Good morning everyone, welcome to our Full Year Results for 2022. Before we start the presentation, I would like to welcome Helen Weir, our Chair, who took over the role in January. I'm joined on the stage with James Stamp, our CFO, and on the screens our divisional CEOs, Paco, who manages ALSA, Gary and Eric, who manage our North American divisions. In the audience I also have Tom Stables, who heads up U..K. and Germany. I would also like to take a moment to say a heartfelt thanks to our colleagues across our divisions for all their hard work during 2022 to deliver excellent services for our customers, passengers and stakeholders. Turning to the slides.
In summary, 2022 was a year of sustained progress and momentum, particularly in relation to the H2 of the year, against a backdrop of a challenging macroeconomic and trading environment. In terms of our highlights, we have continued with sequential revenue growth, delivering group revenues of GBP 2.8 billion, which is 29% up on 2021, and 24% on a constant currency basis. This has been delivered by improvements in underlying volumes across four divisions, helping offset some of the challenges in the school bus. This top-line growth has helped us to continue to rebuild underlying profit up to GBP 197 million and more than double the prior year.
This has been achieved in the context of a H1 that was severely impacted by Omicron, labor availability issues, particularly in North America, and in the face of a reduction of GBP 96 million in COVID-related funding. Cash conversion was strong at 81%. We have made progress with organic leverage to 2.8x on a covenant basis, down from 3.6x in prior year. Gearing remains above our target range, but we remain on track to get close to our target within two years.
We have made great progress against our Evolve strategy and as a result we have won 35 contracts worth GBP 150 million in annualized revenue, including a EUR 1 billion German rail win, demonstrating our ability to convert opportunities from a growing pipeline that is now worth GBP 2.5 billion. As a result of the progress we have made, we have announced the dividend of 5 pence, and it's been reinstated at 3x cover. James will talk to this later. We have made significant steps toward our Evolve outcomes. Let me pick some of the key highlights.
In terms of safety, our Fatality Weighted Index number for 2022 is 1.6 or it's our record level achieved in 2019. We have the best ever year in North America with a 25% reduction in speeding events. We achieved a 5-star safety audit in the U.K., and we were awarded our sixth Sword of Honour, and we achieved our tenth year of the AENOR safety recognition in ALSA. In terms of reliability, we delivered on-time performance in line with pre-pandemic levels. Although the on-time performance has deteriorated slightly compared to 2021 and 2020. This is because during the pandemic, there was obviously less traffic on the roads.
In 2022, we have seen a return to pre-pandemic levels of volumes with a significant network challenges as we rebuild the routes. In respect to environmental leader ambition, our greenhouse gas emissions compared to prior year has slightly improved. As our zero-emission fleet grows, we will see an increasing reduction in carbon emissions. We remain on track to meet our commitments to net zero carbon by 2040. Let me say a few words about the benefits we're seeing from our growing experience of operating zero-emissions vehicles. We have a target to have 1,500 zero-emissions vehicles in service or on order by the end of 2024. We're adopting a data and quality management-driven approach to the implementation of zero-emissions vehicles by integrating the telematics data into our best-in-class operating model.
Our experience based on our operations in the West Midlands shows that as well as the environmental benefits, obviously, we are seeing significant operational improvements. In terms of safety, collisions are down 27%. We're seeing improved range that exceeds the manufacturer's expectations by 15%. We have fewer breakdowns, which reduced to 62% compared to our diesel fleet. Introduction of our zero-emissions fleet doesn't just deliver the environmental benefits, it also improves the customer experience. Returning to our Evolve out-outcomes. For most satisfied customers, our key metric is passenger journeys. Passenger numbers reached 977 million, which is a 23% increase over prior year. A 4% increase on 2019.
If we go to the employer of choice, we launched our first global engagement survey, which is core measure for employer of choice, achieved 77% respondent rate and employee Net Promoter Score of +70. This survey will now be undertaken annually and sets the benchmark and baseline to measure the future progress. I'll take you on that. Our strategy is making progress on delivering strong financial results and returns with a profit doubling and ROCE up 430 basis points. We expect ROCE to improve as profitability recovers. Overall, therefore, we're making good progress on each of our strategic outcomes, and I will demonstrate how this is delivering in the market and making our investment case even more competitive. Turning to our financial summary.
In terms of our revenue, the business continues on its upward trajectory with sequential improvements in revenue and EBITDA, all of which are driven by underlying growth across our businesses. Revenue in 2022 was 29% higher compared to prior year, despite the H1 being impacted by Omicron. EBITDA also continues to build sequentially. This is despite the GBP 96 million reduction in COVID-related funding from government and transport authorities, and this includes CERTS in the U.S. In fact, H1 of 2022 saw the last tranche of CERTS funding being recognized. In the H2 of the year, the school bus business was impacted by industry-wide labor shortages, which acted to lower the rate of both revenue and profit growth.
James will go into this with more detail and also in the school bus recovery in his presentation. Overall, the strength of our portfolio was demonstrated by improvements in activity across other business areas. We have covered revenue and EBITDA with this chart on the slide. We wanted to demonstrate that the fundamentals of this business continue to drive growth and that we see a sustained and continuing trajectory across our business. For coach in the U.K., our scheduled coach business grew passengers by over 150% year-over-year. Half two saw growth of 37% over H1. We go to the Spanish long-haul, grew 15% year-over-year with H2 up 4% on the first six months.
We also show on the chart the summer peaks in Spain in 2021 and 2022. You can see the significant improvements. For urban bus, UK Bus grew commercial passengers 39% compared to prior year, with 6% growth in H2 over H1. In Spain, our urban bus operations grew passengers by 15% versus 2021, with passenger numbers growing 4% in the H2. Finally, our shuttle business delivered 96% more services in 2022 than in 2021, with 6% growth in H2. In summary, a sustained recovery across the business areas. This chart sets out the actions we have taken to mitigate the challenging operating environment and highlight our resilience and agility. Underlying growth gives us a strong platform for the future.
2022 has been a uniquely challenging operating environment in our core markets with, as I said, Omicron in Q1, labor pressures and rising inflation and interest rates. We have taken decisive action, controlling what we can control and making the business more agile and streamlined for the future. On people, we restructured our workforce in Morocco and Spain and streamlined our sales operations to take advantage of the shift to digital sales channels. In North America, we separated the school bus from transit and brought transit and shuttle under one management team. This will bring significant efficiencies and align the best practices in our customer care and business development team. In the U.K., we brought our scheduled coach and Transport Solutions business under a common management, bringing significant operational benefits.
In our operations, we rolled out our advanced network planning scheduling system across our depots in ALSA. North America accelerated the rollout of our digital operating platform, which has been now implemented in 110 of our customer service centers. This is a key enabler to our Driving Excellence CSE Blueprint. In the U.K., we redesigned and relaunched our scheduled coach network. Let me take you through an example which provides a great illustration of the above strategy in action. It's the U.K. coach network. The network has almost completely shut down during Omicron, as you know. We used that opportunity to complete the network redesign.
Agility was key, being able to bring back service as demand recovered, but in a way that is sustainable, efficient, and offers passengers a better service. What is the result? We are at 100% of pre-pandemic revenue with 80% of the network. Our network offers 6% improvement in cost per passenger mile, and this should deliver benefits of circa GBP 10 million in 2023. It gives our customers higher frequencies and faster journeys, especially on key intercity routes. Our customers also benefit from better interchanges, and a better customer experience. For our people, we have optimized driver rostering, good for all the stakeholders.
Just to finish off, on progress in the year on contracts, which underpin 70% of our business, we successfully mobilized our Lisbon operations in ALSA, launching a 7-year urban contract in a key target city for Evolve. In US School Bus, we leveraged our relationship to achieve nearly $10 million of out of cycle rate increases in order to accelerate the recovery for wage investment. In Germany, we secured, planned, mobilized, and operated the RRX Lot 1 emergency award, leading to the award of a 10-year contract in the face of significant competition. To recap on the key highlights, revenue growth is up 29% above pre-pandemic levels. Operating profit is more than double 2021.
We have made progress with organic delivery and progress against all areas of the Evolve strategy, as I have shown. In summary, 2022 has been a year of sustained progress, and I'm pleased to say that we are taking forward the strong momentum from H2 into the new year. I'm now going to hand over to James to talk you through the numbers. Thanks.
Morning, everyone. Thanks, Ignacio. Before we get into a financial review for the year, just let me spend a few moments on my priorities as the new group CFO. I think the National Express has a huge opportunity to grow. The Evolve strategy is based around strong fundamental principles aligned to the biggest challenges that we face: climate change, clean, green, livable cities, and equality of access to mobility. I want to ensure that we're in a position to capture this opportunity to continue to build on our strong, resilient, and diverse portfolio using our geographic footprint, know-how, and expertise. Of course, we need to have the financial firepower to deliver on our ambition. I recognize that COVID has left its mark on the balance sheet. Our leverage is too high, and it is above our target range. Our liquidity is strong.
In a higher interest rate environment, the combination of the interest burden and the hybrid coupon clearly diverts funds away from investment. Our focus, therefore, is strengthening the balance sheet, reducing covenant gearing. I expect all of our businesses to focus relentlessly on value creation, and I look at this very much in terms of returns. It is possible to get exceptional, resilient returns from asset-light contracts that have low demand risk and good levels of cost protection. For that, a lower margin may be perfectly acceptable. For more asset-intensive contracts, we need a high margin to generate the returns on investment. There is no one-size-fits-all approach to this, just the right balance of risk and reward. ROCE and cash flow are really important measures of our success. Let's move on to the results for the year and a bit of context.
This is a business that has been impacted by COVID and unprecedented industry-wide measures, pressures in the labor markets, particularly in North America. This has resulted in non-cash write-downs and onerous contract provisions that I do not expect to reoccur. I recognize there's a lot going on in the bridge between underlying and statutory profit, let me give you some reassurance. I am confident that the underlying result reflects the underlying performance of the business. The quality of earnings is good. I am very comfortable with the balance sheet. We know what needs to be fixed. There are no lurking surprises. Reducing leverage is my key priority. I'll go through the separately disclosed items that the bridge between underlying and statutory profits in a moment.
On an underlying basis, group revenue grew by 29%, to 24% on a constant currency basis, driving EBITDA growth of GBP 118 million to GBP 418 million. Underlying operating profit more than doubled to GBP 197 million. This was despite the impact of Omicron, a net reduction in COVID funding of GBP 96 million, and the challenges brought about by industry-wide driver shortages in the U.S. I think that the underlying recovery is really reflected by underlying EPS at GBP 0.15 compared to GBP 0.002 in prior year, and ROCE increasing by 430 basis points. From a cash perspective, free cash flow of GBP 160.5 million was strong, representing conversion from EBIT of over 81%.
Covenant gearing decreased to 2.8x from 3.6x, and we feel confident in reinstating the dividend. Divisionally, we saw revenue growth across all our divisions, with differences reflecting the mix in the portfolio. I'm delighted that in its 100th year, ALSA delivered 85% growth in operating profit. ALSA really is the jewel in our crown. It's also really good to see the U.K. return to profitability despite incurring a loss in prior year and a GBP 12 million loss in the H1 of this year. This is a business that has the most direct exposure to customer demand, and it is really impressive to see how it is rebuilt. Germany delivered growth as a result of new contract wins with a rail business that is now truly at scale.
Our North American business grew by 8% on the top line, but profitability lagged as a result of high levels of driver wage inflation, the tight labor market in school bus, and the associated delay in route reinstatement. However, transit and shuttle grew well with 21 new contracts, which again demonstrate the diversity of the portfolio within the geographical divisions. To put the divisional performance in 2022 into context, I just wanted to spend a couple of minutes on how we generate revenues. 70% of our revenues are generated from contracts. I wanted to show how those contracts break down in terms of both the level of income protection and the extent of cost protection. The chart on the left shows how the contracted revenue breaks down. Just over a third of contracted revenues have a high degree of income protection.
This means that we have the right to a set payment under the contract and a low level of demand risk. For example, those school bus contracts that offer minimum operating days guarantees. 40% of our contracts have a medium level of income protection. This is where we operate the contracts, but where the client has the right to vary the demand. That might be in terms of routes run or the volume of services offered. We include a number of our transit and our shuttle contracts in this category. The remainder, which is just over a quarter of revenues, have demand exposure. Typically, we refer to these as net cost contracts. This includes some of our Moroccan contracts, for example. On the right, we show to what extent the contracts offer protection against cost inflation.
Over 40% have a high level of protection. What does that mean? It means that the costs are either passed through or have a highly effective index mechanism. Our RRX German contracts are a good example of this. 43% have a medium level of protection. This is where we may, for example, have a general CPI inflator, but where costs such as wages are not specifically indexed. These contracts may also have a time risk, i.e., where there's a lag between the cost inflation and being able to recover it. Some of our urban and regional Spanish contracts fall into this category. Only about 15% of our contracts have low or no cost pass-through. To emphasize the point about contract characteristics and the balance between risk and reward, let's look at an illustrative but representative example.
I should say that we have examples of this in our portfolio. We show two otherwise identical 5-year contracts, both with 600 buses. One is asset light with no passenger revenue demand risk and a high level of contractual cost indexation protection on wages and fuel. The other is asset heavy with passenger revenue demand risk and no contract indexation protection. Contract one has a much lower margin but generates GBP 28 million of profit with very little risk and no CapEx. Contract two needs a higher margin and absolute profit number to repay the CapEx that needs to be invested. In the base case, contract one generates a ROCE of 35% compared to 17% for contract two.
When we look how the contracts perform on a downside, and for an illustration of a downside, we model passenger revenue demand for shortfall of 10% versus the bid assumption, actual inflation and fuel higher than the bid assumption. What you can see is contract one performs better in the base case and in the downside case. It just has a lower level of risk, which is consistent with a lower margin. For me, both of those contracts have their place in the portfolio, but monitoring ROCE and risk exposure is absolutely key. What I'll do now is give you an overview as we go through the divisional slides of the nature of the revenue and the characteristics of their contracts. Starting with ALSA. Long haul is 15% of ALSA's revenues, and it operates under exclusive concessions.
These concessions have full demand risk. We've characterized the income as non-contracted in the analysis you saw earlier. In ALSA, we own all our vehicles. Regional is about one third of ALSA's revenue. It has a mix of contracts, both with and without demand risk, again, we own the vehicles. We have there the opportunity to cascade the vehicles from long haul into regional. Urban has a high level of contracted income protection and a mix of asset intensity. Our Moroccan operations also have a mix in terms of both demand exposure and asset intensity. Turning to the financial performance, ALSA has had a very strong year. Revenues are up 35%. Operating profit increased to EUR 122 million.
The increase in revenue and profitability is driven by a really strong recovery in passenger volumes across all of the business lines with record passenger numbers in Morocco and representing the result of the Rober acquisition in 2021. As you can see, the success of ALSA's diversification strategy now means that long haul is now only a small proportion of ALSA's revenue. Further diversification in the year was delivered by mobilization of Lisbon and the Vitalia acquisition, which represents our entry into the EUR 1 billion paratransit market in Spain. Margin recovery is also driving significant improvements in ROCE, which is helped by growth in the relatively asset-light urban business. Turning to North America. School Bus represents about two-thirds of the business. It is contracted, and we own the assets.
Demand risk in normal times is limited as route volumes are contracted, and frankly, kids need to get to school. Transit and Shuttle represent about a third of the revenues of the division. They're a mix of asset-heavy and asset-light contracts, and increasingly we're seeing a trend more towards the asset-light side of the spectrum. Income protection is mixed. In Shuttle, payments are made by route, not by passenger, and routes are contracted. Some of the contracts allow the customers to flex the volumes. Our Shuttle customers were incredibly supportive throughout the COVID period. In Transit, where we operate mainly in the paratransit market, contracts often contain both a fixed and a variable element of compensation, with the variable element being based on the number of routes run. I should add again in terms of portfolio diversification.
Shuttle started out as a business that primarily served technology clients on the West Coast. It is now increasingly diversified into biotech, education, particularly universities, and manufacturing. The financial performance of the overall North American division was mixed. Overall revenues grew by 8%, with growth in School Bus and Shuttle. Transit revenues relatively flat. Our Shuttle business grew by 21% with 20 new contract wins in the year. What I said before, Transit and Shuttle businesses are less capital intensive and act to drive returns. North American margins and returns, however, have been depressed by a slow return to profitability of the asset-heavy School Bus business caused by the industry-wide wage inflation and driver shortages. A bit more color now on the School Bus dynamics.
The chart on the left shows the impact of pricing recovery in School Bus in isolation if nothing else was going on. An important dynamic in School Bus is that in normal times, the school year which begins in September, probably in September, is a key reset point both in terms of pricing and routes. In the example we're showing, wage inflation hits at the start of the school year. We recover that through pricing on the 40% of the contracts that would typically renew in that school year. The balance of renewals happens over the next two school years. You can see the gradual recovery of pricing compared to cost on a school year basis. On a calendar year basis, the pricing recovery is smooth a little. We certainly get into a more of a steady state by FY 2024.
Turning to right of the page, we show the impact additionally of the removal of the CERTS funding, of which the final tranche, as Ignacio said, was received this year, pricing recovery and route recovery. You can see that in Full Year 2023, from a pricing perspective, we get the annualization of the prior price increases, plus the impact of the price increases that we get from September, i.e., the beginning of school year 2023/2024. We continue to get the benefit from route pickup through the year, and this also will continue into FY 2024 as we rebuild routes. Moving to the U.K. In the U.K., revenues are relatively equally split between Coach and Bus. Within Coach, the scheduled coach business is relatively asset light. As where we outsource the service to our partner operators, they own the assets.
It has no income protection as such. Like ALSA, it has certain exclusive concessions, particularly to and from airports. Transport Solutions is a mix of contracted and on-demand type work, for example, B2B corporate shuttle and charters, and we do tend to own those assets. Bus generates revenues from commercial passengers, although it does have some concessionary income and grant funding in the form of contracts. However, for this purpose, we have classified Bus as non-contracted in the analysis we showed you earlier. We own the assets, but with the introduction of electric vehicles, have been using more availability contracts over recent times. Turning to the U.K.'s financial performance. The U.K. business is the division that is most exposed directly to passenger demand. 2021 was adversely impacted by COVID, and Q1 of 2022 also started badly as a result of Omicron.
The U.K. division suffered a loss of GBP 12 million in the H1 of the year, and the Coach business had an almost complete network shutdown in that quarter. However, the story of the rest of the year is one of sustained strong recovery, particularly in the H2 of the year, which is really pleasing to see. That business really is building back better. The asset-light nature of the Coach business drives improved ROCE, and we would expect that to improve as we return to a full annual run rate on profits. Finally, for our business reviews. In Germany, RRX Lots 1, 2, and 3 are gross cost, no demand risk contracts with a low level of asset intensity. RRX Lots 2 and 3 were our existing contracts.
Lot 1 is the new contract that has been run as an emergency award this year and will be operated as a 10-year contract starting from December 2023. RME is a net cost contract with some demand risk. We receive income in the form of both regular subsidy and fare box, i.e., passenger income. Revenue grew by 49% in the year, driven by the Lot 1 emergency award and the impact of contractual energy compensation, which is effectively the pass-through of cost that's recorded within electricity traction costs. Operating margin increased to 6.6%, reflecting the new contract, creating economies of scale within the business. Within these numbers, RRX Lots 2 and 3 were utilized against the onerous contract provision. That's the business overview. This slide shows the reconciling items between underlying operating profit and statutory profit.
The GBP 261 million of non-cash ALSA goodwill impairment is a technical accounting issue. It relates to a rise in risk-free rates used to discount the cash flows of the business. There is no change in the outlook, in our outlook for the trading prospects of that business. ALSA goes from strength to strength, delivering record revenues in its hundredth year. As an investment, ALSA has already paid back in cash 1.3x already. Of the other items in the bridge, the GBP 31 million North American onerous contract provision and impairment charge relates to onerous contract and the associated impairments in relation to the unprecedented industry-wide driver shortages in North America. As you can see, the cash impact has been and will be lower than the P&L charge. I expect that in future years, this slide will be significantly shorter.
Turning to cash flow, we achieved a free cash flow conversion of over 80%. EBITDA recovered to GBP 418 million, up GBP 118 million from prior year on the back of improved trading volumes. Working capital was broadly flat as a result of strong cash collection activity. Maintenance CapEx returned to more normal levels, increasing GBP 42 million from prior year to GBP 185 million. The net result is free cash flow of GBP 160.5 million at a free cash flow conversion rate from EBIT of over 80%. That strong free cash flow conversion was above pre-pandemic levels. We've made significant progress on gearing, with covenant gearing down from 3.6x in prior year and 6x at the peak of the pandemic.
Now, look, I fully recognize the importance of getting to our long-term covenant gearing target of between 1.5x and 2x . We will be close to that range in the next 2 years. Just to comment on covenant status. In the light of the pandemic impact on EBITDA generation and debt, the group renegotiated its covenants in previous years. The covenant gearing test was waived throughout 2020 and 2021 and amended during 2022, with an amended covenant of 5x applying at 31st of December 2022. Clearly, we were comfortably within that. In future periods, starting with June 2023, the covenant returns to its pre-amended level of 3.5x . We are comfortably within this range already.
In terms of liquidity and headroom, at 31st of December 2022, the group had GBP 0.8 billion of cash and committed headroom and was undrawn on the half a billion GBP RCF. Just looking at our facilities, the GBP 400 million bond is due in November 2023. We've arranged a bridge to bond facility with a term of up to 36 months to provide liquidity cover and to provide flexibility with timing if needed. We intend to refinance the bond in or around Q3. Looking beyond 2023, we have the majority of the GBP 500 million RCF to refinance in 2025 with a supported set of relationship banks. The first call date for the GBP 500 million hybrid bond is in 2026. At that time, unless we call the bond, it retains its accounting treatment as equity. It is a perpetual bond.
The coupon on the bond is currently 4.25%, representing the 5-year gilt rate at the time and the margin. At the first reset date, the gilt is reset to the rate at the time, there's no change to the margin. Beyond that, there is the USPP and the GBP 250 million bond due 2028. Note that we've swapped the interest on the 2028 bond from fixed to floating, and those SONIA bond swaps roll off at the end of 2025. Overall, I expect interest costs to increase by approximately GBP 20 million in 2023 over 2022, of which GBP 12 million roughly is due to the refinancing of the bond. Interest excluding the hybrid coupon stays broadly flat over 2024 and 2025.
I would expect then to fall, all other things being equal, by about GBP 10 million as the 3-year SONIA swaps fall away. To recap, a reminder of our priorities. First and foremost, our priority is to maintain a prudent balance sheet. We've made progress on covenant gearing, and we will continue to do so. I expect to be close to our leverage targets within 2 years. In the near term, we will deleverage as we focus on the increasingly asset light opportunities in the pipeline. Nearly 3/4 of the bid pipeline of GBP 1.4 billion is asset light. That compares to about 1/3 of our current portfolio. We'll be absolutely focused on those opportunities that throw off cash and which generate significant returns on investment. We do understand that generating shareholder returns is a key part of our investment story.
The dividend has been on hold during the pandemic, but we now look forward to the future with confidence. We're making really good progress on our Evolve strategy, which is delivering pipeline conversion and growth. Profits are rebuilding, and the underlying drivers of demand are strong. Mindful of the need to balance deleverage, capital for growth, and shareholder returns, we are recommending reinstatement of the dividend. We're reinstated at a prudent level of cover of 3x , and this high cover allows room for growth.
Just a note on the cover that in calculating it, EPS has been adjusted to exclude the hybrid coupon. In summary, this is a business with significant opportunity. They're converting pipeline to growth that is rebuilding profits and cash that will need to continue to be agile in the face of volatility. That will need to continue to be ruthless with capital allocations on returns. That will delever under our plan, unlocking further opportunity for growth. I now hand back to Ignacio, who will take you further through our strategic progress.
Thank you, James. I have previously outlined our progress on the Evolve outcomes. I would like now to focus on the five customer propositions that underpin our Evolve strategy. Firstly, we reinvigorate public transport, where we work with partners in key strategic cities to improve and enhance public transport systems. As an example, this year, we have successfully launched our first bus contract in Portugal. We deliver multimodal expansion when we use our existing geographic footprint to deliver new services to different customers and markets. By way of example, this year we have been awarded a new all-electric bus, urban bus contract in Geneva. We have expanded our Transport Solutions business to our West Midlands hub, and we have launched shuttle services in our existing key transit city of Boston.
Operational transformation, where we turn around existing operations that are not performing well, using our experience to plan, mobilize, and operate in a seamless way. This is clearly demonstrated in Germany, where we show our credentials to the full by taking over at very short notice, the RRX Lot 1 operations. Let me take you through the case study of this. The RRX Lot 1 emergency award was made at the end of 2021 after the incumbent operator was no longer able to operate the services. We very rapidly planned, mobilized, and successfully operated the contract in partnership with the local authorities.
The seamless way in which we took over and the operation really put us in the driving seat to win, as we have done, you know, the 10-year award against, as I said before, a very, very strong competition. The network connects major cities in Germany, including Cologne, Dusseldorf and Dortmund. To give you an indication, this, you know, had 60 million passengers use this service in 2022. We're now the leading private operator in the region and the long-term contract alongside existing contracts that we have. That means that we are well-placed to capture future growth opportunities in the region. Returning to our customer propositions, in Spain, we acquired Vitalia in Madrid, entering the paratransit market, which is highly fragmented and a good candidate to consolidate and compound.
This example is also one of multimodal expansion from our strong operating base in Madrid. Finally, we fill the transit gap where existing public transport services have gaps in their networks. We can quickly launch bespoke services to support the customer needs. This is exemplified by the 20 new contract wins in shuttle, where we have diversified our activities away from only tech focused corporate shuttles customers to biotech universities, manufacturing and others. Our Evolve strategy is underpinned by being digitally enabled. This is a key focus area for me. I have recently recruited a new CIO who has joined the group executive to accelerate the rollout of our end-to-end digital capability across the group, improving customer and colleagues experiences, but also driving cost efficiencies.
Let me walk you through an example. If we go to our West Midlands operations, we face obviously challenges around unpredictable traffic speeds caused by congestions, the plenty of road works that we have and incidents of the day-to-day. Traditional scheduling techniques cannot accommodate this level of in-day volatility. There's a vast amount of data about traffic speeds on the road network. We use this data and obviously machine learning to help optimize our networks. We can optimize against a number of variables, but we look to see how we can improve predictability and reliability of our service using the least assets possible.
The outcomes in this example are more reliable services, delivering 7% reduction in excess wait time and 45% reduction in late running. Obviously a reduction in customers' complaints. Also for employees, it helps us to stay on the timetable, so we have happy customers, and we reduce the overall driving hours. Turning to our growth opportunities, we have previously updated on the size of the pipeline of addressable opportunities. I want to give you some insight into what converting that pipeline looks like. On this page, we show how the pipeline, which now totals GBP 2.5 billion, segments between the number and the size of those opportunities. The chart on the left shows the number of opportunities by size of opportunity and how these break down between bid opportunities and M&A.
There are 184 small is less than GBP 5 million, opportunities in the pipeline, of which the majority are bids. These are small and not high profile, but they are important, as I will show you in a moment. We have 98 medium size opportunities. These are less than GBP 50 million annual contract value. At the top end, we have nine large opportunities. Both the medium and the large opportunities are split roughly 50/50% between bidding and M&A. The chart on the right shows what this means in terms of revenue. These smaller opportunities sum together represent around GBP 200 million of potential growth. This is the annual contract value of opportunities over the next 18 months. Rolling 18 months.
The medium sized targets represent GBP 1.6 billion, and the larger targets represent GBP 0.7 billion. I think this is important naturally, because people gravitate towards the larger opportunities. In many ways, what we do in the medium and small end, which is the day-to-day business of winning work, provides the underlying momentum. We have talked about the size of the pipeline. I now want to show you how we convert this large and growing portfolio or, and pipeline into opportunities and the conversion rates that we need from these contracts to hit our targets. Let's recap. 2022, we have won 1 large contract, which is the RRX Lot 1 bid, which was confirmed early in January this year. We have won 3 medium-sized contracts and we won 31 smaller contracts.
These smaller contracts are often less well-competed and require limited resources, but they provide, as I said, a good underlying momentum. The total wins equate to GBP 150 million of annualized contract value, which represents an overall conversion rate of 15%. While there are many combinations of large, medium and small wins, and some years will look different to others, we are confident that 2022 provides a blueprint for growth. Turning to my final slide. In summary, 2022 has been a year of challenges, starting with Omicron and ending with a high inflation and tight labor markets. We have delivered a strong sequential revenue growth. By growing our revenues, we are rebuilding profits and generating a strong cash flow.
It will take time for profits to rebuild, but we have a diverse portfolio of high quality contracts that will allow this to happen. In the meantime, we will continue to control what we can control with relentless focus on people, operations and contracts. We are rebuilding the balance sheet with a ruthless focus on returns, cash generation and gearing. We're making good progress against Evolve strategy. We're seeing underlying growth in our business.
We're seeing the pipeline grow, and most importantly, we are making good progress on pipeline conversion. We have reinstated the dividend and are coming into 2023 with momentums and confidence. Albeit, we will need to continue to be agile, as we have been throughout 2022. Finally, our Evolve strategy is delivering what customers really want, and as a result, we're winning in the market. Thank you. This concludes the presentation for today. James Stamp and I are now happy to take some questions.
We've got a lot of people in the room and online today. Can I ask that we limit the questions to two per person, so we give everyone enough time, and that's two as in number two, not IFRS within materiality two. Two questions please, if we can. T here's a roving mic around here for... Start from the front and work backwards.
Hi, good morning. It's James Hollins from BNP Paribas. A question for you, James. Thank you very much for the insight into your personality, how you plan on running the finance function. If I'd summarize it's asset light and reduce leverage. Just if I can push a bit further on cash conversion above 80% in the year, would you be happy to guide to that being a good target going forward or is it as an exceptional year?
If that is the case, obvious question, but would that alone be enough to reduce gearing quick enough for you and how you plan to run the finance function? The second question, dividend policy. I don't think you've talked specifically 2x covered. Wou ld it be best if you're in our shoes modeling it, that we kept it 3x covered for Full Year 2023, again, within your reducing leverage plans? Thank you.
Thank you, James. What I say about the outlook on terms of absolute numbers. GBP 1 billion of incremental revenue, over GBP 100 million of EBIT. GBP 1.25 billion of incremental free cash flow. That hasn't changed. The mix between asset heavy and asset light may well change within that. The absolute numbers in their own right will act to reduce gearing over time. In terms of dividend policy, we've said we've reinstated a prudent at 3x . Our policy remains unchanged. That will be at least 2x covered. That 3x cover allows us room for growth and is prudent in that it balances the need for reinvestment in the business, de-leverage and shareholder returns.
Morning, it's Joe Thomas from HSBC. One on North America and one on UK bus, please. First of all, just on North America, could you give us a bit more comfort about the rate of route reinstatement in North America? What you're seeing, what school boards are saying, and perhaps also, if I can sneak this in, what you're seeing from competitors as well, and are they coming back from there? Then secondly, on UK bus. On UK bus specifically, what improvement in passenger volumes do you require, do you think long term, in order to hit your long-term margin targets there?
Okay. Well, on... Let's start with North America. So in North America, let's remember, no? We came out of Omicron, and we were coming from online school, to in present face-to-face school, right? So it became evident in Q2, right? From there on, we put a plan which was, recruit, retain and reinstate, right? On recruit, we clearly saw a boost in recruiting. You know, we had a very strong pipeline, and as we said, we converted 900 additional drivers net. So that's a tick, you know, and we delivered according to the plan. On retention, it is true that the Q2, Q3 went down to 75%. We managed to increase that and actually is a little bit better than pre-pandemic levels, so that is very good.
Actually, when we also compare quarter to quarter, we're seeing retention between 90% and 94%, depending on the areas. That's also extremely good with all the actions that we have taken. Then the key thing is the route reinstatement, right? On route reinstatement, there has been more challenging, and it's only 1 quarter that we have recovered. Why? Out of those 900 drivers, additional net drivers, okay, around almost 400 of those were used to replace those management admin positions that were also driving the buses, no? Because, I mean, it's the right thing for the business, for the safety, for the, you know, for the operational management, quality, et cetera. That's the first tranche. The second one is undoubling the routes that we had doubled, no?
That is not necessarily bad. It doesn't count in terms of number of routes, but then you have full hundred percent, you know, when you undouble, you. We have seen actually an increase in the revenue per working day, yeah? Now the other thing is to reinstate in agreement with the districts, with the schools, when do we put back those routes? This is the key focus for the remaining of the year. Now, as James explained before, we are getting those incremental. We're extremely focused, especially on the top where, you know, there's a bigger gap. As the end of the school arrives, we will flatten a little bit and then the big reset we expected for the start, restart of the new school year, 2023, 2024.
Yeah. For that, really oversimplify it for effect, you know, we close the driver gap by a third, we close the route gap by a quarter. The difference is timing.
We should get back bus for the government.
Um, you talk-
You want to take the UK bus?
UK bus? I'm happy to, yeah. I mean, look, the dynamics in UK bus are very much that we are continuing to see sustained passenger growth. The great news is we have in partnership with Transport for West Midlands, secured a 3-year funding package called BSIP. The aim of that package is to allow us to maintain the network and to freeze fares at exactly the right time, 'cause this is the time to capture modal shift onto the bus.
You could take the sugar rush of raising fares and slashing your network. We're taking the opposite approach. We're keeping fares flat. We've got the funding to compensate us for. What that means we're doing in conjunction with our partners at TfWM is when that three-year funding runs out, the business is self-sustaining on a commercial level with commercial passengers. The glide path is absolutely there, and I'm really encouraged seeing the strength of the recovery in commercial patronage, in that business.
Muneeba Kayani from Bank of America. Just to clarify on the margin guidance for the long term till 2027. Is it the move in towards more asset light is the reason why you've removed the margin guidance of average 9% for that? On the P&L impact from the refinancings, if you could just help us understand what the P&L impact would be? If you could comment on transit shuttle and what you're seeing there with all the big tech layoffs that we've been seeing in terms of headlines.
I think I counted three there.
you know, I mean, we... I mean, you will talk about the margins.
Yeah.
No? Again, not to reinforce, you know, the ultimate financial measure. I mean, because we have a wide range of measures. You know, as we have said, we are very confident on the GBP 1 billion additional revenue, over GBP 100 million of profits and a GBP 1.25 billion of cash flow. You know, within those, margin is very important, but we measure every day, every month by divisions, you know. At the end, as we have explained, it's a mix of what we want. Do we only want asset light? We don't. I mean, there is a mix in our... Will it increase the asset light? Probably it will because of the pipeline of opportunities and the way we are converting. I don't know if you want to.
The most important thing for me is we generate the profits and then generate the cash with the appropriate returns. We're not changing the guidance on what those absolute numbers are. In my models, the margin is very much an output, not an input. There are a different range of ways we could get there. I'm absolutely confident we will hit those absolute profit and cash flow numbers.
There was another one, the P&L.
The P&L on refinancing. Do you mean on the impact of the bond that we're refinancing this year? Yes. Okay. If we refinance that bond at some current interest rate expectations, incremental interest is around about GBP 12 million, which is the 12 of the 20 step-up that I referred to earlier.
Then there was the last one on transit and shuttle, if I remember correctly. Transit, I think, that's the one who had the less growth during the year. Especially we saw it only at the end of the year and now as we enter the new year. The reason probably is because, you know, the part of it is paratransit and because of the reasons have a lower recovery. In the context of the revenue growth, you need to take into consideration that we did a portfolio review, and we just got rid of all these loss-making contracts that we had, b ut it is progressively improving.
On shuttle, as we said, our customers were tremendously supportive during the pandemic, so we didn't see a big impact on that. We kept growing, and we have shown in the numbers in terms of revenue. The very good thing is that we have diversified from the pure high tech corporate shuttle to biotech, manufacturing and other, no? In particular, universities, you know. As we said during the board presentation at Capital Market Day, we wanted to focus on universities and hospital. Hospital, it was not that clear after assessment, but we have found many opportunities in our in that segment, so we are very excited with the opportunities. Again, going back to the opportunities, it's around GBP 700 million that we have in the pipeline for transit and shuttle. To confirm. Expectations for recovery.
Yeah. Should say of Eric's blush is it's very early for him in the morning or is it just late at night still for you, Eric, on the West Coast? You know, putting the combined transit and shuttle management team under Eric's leadership, the point there is to explore the excellence in customer pursuit that we see from that team. We're really confident and excited about that pipeline.
Good morning. It's Rory Kellman from RBC. My first question was, given James' comments on the balance sheet, I was wondering if you'd given serious consideration to selling any of your businesses and what you would see as the costs and advantages of doing so? Secondly, if we were to replicate the 2022 to 2023 EBITDA bridge that you've shown in your North American business for your other businesses, should we expect EBITDA growth across these businesses given the sequential improvement we've seen in general in H2?
Let me take the first one and... Sorry, have you finished?
Yeah.
Okay. Selling a part of the business. As you can imagine, as a board, we always consider. For us, capital allocation is a priority, and I have said that, you know, from since I joined. We always consider, you know, if there is any opportunity to, you know, to make a better use of the capital, you know, from the proceeds, we will always assess, no? Let me reinforce that, you know, we have proven in a way the diversification of our portfolio, and we're making good progress. We have a clear glide path for the leverage, and we don't have a liquidity issue, no? I think we do have a good balance of growth opportunities that we can materialize, whilst we keep reducing the debt and also having some return to the shareholders. You want to take the second one, James?
Yes. On the school bus profitability, I will try to, in the presentation, give you an indication of the building blocks. clearly we have the no more removal of the CERTS funding. The last chunk of that was recognized last year. you would see the both the route recovery and the pricing recovery. They are very aligned to the school year end, as I highlighted. You would expect naturally to recover most of that, more of that through 2023 and into 2024.
Morning. I'm Gerald Khoo from Liberum, too obviously. Can I ask about competition in the U.K. from FlixBus and also in Spain from open access rail? You know, how are things going on those fronts? With regard to the pipeline of bid opportunities in particular, you set out the opportunities by size of revenue. What's the relationship between the size of the opportunity or the value of the opportunity and the cost of bidding and the intensity of competition? I.e., how many people are bidding for those contracts, and, yeah, and where do you see the sweet spot?
Let me take the first one. If you want to enter into the details of bid opportunity. Competition, FlixBus. During 2022, we have seen less fierce competition in terms of price as they did in the previous year. I can only tell, you know, what where we are in terms of network compared to the others. Basically, we have a scale of the network, and we are now running, like 8,400 flights per week. You would compare to around 400 of megabus. 800, sorry, of megabus and around 400 of FlixBus. Listen, competition for us is not bad in a way, you know.
I mean, we have demonstrated in a specific flows or routes of intercity connections. Actually, we are 120% of what we were. You know, competition is good, you know, to promote and incentivize leaving your private car and moving into mass transit, which is what we all purpose. That's on coach in the U.K. On the high speed, yes, we had in the routes that we cover, we had Barcelona, and that this is the biggest impact, where we saw a 50% reduction. The strength of the team and Paco is present. I mean, it's unbelievable what they did.
They did operational plan and return to very decent profitable, all despite the decrease in the decline in revenue. The other one is Galicia, which is the north west of Spain. Basically, I mean, it's only 5% of revenue that we have seen decline. Actually, the team has also done extremely well. This is thanks to first operational excellence. The way they reviewed the supply of the network that we were doing. Also, they were very good to introduce new coach stations, so it was to reduce the journey times, you know, from Madrid. Introduced very quickly and certified the double-deckers in Spain.
They optimize the capacity of every single coach. With that, again, you know, very quickly done and reaction. Also that's in terms of cost and operational efficiency also is CRM. You know, is marketing and the data and the revenue management and the digital strategy, who is really demonstrating, which is a competitive, a real competitive advantage for us in Spain and the same for the U.K . In the coaching. Identifying those frequent travelers, and where is the price break point, planning ahead. You know, one of the meetings that I like the most, both in the U.K., and Spain, is the weekly planning meeting.
They go, you know, with all the forecasting digital tools that we have. They forecast what is, what will be the demand. They adapt the network to just deliver that. Again, you know, we're at 100% of the revenue with 80% of the network. That's the operational leverage that we're seeing. Then defining, you know, the price ladders for each segment. We're not talking. We're now talking about independent flows. It's just outstanding the work that they do, and this is, I think, our competitive advantage.
I think the second question you had was on the bid pipelines. It's a great question. You know, typically the bigger opportunities are very intensive in terms of bid cost and preparation. They will typically run to several hundred pages of submissions. They're detailed. There's a lot of external advisor costs. They would tend to be very well competed. You know, four or five big players would tend to go for them. We will go for those selectively where there is the differentiation is significantly weighted on quality and not just towards price, because that plays into the sweet spot of the Evolve strategy. Because of the commitment and the fact that you can't do all of them, we're really selective in which ones of those we bid for.
At the smaller end, almost the opposite. It's very much about local level relationships. You don't have to build up and stand up great big, standalone big teams to go for them, but they're really important and probably less competed because they are about local relationships and local renewals and middle, somewhere in between. What we're trying to illustrate here is that, yes, it's great. You win the big contracts, and that's great news, and we will keep going for those. The engine room of the small or medium-sized contracts gives us the momentum. We don't need to rely on those big contract conversions to hit our targets.
Some opportunity for those on the phone.
Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. We'll pause for just a moment. We have no questions on the phone lines.
Taking that, we've answered everything. Okay.
Excellent. Well, if there's no more questions, thank you very much for attending. I will see you with a coffee now.
Thank you.
Thank you very much.