National Express Group have confirmed that, pending TfL approval, they intend to sell both Travel London and Travel Surrey to Dutch newcomers NedRailways.
Travel London (which was, in part, formed from the remains of Connex' much-derided transport empire) are responsible for 36 bus routes in the capital and Travel Surrey for 30 more (including bus services for Kingston University), with services operating out of six depots in Walworth, Battersea, Twickenham, Beddington, Hayes and Byfleet.
On the surface the move is slightly surprising - National Express' bus operations currently turn a profit and Travel London recently successfully tendered for an additional TfL route (increasing their peak requirement by 31 vehicles from the end of the year) at the expense of First Group.
Dig deeper however and the motivation perhaps becomes slightly more clear - National Express' finances are severely stretched, and anything that reduces their debt can only be a good thing.
The firm's debt currently stands at about 3 times its earnings - and that's before interest, tax debt and amortisation (basically the cost of the inevitable depreciation of a company's assets). National Express also needs to refinance £484m of its £1.2bn debt by the end of next year - something that's not exactly easy in the current financial environment.
On top of all this, National Express have found themselves the unfortunate custodians of the East Coast Franchise. Negotiated back in 2007 when the outlook was far sunnier, the Franchise margins will be tight to say the least - growth in passenger numbers of around 9% was part of the forecast, but the current growth rate is well below that. Indeed the firm are currently trying to renegotiate terms with the DfT, and have even made noises about handing back the franchise completely (Virgin, who missed out in the original bidding, are lurking hungrily round the edges).
The deal may also suggest that National Express expect the London Bus market to tighten in the coming years, as TfL seek to find ways to cut costs.
Whatever the reasoning, its clear that there are tough times ahead for National Express, and given the firm's major presence in the arena of UK Transport, there'll be lots of people watching the company with a very careful eye.
Thanks to Timbobean for the spot.
Wouldn't it be amusing if NedRailways won one of the Scottish railway concessions?
ReplyDeleteIt'd need to be SPT ;-)
ReplyDeleteIt's worth noting that this is exactly what Stagecoach did a couple of years ago.
The reasoning for this is that contract services (all TL/TS's services are operated under contract to TfL or Surrey CC) are much more predictable and have much less scope for growth or decline than rail franchise or provincial buses - and hence are more attractive to pension funds, debt investors, etc who want a guaranteed return.
Just for the sake of clarity, National Express are selling their Travel London bus arm (which incorporates the Travel Surrey brand - see here) - they are not however selling their other local bus operations in the West Midlands and Dundee.
ReplyDelete@John B - NX Group's finances are somewhat screwed at the mo, so one might think that a steady business which at least contributes some profit to the Group might have a place - even if said profit might be squeezed in coming years...
@MT, the reason is simply that it's easy to value TL/TS even in the current market, because it provides a regular flow of income that isn't particularly recession-dependent.
ReplyDeleteHence, NX can sell it for cash to a risk-averse investor and use that to repay the large debts that fund its riskier, higher-reward businesses - which it would have trouble refinancing otherwise because the future income from those operations isn't clear.
Effectively, NX are making a bet that the economy will recover faster than their bankers think it will...
@John B - thanks for your comments. Yes, I can see now that - as you say - the Travel London business is easy to value, unlike other parts of NX Group.
ReplyDeleteI wonder what value one would/could put on the NX East Coast rail business... if any...
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