Earnings Call: H1 2021

Jul 29, 2021

[SPEAKER JOSE RAFAEL FERNANDEZ:] Good morning, everyone, and welcome to our 2021 half year results presentations. 1st and foremost, my heartfelt thank you to our 50,000 employees for their outstanding ongoing efforts in what continues to be challenging circumstances. I would also like to thank our customers for their ongoing support. I'm going to walk you through the highlights for the first half before handing over to Chris, who will talk you through the financials. I will then come back to talk to you about rebounding from the pandemic and the exciting growth ahead of us. So to the highlights, it goes without saying that our main priority has been to reopen in a safe way for our employees and for our customers. In a few slides' time, I will show you what I mean. I'm really pleased to say that our first half results are slightly ahead of our expectations and even more pleased to see that we have returned to profit. We have made significant improvements in revenue, EBITDA and cash generation. And we are seeing good progress on the big deltas I outlined in March. What is also very pleasing is a continuing trend of improving month on month performance despite ongoing COVID related restrictions in each of our markets, and we have delivered EBITDA €30,000,000 higher than in the second half of twenty twenty. We also continue to see significant opportunity in all markets and pleasantly, we have continued to win new contracts and have expanded existing contracts during the first half. Each of our divisions has a strong and active pipeline in terms of bidding or acquisitions. I'll now hand over to Chris, who will talk you through the financials. Thank you, Matthew. Let me start with a brief summary. In a period that continued to be shaped by mobility restrictions, we delivered revenue of £992,000,000 down 3.8% year on year. On a constant currency basis, however, revenue increased by 1% with a decline of 27% in the Q1 as we cycled the pre pandemic period in 2020, followed by a strong increase of 57% in the 2nd quarter. Pleasingly and despite ongoing restrictions, the group has returned to profitability, recording an underlying operating profit for the period £23,000,000 The £54,000,000 year on year improvement in profit despite lower revenue reflects, amongst other things, the benefits of the £100,000,000 cost reduction program announced last year. The 45% increase in EBITDA to £128,000,000 drove free cash flow of £41,000,000 for the year on year improvement of €234,000,000 Net debt of €1,000,000,000 is £318,000,000 less than a year ago, driven by the refinancing actions taken in the second half of twenty twenty. The increase since the 31st December is driven by growth capital expenditure relating to the contracts won last year in Morocco and North American School Bus. And so to round off, at a statutory level, the group posted a loss after tax for the 6 months of £24,000,000 £67,000,000 ahead of last year. Now this chart shows how we have steadily rebuilt service and revenue since the start of the pandemic. To recap, pre pandemic, we were performing very strongly, with revenue up 17% in January February of 2020. During the extensive first lockdown, passenger numbers declined by nearly 80% was revenue around 50% of pre pandemic levels. Through the initial recovery period of July to September of 2020, revenue was running at around 65% of pre pandemic levels. And then despite restrictions being reimposed from October 2020 through May 2021, throughout that period, We generated revenue of around 70% of pre pandemic levels with a rising trend throughout. And that trend has continued as restrictions were lifted with June revenue about 85% of pre pandemic levels. The service evolution chart shows how we've responded to the mobility restrictions in different areas of our business. You will see the bus businesses in both the U. K. And AUSA rebuilt quickly. In the U. K, passenger numbers are back to around 70% of pre pandemic levels, ahead of the industry average. And we are seeing similar levels in both Spain and Morocco. Our North American school bus services rebuilt to around 80% of normal levels by the end of 2020 before growing steadily through 2021, finishing the school year was around 96% of schools back to either full time or hybrid teaching. Transit services have gradually increased such that we are currently operating around 80% of pre COVID levels and rising. You can see clearly the impact on our Coach businesses, in particular in the U. K, where the imposition of mobility restrictions coupled with social distancing forced us to shut the network completely for 11 weeks during the period. In both the U. K. And Spain, we are now seeing intercity demand come back strongly as restrictions have been lifted. In Spain, we've increased the level of service to around 55%, carrying around 45% of passengers. And in the U. K, service is at around 37%, with passengers at 33% of pre pandemic levels. Now this chart shows a similar picture for EBITDA. And as you can see, the group has accelerated the rate of EBITDA growth, recording GBP 128 GBP 1,000,000 in the period. Or put another way, around 70% of the entire EBITDA delivered across 2020, despite continuing restrictions throughout the period. EBITDA growth is clearly concentrated on the 2nd quarter, given the strength of the Q1 of 2020 before restrictions were enacted. Year on year, 2nd quarter EBITDA is up by £66,000,000 to £85,000,000 And I'll now talk to performance by division. The performance of both North America and ALSA improved strongly through the period, whilst the UK performed broadly in line with the prior period, reflecting the continued restrictions impacting our Coach business. Alsa revenue grew by 8.4% to €331,000,000 driven by growth in our urban and regional businesses in Spain and strong growth in Morocco with the ongoing mobilization of Casablanca and record passenger numbers in Tangiers. Underlying operating profit of €20,000,000 represents a €28,000,000 improvement versus the same period last year and is also well ahead of the profit delivered in the second half of twenty twenty. North American revenue declined by 3.7% to £628,000,000 principally as a result of the exit of loss making contracts. Operating profit of $58,000,000 represents a year on year improvement of $47,000,000 as well as being comfortably ahead of the profit delivered in the second half of twenty twenty. And we delivered a profit margin of 9.2%. That is well on the way back to pre COVID levels. In the UK, The bus business made a small profit as the CVSSG grant payments offset the cost of running a full service under social distancing restrictions. The Coach business received no such support, resulting in an operating loss driven by restricted mobility and restricted occupancy levels. UK revenue declined by 9% in the period to £173,000,000 reflecting the temporary mothballing of our coach operations for the Q1 of this year and significantly reduced services in the Q2. Now revenue is now starting to rebuild and thank you. Meanwhile, our bus business has seen strong revenue growth through the period, reflecting the high service levels where we have been operating at around 102% pre COVID levels. So while the UK business delivered an operating loss in the period, this was at a much reduced level compared to the second half for 2020. This chart shows the drivers of year on year increases in underlying profit. Now this is as much art as science as it's not straightforward to break these effects apart, but this is directionally correct. The first impact is increased levels of government support received in the period. And I calculate this net of the cost of additional service we would otherwise not have run to have been £24,000,000 The second impact is the reduction in revenue of £48,000,000 net of an estimated €34,000,000 of variable costs saved as a consequence. Finally and importantly, The balance is driven by GBP 44,000,000 of permanent cost reduction from the GBP 100,000,000 program we launched last year. I'll now turn to cash flow. As I said earlier, we generated EBITDA of GBP 128,000,000 a year on year improvement of GBP 40,000,000. Working capital was of £40,000,000 Working capital was broadly flat in the period. Cash collection remained strong, but that mix of revenue away from cash upfront passenger revenue to subsidies and compensation paid in arrears continued during the period. Maintenance capital investment of £57,000,000 was around half the level of the prior period, reflecting the actions taken in 2020 to reduce capital additions. Net interest paid decreased by £10,000,000 to around £18,000,000 reflecting some double carry in 2020, along with the interest savings from lower borrowings this year. And the net impact of all those factors was a return to positive free cash flow with £41,000,000 delivered in the period. Growth capital expenditure of £75,000,000 is predominantly the cash flows for the 2020 additions of buses in Casablanca and the new school bus contracts in North America. The £47,000,000 of acquisition shown here includes £23,000,000 for and we drive you. A cash outflow of €34,000,000 was recorded in respect of for items excluded from underlying results, which I'll cover on the next slide. And as I previously guided, in light of the exceptional circumstances and the conditions attaching to our amended covenants, the group will not be paying an interim dividend. Other cash flows of GBP 58,000,000 predominantly reflect the movement in exchange rates and the settlement of foreign exchange derivatives. So together, these factors drove net funds outflow for the period of GBP 63,000,000 resulting in net debt of around GBP 1,000,000,000 So let me give you a little more detail on those separately disclosed items. Firstly, and consistent with all prior years is £19,000,000 of amortization of acquired intangibles. The remainder then are either directly or indirectly driven by dealing with the pandemic. GBP 19,000,000 of this relates directly and includes £13,000,000 of non cash impairments, £5,000,000 of incremental health and safety costs and compensation payments to 3rd party operators and a further £1,000,000 in reversing over hedged fuel trades. In addition, £10,000,000 of restructuring costs were incurred in respect to the final stages of that £100,000,000 cost reduction program, which as I said earlier, we are already reaping the benefits from and there is more to come. We remain committed to an investment grade credit rating and both Moody's and Fitch have recently reaffirmed our ratings. Despite our expectations for ongoing improvement in the second half, given the ongoing uncertainties around the pandemic, we took the prudent step for further renegotiating our covenants. The gearing covenant has been amended to 5 times for June 2022, giving plenty of headroom. As of the 30th June 2021, gearing had fallen to 4.4 times and interest cover increased to 4.1 times, I. E. Inside the pre amendment threshold. We remain committed to returning gearing to between 1.5x and 2x EBITDA once activity levels normalize. During the first half of twenty twenty one, as planned, we allowed the short term that were put in place at the start of the pandemic, including the CCFF, to lapse and did not refinance them given the ample liquidity headroom. So as at the 30th June 2021, the group had GBP 1,900,000,000 of capital and committed facilities with an average maturity of 5 years. The group had a total of GBP 1,000,000,000 in cash and undrawn committed facilities available. And we have no material refinancing requirements before 2023. Now the positive impact of high vaccination rates in the countries in which we operate is visible in improved mobility. And as I've outlined today, we are starting to see this to our financial results. That said, I'm afraid that I'm not yet able to reinstate guidance as there is still too much uncertainty, making it impossible to accurately forecast financial performance. However, we have again laid out detailed scenario modeling in our going concern analysis that might help manage expectations. Our base case scenario assumes that there will be a steady recovery in the second half, so that by December 2021, constant currency revenue recovers to levels similar to December 2019. Now under that scenario, we expect strong positive free cash flow in 2021, driven by continued sequential growth in EBITDA. In summary, we are pleased with our first half performance and our prospects remain strong. And I'm going to hand you back to Ignacio to hear more about that. Thanks, Chris. In a few moments, I'll talk a bit about the long term vision for the group. But one thing I'm not going to change is safety being our number one priority. This chart shows risk scores, an independently validated basket of safety outcomes and compares our performance to a number of other transport companies, including our biggest U. S. Competitors. As we have increased or services in recent months, we have maintained our unrelenting focus on safety. As you can see, each of our businesses have reduced the risk score further and across the group as a whole, this is 76% lower than the industry average. As well as saving lives, it helps to drive and strengthen our relationships with our customers who see us as a trusted partner. And it impacts the bottom line in lower claims cost and insurance premiums. Before I move on to the longer term vision, Let's take a closer look at what we have achieved in the first half. I'm really pleased with the collective sense of urgency we are developing as a group. In Alta, we have mobilized Robarts and Casablanca, and the major restructuring program to reduce central cost is about 80% complete. And that has contributed to a return to revenue growth and to profit. Looking ahead, we see plenty of reasons for optimism. Will continue to consolidate our growing position in both the urban and regional bus market. We are also looking at the number of attractive contenders in cities outside of Spain, in countries such as Portugal, where we have already been awarded contracts in Lisbon and Porto, and also in Italy, France, Chile and Dubai. Turning to North America, it's really encouraging to see By the end of the school year, 96% of the schools were back and we believe this bodes well for the start of the new school year. In transit, we achieved significant price increases on a number of contracts that we previously earmarked as potential assets and whilst revenue is lower as a result of the exiting unprofitable contracts, this has already delivered a significant improvement in profitability. And we are making progress on our Driving Excellence program. Looking forward, again, I see many reasons for optimism. We expect to see much larger than normal school bus bid season in the coming year, and we're getting ready for it right now. We see good bidding opportunities in shuttle and transit, where there are some attractive part transit contracts coming up for a bit later this year. And finally, in the U. K, we have seen an increase in service and occupancy in both our bus and coach businesses. We have completed the network redesign in our coach operations. Our bus business has record passenger numbers to around 70% of pre COVID levels, well ahead of the industry average. And we have integrated nets and needs. Looking ahead, We see significant growth opportunities through the consolidation of the fragmented market in which both NIT and NET operate in. And there are also many opportunities to grow our bus operation in other regions, with the likes of Manchester likely to refranchise its bus operations. Finally, we're also making solid progress in transitioning our bus fleet to 0 emissions. We are a purpose driven organization. Our vision and purpose guide us in all we do. Our vision is to be the world's premier mass transit operator with services offering leading safety, reliability and environmental standards that customers trust and value, and this has never resonated more. It's an exciting time to be in public transport. The desire for long term improvements for the environment is now a must have. The last 18 months have been significant in that respect with cities, governments and corporations all looking for tangible gains. No longer is this being reflected only in words, but in actions too. It's clear that the biggest impact we can have is to drive model shifts to public transport. But as a leader, we can amplify this by decarbonizing our already clean fleet at pace. On this slide, you can see the list of funds available in each of our markets, not least of which is the funding available through the National Bus Strategy in the U. K, where the government is providing funding for at least 4000 emission buses. Working in partnership with the Transport for West Midland, We have already secured funding for 170 electric buses for Coventry, the 1st electric bus city, and we are working again with Transport Port West Midlands to bid for funding for around 200 hydrogen buses. And it's clear from the quote from Andy Street, the West Midland Mayor, that we're seen as a quality operator and trusted partner with the ambition and ability to deliver on the challenges presented by climate change and congested cities through delivering green, safe and reliable transport. There's a clear opportunity to expand our services in our existing markets. The chart on this slide shows where we are currently on where we aim to be by 2,030. In addition, we already operate in 50 cities and we have identified a further 150 cities that match our returns criteria that are close to our existing locations and where we can be the partner of choice for improving mass transport systems. What I want to make clear is that there are plenty of opportunities in or close to our existing markets to go after. Our business review is nearing completion and I will provide further details when we speak to you at the Capital Markets Day in the autumn. As a trusted partner, to our customers, we provide 5 key solutions that drive demand for our services. 1st, reinvigorating public transport, as we have done in places like to West Midlands, Bilbao in Spain, Rabatamaca Blanca in Morocco. 2nd, building multimodal solutions, building a wider portfolio of services from an initial foothold. Madrid is a good example. 3rd, delivering operational transformation. For example, in the first half, we have rolled out the new digital integrated optimization platform, or GEOOP, in North America, which is automating and optimizing many processes such as the daily scheduling and dispatch, the driver attendance records, driving efficiencies and improving services for our customers. 4th, filling the transit gap, providing solutions where public transport cannot reach or fast growing employee shuttle, if business, is the best example. Compounding and consolidating. We professionalize and bring scale through the consolidation of fragmented markets, as you have seen in a school bus, where transport solutions and accessible transport are targets here. So far, I have talked to you about where we participate and what we offer. However, the how we operate is just as important. We are developing a high performance culture where there is a sense of urgency to drive tangible improvements across the business. During the period, we have rapidly rolled out a new quality management framework where we are looking to drive continuous improvements across the business. Training programs are being rolled out across all employees, and we are really encouraged by the enthusiastic response. We're increasingly leveraging digital solutions to unlock operational efficiencies and growth. As I mentioned in the last slide, we're rolling out the job in our school bus operations in North America. And we are clear about what outcomes we are looking to achieve, to be the safest, most reliable, green as operator with the most satisfied customers and to be the employer of choice. All of these outcomes helped to drive sustainable growth. I wanted to show you a slide which shows just how much progress we are making with our Driving Excellence program. Key to driving on time performance is Guard departure performance. We have increased focus here as part of our driving excellence and the chart shows to performance increasing from 50% to 90% over the period. In turn, this drives on time performance, which is now at record levels and has been consistently over 95% during the latest fiscal year. And what that means is that by having a relentless focus on operations, We have reduced liquidated damages or performance penalties by 78%. To give you a sense of what this is worth, In 2019, we incurred $8,000,000 of penalties, so 78% is a big saving. And through delivering a better operational performance for our customers, we are strengthening our customer relationships and seeing a higher level of highly satisfied customers, up 11 percentage points to 66%, the highest all time performance. Highly satisfied customers are more likely to renew their contracts and with higher than average margins. So all of this makes good financial sense as well. We'll go through this in more detail at our Capital Markets Day, but our priorities are clear. First, we have to ensure we stabilize the business to restore service, occupancy, revenue, profit and cash to pandemic levels. This is progressing well. To support this, we will continue to embed our quality management framework and processes across the business. I have made changes at the top of our HR function to enable a sharper focus on building the capabilities we need. I call it organizing to win. And our balance sheet is improving and we recognize the need to reinstate the dividend at the appropriate time, whilst we are also focused on reducing gearing to 1.5 times to 2 times. As the business stabilization progresses, we will place increasing focus on growth agenda. We are starting this in parallel as we promised last year. We look to broaden and deepen penetration within our existing markets and we'll invest to expand either through bidding or through acquisition into more of the key cities we have identified. We will establish new availability models to help us accelerate our transition to 0 emissions vehicles without stressing the balance sheet. I see no reason why this business should not return to the profitable growth trajectory it enjoyed in the 5 years to 2019. To be clear, this is a growth company. In summary, our first half has exceeded my expectations and I expect improving positive trajectory to continue into the second half. I remain committed to the sustainable and profitable growth of the group and I'm optimistic about the significant growth opportunities in all our 4 divisions. Demographics are in our favor, legislation is in our favor and we can provide the solutions to the problems of the 21st century. And we are uniquely positioned as the only truly diversified international public transport company. It's been a busy few months, but we are emerging with a clear vision and purpose, a direction that unites us, and we have increased optimism for the long term. As As we move our sights from the short term recovery to the long term growth, that optimism is growing. That concludes our presentation. Chris and I would now be happy to take your questions. Thank you. Thank you. We will now take our first question from Jarrod Castle from UBS. Please go ahead. Thank you, gentlemen. Good morning. You talk about U. K. Occupancy at 70% outperforming the market. Any reason why you think you're outperforming? Is it your geographic mix or Just the way you're operating. Secondly, good cost cutting coming through. How do you think about margins over the medium term once you've built back volumes given this level of cost cutting? And then partly related, there's obviously some form of labor scarcity and further potential for wage pressure. So just any color on how you're dealing with it in certain markets, especially North America? Thanks. Thank you very much for your question. Tom, can you take please the U. K. Questions on the 70% and why the reasons? And Chris, you will take the other ones on the cost cutting and the long term and the wage in North America. Yes, of course. So across the West Midlands, we've seen our patronage grow to this level of around 70% on commercial. We think this really does illustrate the fact that the region is a very strong bus region, has great potential for growth in the future. The population dynamics are strong towards bussing with a high percentage of people who are dependent on this mode of travel. We absolutely think it's also coupled to the fact of the very strong service we've continued to put out throughout the pandemic and the measures we're taking to promote that service too. And Jared, it's Chris. On costs, I think It depends on your definition of medium term. I mean, I think over 2 to 3, 4 years, I see no reason why we're not back at the margin levels we were 2019, I think margin recovery lags revenue recovery a little, in part as we invest to bring customers back. So in the U. K, we're Keeping fares down to bring the patronage back. There's a habit of lack of travel that we are looking to break in the Coach businesses of the U. K. And Spain. But look, we were really thrilled with North America already back to 9.3% margin, which was only about a percentage point of half year twenty nineteen. The drag though links to your third point. I do think we will see a level of cost inflation in the U. S. We're not seeing it come through in wages in the U. K. We're not seeing it come through in wages in Spain. We're not seeing it come through in wages in Morocco. But in the U. S, we are tipping up a little bit as we fill what is about a 5% vacancy gap at the moment. So I am bullish about our margin trajectory into next year. I don't think we'll get all the way back to 2019 that quickly, but roll it forward, and I don't see any structural impediment to return. Yes. And if you can add a little bit more of flavor on the margins, You need to realize that we're investing in growth, and I think that is very important. So there is a little bit of impact on the mix. It is true that our coach businesses in Spain and the U. K. Are taking longer to recover because of the restrictions. So as you know, that has it's a very profitable part of our business. And then we have been very successful in the new business acquisitions now. And you always have this step cost, mobilization cost. So it's only for a short period. And so it's an impact on mix. And then investing in growth also is adding up supply as the airlines are doing. We're investing to put more supply to trigger that incentive to return to travel and also we are incentivizing us well with fares, with through price to make sure that we relaunch and people to see that incentive to come back and travel. Thank you very much. Maybe I think Also one point to consider is the probably the transition from hibernating, the whole network on all the calls that we have done, the variable part and not the structural, which are those are proving to be the stickiness of it, is we need to transition from hibernating to having full networks and that also and seeing the revenue coming back. So that's also an impact which is compounded in what Chris mentioned. Thank you. Joe Thomas, Head of Bicy. Please go ahead. Good morning, Ignacio. Good morning, Chris. Just like to, first of all, Understand. Interesting, the data point you've given, the June revenue was 85% of pre pandemic levels. I'm guessing that's flat a little bit By some acquisitions that you've made and contracts you've won, do you know a sort of one which I guess in itself To feed into the margin point you've just made. Any sense of what it would be if you strip that out? I mean, I'm guessing kind of 5 ish percent lower, but any sort of thoughts on what M and As and contract wins have given to you? Secondly, you've talked about some competition issues in the U. K. Coach business. I'm just wondering what strategy is there and how long you see that lasting for? And then finally, is there any update on the perennial question, please, of Spanish concession renewal and what the time line is there? Sorry, what was your second question? Sorry, Joe, it's Chris. I was writing down too fast. What was your second question? The second question was about competition in UK, Coach, how durable a problem you think that's going to be? Okay. And what the end game is there? Well, should I have a go at the like for like revenue? It is tricky, Joe. It is tricky. There's a couple of effects. You've got you're quite right. We've added Casablanca. We've added Rabat. We've added Germany. And even in the U. K, we've got an element of CBS SG funding going through, I think broadly speaking, that is about 8% of To get to like for like. So that 85 is probably something like 77, but it's that's directionally correct. Regarding the competition in the U. K, I mean, and then Tom can speak a little bit more. But we welcome our competition and expect for the presence to further widen the appeals of Coach. We believe their entrance highlights the massive potential for growth in this market. Clearly, in the short term, competition will no doubt be price based and this is impacting margins. But you. We know that it is not sustainable to have a strategy just based on Significantly pricing below the operating costs. So but we think it will also stimulate demand. We know that when Coach ticket prices are reduced, passengers are tempted away from rail. And we are is sticking to our value proposition. We monitor very closely for internal customer satisfaction and Trustpilot. You only need to look at it and see how we perform against competitors. We are pleased to see that our customers value safety, reliability, comfort, coverage. And as I said, how will we compare against competitors? And at the end, It will be customers having the say, and as I say, it is not sustainable, let's try to sell below the operating cost. In that respect, we have a very clear plan. We have a dynamic pricing defensive strategy that we monitor on a daily basis. You. And I don't know if you want to add anything, Tom, on that. Yes. I mean, I can just provide a bit more color. I mean, clearly, We're going through a phase at the moment to relaunching our network. At this point, our network size is now getting to a point where we are 10x the scale of our nearest competitor and that is growing fast as we put the mileage back on. So we see our approach, as Ignacio said, one about Competing very vigorously on price, but also highly on quality. We know our customers value that high quality offer. We also welcome this. I mean, we've seen on some of our corridors, which are the most competed at the moment, Trinit is now above 2019, which is evidence of the market growing. We've seen this in the past, but on some of our key routes now. We have more people than 2019, and so it is supporting both and the prices and yields are increasing. The strategy which you would have seen of our new competitor is to come in at below operating cost per journey, but they don't sustain it. And as the prices come back up, the market is bigger. So we see this actually as an advantage, which more money going in to advertise and bring the customer back to the Coach sector. Thank you, Tom. And to your last question regarding the Spanish concessions, the long haul concessions renewal process remains on hold as the authorities continue to absorb the impact of the pandemic on transport with no stated intention from the Ministry to restart the process in the near term. So we therefore see no impact on the consumption renewal process on our for long haul business coach business in Spain until late 'twenty three or 'twenty at the earliest. Great. Thanks very much. Mudhida Kiani, Bank of America, please go ahead. Good morning. Just one follow-up on North America. So You mentioned the benefit from loss making from exiting loss making contracts on margins for the first half And then the driver inflation pressure going forward. So net net, how are you thinking about margins in North America in with these two impacts. And then secondly, just more specifically on 2022, where do you see Recovery across the businesses by 2022 in terms of top line and then margins, which I understand you mentioned that margins would lag the Revenue recovery. And thirdly, can you talk about Spain and kind of competition from the new rail operator and how do you see that Thank you. Yes. Chris, would you like to comment on the Transit margins? Yes. I mean, you're absolutely right, Muneeb, there's a twin effect there. So I do think we'll have a It might be as short as Q4. It might be as medium as the school year. I don't think it goes any longer of wage inflation playing against us. We Again, as I said to Jarrod, I think structurally, we come through this when we are rebuilt structurally with stronger margins. I think 2022 is there's still a level of transition to that. But I don't I see no reason why we should not be within a percentage point of pre COVID margins across North America when you take those two factors into account. I Their share of the €100,000,000 permanent cost reductions was pretty meaningful. The Structural margin now on the Transit business is higher. Shuttle is continuing to grow And the school bus business will have a little bit of a short term headwind from driver wages. But As Ignacio said in the presentation, I mean, we had $8,300,000 of liquidated damages or penalties In 2019, we had about €9,000,000 in 2017 and per route, so not in absolute, Per route, we've just reduced that by 78% so far this year. So there are some meaningful sort of pluses and minuses. My sense is that adds up to within a percentage point as we transition back And potentially structurally higher over the medium term. Yes. With regards to the higher speed in Spain for the group. You all know that this is coming as a result of the liberalization of Spanish Rail, which has allowed all their operators to enter the market. So far is WeGo, also is the French SNESF. They have entered with a low cost offer, very aggressive and Remfe has also introduced our low cost division and offer matching that. We are currently only seeing this competition on the corridor, Madrid, Zaragoza, Barcelona. However, we expect LongHolt to remain an attractive way to travel and we will flex our operations. This might also present opportunities to increase shorter trips routes as we look at ways to redesign our networks and potentially adding new stops where the high speed trains are not stopping. And in that respect, I have to say that the bus and coach has More popularity that the rail could ever have, and that is important if you look at the population in Spain and how spread it is throughout the country and the need for a reliable service offer. And things that we have done. We have new coach stations, departures from Plaza de Castilla, which is in the northern part of Madrid to allow the use of double deckers that we have introduced to maximize the operations that we have. We, through the revenue management, have identified times where the high speed doesn't operate and we still see a lot of attraction for, for example, the NAC services. So that's what I can say. Muneeb, I think we may have skipped your second question, which I think, if I wrote it down right, was where do we see recovery across Business, I mean, look, the glib answer is everywhere. I think in terms of timing, right across the businesses, The bus businesses are coming back faster, as one would expect. They are essential services. In Morocco, we are ahead of 2019 already, and of course, you'd expect that because of Rabat and Casablanca. But Tangier, we've got record of passengers, for instance. Yes. In Spain, look, it's demand protected anyway, but we're already back at 2 thirds And rising rapidly in the U. K, as Tom said, 70%, and then with the fares package pushing that on, The Coach businesses will lag a little. Airports clearly aren't going to be open this summer to the extent that we might have hoped, But next summer, and if you listen to Wizz Air, Ryanair and Easyjet and the capacity they're putting on for next summer, that is going to bode very well for us. Transit in the States is back at 80% plus, still held back somewhat by You can see in the smaller vehicles where they're limited to 1 person, that's dropping soon, so that should come back. And as we said, school buses was at 96% at the end of Last school year, and we expect to open at 100. So we see recovery everywhere, A slight lag on the Coach business. Thank you. Satish Sivakumar, Citigroup. Please go ahead. Thank you. I got actually One follow-up and two more questions. So just on a follow-up, you mentioned about the low cost operator in the UK coach. So is it potential another player entering the market up or some flex buys? And if you could just touch on that and which part of the market actually they are targeting right now, what will be your exposure in terms of your network would be And the second one is actually in your presentation you mentioned about the you are planning to do What is it for us and North America and your CMD? So what is your thoughts on the U. K. Versus the VBK coach market? And then the third one regarding the alpha, what percentage of your traffic is actually exposed to tourist and airport related travel We've got a bit of a problem on the line here. I think the first point was around Yes, I think you're asking about whether that we see another competitor versus Flix. The third question, I think you were asking about how much Alsair was exposed to tourism. And sorry, what was the second question? 2nd question, in your presentation, You said that you've announced plans for Alsace and North America in the C and P. So I'm just wondering what are your Thoughts on the U. K. Bus and the coach market. Okay. Okay. UK for the U. K. Operations. Okay. Well, that's I mean, Okay. So what are our plans for the U. K? So FLIX in the U. K. Was number 1, 2nd overall plans for the U. K. And 3rd, ALSA's is exposure to tourism. So sorry if I added any confusion. We do not see another competitor in the U. K, the coach market currently consists of ourselves, Flixbus and Megabus. And as I said, we are Our network is responding and growing very fast in line with passenger demand, and we are now running in the order of 6,500 Journeys a day compared to about 600 of our 2 competitors. We are not seeing them put on more volume, And so we expect to be returning rapidly to a position where our business is profitable and sustainable and growing. As we build out and return our network, as Ignacio says, in a way which is more efficient, quicker and cheaper to run than it was Lesley. And so we see this as, as I say, a great opportunity actually to have somebody else also there spending advertising money to encourage people to use Coach rather than Rail. So Satish, with your own small doubt, when we talk about the low cost entrant, it is Flex. You. Flicks are the guy we're talking about operating, making huge losses, operating below cost. Yes. But they've been in the market since last year, right? That's what I was just wondering why these are They had a couple of vehicles and one operator. Yes. They were very sorry, they were very small last year and clearly were affected by the close downs and everything else. So this year, we've seen them come on to a number of corridors, and they seem to have stabilized at this volume they're today. I'm sure they will do bits and pieces more, but we are seeing them our view is struggle to make traction and headway despite any statements they make. And maybe regarding some of the views on the U. K, I think the U. K. Is an important economy in the world. So we're looking obviously to continue our position in the U. K. Basically, the high levels where we will anticipate before the Market Capital Day, it's you. Continue developing our enhanced partnership that it's proving to be a reference in the market. There are new opportunities coming out like the Manchester opportunity and we'll be actively seeing how we can expand our vast operation. But we're extremely excited with the how the net and needs for all of those, if someone don't know the acronyms is the our new Transport Solutions Division and Accessible Transport. We have good growth plans and we want to consolidate and compound in that segment. And this is what I can say high level, and we'll provide more details at that I'm sure, Satish, you weren't expecting us to give you any views on whether or not we would be participating in any rumored consolidation of the U. K. Clearly, you guys could Yes, I was actually expecting something on those lines actually. Sorry to let you down, Satish. No worries. Your last question was on the impact on ANSAL Alsa for a reason. Alsa, it's more internal consumption that we have obviously in the bus and also in Coach. But yes, we do have around 5% impact exposed to tourism. And obviously, yes, we do serve also as private hire for or chateau for some of the airlines and we have seen a reduction there, but it's around 5%. Okay. So it is your exposure to tourism is mainly in the U. K. Rather than just Yes. The coaches in Spain don't have that kind of airport routes that they do in the U. K. So that kind of Luton to London, Stansted to London, Gatwick to London, the Tom's business run, Paco doesn't have a similar business. Okay, got it. Thank you. That's helpful. Thank you. Thank you. We will now take our next question from Owen Shirley from Berenberg. Please go ahead. Good morning, Ignacio. Good morning, Chris. Thanks for taking the questions. The first one was I was curious on Slide 27, The yard departure kind of performance improvement, what did you change? Why were the Why weren't they departing on time before? The second question was you flagged the $150,000,000 bid pipeline in North America. And I was just wondering if you could give more color on the type of things included here and the time frame over which those bid processes will conclude. And the third one, a bit more general around, you obviously talked about getting funding for the electric buses in Coventry, Bidding for funding for the hydro regime buses. But could you touch a bit more on the economics there? Presumably, They're subsidizing rather than buying these buses for you. What are the operating costs of a hydrogen bus like? And I guess the crux of the question really is, as this becomes more prevalent, should we expect any impact on returns on capital or margins? Thanks. Okay. I'll take the first two ones, the departure on the pipeline in North America and then Tom you can take the On the gas departure, as I said during the presentation, we're extremely excited with the We're extremely excited with the impact of driving excellence. Basically, what we did is to what are the main indicators and how did that relate to the bottom line. And as I explained, the on time performance is linked to the customer This is actually on and then it linked to the retention and higher margins. And when looking deep into the on time 4 months, we started looking and created that new indicator, right? We were not looking in the past before. So if you don't do right first time you, things very difficult can't deliver the end result. So we just put focus on you. And it was that collective sense of urgency and the drumbeat and visibility to manage that. And again, if you think that with the number of drivers that we have and the cost of the wages, etcetera, it's every minute you reduce from operations, it costs a lot of money. And we calculate it's around 1,000,000 So and this is what is having a good reflection in the bottom line of this massive improvement in on time performance rooted. You. And again, we're just introducing this the methodology that we are applying in Driving Excellence is what we have launched worldwide, which is the new quality management framework and continuous improvement, and it's really understanding what are the root causes of issues, where the bottlenecks in our processes. And through that and I think I mentioned that before in We knew there were opportunities because we were very successfully in building and acquiring businesses, but We knew that we had that opportunity to integrate those processes and have a standard processes. And as we speak, we have already reviewed and removed the waste of those processes of 29 key operating procedures, and that really has an impact in the service that we can provide and the cost efficiency of that service. Regarding the pipeline, it is yes, I mean, you know that we I've said in the past probably that we had a huge 1,000,000 and 1,000,000,000 of what we are extremely disciplined is in the review and we have new processes to look at the pipeline and really be laser focused on those who are profitable. We have in all areas. We think if you go to school bus first, We see that and as I mentioned that we are working right now because we see that the next year's bidding season will be very strong. But going to Transit and Chateau, this €150,000,000 is in paratransit. They are coming up in September, October, November, some of important bids. We have good CapEx light as a light opportunities, which is also very important for us and matches our return criteria. And we see also in the education sectors, as you know, we have we are focusing in shuttle also in education and Hospitals and we have been successful in getting new business in a couple of universities and we have other in our radar and also opportunities within those €150,000,000 come from existing customer who wants to extend the services. And if you remember, we thought in the past how Chateau is very much based in California and some of those big customers want to move to other areas of the country and that's the beauty of the platform that we have built also in North America is the one that we have in Spain and the one that we have in the U. K, because we have a big footprint in with the school bus and transit There are synergies opportunities over there. So we can be more competitive, more cost efficient. And those basically are the opportunities that we're seeing in Transcendental Shuttle. Okay. So regarding 0 emissions in the U. K, the current regime is roughly 75% of the premium between a standard diesel vehicle and a zero emission bus is covered by the grant. So that's both the vehicle and the infrastructure costs. We our current view of this is that battery electric and fuel cells are moving at slightly different paces at slightly different points to the development curve, but battery electrics are now the operating costs going forward are the same or lower than diesel. This is supported by the recent change to the BESOL grant regime increasing up to 22p for Zero emissions, which puts it in line with diesel, is no better than, but it is in line. So this means the operating cost is lower. So the P and L going forward benefits from this as these vehicles become more prevalent. The fuel cell vehicles we expect to catch up, they are slightly more at the moment, but will come in line. In terms of the impact of the capital, so the clearly, the grant reduces that capital requirement, doesn't nullify it, but we have an existing fleet which requires replacement. That said, we are as the really says we are putting in place an availability model to manage this so that we will be looking to fund for these vehicles in a different way through fleet covenants and availability regime. And can I just ask a quick follow-up on the PYAL departure again? Sorry to sort of favor the point, but these nuances So anecdotes can be quite helpful for us. So it would be useful to understand why were 50% of the buses Not leaving on time before, was it because the drivers didn't understand, they didn't have it To be very blunt There wasn't a clear time they have to leave by where their process is. You know that you cannot improve what you don't measure and we were not measuring that and now we are. That comes also back to something very important that was done last year, which was the introduction of master schedule, which route by route, you have a clear time to depart and all the operations is synchronized or and so we introduced that And when we looked how to further improve the on time performance, then again, you go back to root causes of issues and then you as I said, we were not measuring that. And since we have put our focus on it, we have massively improved it. And Owen, the sort of things they've done to improve it, it's So long, long list of very small things. I mean, it can be the way the vehicles are parked. It can be the order in which The scheduler gives drivers keys. I mean, it's really, really micromanaging that sort of stuff, and it takes minutes and minutes and minutes out. And where it hits the bottom line is, as Ignacio showed on the slide, not paying these blooming penalty charges for turning up because if you leave late, you turn up late. We were also finding days of weeks, Fridays were worse than Mondays, Tuesdays, Thursdays, who would have guessed? But it's been a kind of reengineering of micro processes at the yards. Once they understand it, once it's league tabled up and once they want to get The top, all sorts of little bits and bobs get changed to pull the minutes out. Yes. And this is what again, what we're bringing with the new quality management framework And the continuous improvement process for the 4 dips or the steps is equipping the front lines with the tools, Right tools to have those statistical tools to identify where the issues are and what they specifically and this you. When aggregated numbers are very difficult, but when you start to desegregate, you start seeing those opportunities and then you start correcting. And yes, that's all about the continued improvement. Perfect. That's very interesting. Brilliant. Thank you, guys. Gerald Coop, Liberum. Please go ahead. Good morning, everyone. Just picking up on the last question, sorry to push on this again, but within Global Excellence, you talked about the need and the importance of Standard operating procedures and all of the Lycra measures that you've talked about, how do you drive compliance with those standard operating procedures across what is a very large business with a very large number of individual operating units and drivers. And secondly, on the £100,000,000 of annualized structural cost savings that you talked about, Can you give some examples of where those savings have come from and also where in the group they're falling? I think you talked about North America having a meaningful share, but can you just give an indication as to how they fall across divisions, please? Okay. Well, on driving excellence, it's a very comprehensive, a big program. So the first the change was to have a Program Management Director, an officer who is bringing all together and defining very well the and work streams who have a project owner. And so you have action list, you have for every action is a responsibility and is the drumbeat. So we follow they follow every week, they follow every week, every month with us with me and the central team. And it's about execution, focus on execution. But so Driving action basically was to identify what are the KPIs that we're going to follow, do all those changes in and review the processes, making sure we all work together because that's the way you get efficiencies. But then it's about the also the cultural transformation into a high performance, and that is about the daily routine. So with those standard routine procedures, we have defined What is the daily routine? What time do you get to the office? What sort of reports do you look first time in the morning? What do you do next? How do you do the stand up meetings with the rest so everyone knows what's happening. It's the closure of the day to understand where do you have deviations and what are you going to do next day to make sure that it doesn't happen again. And that is about the drumbeat. And so just for you to know, we are I mean, they have weekly calls every they have within the regions, the daily call. Within the country, the weekly calls with the COO. They have the monthly they also monthly call with me. They have we have a monthly review. So it's about that drumbeat. And again, there was one important component, which was the organizational blueprint. And we have advanced and progressed a lot in 6 months. So we have already implemented a change in regions. And at the end, it's all about the scope Control that you can have, how many senior vice presidents that we need, for how many regional managers and how many general managers and every general manager for every different types of depots and sizes and volume, how many people do we need to have and standardizing what they all need to do. And this is how you start getting efficiencies. So I don't know if that adds a little bit more flavor on what we're doing. And Gerald, On the €100,000,000,000 costs, we've kind of previously put the broad numbers out as €25,000,000 out there, 25,000,000 £40,000,000 Actually, North America, and there's a chunk at the center as well. There is a very long list of drivers. The biggest single one is taking out back office and support costs. So in U. K. Tom has outsourced quite a bit of finance, HR, etcetera, into India. That's had a meaningful saving. In Alsair, they've got somewhere between 30% 50% of central costs out. You might ask, well, why wasn't that possible before? I mean, it's Really been reengineering the way they look after the multiple different operating contracts within that ALSA business. In North America, we've taken out an entire layer, plus we've crashed together 3 we effectively had 3 centers. We had a transit center, a shuttle center and At a school bus center, we no longer do. And the other big component of that North American number is some of the delivering excellence savings, which I mean, frankly, when they come out are as just as structural as taking out a layer of management. But we were looking at the ALSA list because as you might imagine, we look at this quite carefully Here at the center, the Alfa list alone had, I think, 2 pages of A 4 of kind of font size 10 of $100 here, dollars 200 here, dollars 100 there. So it's not 1 or 2 big silver bullets. It's a consistent squeeze right across the piece. But very, very pleasingly, we've seen it come through the numbers demonstrably in the first half. And look, my job now, Gerald, is Stop it creeping back. It's never let a good crisis go to waste, right? And One of the silver linings of this pandemic has been people have been better able to and more accepting of cost reduction. You. I've just got to make sure it stays out now. That's great. Thanks very much. We'll now take our last question in the queue from Alex Spierson, Peel Hunt. Please go ahead. Good morning, everybody. I've got four questions actually. And Just sort of linking to the last question, I wonder if you could just sort of join the dots between the €44,000,000 of permanent cost savings and that 100,000,000 what is the sort of the profile to get there? How long has it taken? That sort of thing. Secondly, On the transition from government support, can you just say if there are any businesses that you think That you won't be able to either realign networks or recover revenues as quickly as the government support may drop off. Thirdly, on school bus pricing, clearly wage inflation may be a more prevalent feature. The market lead is now owned by private equity, so that may change the pricing dynamics. Do you expect price increases to Rise as we go through the coming bid seasons, or would you use the opportunity to take More market share perhaps. And then finally, just on the exceptionals, you have 18,600,000 directly attributable COVID-nineteen, but of that some of these things are sort of compensation payments, onerous contracts, that sort of thing. These tend to happen from time to time anyway. Are all of those going to drop out or would some elements of those be continuing? Thank you very much. Alex, do you want to take that? Should I take 1st and 4th, so The two numbery ones. I don't know the exact profile of the 44 to the 100, Alex. I have a hard I have a good belief. I can see the $100,000,000 annualized. Some of the work is still ongoing. So For instance, you would have seen part of the exceptional charge was a £10,000,000 restructuring charge. Most of that was in Alsace, some of that was in the U. K, some of that was in the corporate center, a little piece of that Was in North America. So there are still some changes to come through. Will we have it all in this year? I don't Think so. Will it all be in 2022? Absolutely. In terms of the exceptionals, look, no finance director you ever talk to wants to put out a Set of numbers with exceptionals in, and I really don't. I don't like it. I don't want to have to do it. The exceptionals that the onerous contracts and the payments are absolutely 100% COVID related. The payments are in Tom's business where he's paying the 3rd party operators, frankly, to keep them alive while they were mothballed. It was a de minimis payment per operator, but it added up. And the alternative is quality operators going out of business All falling into the clutches of FlixBus, and we took the view that we were not going to let either of those happen. As Tom gets closer to 100 So network, those will fall away to 0. So I'm expecting negligible exceptionals of any kind in the second half, let alone afterwards. The one exception being we have always and will always carve out amortization of acquired intangibles. The rest of it, you can expect this to be the last year and materially the last half for those sorts of numbers. And regarding there was a question on the school bus pricing. This year, we have achieved a 3.7% rate increase on expiring contracts, which is above inflation. And that leads to a 2.9% rate increase on the overall portfolio, which we are very pleased with it, with the new process that we put together, where We analyze exactly contract by contract, what is the profitability, how can we improve the efficiency of the operations, what is the wage. So increased expectations in every single of those operations. And then we have put up our proposal. It is true, as we have mentioned, is potential risk or headwind the wage increase in North America is still to see. We clearly see the impact for Q4. We are not able to estimate how this will look next year because Obviously, as we have mentioned, when the temporary I mean, when the enhanced government support ends in September, That will in itself make a pickup on more drivers available in our case and people because it's all sectors of activity. And again, if that is the case, we will certainly need to recover through pricing. And to your questions, are we interested to be very aggressive on price to get market share? We think the new on equity will be more rational in terms of pricing. And we don't want to be just for the sake of being just bigger, we want to be better to be able to have the right levels of to be better, to be able to have the right levels of return to reinvest in the business into profitable areas. So that's our view. Just to build on that very quickly. I mean EQT have got a 5 to 7 year holding period likely on the student business. They will need an exit multiple better than their input multiple, and the only way they're going to get that is to drive up prices. So you've effectively got EQT holding the number 1, you've got CDPQ. So EQT, they're not private equity, actually, it's an infrastructure fund. You're an infrastructure fund holding number 1, you've got a pension fund holding number 3, and you've got us holding number 2. I foresee this without saying anything disparaging about previous competition, I foresee this being a more rational pricing market. And there was another question on the transition from government support in overall in the business. That's more the impact is more in Spain and U. K. I mean, We want to live without the government support, but both in Spain and the U. K, they are extending the support because They know the consequences on the network. I think we have proven to be very good to adapt networks and supply to the demand. So We will we have confidence that we will correct adequately in that respect. And as I said, we said before, what we're doing now is to make sure that we though the ridership and patronage and we're incentivizing to get as many passengers as possible as soon as possible. Alex, there's no cliff edge. If that was behind your question, there's no cliff edge. So in the U. K, we've got a taper from CBS SG through to recovery And that looks to be smooth. And actually, the ETA funding in Spain predates COVID. So there is no cliff edge on any of our businesses. And following And of course, following the end of the recovery funding, we move in the U. K. Into the National Bus Strategy, which is the €3,000,000,000 program the government has to support Industry growth going forward. So in some ways, the U. K. Bus market has the most supportive government ongoing government regime that it's had for decades, which will keep us really at the forefront of public transport. And the move is to actually encourage commercial operations through making road space better, etcetera. So the next few years seem actually very encouraging for the bus market. Absolutely. We certainly look forward in that growth. Thanks, Alex. Thank you. Thank you. Thank you very much, Eduardo. There are no further questions in the queue. I would like to hand the call back over to Ignacio for for closing remarks. Over to you, sir. Well, thank you very much for the call and look forward to talk to you in shortly. Thank you very much. Goodbye.