When the UK was hit by a series of terrorist attacks last year many people stopped booking coach journeys into London. For National Express, the coach operator linking the UK’s cities, the effect was potentially disastrous with bookings especially for the highly popular routes to the capital dropping rapidly. An urgent response was required.
For CFO Chris Davies, who had been in the role just a few months, the experience was a dramatic baptism as the finance head of a major FTSE 250 company. “After the second, let alone third attack, discretionary travel into London massively slowed down. School trips that were going to go to see Madam Tussaud’s probably went somewhere else, the elderly couple that were going to do a daytrip didn’t,” says Davies.
The finance team looked hard for ways to offset the rapidly deteriorating order book. “You scour your data, your forecasting models, to see where hadn’t slowed down,” he says. “What didn’t slow down was young people flying into the country on discount airlines. They were still happy to come to London, so we doubled down on the network out of Stansted and Luton airports,” says Davies, who had arrived in January 2017 from listed car dealership Inchcape.
By capturing insights from the vast amount of available data, Davies and his team were able to make critically important adjustments. “We had the ability to see the patterns in the data and rapidly responded by taking out capacity here and building up capacity there, all by understanding we would drive more people in if we got to the correct price point,” he says.
Although it’s mainly a franchised operation, the combined data on the coach operations enabled a rapid re-pricing. “Only a couple of years ago it used to take weeks to change ticket pricing,” says Davies. “It now takes seconds, so you can change it quickly.”
“We scooped price out during the summer period where the terror impact was quite fresh in people’s minds, and which is traditionally our busiest season. That gave us full coaches and yielded incremental total revenue,” says Davies.
The first few months of Davies’s tenure at National Express revealed something of the challenge to running finance at the £2bn travel company that as well as the UK coach network, operates buses in the UK and the US, is a coach operator in Spain, Morocco and Switzerland and runs a train company in Germany.
The latter is the last rail unit left over from when National Express was a major train operator in a group that has diversified its portfolio over the years – even owning airports at one stage. Although the bus and coach operations carry significant public responsibility, they have nothing like the regulatory challenges associated with rail.
When asked at interview by chief executive Dean Finch what he thought of National Express, Davies said: “What on earth are we still doing in rail?” Weeks later the group sold out if its UK rail business- even though it made an unsuccessful bid for the Greater Anglia franchise two years ago.
The result is that Davies felt he was able to cut his teeth in a group “that’s a lot less regulatory than if we were still in rail”. He says the move “felt manageable” and “didn’t feel massively terrifying and daunting as a first CFO role,” especially as previous CFO Matt Ashley is still in the group- now running the North American arm.
Davies is refreshingly honest about the challenges that have come his way in a career that began with a decade-long tenure at drinks giant Diageo.
Starting out in strategy, he ran the group’s Nigerian business, “the world’s biggest Guinness market”, before taking up the role of UK finance director without accountancy training on the advice of group CFO Nick Rose, who himself didn’t train as an accountant. “I think they thought if they could drop me on the UK, I could learn the function from my direct reports,” he says.
Davies went on to run the group’s shared services that he says “really taught me a lot about financial processes”, before becoming CFO of North America- which delivers a billion pounds of profit a year “which as a standalone company would sit quite high up the FTSE 50,” he says.
Although surrounded by experts, a nagging feeling that there was risk to not having a formal accounting background prompted Davies to take up accountancy training before a role with Inchcape came up. It was a brief that offered a “real technical shot in the arm in accounting”, combining financial controller and treasurer roles.
Dropping down the FTSE was, Davies says, a huge learning curve, which also meant having a team of 14 people compared to 280 in Diageo’s North American finance function.
After this experience, David felt that his portfolio was completed. “It was a deliberately sought-after role to tick the two big boxes I hadn’t ticked: financial controller and treasurer. It took those three years at Inchcape working on areas such as capital allocation, forex management, hedging strategy, a whole bunch of stuff that weren’t even on the agenda as a business unit FD.”
On the frontline
Having then been interim CFO at Inchcape for six months, Davies arrived at National Express, experiencing for the first time the challenge of facing the market as a group CFO. “It was the big missing piece on my CV- I’d done one week of roadshows at Inchcape and a couple of bits and pieces in North America for Diageo.
“I’ve now experienced everything on the road, from having to explain what National Express is, through to sitting across the table from some pretty wise investors who know the story 50 times better than I do, and all points in between.
“It has been a baptism of fire. They’re asking what do you stand for? What are you expecting to change? Of course, my answer to a lot of that is I don’t really know yet.
“I’ve always found that nobody minds a jot if I say I don’t know that, I know people who do and I’ll ping you an email in the next six hours with the answer. Luckily it’s a relatively easy story to package up, I’ve really only got to explain a bit of America, of Spain and of the UK,” he adds.
In the UK the dominant piece is the coach business, which has consistently delivered over the years, performing to a well tried format. “We operate on Christmas day. Boxing Day was our biggest day ever with 70,000 seats sold,” he claims.
The bus business in the West Midlands is also a valuable asset says Davies. “It’s heavily urbanised so you’re neither running in London where you’re competing with everybody in gridlocked traffic, nor are you in the countryside ferrying fresh air around. If you were going to run a bus business I can’t think of a better place than the west Midlands to run it,” he says.
Nevertheless, he describes the UK bus sector as a “hard yards business” because of the rise in eligible age for pensioners’ travel concessions, financed by the government, and a fall in demand for trips to the high street following the impact of e-commerce.
Power of data
In response, Davies has turned to data to find the best pricing point, dropping prices from an average £4 to a £3 ticket and cutting out least profitable routes. “It puts more people on the bus, and the absolute revenue drops through as profit,” he says.
“We’ve got some great data that shows us where to tweak ticket prices, drive people to stickier channels, and so getting people away from paper tickets to mobile phone tickets.”
Spain’s ALSA coach business, which National Express acquired in 2005, is making solid gains after it added operations in Morocco and Switzerland, to capture skiers who travel from Barcelona to Geneva.
Additionally, the US has seen dynamic growth from its school bus business and disabled transport business in Boston, New York and Chicago. “That’s gone from zero to £300m revenue in about five years, so that’s a nice bit of diversification,” he enthuses.
“In our American business we have fabulous data visualisation tools that use data from radar inside the bus to check for children combined with depot geo-fencing. If the radar has not pinged the geo-fence for more than two weeks we then know where unmoved buses are.”
Big data is also employed to address staffing costs. “We’ve now got the data that says when drivers finished checks, when they drove through the depot and when they clocked out. You can run the analysis and ping it off to the local managers and tell them to have a look,” says Davies.
But despite the hi-tech wizardry employed to drive down costs and direct growth, National Express’s share price is vulnerable to passive investors, which automatically respond to profit warnings in rivals that are subject to rail industry regulation, by reducing their stake in National Express.
He says that’s despite shareholders, bankers and brokers giving National Express “a lot of kudos for being out of rail”, apart from the “profitable but small” German rail business. “I’ve yet to understand how you influence sentiment with passive money,” he says.