Divisional review

Spain

Revenue for Spain was £546.8 million (2008: £483.1m) and normalised operating profit was £76.5 million (2008: £83.3m). In local currency, revenue was €612.9 million (2008: €608.5m) and normalised operating profit was €85.7 million (2008: €105.0m).

2009 saw an 8% reduction in Sterling profitability in our ALSA business in Spain. In a challenging economic environment, this was a creditable performance by a robust business.

After many years of rapid economic growth, Spain has been impacted by the global recession. Spain is not expected to emerge from recession until the end of 2010 and unemployment is close to 20%. The recession has impacted our ALSA business, particularly in discretionary and leisure travel, with underlying revenue 5% lower.

Nevertheless, as the largest private bus and coach operator in Spain, ALSA has the resources, scale and management expertise to continue to prosper in a more challenging economic environment. In line with Group strategy, the Spanish business was successful at maximising cash generation in 2009, delivering greater cost savings and both protecting and selectively growing revenue.

ALSA’s strength across long distance, regional and urban travel was key to protecting performance in 2009. Long distance was hardest hit, with underlying revenue 8% lower than 2008. By contrast, urban operations saw underlying revenue remain flat. Revenue on regional concessions was mixed, dependant on local economic conditions, with Asturias and Andalucia hardest hit.

Operating in a stable regulatory framework allows ALSA to plan for the long term, whilst retaining short-term flexibility in service supply. During 2009, 80% of the country’s regional concessions were extended to periods between 2019 and 2034, benefiting the majority of ALSA’s routes and allowing plans to be made for further long-term investment in services and fleet. None of the Group’s Spanish concessions is due for renewal until 2012/2013.

Competition from high speed rail continued on the Barcelona and León corridors to Madrid. However, these represent only 5% of ALSA’s revenues. The next high speed development is on corridors where ALSA has less exposure and the implementation of new EU rules from July 2010 will see rail ticket prices set without subsidy.

ALSA has continued to invest in service improvements with a 25% increase in its premium class services which provide higher margins. By contrast, for value-seeking customers, a ‘Friendly Fare’ offer was launched to mitigate the effects of the recession. Buying tickets was made much easier - web sales grew rapidly, three million passenger journeys were made using reservations sent by text message and we started selling tickets through 8,000 bank cash machines; all supported by ALSA’s first TV advertising campaign.

ALSA was very successful at managing down costs in 2009. €20 million of annualised cost savings were delivered in total, including people, procurement and fleet savings. During the year, a 5% reduction in kilometres operated was achieved, as ALSA adapted to reduced demand. All of this has been achieved while improving safety - there was a 15% reduction in the total number of accidents - and increasing customer satisfaction scores.

Selective organic growth continues despite the recession. Non-regulated business, such as school and company transport, grew, as did the event business. 2009 also benefited from the first full year of the Bilbao urban business acquisition.

ALSA operations in Morocco continued to grow and now account for 5% of the division’s profitability. ALSA has provided urban bus services in Marrakech since 1999 and in December won a similar contract for the city of Agadir, expected to add €16 million of revenue from 2011. Morocco is a stable and attractive market with significant growth potential, as a result of an increasing population and improving economic outlook.

ALSA’s experience both within and outside Spain is also proving attractive to potential partners and customers. Over time, more urban bus services in Spain are expected to be outsourced. New business opportunities – for example, growth in urban tramways – will provide new tendering opportunities. ALSA Rail already manages a tramway in Málaga and helps manage the Madrid Light Railway. Transport development in the Middle East and changes to regulation across much of Europe are also expected to create new opportunities.

While 2010 promises to provide another difficult economic backdrop, ALSA will continue to adapt to its markets, drive cost efficiency while benefiting from cheaper fuel hedges, and explore new growth opportunities.

Revenue
£546.8m
Normalised operating profit
£76.5m

Spanish concessions provide long-term stability

For many customers in Spain, the bus and coach market is an essential public service, even though many of its operators, like ALSA, are privately run. Bus and coach have a greater market share in Spain than in many countries, with rail travel less developed. ALSA leads the way, with the largest share of the privately operated coach market.

The concession system in Spain provides for long-term investment. Each concession is granted for a given route or area, on an exclusive basis, typically for up to 15 years. Prices are regulated and the stability of operation allows us to invest in improved services and fleet.

ALSA has 26 national, 137 regional and 24 urban concessions. During 2009, 61 of ALSA’s regional concessions were extended by agreement, representing €92 million of annual revenue. With a strong track record of customer service and performance, ALSA routinely wins and renews concessions. Pressure on city council budgets may see future outsourcing to private operators, whilst deregulation in Europe drives greater interest in the Spanish model.