- Profit recovery taking longer to deliver
- Dividend suspended
- North America bus sale to accelerate deleveraging
Shares in Mobico (MCG) reversed the best part of 30% to an all-time low of 61.5p in morning trading on 12 October after the bus, coach and rail services provider formerly known as National Express warned its turnaround was taking longer-than-expected to achieve.
This has prompted the FTSE 250 transport group to take ‘decisive’ action by suspending dividend payments and putting its North American school bus operations up for sale to raise money to help pay down debt.
GUIDANCE DOWNGRADED
In an update covering the third quarter to 30 September 2023, Mobico said it now expected to deliver full-year earnings before interest and tax (EBIT) in the range of £175 million to £185 million, well below the previously guided £200 million to £215 million range.
Whilst group revenues were up 10% year-on-year in the quarter, Mobico’s path to improving profitability has been impacted by higher costs in the UK, where it has seen slower-than-expected bus passenger number growth, and in the North American school bus arm, where driver hiring and examination costs have been greater-than-anticipated.
Following a strategic review, the North American school bus business is being readied for a potential sale', which analysts at Jefferies say has the potential to be ‘a material positive catalyst in accelerating the deleverage trajectory’ at unloved Mobico.
WHAT DID THE CHIEF EXECUTIVE SAY?
Mobico did report continued strong performances from its UK coach business and Spanish bus and coach unit ALSA, where third quarter revenues revved up 26% and 16% respectively.
The company also insisted its previously-announced cost reduction programme was on track and it had identified an additional £20 million of annualised savings.
Chief executive Ignacio Garat said he recognised that Mobico’s profits recovery would ‘take longer than we had previously expected. That is why we are announcing decisive actions to ensure we deliver sustainable profitability from our growing revenue base. Whilst our belief in the potential of the group remains strong, we will move at greater pace with new leadership teams in the UK and North America.’
Garat added: ‘Our actions to ensure a strong North America School Bus school year start-up positions that business well for a potential disposal which would accelerate debt reduction and increase flexibility for growth investment. We have therefore commenced preparations for a sale process in early 2024.’
He also stressed the decision to suspend the full year 2023 final dividend was ‘not taken lightly’ and the board would ‘continue to consider the dividend position as progress is made on deleveraging.’
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