Earnings Transcript for NEX.L - Q4 Fiscal Year 2023

James Stamp - Chief Financial Officer:

Jose Ignacio Garat: Good morning, and welcome to our 2023 Full Year Results and Q1 Update. Thank you again for your understanding and waiting for this. We are pleased to have completed the supplementary enquiries around German Rail that were deemed necessary, and James will walk you through the conclusions of that, and the [weather] Group performance in a few moments. Before that, I would like to share the key messages that we have taken from what has been a more challenging '23 than we have hoped or expected. In short, our story is one of continuing positive demand drivers, but with profit recovery and therefore, reduction in net debt somewhat slower than we had hoped. Yet 2023 has been a year in which important underlying progress has been made in the context of an evolving and challenging market where Mobico has adapted and acted decisively. The fact that demand and revenue growth remains healthy is certainly encouraging, and we see that continuing as well as delivering a strong new business conversion and healthy margins on ROCE, we're also retaining and successfully mobilizing important contracts that both drive revenues and validate our customer offering. Nonetheless, financial results have been disappointing. The lag between the time when wage rates are agreed and implemented, and their subsequent recovery through higher prices does have an impact on our results today, albeit those higher costs will be covered. The profile of inflationary pressure, followed by pricing recovery is likely to be similar but somewhat tempered going into 2024. We will now also absorb higher cost in relation to our German Rail business than we had previously budgeted. In that mixed environment, the actions that we have taken are crucial to progress and to successfully leveraging our strength. New leadership in North America School Bus and in UK & Germany have already made a notable impact. In both businesses, there is a new ambition and commercial rigor being brought to bear through a much clearer direction and leadership and a stronger and more effective execution. Behind these specific pressures, it is also important to understand that our 3 businesses are at different stages of recovery. ALSA has produced another record result in its centenary year and is expanding its interest successfully. The team has delivered spectacularly over a number of years. North America is making real progress, having launched its most successful school year start-up for many years, and it's already moving towards another. Transit and Shuttle have been successfully combined into one operation, whilst also managing to navigate a sharp decline in revenue from a key technology customer, partly by establishing a presence in new segments and geographies. UK Coach has also been encouraging -- also -- having also benefited significantly from rail strikes. As we will discuss later, NXTS, which is part of UK Coach, has suffered from continuing weakness in its key markets, and the ambition is to at least to stop losses during '24. We're addressing all options to achieve that. And UK Bus is refining its model to ensure our business delivers for all our stakeholders, including our shareholders to ensure that the risk-reward balance of the model is sustainable. And I will come back to that later in the presentation. And German Rail remains under pressure for -- from what are industry-wide challenges, particularly regarding driver availability and energy cost. Our very successful Accelerate efficiency and organizational design programs have delivered to plan in '23 and are on track to deliver the targeted savings in '24 and beyond. We believe there is continued scope to address the structural cost base of some operations further and thus, the launch of Accelerate 2.0. Markets constantly evolve, and we need to be living ahead of those changes, and that's another reason why management changes were so important and why they have already made such a big difference. Preparations for the sale of the North America School Bus division are progressing well, key outcomes, which underpin the continued recovery in that division such as the result of the current bid season, the level of agreed rate increases across the contract portfolio and further progress on driving recruitment will be known by the end of the bidding season. And we have taken the conscious decision that this will be the optimal time to run a process and crystallize value with a view to conclude the process by the end of the year. And finally, for now, we will describe how full year 2024 adjusted operating profit is now expected to be between GBP185 million and GBP205 million and why the Q1 trading performance support that outlook. With that, I'll hand over to James to walk you through more of the detail.

James Stamp: Okay. Thanks, Ignacio. The story of this year as a group with passenger growth and pricing really driving the top line. But we can't escape from the fact that we have a portfolio of businesses at different stages of recovery and that inflation has not yet been fully recovered. So our revenues grew by over GBP340 million or 12%. We saw adjusted operating profit reduced by GBP29 million on prior year. This is the net result of significant benefits from pricing and volume and the in-year benefits from our Accelerate restructuring program, not being enough to fully offset both a reduction in COVID funding of over GBP100 million and inflationary cost increases of around GBP130 million. Note that adjusted operating profit of GBP169 million is after a onetime noncash IFRS 15 contract asset adjustment of GBP10 million in German Rail, which I will address later. What's clear from these results is that costs have risen more quickly than revenues. We're beginning to address that with both pricing actions and Accelerate, and I'm confident that the actions we're taking will recover profitability in future. However, the impact of lower adjusted operating profit, higher interest costs of approximately GBP25 million and an increased effective tax rate has resulted in a reduction in the earnings per share of 10.5p to 4.5p. Free cash flow remained healthy and broadly stable on prior year, and net debt was also stable, although covenant gearing increased as a result of reduced EBITDA to 3.0x, but still well within our covenant test limit of 3.5x. ROCE was down slightly on prior year at 7%. Although significant progress has been made with new wins, as Ignacio discussed later, we need to see profits on our existing portfolio increase. On a statutory basis, the group's operating loss was better than the prior year because as expected, there was no impairment charge for ALSA this year. However, statutory profits continue to be impacted by restructuring charges and the impact of onerous contract provisions. So this slide sets out in more detail the big building blocks of the movement in adjusted EBIT from GBP197 million in 2022 to GBP169 million in 2023. Working from left to right, the first orange block shows the reduction in COVID funding of GBP105 million. Now this has been more than offset by underlying growth in the business. The next 2 gray bars show the operating profit impact of volume increases, essentially more passengers and increased service levels from contracted work and the impact of pricing recoveries, which includes 3 main thing. First, the benefits from repricing our US School Bus contracts effective from the new school year's start-up in September 2023 and the annualization or run rate benefits from the equivalent increases in September 2022. Second, the ticket price increases in UK Bus affected from July 2023 -- sorry. And third, continuing effective yield management across the rest of the business, but predominantly in our U.K. and Spanish Coach operations. So pricing and volume together benefited adjusted EBIT by GBP202 million. However, cost increases added GBP130 million to our cost base, of which approximately 55% is driver wage inflation. We've made good progress in recovering this cost through pricing and the in-year impact of our cost reduction programs with Phase 1 of Accelerate delivering GBP15 million of in-year benefit, in line with our expectations. Finally, the impact of the adjustment to the German Rail IFRS 15 contract asset in the year means that full year EBIT of GBP169 million was after absorbing approximately a GBP10 million charge. Note that this charge principally relates to the impact of changes to assumptions about future profitability of our RME contract and GBP10 million is effectively the in-year catch-up, which we do not expect to reoccur. However, overall, there is clearly more work to do as we have not made sufficient progress to allow our strong top line growth to flow to the bottom line. So this slide shows the divisional breakout of revenue and profit performance and's I think it illustrates that we have businesses in varying states of recovery. ALSA delivered another excellent performance in its centenary year with the business going from strength to strength. Revenues were up us were up 19% and operating profit up 29% to GBP137 million with growth across all lines of business and with exceptional performance in long-haul as the business quickly adapted to capture the benefits of multi-travel voucher and young-summer discounts. North America saw top line growth of 7% as a result of pricing recovery and route reinstatement in School Bus. Now pricing benefited from 13% uplift on the 40% of contracts up for renewal in the year and the annualization of the price increases pushed through in FY '22. However, profits lagged prior year as a result of 2022, benefiting from GBP44 million of CERTS funding. Margins for the year in North America and particularly School Bus are clearly far below where we expect them to be. But importantly, the final quarter of FY 2023, which is the first quarter that benefits both from school year '23/'24 reinstatement and the benefits of pricing on 40% of the portfolio at the beginning of that school year showed a significant improvement and is much more representative of our expectations for the school year '23/'24. In fact, the improvement in Q4 was approximately $8 million, net of wage increases and additional driver training costs better compared to Q4 of 2022. That Q4 exit rate and a further expected pricing benefit of approximately GBP4 million for school year '24/'25 translates into a GBP20 million annualized upside for financial year 2024 compared to financial year 2023, noting, of course, that the school bus business is highly seasonal. In the U.K., we saw revenues increase by 15% as a result of passenger growth in both scheduled coach and bus with Bus division reaching 90% of pre-COVID commercial passenger levels. However, profits in the U.K. division were down by GBP2.1 million, impacted by a driver strike and a subsequent 16.2% driver wage settlement in UK Bus effective from January 2023. And the delay agreed with TfWM and pushing through ticket price increases, which were actually implemented in July of 2023. And finally, the continuing losses in the NXTS division. GBP15 million of additional benefit during rail strikes in UK Coach did mitigate that downside to some extent, however. Our German Rail division saw revenues drop by 5% with profits down GBP17.4 million year-on-year. And let me turn that to that now. So in Germany, the audit is now complete. And while the delay was not welcome, it was important that we have time to complete our work. As we said previously, the main reason for the delay to the audit in the context of the significant movements I will talk about in a minute, was additional work required to validate the assumptions made in prior years remained valid given what was known at the time. This work has resulted in a restatement and an increase to the prior year onerous contract provision of GBP25 million. In addition, there was a further delay to allow time to assimilate the impact of the German Federal Statistical Office publishing in March 2024, restated values for the years 2021 to 2023 of energy indices that are used to calculate our energy cost recoveries. So before we come on to the financial impact, I think it's helpful to understand the commercial context. There are 3 main in issues fundamentally impacting our German business

Jose Ignacio Garat: Thank you, James. As you can see, it has been a very busy year with much of our time concentrating concentrated on addressing some significant challenges. However, the business have also been very careful to continue with our focus on delivering against the Evolve strategy and more importantly, against the specific ambitions embodied by that strategy, achieving the highest standards in safety, reliability, environmental standards, customer satisfaction and being the employer of choice will ultimately deliver repeatable commercial success. Across these categories, the business continues to improve, and we are confident that the financial returns will follow. Moving into how we have delivered on pipeline and how excited we are that this will be a key building block to sustaining the top line growth. Let's start by retention. Well, before you can win new business, you first have to retain the business you already operate. Our overall contract retention rate across the group is approaching 100% with only non-regretted losses in the school bus business, taking that figure down very slightly. This, I believe, is a great achievement. ALSA alone delivered GBP165 million in key retentions with the U.K. business also winning a strategically important agreement serving both Luton and Dublin Airport. Winning has to then be followed by successful mobilization and execution. So it is important that we have maintained our track record in that too. When we look at the pipeline conversion, I am very pleased that we're also winning new business as we gradually convert the opportunity pipeline into contracts and revenues. These slides give -- a picture of the projects we have won and most importantly, describes continued momentum, both in the number of projects secured and the margins achieved. Conversion rate continues to be high at 20% with 43 new contracts won with annual contract value of GBP126 million and GBP1 billion of total contract value at 12% EBIT margin and 23% ROCE expected. Although it might appear as though '23 was a weaker year. 2022 results did include the award of RRX Lot 1 within our contract value of GBP90 million. I would also draw your attention to the important acquisitions we have made for ALSA. These are relatively small but strategically important additions to their business where ALSA leadership has identified clear strategic and synergistic opportunities. Since the year-end in March 24, as mentioned, we have completed the acquisition of CanaryBus, significantly increasing our presence in the Canary Islands. It represents another important step into adjacent tourism market, which accounts for about 2/3 of its EUR70 million of revenue. They have 800 vehicles and they transport 13 million passengers per year. And finally, when we look at the existing new business pipeline, all of this means that we have constantly replenished pipeline of the -- pipeline of opportunities, and it remains significant at GBP2.5 billion, comprising a mix of contract bid opportunities and selected M&A targets. Again, as we have mentioned before, the largest balance of organic pipeline in both asset-light prospects, a direction the group has been moving in over recent years, which brings me neatly onto ALSA's performance in 2023, whilst celebrating its 100th year, ALSA delivered another record performance with growth across the business. It serves as a benchmark for the rest of the group. Passenger numbers have reached a new high at GBP589 million, up 13% on '22. We retained on one significant business whilst in strengthening our key hubs and expanding in new sectors, including the health care transport and new cities as well. And more than 65% of our long-haul revenues are now digital sales with a new center of innovation established through the year. The key differentiator at ALSA over a number of years has been the quality of the team from senior leadership right through the organization. The good news for the [indiscernible] Group is that we now believe we have a strong management teams across all the 3 divisions. The first of those being North America. Despite the announcement of our intention to sell School Bus, we remain just as ambitious for this business as we are for the any other business that we have, and it has been actively managed to deliver against those ambitions. The new team continues to drive for excellence and has already brought more rigor around operational effectiveness. School Bus, therefore, has made a big step forward operationally, delivering the best every school year start-up for school year '23/'24 and it's heading for another successful bidding season this year. The additional early wins of new business for next year, circa 450 new routes, offsetting expected churn is testament to the progress. And the successfully implemented 13% price increase in the year is a measure of their strong relationship with customers and the quality of our service. I am truly delighted at how Tim and his team have been able to make such early and important improvements in what is a large and complex business. And that work is continuing at pace to improve the platform and its inherent value. In our North American operations, the combination of the Transit and Shuttle businesses into one operation was also an important milestone, successfully completed during the year as it establishes a strong platform for growth and improved profitability. Offsetting significant weakening in [indiscernible] from a large technology customer, the Transit and Shuttle team have also grown successfully into other segments and delivered some encouraging momentum on the underlying basis. Transit and Shuttle has delivered 32% of the group contract wins and 46% of the total contract value at expected 10% EBIT and 31% ROCE. Also, the restructuring of the sales team and the introduction of the evolved reinvigorated sales processes have led to building a stronger pipeline of new opportunities and delivering solid conversion rates. It is very encouraging to see that from a historical growth in transit base on acquisitions, we are now delivering growth in transit with new contracts won like the ones in Charleston, North Cook, River Valley, and this is a testament of what Evolve is delivering and of Mobico's strong credentials in bidding, planning, mobilizing and delivering safe and reliable mobility solutions. Additionally, all operational KPIs have shown improvement year-on-year. And if I move to the UK, where we made our other key change in leadership when Alex Jensen joined us to lead UK and Germany in September. Alex has recently -- has already made an impact both in our business and the weather industry. The UK Bus and Coach market is a dynamic and competitive sector, which often requires a different approach to deliver the sustainable profitable growth that we target. I'm pleased to report that the fresh view and considerable experience in managing complex businesses that Alex brings is already having an impact. In July, the UK Bus and Coach businesses were combined into one UK, structure, allowing important practical efficiencies to be realized. As is the case, every was in the group, the UK has succeeded in attracting new users to its services with Coach delivering a 25% increase in passenger numbers along with an improvement in yields. Coach also retained 2 crucial contracts that I mentioned for Luton and Dublin airports in a very competitive segment. In UK Bus, the successful implementation of the 12.5% rate increase has helped to mitigate inflation, albeit after a lag. Aside from dealing with Germany through the year-end, much of Alex's time has been spent on revisiting the strategy and its assumptions in the business model in the U.K. National Express is a leading player in the sector and is in a great position to grow as the market evolves. However, as James has outlined, unit cost has been allowed to grow faster than revenues. And it is imperative that we keep a clear focus on efficiency without damaging or differentiated offering if we are to prevail in any market. Now I'll talk a little about the challenges facing our UK business. The greatest challenge facing the UK Bus business is rebalancing the risk/reward structure in a way that delivers more equitable and more sustainable commercial arrangements. For example, the bus operators group is working to establish a pricing mechanism that will automatically look to cover industry-related inflation factors. But more fundamentally, our business is preparing for a possible move to greater franchising across the UK, making sure that we are best placed to prosper in that market structure too. Whatever the market structure, we continue to focus on the commercial viability of our network. After some losses at NXTS, UK Coach is resetting its structural cost base with a clear focus again on cost and revenue per mile and is executing on a plan to take NXTS to breakeven at worst and a review of the NXTS resulted in a decision to close 2 depots. At the same time, the business is leveraging its strength in the market to accelerate the model shift from trains and cars to coach. And finally, Germany, we have already talked a great deal about Germany. The impact higher than expected costs had on profits, particularly driver shortage related penalties has been clear to see. The good news is that our customers, the passenger transport authorities, PTAs are also keen to find an equitable solution to what has been an industry-wide problem, and we remain committed to supporting them. The conversion of the RRX1 contract from being on an emergency work basis on to normal terms, has gone well, although margins are impacted temporarily by driver shortages, there that result in penalties. In Germany, the clear priorities are already being actively pursued. Plans to recover the driver shortage are well advanced, but it will take some time to -- for the issue to be finally resolved with a training typically lasting 12 to 18 months and discussions with the PTAs are well underway. As James mentioned, actions have been taken to reinforce controls over all aspects of a very complex long-term contract accounting business. And that brings me to the conclusions. 2023 has been a challenging year, by the year in which important underlying progress have been made in the context of an evolving market where Mobico has adapted to the reality of post-pandemic world and address notable external headwinds, acted decisively to adjust the business model and cost structure to be fit for purpose. Accounting issues in Germany are closed and behind us, and Evolve is delivering significant organic growth, and we are well positioned to capture future growth opportunities. Most importantly, we also continue to believe that ALSA is a truly world-leading business, consistently delivering strong organic growth in revenues and profit as well as gradual and successfully diversifying into adjacent markets. North America is already in an encouraging recovery trend and operational improvements being delivered across the group, but particularly in those businesses with new leadership are already making a difference. Communities around the world will increasingly depend upon good quality transfer infrastructure being provided by companies like Mobico. As we lead the model shift from private cars into public transport, we are determined to remain a permanent solution provider in this market, but also make sure those highly rated services generate appropriate return for all the stakeholders. And to conclude, I'm very confident on the long prospect of the business. And finally, before we go to Q&A, you will have noticed that James Stamp, our CFO, is leaving us. James has been with Mobico for 7 years and has been a great colleague whose commitment and contribution I have always valued enormously. And I would like to thank him for that. The last 18 months or so since James took on the CFO role has been an eventful and challenging period for Mobico, and a lot of good work has been done to put Mobico on a more solid foundation than it was before. James, as announced, will stay with us to complete a smooth handover to our new interim CFO, Helen Cowing, you will have the opportunity to meet in due course. With that, I thank you for your attention, and we will go now to Q&A.

Q - Gerald Khoo: Gerald Khoo from Liberum. Three, if I can. Starting in the UK, profit margins pre-pandemic were comfortably in the double-digit percentage range. Obviously well below that at the moment. Is there a path back to double-digit levels? And if so, what do you see as the key building blocks and what's the sort of rough time line? Secondly, in North America in relation to Shuttle, I think you made reference to -- I think you said a loss of revenue from a large tech customer. I wasn't sure whether I heard that correctly. Could you sort of elaborate on what that was? Was that a loss of the entire contract or a loss of one-off and number of contracts? Or what was the reason behind that loss of reduction in revenue? And finally, on CapEx, you made reference to 0.9x depreciation going forward. Why is below 1x sustainable?

Jose Ignacio Garat: So first, 3 questions, so the first one on the UK. Clearly, the building blocks is for -- the first one is the first increase, and the second building block is the network, the size of the network. The first one, that within the enhanced partnership, we took the decision -- we have the neutral objective with the transfer West Midlands to -- well we have the funding to freeze the fares to allow the passenger growth. And actually, it was quite successful for the time because we were well ahead of the rest of the industry. Now with that pressure that we saw last year in terms of the wage inflation, obviously, that was not sustainable, and this is why we had to renegotiate, and we had that first increase in July 3. So right now, as I mentioned, the bus operating group is working with an external party to make sure that there is a process to increase the fares. And that is part by the way of enhanced partnership agreement -- that needs to be resolved. The second one is the network. We do have in '24, a constraint because of the funding, not to reduce more than 90% of the existing network pre-pandemic. That constraint will disappear December or January '25. And therefore, we're working to have plans in alignment with the transfer for West Midlands on what that network should look like to make sure it's well balanced the risk and reward. That's the U.K. The second question -- North America -- yes, North American shuttle. That is a very well-known and announced layoffs of a very big technology customer. Basically, it was a declining -- 50% of the revenue that we had in the past. We have not lost that customer. It is -- and actually, we have renewed with that big customer for the next years. And it was around -- in terms of revenue, $25 million. But again, Transit and Shuttle, despite that impact, managed to grow above 10%.

James Stamp: Yes. So the -- I'll just add to that. I think the -- we haven't lost any contracts, Gerald. There was a reduction of volume effectively within a call off contract. So I think as the -- as people do return to the workplace and the campuses, we'd expect that to come back, and there's always some signs of that happening. Your final question, do you want to pick one on the CapEx point, why below 1x depreciation? I think there's 3 reasons for that, Gerald

Joe Thomas: Joe Thomas from HSBC. You've -- in the statement, given some long-term targets, although you didn't talk about them in the presentation, can you just -- back on the sort of building blocks you're talking about, can you just talk about how you expect to progress towards those 2027 targets? I'm mindful that there are some -- there are some puts and takes in there. I was wondering, especially around things like voucher removal in Spain, and concession renewal in Spain, what sort of things you've built into there and how that plays through over time? Second thing, U.S. student -- can you just give an idea when you'd expect normally, if it's held in-house, that business to return to pre-pandemic profit margins or pre-pandemic levels of profit? I'm not entirely clear on that. And then finally, just on the -- what you were just talking about with respect to the negotiations with the local authority in the West Midlands. I just -- well, I mean, how does that work in terms of -- presumably, you've got a profit margin target in mind? Is that the sort of starting point? And then the subsequent negotiations continue around that. So that ultimately, if you don't get your desired objective, which is presumably double-digit, you cut capacity from that network.

Jose Ignacio Garat: Okay. If I go to the long-term ambitions, let me run very quickly through it. So the revenue, nothing has changed. It's GBP1 billion. We have been clear on what sort of revenue we need to achieve, which is GBP3.8 billion. And as you see, there's a strong growth. So we're well positioned for that. On the operating profit is GBP300 million, which is very aligned to our original ambition. But in that respect, it's a sequential improvement. What you should expect, not linear but a sequential improvement. In that context, you mentioned how these sort of things, the concession renewals in Spain, et cetera, could impact? The way we see it at this moment in time, given the process where it is in the parliamentary discussions in Spain is that this will happen until -- probably 2026, although they are progressing. So in that it needs to be approved the new law, a sustainability law. Then you have up the approval of the model, then you have the remapping, then you have the agreement that needs to be done with the regional communities, autonomous communities and then the bidding, so it will take until 2026. We do see a lot of increased demand in Spain. It is true that -- the sustainable law in same devices, a lot the move from private cars into public transport. We see that somehow probably the multi-voucher could be changed, but there will be another incentives coming for sure because the government has set very, very aggressive targets for decarbonization. So we see that underlying passenger demand present. So that was to your questions regarding the sequential improvement on EBIT and how could that be impacted? Obviously, in that sequential improvement, you will see the improvement in North America and improvements in the UK. Then if I move to free cash flow, here is where we have changed the definition to make sure that it also includes, for clarity, growth CapEx and M&A we have slightly changed. The original one was GBP1.25 billion. And now that will be like-for-like GBP1 billion. And what we expect is to produce cumulative GBP300 million between '23 and '27. And then nothing has changed on the covenant debt -- net debt and covenant EBITDA with 1.5 to 2x by '27.

James Stamp: So just to add to that. I think, Joe, what set out in the bridge on Page 14 of the presentation was the development of the FY '23 to FY '24. You asked specifically about the kind of the headwinds. There are headwinds there, predominantly from UK Coach, rail strikes from the ALSA young-summer discount and a reduction in UK Bus funding. Together, that's around about GBP40 million of headwind. But we more than recover that with pricing and continued volume growth. And it's really clear to me and to Ignacio that we as a group, we don't have a revenue or top line problem. We've got to make sure that, that top line flows through to the bottom line. With the actions we're taking on pricing and restructuring the cost base, you will see sequential growth in profit in line with those targets.

Joe Thomas: Would you we'd like to comment on the negotiation with TfWM?

James Stamp: Yes. So the TfWM negotiations, I think it is -- you asked again whether we've got a target profit percentage in mind. We don't actually, we have a target return in mind. And we don't really mind how that comes. It's got to be a return that's in line with risk and reward. Where we are at the moment in FY '24 is we're still we're in the final year of the existing funding agreement where we've had limited ability to cut or make changes to the network and a bit of friction, frankly, in our ability to increase prices. From FY '24 onwards -- from FY '25 onwards, those restrictions drop away. We're confident that we'll have changed the mechanism that pricing will almost be automatic recovery of inflationary costs, and we do have the ability to reduce the networks. And look, it's not necessarily in anybody's interest to start hacking out a network sustainably. We've got to find the right balance between the network size and the amount of subsidy that TfWM is going to pay. And I think those discussions will continue as they have been historically to be constructive, but '25 is a bit of a reset year for that point. North America Yes. Look, I talk with the profit margin Yes, I'll take it. I mean I think it is possible, Joe, but it's not possible by doing things in the way that we've always done them before. I had a clear objective of Tim and his team is to fundamentally is to change the way that we deliver our services in the U.S., and that does mean a real rethink which is part of Accelerate 2 about how the CSC, which is the depot structure in the U.S., is structured to support the delivery. I think that it's a slightly longer burn, but it will be supported by when the rollout [indiscernible] is finally completed to give us the absolute grip on wage control. So is it going to get there in '24? No. '25? No. But I think that it is certainly possible, and it's absolutely what we're striving for.

Ruairi Cullinane: It's Ruairi Cullinane, RBC. Firstly, could you indicate how sizable a provision reversal could be if your negotiations with German PTAs were successful? Secondly, I'm interested in learnings from German Rail for future bids and if there's anything you particularly aim to avoid signing up for in future contracts? And then finally, could you remind us why school bus remains the best business to sell as opposed to another business or your entire North American business?

Jose Ignacio Garat: Okay. Maybe I can take the lessons learned from Germany and then the school bus and then the provisions there -- okay. Lessons learned. I think there are many. First, in terms of the bidding error that was -- that happened in 2015, we did learn a lot. And since then, since significantly improvement has been made, in fact, the RRX1 had a much better protection, which indices that -- which are transparent and reflective of true cost. And we also need to make sure that we think ahead and try to protect against any radical market structure changes. And again, that discipline came through because there were other lots that we did bid for them, but we remain very, very disciplined and we didn't cross any line. I guess is to expand the levels of controls an understanding of the sensitivities of critical inputs of the models to more people than the local people. So the local division U.K. and Germany, but also the central and the group. And I guess more frequent review of assumptions. And above all, I think it is having a more robust evidence and documentation of the critical accounting judgment of main inputs. James...

James Stamp: Yes -- The key learnings here, I think -- we had expected that the indices gave us decent coverage of energy based on what we were seeing. I think we'd be more skeptical in future about whether indices really do provide you the protection you're asking for. And what you'd be looking for is contractual ways of rebalancing contracts, shed things that are not outside of your control and which you're not being paid to manage, move against you. I would point out that in the new contract that we entered into with RRX1, in line with -- that has moved to a much more sustainable index already. But also all of the contracts do control -- contain provisions to rebalance the economics if things move against you. So far, we haven't needed to enforce that legally. We've done that through constructive negotiation with the PTA. I think -- but that clarity on what rebalancing really means and what the triggers for it are should be really clear in any contracts we signed in the future.

Jose Ignacio Garat: Regarding the School Bus, why School Bus -- first of all, the School Bus is a high-quality asset that we have. It is a market leader, but it is capital intensive. So we believe that as a group, we have other opportunities where we can have a better return on capital employed. And the school bus business can thrive and grow faster with another owner. So that's basically what I would say. And then we move to the -- results of the negotiations.

James Stamp: Yes. So the -- I don't want to discuss the kind of the potential for the outcome of the negotiations with the PTA because they are live. And I'm not going to [indiscernible] those into all the different bits of the contract we'd like to renegotiate. But to just give you a bit of a sense for what we're looking at here of the increase in the provision, probably GBP10 million of it was due to a change in the discount rate or risk-free rate. So that's a noncash impact. Probably about GBP20 million to GBP30 million of it was due to kind of residual bid error, and I wouldn't expect any PTA to compensate us for us. So that's what it is. The balance is really due to the change in inflation -- into drivers drive the shortages and due to change of -- various changes in the index. I think all of that needs to be on the table for negotiation. There's various mechanisms for doing that which are subject of live negotiation at the moment.

Othmane Bricha: Othmane Bricha from Bank of America. So I have a question on cost inflation in 2024. How much visibility do you have? How much headroom do you have? And is there a risk that inflation may overshoot to your current expectations?

Jose Ignacio Garat: So I missed a little bit of that question, sorry. So it was cost inflation in 2024, which was -- sorry...

Othmane Bricha: Yes. How much visibility do you have? I know you gave guidance in that bridge, Slide 14, if my memory is correct. So just how much visibility do you have in the various businesses that you have? And is there a risk that cost inflation may overshoot that number that you have in mind?

James Stamp: Yes. I think that actually what you see in the range is that when we look at the range of GBP185 million to GBP285 million, inflation is probably an upside from the bottom end of that range. So we've actually taken a pretty prudent view of what we know of inflation already to a significant extent, a lot of the inflation is already locked in. So I'd say GBP185 million contains a pessimistic view of where inflation in line of GBP205 million is a more optimistic view.

Othmane Bricha: [Indiscernible]

James Stamp: The range we've given contains effectively is reflects the visibility we have over the inflation assumptions in the budget, yes.

Jose Ignacio Garat: If there are no further questions in the room, we maybe could go to questions from the line.

Operator: [Operator Instructions] We have no questions on the conference line. So I'd like to hand back to Ignacio Garat for any further remarks.

Jose Ignacio Garat: Well, thank you again for taking the time to listen to us today. We're all well aware that we have covered a lot of ground, but we are confident in the main characteristic of Mobico Group. We have important strategic assets in all of our businesses. The Group's revenue performance continued to be very encouraging and there remains significant opportunities to generate better returns as well. So we are very confident on the future. And with that, I'll say -- I would say goodbye for now. Thank you.