Insight & Analysis

The treasury strategy driving National Express

Published: Jun 2022

Global transport group National Express talks hedging and sustainability.

Three white coaches on road, beautiful scenery

National Express, the global transport operator renowned for its red, white and blue buses driving up and down the UK’s motorways, centrally hedges all its fuel exposure from its Birmingham-based treasury operation. In a strategy designed to absorb oil market shocks, the company is 100% hedged for the next year and on a decreasing or rolling basis over the next two years. Although keenly aware of spot prices, monitored daily for their impact on the forward price, the firm is sheltered from today’s high oil price triggered by Russia’s invasion of Ukraine.

Many transport groups including airlines, cruise lines and hauliers changed their hedging policies during Covid when rock bottom oil prices coincided with a collapse in demand for their services as everyone stayed at home. But National Express maintained its hedging policy, run by a busy and multi-skilled treasury team of four who decide how much to hedge according to the forecast volumes from the company’s European and North American divisions and which currently amounts to an annual addressable volume of around 200 million litres.

Not only has the approach paid off financially and capped fuel costs at a time oil is trading at US$120 a barrel and forecast to surge further still. It also highlights the firm’s robust treasury policies in another source of quiet satisfaction for Deputy Group Treasurer David Plimmer. “If you have to always rewrite policy, it’s not really fit for purpose in the first place,” he says. “It’s not our job to spot highs and lows, we run a prudent, board approved treasury policy that outlines limits and controls around hedging our fuel and FX exposure.”

The size of the hedging programme offers a window into the bus company’s growing, global business that stretches far beyond the UK’s road network. National Express runs a North America school bus business under its Durham and Stock brands swapping the red, white, and blue for yellow to ferry children and teenagers to schools and colleges across three Canadian provinces and 33 US states where it is the second largest player in America’s outsourced school bus market. Other US businesses include a transit service in cities, specialist vehicles for the disabled and a fast-growing ‘WeDriveU’ subsidiary that provides shuttle services for US corporates, universities and hospitals.

Europe is home to other prized parts of the portfolio. A Madrid-based subsidiary, ALSA, operates intercity coaches and regional and urban bus services across Spain; other European bus operations are based in Switzerland and France, and the company owns a German rail operation and a bus company in Bahrain. ALSA’s Moroccan subsidiary (the only division that hedges fuel locally because of market restrictions) operates services out of six of the largest cities including Rabat and Casablanca and is one of the fastest-growing parts of the business. “Our Moroccan business actually emerged from Covid bigger than at the beginning of the pandemic,” says Plimmer.

National Express hasn’t issued any sustainable debt yet and Plimmer says the company’s next, meaningfully sized, financing will be linked to sustainability KPIs. “We will make sure up and coming funding has an ESG element,” he says. It will involve another key role for treasury, particularly helping shape the discussion around which metrics to pick to support the company’s 2030 to 2040 net zero targets. Challenges will include the US market for electric school busses compared to the company’s UK and Spanish businesses where sustainable policies now include not buying any more diesel buses. Still, he notes that the transport company is intrinsically aligned with reducing society’s carbon footprint and has a compelling ESG story to tell investors and banks ahead. “Our strategy is all about getting people out of their cars and into public transport. We are determined to be the cleanest and most efficient transport operator we can be.”

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