National Express CFO on his road to recovery

CFO IntJez Maiden, group FD of National Express Group

By Michelle Perry | CFO UK | Published 11:11, 12 June 12

NatExpSo much can change in four months, especially in the world of finance. Jez Maiden, group finance director of National Express, understands this. But he could never have anticipated that the capital markets would turn upside down in two short seasons. But change they did to the extent that a job offer in June 2008 may have been viewed somewhat differently had it been proposed in December 2008.

Nonetheless, that June Maiden had handed in his resignation as FD at Northern Foods and had accepted the group FD role at National Express, which was a profitable but highly geared company – but then so were many others at that time. When he came to take up his new post in November 2008, however, the world was a different, more complicated place.

Although National Express’s debt levels weren’t dissimilar to many public companies at the time (it had debt levels of around 3 to 3.5 times EBITDA in the summer of 2008) the market view of debt had radically altered. As everyone now knows, “Lehman’s happened”, causing banks to stop lending to companies and to each other, resulting in the first credit crunch in almost 100 years.

“The world changed significantly from a situation where having a company with strong profitability but relatively high debt was fine to where that was problematic. The company was the same. The macroeconomic environment changed,” Maiden says.

A week before he was about to start his CEO called him to say the business was fully drawn on its bank facilities. “We suffered enormously by having big exposure, in debt terms, to the euro and the dollar at a time when sterling was dropping very rapidly. That had put the company under tremendous strain. So when I joined we went through five or six steps in a long process of survival.”

Running on empty

Fortunately Maiden, aged 51, is a seasoned FD having been finance chief at Northern Foods, British Vita and Britannia Building Society before disembarking at National Express. Still, he says no one was prepared for the block on liquidity.

“That was the first time in my career that I could remember liquidity being so difficult to come by, and while you’ve got committed facilities. You’ve got to think about that refinance in 18 months’ time.”

In the past, he says, CFOs would have negotiated another facility or extended their existing one but that option was no longer possible. “Lehman destroyed liquidity and you had to work with the resources your banks were committed to,” he says.

Knowing this, the first thing he and the CEO did was to get a handle on cash and debt and cut back on spending. To manage this he put in place a process around weekly cash management and cash generation. They also began selling off “surplus” assets including a London bus business “which wasn’t core” and tackled the issue of getting out of a “very unprofitable rail contract” – the East Coast Rail franchise, which not only annoyed the Labour government at the time but also cost the company almost £100 million and damaged its reputation.

As if that wasn’t enough to contend with Maiden was achieving this against a backdrop of “quite a lot of management change”. Three weeks after the finance chief joined there was a change of chairman and within six months Richard Bowker has quit as chief executive. New boss Dean Finch joined in February 2010. Finch however had a background in public transport and so brought with him deep expertise and knowledge about the industry.

A hostile reception

The upheavals didn’t end there. Within a year, Maiden was faced with three hostile bids for the business. “We were in a weak position but it was a fundamentally strong business and people saw an opportunity.”

The CFO was no stranger to hostile bids, having been in the position twice before in previous roles, and his experience helped National Express repel the bidders.

“I’m pleased to say that given that was my third experience of being bid for, we were successful and managed to stay independent,” he says.

Around the same time Maiden completed a rights issue and because they already had a prospectus ready and had spotted a huge amount of credit in the bond market the board decided to do a bond issue as well. Anyone who has done either of these will understand the amount of work involved in doing both in such a short space of time.

The company set up a bond issue of £250 million in December 2009 and within 31 minutes of it opening National Express had an order book of £1.9 million so the issue was increased to £350 million. But as the company had lost its credit rating because of the trouble it had got into before the new management team came on board, the CFO made an agreement with investors that they would go and get their investment grade credit rating from the ratings agencies in the new year. If the agencies didn’t award them investment grade, National Express would pay a higher coupon for the bond issue. In March, the agencies duly gave the company its investment grade rating.

“We did it the wrong way round. But you have to be agile and proactive and take the opportunities as they come along,” he says.

There’s an expression Maiden says he remembers an investor quoting that he feels sums up National Express’s situation.

“‘Good management, bad business – the business will always win through’. In the case of National Express it’s a really good business and what we really needed to do was get the right management in place to make a success of it,” he explains, and it’s a mantra that has proved true at National Express. In February the group reported full year results to 31 December 2011, posting record pre?tax profits of £180.2 million on revenues of £2.2 billion, up 5.3 percent on 2010.

Today, the company boasts a strong balance sheet with long-term funding maturity and an improved gearing ratio of 1.9 x EBITDA. Final dividend rose 8.3 percent to 6.5 pence. “In just two years National Express has moved from reporting losses to the record profits we have announced today,” CEO Finch said in a statement at the time.

Over the past two years Maiden says he and Finch worked on a plan that has been “first and foremost” margin improvement. He lists their achievements contentedly: “A number of these businesses were undermanaged so we’ve increased our UK bus margin from 7.6 percent to over 12 percent over the two years. Our North America business was achieving 5.7 percent margin. We achieved 10 percent last year.”

But the icing on the cake, he says, was when the Department of Transport announced in March that National Express had pre?qualified to bid for both the Great Western and its existing Essex Thameside (c2c) rail operating franchises.

A moveable feast

With the power tilt from West to East these days you regularly hear CFOs talking about seeking out new growth opportunities in emerging markets, but despite a successful venture in Morocco (see International express, opposite), Maiden says that for now National Express is focused closer to home.
Most countries’ bus and rail operations are either state-owned or heavily subsidised, but the need to reduce government spending is convincing countries to liberalise public transport systems.

Indeed, the European Union has mandated that all member states liberalise their approach to public transport by 2018, legislation that offers National Express the chance to expand further into continental Europe. And the beauty of coaches, Maiden says, is that they are on wheels and therefore easily transportable.

The problem Maiden faces is not so much where to look for growth but how to narrow down the options in order to maximise growth potential in the least amount of time.

“The challenge for us actually is that two successful countries would soak up all our capital and management capacity for the next three years,” he explains. “The challenge is to find the countries you can be a winner in. You have to be very selective about where you want to be successful.”

This is not the first time Maiden has faced intense challenges. At Northern Foods he faced two profit warnings and together with the then CEO began an overhaul of the business, implementing a programme of asset disposal to save the core business before the company was eventually taken private.

Having come through two tumultuous years Maiden is looking forward to the growth phase. Despite not knowing the extent of the challenges that he faced when he joined National Express you get the feeling he may well have enjoyed the ride anyway.

His skills, experience and knowledge gained across a number of different industries have surely armed him well for the job, but Maiden understands that unexpected issues will always crop up. And the secret to dealing with these proficiently is by not getting bogged down but by “keeping your head” and recognising that “you’re going to work your way through 99 percent of them”.

His philosophy fits well with a transport company: you may not always take what seems to be the most direct route, but if you stay calm you’ll get there in the end. And it may turn out to be the best route after all.

International express

Despite the tough economic times, or rather because of austerity, the CFO is confident about the future outlook. And it’s not just in the UK that the company is faring well either. National Express operates Alsa, Spain’s number-one coach operator, which recorded a rise in revenues in its urban bus operation of 4 percent in the first quarter of 2012.

National Express also recently dipped its toe in its first emerging market when it launched in Morocco, where revenue grew 9 percent in the first three months of this year, the company reported on 1 May.

Although we regularly hear about foreign businesses acquiring British companies, we hear less frequently about the successes of British companies overseas. National Express is quietly conquering one of America’s most iconic symbols – the yellow school bus – and it is now the second largest school bus operator in the US with almost 20,000 vehicles.

With around 550,000 school buses operating across North America, around a third of the market has been outsourced because of local authorities’ needs to cut costs, so Maiden sees great potential for further growth too. “That’s a tremendous market opportunity to have,” he says.

The company has just completed the acquisition of Petermann, which was the fifth largest player in the US, “so we’ve been able to bring that business on board and add a couple of new states, Ohio in particular”, says Maiden.

They have also entered an adjacent market – the para-transit market which transports disabled and senior citizens – a market that is calculated to grow from 40 million to 80 million eligible people over the next 25 years.

Besides organic growth it is through bolt-on acquisitions, rather than large-scale corporate takeovers, that Maiden sees National Express’s future growth.

CV: Jez Maiden

Nov 2008-present: Group Finance Director, National Express Group
Sept 2005-Nov 2008: CFO, Northern Foods plc
April 2002-Aug 2005: Group FD, British Vita plc
Oct 2001-Mar 2002: Director of Finance, Britannia Building Society
Jul 1999-Sep 2001: Group Finance Director, Hickson International plc

photo credit: Heidi Williams,


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