Good morning. Welcome to the National Express Q1 trading update. My name is Charlie. I'll be coordinating the call today. If you'd like to ask a question at the end of the presentation, you can do so by pressing star followed by one on your telephone keypad. I will now hand over to your host, James Stamp, Chief Financial Officer, to begin. James, please go ahead.
Thank you, Charlie, good morning, everybody. This is James Stamp here. You've seen the announcement. I'll just give you a quick run through of what I think the headlines are, then open up to Q&A. As I said, in the headline, we're really not expecting anyone to move the numbers as a result of this update. Our outlook is unchanged. The key messages are that Q1 revenues are up significantly, both on a constant currency basis 17% and a reported basis 25%, operating GBP 74 million. That is in line with our expectations. It partly reflects, of course, the fact that Q1 of prior year was impacted by Omicron.
But underlying, we're seeing a continuation of the positive trends that we've been seeing throughout the final three quarters of last year. I call out in particular continued very strong performance in our ALSA business, and within that, particularly within Long Haul and Morocco. Good news, great news, very pleased that Porto is mobilizing in the year with the expectation of operations starting towards the end of the year. In North America, we continue to see evidence of success of the evolved strategy with wins in both transit and shuttle. In the transit space, we won a significant contract in Charlotte, which is both paratransit and fixed route, and was one of our key targets for the year. Very pleasing to see that.
In US school bus, we are, as you sit here today, where we are through with bid season expecting to achieve 13% average pricing, price increases on those contracts that are up for expiry in this bid season. We're a good way through that bid season, and that is a pleasing pricing outcome. In terms of route recovery, we are in line with expectations, although they were, as we previously stated, limited expectations as we come out of the last calendar year and towards the end of this school year. We're still expecting the bulk of reinstatements to happen at the start of the next school year, so effectively by September. And there's a key summer recruitment and reinstatement period for us there.
In the UK, pleasing and strong recovery in UK Coach, and in our German rail operations. The UK bus operations were impacted in Q1 by the six-day bus driver strike. That's now settled. Of course, we are also factoring in, the impact of our associate, the associated pay settlements. What I would say, though, is, when I look at the passenger, recovery profile, excluding the dip we saw when there were limited operations over the six days, we are still seeing continued, commercial passenger growth.
The final point I wanted to make before moving over to Q&A is that given the uncertainties that we see both industry-wide and macroeconomic uncertainties, we are putting in place a cost reduction and productivity improvement program to provide us with some wiggle room. Key to that is we're absolutely not going to be cutting into the frontline roles or anything that generates our capacity, generates our ability to grow. It will be a program that provides streamlines the cost base to enable us to be even more competitive in the bids and operations that we're going for. With that's all I intended to say at the outset, and I'm happy to hand over to Q&A.
Perfect. Thank you. Of course, if you'd like to ask a question via the telephone lines, you can do so by pressing star followed by 1 on your telephone keypad. If you'd choose to withdraw your question, please press star followed by 2. When preparing to ask your question, please ensure your phone is unmuted locally. Our first question of today comes from Jarrod Castle of UBS. Jared, your line is open. Please go ahead.
Great. Thank you. Good morning, everyone. Can you maybe just talk about that phasing of the GBP 25 million cost saving, how you see it phasing? You did say some of it would come through in second half of the year. Related to that, are there any implementation costs related to that scheme? Also, you're obviously getting some good increases in your school bus, +13%. What are the settlements looking like for the drivers, and how is the recruiting of those drivers going? Lastly, anything on kind of contract bid pipeline at the moment? How do you see the health of it? Thanks.
Thanks for those questions, Jarrod. In terms of the productivity, the cost savings and productivity improvements, I'm setting a target of at least GBP 25 million on an annualized basis, which I'm hoping to will impact in full in FY24. Clearly I'm trying to land a good portion of that in this year as well. I've said no definitive targets for that, but as we work through the detail, I'll give you more update at the interim. Your question on implementation costs is look, we look at implementation costs as we always do with any investment.
If there is a case to be made, if there is a business case, to improve profitability, and it satisfies our returns criteria for, I think, well, for any investment, we will look at it. Again, I'll provide an update at half one on where we think that's going to go. Your second question was, I think on school bus. Yes, we are pleased with the 13% pricing outcome. That's an expectation as we move through the bid season. We have, as you would have expected, focused early on those contracts where we need to get the biggest increase, and we've seen some very significant increases on those.
As we work through the portfolio, some of those are more evergreen or have more CPI based inflators in them. Our expectation is 13%, and I'm confident in that. The question you raised then was around the recruitment of drivers and route reinstatements. In Q1, we actually did continue to recruit drivers and to reinstate routes, albeit as expected at a lower pace than we were doing in the back end of 2022. In Q1, we reinstated around about 200 routes and added about the same amount of drivers net. That's net drivers. Just to give you a bit of context, the equivalent number in the prior year was 36.
We, you know, we continue to close that route gap, but we're looking to summer for the significant reset. We haven't, we haven't had to put through any further significant wage increases at this moment in time. Clearly, I don't know how that pans out in full until towards the summer period. We're not seeing at the moment I would characterize any increased pressure on recruitment. At the moment, all our planning is towards making sure we fill that driver pipeline over the summer. Your last question I think then was on the pipeline and the contract base. The pipeline remains essentially unchanged from where we reported it at the full year results back in March.
Still a significant amount of opportunity there and a continuing amount of bidding activity on our side. As I called out in the announcement, the win in Charlotte, the wins in shuttle, which include expansion into the university segment, a further expansion into the university segment, and further diversification away from the pure technology clients, with wins in further wins with Tesla are really pleasing. I think we are, you know, we're looking good on the pipeline. It's still very healthy, and we continue to pursue it as hard as we can.
Great. Thanks very much. Thank you. As a reminder, if you wish to submit a question, please press star followed by one on your telephone keypad now. Our next question comes from Gerald Khoo of Liberum. Gerald, your line is open. Please go ahead.
Morning, everyone. A few from me, if I can. Starting in North America, I think there was a little bit in the statement about net new business wins being slightly below expectations. I was just wondering why that was and what impact the driver shortage in the school bus business is having on your ability to bid for new contracts, what impact that's having on contract churn rates. Related to that or potentially related to that in North America, I think that when you talked about some potential challenges or cyclical pressure from technology customers on the shuttle side, I was wondering whether you could elaborate on that a bit, please.
Finally, in the UK, in the bus business, wondering whether you are willing to quantify the impact of the strike and sort of how much the wage settlement to end the strike is likely to cost, please. Thanks.
Thanks, Gerald, for those questions. In North America, the extent of our net new business has been slightly below expectations. I'd actually characterize that, Gerald, as being the flip side of the price increases that we pushed through. It isn't really about being hampered by not having enough drivers. This is the normal bid season process where you aim to win some, you know you're going to lose some. I think we probably, you know, we've done better on pricing than we expected. We'd probably be, the flip side of that, slightly worse on the net new business wins. It's not really associated with our ability to attract the drivers.
I think probably, some of the, there has been less overall tendering activity as some of the clients have, were waiting to see whether the driver situation eases before they publicly tender that contract. Some of the, kind of, losses that we've had in the bid season will have been related to price. That's as expected. As I said, I think there's probably 2 sides of the same coin. Your second question was around the shuttle business and cyclical pressure from technology customers. You're absolutely right, of course, that there is what I would characterize as a technology recession, in the U.S. and particularly on the West Coast. We have seen some reductions, in service, from some of our customers.
Not lost contracts, but where those contracts have the ability to flex volumes, we've seen some evidence of flexing the volumes, which are consistent with the types of workforce reductions we're seeing. All of the discussions we're having with our customers suggest that it is very much cyclical. They are very much invested in and dedicated to their campuses, and that's all a campus culture. You have in the likes of, you know, Meta, Google, Twitter, those kind of places. It is clear that where they're making current workforce layoffs, then that is going resulting in a reduction in associated volumes. I'd add, though, that what we're seeing is the benefit of the diversification of the portfolio.
It means we've now got more business outside of the tech sector where there isn't a recession. Where we're picking up new business with the likes of Tesla, which is a new advertiser and a big advertiser in the manufacturing clients, and within the university segment, which are really driven by very, very different forces than what we're seeing in the tech sector. That is offsetting it, in the short year, in the medium to long term, I would still expect the cyclical waves from tech to start to recover. We still have those contracts and the customers have the ability to rebuild those volumes. Your third question was about the UK bus strikes, I think. Yeah, having to quantify the impact of those. The one-off impact, i.e.
The impact of the lost revenue through the six strike days, down at profit level is roughly GBP 2.5 million. And in terms of the ongoing impact of the wage settlement, which was higher than we expected, we're factoring in another GBP 3 million next for expectations there. That is a number that takes the gross cost of the wage settlement and offsets the things that we believe will naturally happen as a result of having significantly higher wages. Two key things there. First of all, premium overtime starts to get reduced. And the second thing is, we're already seeing that those higher wages are closing the driver gap, so we're able to reinstate somebody more frequently on the high-yielding routes.
I'm still confident that we, with the UK business as a whole, will be able to make good on those, on that kind of shortfall. Certainly that's the target that I've been setting them up. I hope that answers your question, Charles.
Yeah, just a bit of a follow-up on that last point. To what extent are your hands tied in terms of fare increases by your deal with Transport for West Midlands? What sort of scope is there to reopen that?
Yeah. Yeah, look, it's a good question. We've been talking to the mayor and Transport for West Midlands. Those negotiations are ongoing. I'm not able to give any specific updates at the moment, but I think it's fair to say that everyone recognizes that the pot of money that was originally... BTIC is a big pot of money. It was originally carved up into buckets, one of which was related to fares increases. I think what we've seen is recognition that that pot of money may need to be carved up in a different way.
Clearly, if we can't come to an appropriate answer on funding, it doesn't make sense for us to take that funding over raising the fares, then we still have the ability to do that. At the moment, we're not seeing that as necessary. Those negotiations with Transport for West Midlands are very live. In fact, we were, as we expect, we were talking to them yesterday about this. I will give an update or I should have a much clearer position by the half year, but I think we've got significant levers to pull there. Charles.
Well, again, thank you very much.
Thank you. As another reminder, if you wish to submit a question, please press star followed by 1 on your telephone keypad now. Our next question comes from Joe Thomas of HSBC. Joe, your line is open. Please proceed.
Morning, James. It's Joe here from HSBC. just we'd be interested in your thoughts on route reinstatement. and specifically what it is you're targeting as we go through the summer and what we should keep our eye on. I mean, are you expecting to fill the entire gap this year or, I mean, what are the sort of moving parts within that? Then just looking back to UK bus, you talked about effectively about a GBP 5 million headwind from strikes, which is going to be one-off, and then GBP 3 million which sounds like it's more permanent from wage increases. Could you just talk around, you know, that sounds like it's being offset through the GBP 25 million cost plan that you've got here?
Is there any sort of color you can give on how that cost plan is allocated? I mean, Will the bulk of it is in the UK? When will you be in a position to give us some more detail, around the component parts of that cost-saving program?
Thanks. Thanks, Joe. Thanks for your questions. Okay. Let me start with the route reinstatement. I think when we said, when we gave the update previously, we aimed to, We were going to close the driver gap by a third, and then we closed the route gap by a quarter at year-end. My expectation is we're still targeting full route reinstatement for those contracts that we've retained during the summer. I can't sit here and tell you 100% certainty that we'll achieve full route reinstatement. We're certainly, that's the target we're setting ourselves. Contractually, and relationship-wise, there's no reason to expect that we can't get the drivers, we can't reinstate the routes.
I think what we've been really clear on is doing what we can to control what we can control. Throughout the bid season, it's been a relentless focus on pricing, and getting the pricing right for the renewing contracts. Still continuing to refine our driver recruitment process, but easing off a bit as we come towards the end of this school year. Ramping up with all the learnings that we've taken from the recruitment process so that we've got a fully planned route reinstatement target for this coming school year. I would say on that again, this starts to feel much more normal business as usual for us.
It is a normal thing in the school bus business that you lose drivers at the end of the school year and you re-recruit towards summer 'cause clearly we're not paying drivers over that summer period. What's been abnormal about the last, you know, the last year in particular was having to sort the significant driver shortages during the school year whilst reinstating routes. It feels more like business as usual, and therefore that's why we're aiming to recruit as much of that route back as we can. I will give you and everybody of course an update as we get more clarity on where that's going to land. Your second question, James, around the UK bus business. It's also about productivity program.
Again, let me say that in all our operations, and I would characterize UK bus as being very similar to this, part of the DNA of the business is to eat inflation. That's what we do. We're always seeking out the productivity improvements. It's always part of the annual budgeting process that we seek to find ways to offset the cost of inflation. Clearly, inflation this year is higher, but still, you know, the businesses are tasked with trying to recover as much of that. The group program is not just focused on the UK. The group, this is genuinely a group program. It's focused on 5 key buckets really. I mean, it's across the group.
You, none of this will be a surprise to you, but we're focusing on organizational design. We're focusing on productivity improvements. That includes, for example, the kind of wage and labor saving initiatives we've rolled out successfully in North America and transplanting those across the group. We're looking hard at procurement and the cost base. We're looking at digital enablement. We are very, you know, we're looking separately on how and where we can turbocharge some of the growth opportunities. It is a genuine group-wide program. It's there to help us as we move into a FY24 and give clarity in that FY23 as well.
The scale of, you know, the scale of the headwinds in UK bus it's a little higher than normal, but we always face some sort of challenge in eating inflation. I'm not too surprised. It's not the reason for reinstating a group-wide cost program on its own. I felt it was wise and the right thing to do to have something that recognizes the continued volatility that we face in the market. Thanks a lot for that.
Thank you. As a final reminder, if you wish to submit a question via the telephone lines, please press star followed by 1 on your telephone keypad now. We have a question from Ruairi Cullinane of RBC. Rory, your line is open. Please go ahead.
Yes. Good morning. I had a question on the UK, and I was wondering what your expectations were beyond a potential national funding settlement in bus beyond June of this year. Perhaps you could also sort of talk us through within the strong coach revenue growth, what contribution you saw from your airport routes.
Yeah. Thanks, Rory. The national and the national funding settlements in bus are still very live negotiations. I think we're looking at new funding streams, including potentially BRG 4. That is very much to the politicians and essentially we're not banking on receiving that funding. I think we would certainly hope that it's coming, and I think the industry is very clear that it is needed. We are focused obviously in the near term on the existing funding streams that we've got, including BSIP, making sure that we can access as much of that as possible in the right timeframe.
The negotiations on future funding are live and continuing, and we're playing an active role in driving those discussions. On coach revenue, growth, I think we see, certainly see the intercity routes were the first to come back, then followed by the airports. We are now seeing significant recovery in the airports routes. Whereas they were slightly behind, they are now tracking back towards where the intercity routes were. Maybe, a little. Signs of, you know, recovery, particularly at the London airports that we were probably lagging behind a little before.
That's now starting to come through a lot better and given our, given the length of our booking window, which is relatively short in that people don't tend to book too far in advance, you don't tend to get really early signals of how a key summer trading season's going to go until, you know, a few weeks out. Everything we're seeing in terms of the underlying passenger demand is positive.
Perfect. We currently have no further questions, so I'll hand back over to the management team for any final remarks.
Okay. Thank you. Well, thanks, everybody. Thanks for the questions and for your time today. I hope that that gave you the information that you needed and I look forward to speaking to you all soon.
Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect.