, is management expecting to transition towards full quarterly reports rather than just trading updates?

We will continue doing the half yearly and don't have trading updates...

We have a question from [ Wolfgang Felix ]. Congratulations on your new auditor. What is your outlook now for the WeDriveU for the next 12 months?

So we'll give guidance at the -- after the year-end and in the next announcement, we'll give guidance for 2026. That's okay.

And we don't -- we haven't published any forward-looking guidance at this point, but should we model modest revenue growth in 2026 for the entire business if we're able to...

I think that's -- I think we can say yes to that. So just on the German [ Prithvi ], -- Phil already said, it's very hard for us to say at the moment. We are in intensive discussions with the German PTAs. And as soon as we're in a position to do so, we will make an announcement.

I think we've answered most questions. Yes, absolutely. On the press release, there is the IR e-mail address. So please do follow up with any questions by e-mail.

Thanks, guys, for joining in. I appreciate all the interest you've got in us. And as we've said, if there's any more questions, please don't hesitate to get all of us through either IR or through Brian, in particular, and I'm sure it will help you with all the issues you've got. Thank you very much. Bye.