Annual Report and Accounts 2016 Bringing people together Our purpose Our customers are at the heart of what we do at National Express. Whether they are fare paying passengers, transport authorities or school boards, the mission is the same: to relentlessly meet their expectations. As a leading international transport company, we provide a crucial service by conveniently connecting people to jobs, education, shopping and leisure in an environmentally responsible way, through value fares. i See how we deliver on our purpose overleaf Unless otherwise stated, all operating profit, margin and EPS data refer to normalised results, which can be found on the face of the Group Income Statement in the first column. Normalised profit is defined as being the IFRS result excluding intangible asset amortisation and tax relief thereon. The Board believes that the normalised result gives a better indication of the underlying performance of the Group, by adding back this non-cash item, and it also allows better comparison of divisional performance which have different levels of intangible amortisation. In addition, unless otherwise stated, all pre-tax results and margin data refer to the Group’s continuing operations. Further details of discontinued operations can be found in note 11 to the Financial Statements. Constant currency basis compares the current year’s results with the prior year’s results translated at the current year’s exchange rates. The Board believes that this gives a better comparison of the underlying performance of the Group . Visit our Group website to read our latest news, access All definitions of alternative performance investor information and find out more about how we operate. measures used throughout the Annual Report are included on page 214. www.nationalexpressgroup.com Delivering on our purpose We transported 921 million passengers in 2016 As we always make clear, our Vision and Values are focused on meeting the needs of our customers. Our Vision is to earn their lifetime loyalty. For our existing customers this means consistently delivering the services that they want at competitive prices they can afford. For new customers it means demonstrating to them that we will provide the service they want in a convenient way while offering good value for money. HELPING TOURISTS EXPLORE A NEW CITY By bringing tourists to new destinations by rail or coach, or via our sightseeing services we help them discover new places ENSURING CHILDREN GET TO SCHOOL ON TIME A punctual bus service means children get behind their desks for the start of lessons GETTING PEOPLE TO WORK EVERY DAY Many thousands of commuters use our buses and trains to get to and from their place of work Spain and North UK Bus Morocco America UK Coach Rail HELPING FAMILIES GET TOGETHER ON CHRISTMAS DAY Our coaches run when other services are closed for Christmas, helping people to get together for the festive period LETTING SOMEONE ELSE DO THE DRIVING ON A NIGHT OUT Customers can enjoy a great night out with friends, safe in the knowledge that we will get them home later Contents and highlights Financial highlights Strategic Report 1 Financial highlights Group revenue (£m) ROCE (%) 2 National Express Group at a glance £2,103.7m 11.9% 4 Chairman’s letter 5 Investment case 2016 2,103.7 2016 11.9 6 Group Chief Executive’s review 14 The trends shaping our business 2015 1,753.8 2015 11.7 16 Our business model and strategy 2014 1,715.8 2014 10.7 18 Our strategy at a glance 22 Resources, relationships and responsibilities 32 Key performance indicators Dividend per share (p) Free cash flow (£m) 34 Risk and risk management 36 Principal risks and uncertainties 38 Group Finance Director’s review 12.28p £138.6m 46 Spain and Morocco 49 North America 2016 12.28 2016 138.6 52 UK Bus 2015 11.33 2015 111.0 54 UK Coach 56 Rail 2014 10.30 2014 164.8 Corporate Governance 58 Chairman’s introduction to governance Operating margin (%) Operating profit (£m) 60 Leadership 64 Board of Directors 10.4% £219.0m 66 Effectiveness 72 Nomination Committee Report 2016 10.4 2016 219.0 75 Accountability 76 Audit Committee Report 2015 10.9 2015 191.8 82 Safety & Environment 2014 10.4 2014 177.7 Committee Report 84 Relations with shareholders 86 Directors’ Remuneration Report 90 Annual Report on Remuneration 106 Directors’ Remuneration Policy Summary of results 2016 114 Directors’ Report 119 Directors’ responsibilities statement Normalised basis IFRS basis 2016 2015 2016 2015 Financial Statements £m £m £m £m 121 Independent Auditor’s Report Revenue 2,103.7 1,753.8 2,103.7 1,753.8 130 Group Income Statement 131 Group Statement of Operating profit 219.0 191.8 185.2 166.1 Comprehensive Income Profit before tax 170.1 148.4 136.3 122.7 132 Group Balance Sheet 133 Group Statement of Changes in Equity Profit for the year 142.3 121.6 120.0 109.1 134 Group Statement of Cash Flows Basic earnings per share (pence) 27.3 23.4 23.0 20.9 135 Notes to the Consolidated Accounts 200 Company Balance Sheet Net debt 878.0 745.5 878.0 745.5 201 Company Statement of Changes in Equity 202 Notes to the Company Accounts Additional Information • Group revenue increased by 10.6% to £2.10 billion on a constant currency basis; 212 Shareholder Information up 20.0% on a reported basis (2015: £1.75bn) 213 Dividends and Financial Calendar • Group normalised operating profit up 4.8% to £219.0 million on a constant currency 214 Definitions and Supporting Information basis (2015: £191.8m) 216 Five Year Summary 217 Corporate Information • Group normalised profit before tax rose by 14.6% to £170.1 million (2015: £148.4m) • Statutory Group profit after tax grew by 10.0% to £120.0 million (2015: £109.1m) with no exceptional items in either 2016 or 2015 • Year on year normalised EPS growth of 16.7% to 27.3 pence (2015: 23.4p) • Net debt increased by £133 million to £878 million, reflecting £116 million spent on acquisitions and growth capital expenditure and the retranslation of debt • Group ROCE increased to 11.9% (2015: 11.7%) • Free cash flow of £138.6 million, £27.6 million ahead of last year (2015: £111.0m) • Full year proposed dividend of 12.28 pence, up 8.4% year on year (2015: 11.33p) Annual Report and Accounts 2016 / National Express Group PLC 1 Strategic Report National Express Group at a glance A global transport portfolio with a growing customer base The Group operates in the UK, Continental Europe, North Africa, North America and the Middle East and at the end of the year we employed over 45,000 people and operated over 29,000 vehicles. Passengers made a record 921 million journeys on our services in 2016. The National Express name first appeared on UK coaches in 1972, and the Company was listed on the London Stock Exchange in 1992. Group revenue 3% by end market Spain and Morocco 28% 13% North America 42% UK Bus 14% UK Coach 13% Rail 3% 28% Operating profit by end market 14% Spain and Morocco 36% North America 35% UK Bus 15% 42% UK Coach 14% Rail –% 2 National Express Group PLC / Annual Report and Accounts 2016 Spain and Morocco: ALSA is the leading company in the Spanish road Revenue Bus and Coach passenger transport sector, and was acquired by National Express in 2005. £597.3m • ALSA With over 100 years’ experience, it operates long-distance, 2015: £502.2m regional and urban bus and coach services across Spain and in Morocco. Operating profit Apart from its bus and coach services, the £84.7m business also operates service areas and other 2015: £71.5m transport-related businesses, such as fuel distribution. i Read more p46 North America: Bus Our business in North America has two areas of activity: Revenue student transportation and transit services. • Durham School We operate in 34 US states and four Canadian provinces. £877.2m Services 2015: £683.2m • Stock Transportation The student transportation business operates through • Petermann medium-term contracts awarded by local school boards Operating profit • National Express Transit to provide safe and reliable transport for students, and is the second largest private operator in North America. £84.0m 2015: £66.8m Our transit business operates a number of transit and paratransit services across the USA. i Read more p49 UK: Bus National Express is the market leader in the UK’s largest Revenue urban bus market outside of London. Services are • National Express operated from nine garages across the West Midlands. £286.8m West Midlands We also run urban bus services in the cities of Coventry 2015: £286.4m • National Express and Dundee. Coventry Operating profit • Xplore Dundee In addition, we operate the Midland Metro light rail service between Birmingham and Wolverhampton. £35.5m • Midland Metro 2015: £37.5m i Read more p52 UK: Coach National Express is the largest operator of scheduled Revenue coach services in the UK. The business operates high • National Express frequency services linking more than 900 destinations £282.8m • Eurolines across the country. We are the UK partner in the Eurolines 2015: £281.2m • The Kings Ferry network, which serves 450 destinations across Europe. • Clarkes of London The Kings Ferry and Clarkes of London are also part of Operating profit the UK Coach business and are both long-established providers of private hire and commuter coach travel £33.3m services in London and the south of England. 2015: £32.3m i Read more p54 Rail We operate the Rhine-Münster Express and the Revenue* Rhine-Wupper-Bahn contracted rail services in Germany, • National Express and we have been awarded two further contracts to £61.3m Rail Germany operate Rhine-Ruhr Express services, the first starting in 2015: £2.4m June 2019 and the second in December 2020.