Financial Performance of the National Express Group - Essay Example

? COMPANY ANALYSIS Table of Contents Table of Contents 2 Introduction 3 General of the Company 3 Profile 5 Market Served 5 Market Situation 6 Core product and business 6 Market Structure 7 Market concentration 8 Comparison with rivals 9 Risk Exposure 10 Financial Performance Analysis 11 Ratio Analysis 11 Share Prise Analysis 13 Reference 14 Introduction Accounting is an essential element in all actions and all organisation including business and non-business concern where money and other economic resources are attached. The key function of accounting is to account the monetary transaction and economic resources. In a brief whenever money is absorbed accounting is important to account it in a proper way. So, the entrepreneur describes accounting as a language of the business (James, 2011, p.86). On the other side, financial statements are very essential for different types of user in for different company. So, before preparing the financial statement the accountant must be clear that the users survive by the information. There are different types of group with a curiosity of different organisation called user group. The different types of user follows the financial statement for their decision making purpose. The company analysis is mainly based on the financial statements of the company (Chatton, 2008, p.125). Here the Researcher will analyse the different aspects of the National – Express Group like Customer profile, competition, social and technological issues, unique selling proposition, financial performance analysis etc. The researcher uses ratio and trend analysis to analyse the financial performance. General Description of the Company National – Express Group is a popular transport service provider company in UK as well as in Europe. The business network of the company spreads in UK, Spain, North America and Morocco. The statistics shows that there are more than 650 million journeys are made through the company every year. The transport services of the company categorised as trains, buses, coaches and light rail services. The primary strategy of the company is to offer quality products and services to the customers for the purpose of enhance the growth rate in the existing market. The company tries to win new bidding opportunity through rail, coaches and bus markets. Presently, the company has been able to recover the underlying growth in Spain and creating new bid opportunity by aiming to increase overall growth. Presently, the company introduces coach and rail business in UK which seems to be profitable and contributes in the growth success in long term basis. Presently, the company is able to recover the underlying growth in Spain and creating new bid opportunity by aiming to increase overall growth. Presently, the company introduces coach and rail business in UK which seems to be profitable and contributes in the growth success in long term basis. In past few years, the company tried to acquire different transport operator companies, whose operation, modes and geographies match with the existing business of the company. For the purpose of enhancing the value of shareholder, National Express Group implemented strict return criteria in the case of acquisition. In 2010, the company acquired bolt-on school bus acquisition in New Jersey in the value of US$13.3 million (William, 2009, p.45). The annual reports of the company show that 2011 is a successful year for National - Express Group. In this year, the company generated ?180.2 million EBITA (profit before tax and amortisation) which is more or less double than the previous year. The primary reason of enhancing the statutory profit before tax is three folds increase in sales revenue and the operating profit. The maximum level of profit from the UK Coach business is also a reason for profit increasing (National Express Group PLC, 2011, p.67). There are significant improvements in each and every business of the company over the last two years. The bus services in UK and North America increased the operating margin. The financial report highlights that the rate of achievements of UK bus services is 12.4 % in 2011 where, in the case of North America bus services, it is 10 %. There is a record margin from UK coach services in 2011 i.e. 13.5 %. On the other side, the profitability rate of UK rail services rose from 5.3 % to 6.3 %. There are three reasons behind the success i.e. low capital business, strong overall performance and higher sales revenue. Spain’s margin has remained stable, at an industry leading 16.4% (McEAchem, 2006, p.69). Customer Profile The customers of the National Express Group are based on the communities and the individuals. Here, the market analysis shows that nearly quarter of households in Spain and UK do not access a car. If the services of the company did not exist in those countries, than it impact negatively on their live style. So demand of transportation services is very high in those countries. The company tries to provide the transportation services more attractively for the purpose maintaining the customer loyalty (i.e. enjoying greater value for money).The base point of the operational excellence of the company are stronger the business network, greater benefit to the customers and providing quality service. For the intention of better customer services, the company switches from private to the public mode of transportation. National Express Group provides different services at the best possible experience wherever and whenever, for the objective of customer satisfaction (Laudon, 2010, p.193). Market Served The business network of the business is mainly spreading in UK, Spain, North America and Morocco. The Spain’s market is known as ALSA whose market size is €3.5bn. The primary feature of this market is that it is highly segmented market. The market is controlled by three levels of government regulation i.e. regional, city and central. Here, the company designs each concession according to the public service obligation. On the other side, the market of National Express Group in North America is mainly based on school bus market. The total market size in this country is $ 24 bn. The level of market competition in this market is moderate. There are top 5 market players covers all 90,000, where 15292 regular routes is covered by this company. Finally, the largest market of the National Express Group is based on UK. Here, the market is segmented as per the service i.e. bus services, rail services and coach services. The company operates 1650 buses in this country. The key advantages in this segment are low barriers to enter and enough flexibility. On the other side, the Coach Service is newly introduced in the UK market. So, the market size in this area is very low i.e. ? 300 billion. Here, National Express Group is the only company whose coaches’ services network spreads throughout the nation. Finally, the rail transportation service in UK is based on two franchises, whose market size is ? 6 billion. Market Situation In this part of the study the researcher will analysis the current market situation of the above market. The analysis on Spain’s market shows that the demand of urban bus is in increasing trend. There are number of modest passengers in Spain is interested in Coach Service and public transport. On the other side, the growth of North America depends on the increasing trend of population and inflation. Here, the recent public funding pressure influence the increase in outsources conversion. In UK, short term economic pressure is influencing the austerity and unemployment, which is the primary cause to enhance the demand of public bus services. The UK population is aware about the environmental issues and economic regeneration. So, they prefer to use National Express Group’s transportation services (Perter, 2007, p.154). Core product and business National Express Group is a multi-national transport provider company based out of Birmingham in U.K. The core business and product of the company is transport service in U.K, Spain as well as in North America. Over 700 million journeys are reported to occur every year through their modes of transport. The various modes of transport operated by the U.K based National Express Group include buses, railway coaches, trams, light railway coaches, etc. The core product and business of National Express Group include is aimed at delivering frequent, high quality and highly performance services to its customers which offers safety and comfort to its passengers and also maintains a healthy environment. The core products of its business which are the buses, trains and other light coaches are specifically designed to emit lesser proportions of carbon-dioxide in the environment, lesser pollution in the air and also create lesser congestion in the cities. National Express Group operates more than 1600 vehicles in UK. Through its core business and products, the company employs around 35000 people worldwide. In order to increase its profitability, National Express Group apart from its existing transport provider services through its buses, railway coaches and trams are also looking to develop new products. National Express Group also aims at acquiring new business in the transport market in addition to its core businesses. The total revenue generated from its core business by National Express Group is 2238 million pound sterling with a net income of 102.6 million pound sterling in 2011 (National Express Group, 2013, p.1). Market Structure Buses form a major part of the public transport market structure in UK. The transport market has undergone privatisation and deregulation since 1980. The transport market in UK is primarily de-regularised and has fewer barriers offering more flexibility in operation. Some of the abroad group has also targeted to capture the UK transport market. Apart from the urban, semi-urban and rural transport services, UK transport market structure includes transport services like express services, school bus service, long distance services, demand responsive services, etc. National Express Group is the largest transport service provider in UK. The Group is a multi-national entity having markets in North America, Spain, Canada and Europe apart from UK. The market structure of the operations of the UK based group is widely varied covering transport services in both the urban as well as the rural areas. The Group owns a contract of bus operations at the UK airport. The company operates transport services all over Birmingham, West Midlands, Coventry and other parts of UK and has rural coach services. Railways and tram services also form important part of their market structure. National Express Group runs around 1600 buses between Coventry and Dundee, Birmingham and Wolverhampton and other destinations and employs 5400 employees in the transport market. The company is the UK partner for Euro lines which delivers transport services in Europe and North Africa. In Spain, the transport market is highly regulated and concessions to the service provider are based on fulfilment of service obligations. National Express Group also operates long distance regional and urban transport services between Spain and Morocco. The group acquired Continental Auto in 2007 to strengthen its market in Spain (Competition Commission, 2006, p.87). In North American transport market, local relation and service delivery is important. The group is the second largest transport provider in North America and deliver safe and reliable transport service for students in the market. Market concentration The National Express Group has varying market concentrations in its delivery of world class transport services across several nations including Spain, North America, Africa, Canada and UK. The highest concentration of transport service market of the group is in UK. Top largest five transport service provider make up 70% of the transport market segment in UK with the remaining being served by small private players. The National Express Group is the largest transport service provider in UK bus market with a market size of 4.8 billion pound sterling. Almost 75% of the revenue is earned from the journeys of their passengers. The market size of UK coaches is around 300 million pound sterling and runs with 80% outsourced labour. The UK rail market size of the group is 6 billion pound sterling. The rail market in UK is controlled by 19 franchises of which National Express Group owns 2, i.e. 10% of the market (Geroski, 2004, p.12). The North American market share of the group is 10% delivering transport services only through school buses. The market size is around 24 billion dollars. The transport market in Spain is highly fragmented in terms of market concentration. The group acquired ALSA who is a leader in the Spanish transport market (Monopolies and Mergers Commission, 1997, p.18). The market size of National Express Group in Spain is 3.5 billion Euros. National Express Group has approved concessions on running 162 intercity coaches and 22 urban coaches in Spain. Comparison with rivals The National Express Group is stacked up against its competitors in the highly competitive transport market in UK. However, the National Express Group has emerged as the leader in providing high quality transport services in this competitive scenario and thereby has created loyal customer. Due to deregulation in the transport market and lesser barriers, national and overseas companies are targeting the UK transport market resulting in increased competition. National Express Group earns 75% of its revenues from its passengers. The major competitors of National Express Group are First Group Plc, Stage Coach Group Plc, The Go-Ahead group Plc (Hoover's Inc, 2013, p.1). The performance of National Express Group can be compared with its rivals or competitors in terms of their revenues and operating profits. National Express Group has earned a revenue of 2238 million pound sterling and a profit of 225 .2 million pound sterling in 2011 thereby giving a profit margin of 10.1%. In comparison in 2011, its competitor First Group Plc had a profit margin of around 5%, Stage Coach Group Plc had a profit margin of around 10%, and The Go-Ahead group Plc. had a profit margin of around 5%. This clearly shows that in comparison to its rivals, National Express Group has emerged as market leader in the transport service market (National Express Group PLC, 2011, p.5). Risk Exposure National Express Group deals with various types of risk from its use of financial instruments. The detailed analysis of risk exposed by the transportation company is discussed as per annual reports of 2008, 2009, 2010 & 2011. Credit Risk: The annual report the trade and other receivable is increasing year by year but the company is able to managing the credit risk because the at the comparison between sales and credit shows that the credit turnover rate is in decreasing slope from 2008 to 2011 because the company regularly monitored the credit limit to the customers (Meacham, 2006, p.214). Liquidity Risk: As per balance sheet analysis it is showing that the company are able to manage the liquidity rate because the liquidity ratio is in decreasing slope which indicates that the company always arrange sufficient liquidity to meet its liability when required under the normal and pressure market situation. The company policy is to decrease the bank borrowings as soon as possible. Market Risk The objective of the market risk expose is a part of risk management strategy to manage the risk. The main reason to risk expose is to optimizing the rate of return of the company. Currency Risk The company spread their business in European market as well as Asian market. So, there is probability of currency risk because of different currency. The annual report shows that the company is little bit of uncomfortable to handle the currency risk (Rees, 2010 p.87). Financial Performance Analysis Ratio Analysis NAME OF THE COMPANY National Express Group  KEY FIGURES & RATIO ANALYSIS SPREAD SHEET Sales 2,238.0 2,125.9 Cost of Goods Sold 2012.00 1921.70 Gross Profit 226 204 Depreciation 51 57 Capital Employed 1,599.0 1,550.0 PROFITABILITY RATIOS       Gross Profit Margin 10.10 9.61       Net Profit Margin 6.20 2.93 Return on Capital Employed  13.2 %  14.1 % CONTROL/LIQUIDITY RATIOS       Credit Given 156.64 245.34       Credit Taken 104.39 30.36       Current Ratio 1.27 11.78       Return on equity (before exceptional items and discontinued operations, post-tax) 10.6% 8.7% Analysis The analysis also highlights on the sales revenues, Earning per Share (EPS) and percentage of risk and return of the four companies. Annexure-I shows the graphical representation of company’s position on different ratios over 2 years. National is in more liquidity position is stable than 2011. In 2011, the degree of liquidity is high due to increase the cash in hand (Current ratio = 2:1, Quick Ratio = 1:1). As per researcher point of view it is more suitable to invest in the company’s share and bond, because it is very effective to check out the fund position of the companies. The fund position can be checked by reviewing their debt paying position. The higher liquidity ratio of the company in 2010 can block the company’s money, which can be invested in the other purpose for great return (Helfer, 2009 p.65). The profitability position of the company shows the increasing trend. In the case of National Express Group is able to achieve consistent profit during the period of 2010-2011. In recession period also the company shows consistency (Anderson, 2006 p.49). This indicates that company’s performance is good and is able to deliver returns even during tough times. On the other side, the huge increase in profitability helps the company to convince the investor to invest in the company. This can enhance the operational area of the company. The capital employed ratio shows the sales generation capability against the capital, which is satisfactory (Benaroch and Kauffman, 2006, p.178). The earnings per share of National Express are too much higher than the other competitors companies because of higher profitability position. The strategy of value and wealth maximisation of the shareholder also influences the ratio to increase. Finally, the analysis shows the efficiency ratio of the company is in increasing trend. The increasing trend of credit given period shows the inefficiency of the credit management team (Benaroch and Kauffman, 2007 p.59). Share Prise Analysis (Source: Berman, H. J. 2008 p.98) The share price analysis shows that due to the economic pressure in UK as well as whole Europe the share price is in downward trend during the 1st to 2nd quarter of 2012. The increasing trend of demand of bus and coach services in UK stimulates the share prices, during the last quarter of 2012 (Bragg, 2008, p.236). But in December, the share price again decreases widely due to the bad financial performance in Spain. Presently, the share price is in stable position and gradually increasing trend due to good financial result in the last financial year (Arnorld, 2007, p.62). Reference Anderson, S. 2006. Investment management and mismanagement: history, findings, and analysis. 4th ed. New York: Springer. Benaroch, M. and Kauffman, R. 2006. Justifying electronic banking network expansion using real options analysis. MIS Quarterly, Vol. 24, No. 2. Benaroch, M. and Kauffman, R. 2007. A case for using real options pricing analysis to evaluate information technology project investments, Information Systems Research, Vol. 10, No. 1. Berman, H. J. 2008. Ratio analysis: a technique for financial management in hospitals. 6th ed. London: Prentice Hall. Arnorld. K,. 2007. Economics. 6th edition. Horbour books. USA. Bragg, P. 2008. Financial analysis: guidebook. 6th edition. Broader books: Germany. Chatton, G. 2008. Financial analysis: the next step. 3rd edition. Casual press: UK. Helfer, K. 2009 . Financial tools: tools and analysis: guide for managers. 2nd edition. LPC press: London. James, D. 2011. Finanacial analysis: the next step. 4th edition. Hourber books: USA. McEAchem, H. 2006. Economics: A contemporary introduction. 2nd edition. PAL books: UK. Rees, Z. 2010. Financial analysis. 7th edition. Coleway press. Sweden. William, L. 2009. Economics principles. 4th edition. Fourth estate: Leeds Laudon, D. 2010. Marketing Management, 4th edition, Broader books: Germany Perter, J. 2007. Marketing Management, 6th edition, LPC press: London Competition Commission, Great Britain. 2006. National Express Group Plc and Thameslink and Great Northern Franchise: A Report on the Proposed Acquisition of the Thameslink and Great Northern Rail Franchise by the National Express Group Plc. The Stationery Office; UK. Geroski, P. G. B. C. C. 2004. National Express Group Plc and the Greater Anglia Franchise: A Report on the Acquisition by National Express Group Plc of the Greater Anglia Franchise. Stationery Office; UK. Monopolies and Mergers Commission, G. B. 1997. National Express Group PLC and Central Trains Limited: A Report on the Merger Situation. Stationery Office; UK. National Express Group PLC. 2011. Annual Report and Accounts 2011. [Pdf]. Available at: http://www.nationalexpressgroup.com/ar2011/downloads/files/National-Express-Group-Annual-Report-2011.pdf. [Accessed on 15 March 2013]. National Express Group. 2013. Our businesses. [Online]. Available at: http://www.nationalexpressgroup.com/aboutus/ourbusinesses.aspx. [Accessed on 15 March 2013]. Hoover's Inc. 2013. Top Competitors for National Express Group PLC. [Online]. Available at: http://www.hoovers.com/company-information/cs/competition.National_Express_Group_PLC.214db4695e75c864.html. [Accessed on 15 March 2013]. Read More