ADL continues growth
Exports account for half of all sales
There wasn’t room in last week’s Coach & Bus Live 2015 review to more than scratch the surface of the information revealed at a press conference on the ADL stand, who pre-empted the event with a major announcement about their new Enviro400H City bus before staging their customary ‘state of the nation’ media briefing at the NEC.
In his address Colin Robertson, CEO, spoke about 2015 being a year of record output for ADL; an anticipated 20% surge in turnover to £600m; continued market leadership in the UK and further export business wins, notably in Switzerland, New Zealand and North America.
Afterwards, I met with Colin to discuss the strategic issues and to explore the facts behind the facts. I started by asking if ADL’s coach business had become the poor relation, in light of the company’s huge success in the bus sector in recent years.
He responded: ‘Let’s set the record straight on this immediately. The Plaxton brand and our coach operation form a critical part of ADL and remain fundamental to our broader-based objectives, which is the reason why we have sustained a continuous multi-million investment programme at Scarborough since we acquired the business in 2007.’
He added: ‘At that time, we had an ageing Panther and a very long-in-the-tooth Profile – and that was effectively our coach range. When people talk about ADL just being a bus company, they need to recall the coach line-up we inherited and the investment we subsequently made in new products. In particular, we made the big decision that we needed a premium product, which became the Elite. We also facelifted the Panther and beyond that we gave it another serious upgrade just 18 months ago. In addition, we introduced the Panther Cub and brought in the Leopard at the value end of the market, while also launching the new Cheetah XL recently. The Elitei inter-deck is doing well for us in continental Europe because we’ve made it left hand drive as well, and to be quite frank, PolskiBus – who now have a fleet of 50 inter-decks – are particularly keen on the Volvo/Plaxton combination. They are very happy with it in Poland and with Stagecoach looking to expand their megabus franchise into more liberalised markets we are going to try and piggy-back that approach.’
‘We exited the coach chassis market because we didn’t have the infrastructure enjoyed by the big guys and on that front we need to consider what we do next. Do we work with other chassis partners? Volvo have multiple bites at the cherry with body partners so, do we deepen our relationship with them or develop similar partnerships with others like VDL, Scania or MAN? A key issue is that a coach can be in Barcelona in the morning and Paris at night, so you need a fantastic infrastructure to support it – and that’s where the big European chassis manufacturers are our natural bedfellows. What is vital however is that whoever we work with – through established relationships or otherwise – is prepared to move at our pace! As a business we are agile and fast on our feet and we need partners who think and act similarly.’
‘To cut a long answer short, coach is incredibly important to us. We’ve now got volumes back to pre-recession levels and a lot of that is down to the fact that we’ve invested very significantly in bringing the Plaxton product really up to date. Our coach business is 10% of our turnover and I’d love it to be double that at 20%.’
‘The Leopard has done well for us and it’s got us deals where we wouldn’t ordinarily have had a value-oriented product to offer, but it remains in a fiercely fought sector. If you look at the Mercedes-Benz Tourismo, for example, with a Turkish/Euro cost base, they’ve done very well. I don’t mind taking tight margins but we’ve got to have something. The Euro has moved nearly 10% and it’s driving margin down.’
Colin continued, ‘The bus industry doesn’t make huge margins either but if I can build a double deck in 700 hours, compared to a 1,000-hour coach – then there are obvious advantages. Couple this with the fact that in the case of buses we make a margin on both the chassis and the body, ie., the complete vehicle, then on paper there is a good case for simply building buses, a statement that is further strengthened by the fact that our UK customers buy in pounds and most of my costs are in pounds, plus I get a slight benefit on the bits I buy in Euros.
‘But, as they say, a case presented on paper can take on any shape you want it to and to walk away from coach would be a crazy decision. In 2016 it might make my numbers look superb but come 2017/2018 when I might really need Plaxton coach registrations, and whatever else, I would have lost all of my core customers, the big groups as well as the smaller independent retail purchasers. However, if you were looking at just pure profit, then coach would be under the microscope. If you look at Van Hool, for instance, they’ve gone to Macedonia in order to radically improve their cost structure, to access neighbouring markets and to export further afield at competitive prices.”
I next asked Colin if he saw any changes in the structure of the coach market in terms of what people are looking for and the way they are looking to buy?
‘Customers are always going to look to package risk if they can,’ he said. ‘In the truck market, historically you’d buy a truck and you’d operate it. Now, for the most part, nobody buys a truck, they rent it on a three or a five-year period on a mileage basis then you hand it back and get a new one. That way your total cost of ownership becomes much clearer and therefore the residual value risk sits more with the manufacturer than it does with the operator. I do see coach migrating more and more towards leasing, total cost of ownership, package type solutions. That’s just a logical evolution of that kind of product.’
In the press conference Colin had referred to developments in New Zealand where an order for 39 Enviro500s has been won.
‘New Zealand is intense about weight issues, particularly axle weights in various ratios so in terms of legislation there had to be some relaxation to allow double decks to comply legally. Our double deck certainly meets all statutory requirements, which is something most of our competitors are still striving to achieve, so we are off to a good start with orders for 39 and further discussions underway.”
Colin called over Tommy Morrison, the Project Manager for the New Zealand double deck project, who explained, ‘There has been a demand for high capacity vehicles and double deck was the way forward for NZ. Based on the established relationships we had with the government and many operators of Enviro200s, 400 of which are now running in Auckland and Wellington, we are well positioned to exploit the new double deck legislation.
‘In short, the government had to take legislation from 18 tonnes to 22 tonnes on three axles. We also use super-single 355 tyres instead of 305 tyres on the front and tag axles to help with the distribution of the load. They are only 275s on the drive axle because we are now using a common axle, the ZF AV132, on all ADL Enviro 400 and 500 double decks and 275 tyres on all four-drive axle wheels for New Zealand, Australia and Malaysia. This keeps us under their 2.5m overall body width limit. For those three territories the vehicles are 12m long, 4.2m high and 2.5m wide. The MMC version of the Enviro500 has moved away from drum brakes to discs.’
Another surprise announcement had been that ADL had signed a letter of intent to supply 19 Enviro500s to the Swiss PostAuto organisation. I asked Colin how this had come about and whether it was the start of something more significant?
‘I don’t think there’s any doubt that if we’re going to go into Europe then we need to provide a solution to a problem that in some cases hasn’t quite been articulated yet, if you’ll pardon the pun. The fundamental issue is about reducing traffic congestion and double decks certainly tackle that problem head-on …. but different cities and different terrains will require unique solutions, albeit that our Enviro500 is highly adaptable and, of course, has certainly taken off globally since we introduced the major model change two years ago.
‘PostAuto in Switzerland is looking at a high capacity double deck solution. They ideally want a three-axle, three-door, two-staircase product which doesn’t currently form part of our arsenal but is a logical development of our Enviro500 range. We have a number of agents in Europe looking at the various markets under Gustavo Marqueta, our International Business Development Director, and between us it was agreed that a logical approach would be to send over our North America demonstrator to prove that with 380hp the Enviro500 can meet the challenges of the demanding routes around St. Gallen, which it did admirably. As a result we have secured a Letter of Intent for the first 19, so we’re really excited about that.’
‘Obviously it’s a new product platform with potential. Our objective is not to try and sell full-size single decks or to displace the big, established European players. We’re trying to sell niche products that make sense, rather than dislodge long-established vehicles associated with MAN, Mercedes-Benz, Scania or Volvo. There is no doubt that double decks – thanks to PR, media and internet exposure – are no longer seen as a quirky London and UK phenomenon. More and more transport authorities are thinking that in terms of road congestion, passenger capacity, having something different or as a moving billboard, double decks just add up. How big or how fast the market will move is difficult to say – and I’m not going to bet the farm or re-mortgage my house on an overnight transformation – but, in relative terms, orders for 10, 20 or 50 buses a year represent significant market opportunities for ADL. After all, we are still a medium-sized business, so nobody should worry about us over-running their established markets.’
ADL is also looking at the double deck possibilities in Berlin.
‘There is formidable competition for the 400 double decks that Berlin intends to replace in the coming years, so you can understand why VDL and Scania have put their best foot forward. They have both put in two-axle double decks for extended evaluation, while we’ve gone with a three-axle, fully air conditioned vehicle for the six-week trial period. They are going to come out to tender next year. That might tie in with the timing of our first PostAuto vehicles.
‘From our perspective, we don’t need to win all 400 vehicles in Berlin, 50 or 100 would represent a significant breakthrough in Germany. Our bus is a North American-built demonstrator with several thousand miles on the clock and is now in Germany for certification, prior to going into the evaluation programme almost immediately. Our full European specification product won’t be available until the end of next year, so at this stage our aim is to demonstrate the technical capability of the Enviro500, along with its comfort, quality and performance characteristics. It is important that we also examine the occupancy levels and the flow of passengers between the lower and upper deck, while gaining a practical understanding of the waiting time between stops and the impact of peak passenger periods. The whole exercise will be a big learning curve for ADL.
‘The one thing I think that we can sell that none of our competitors can is that we have already sold and have in service over 1,400 current generation three-axle double decks in Asia Pacific. If you then add in North America we’re close to 2,000 in service with another 1,000 on order. In terms of Altoona testing, compliance and having what is needed to do the job, we are putting forward a thoroughly worked- through solution, simply because the Enviro500 is a core product to ADL, while competitor vehicles may well be peripheral products for some of our rivals.’
As well as announcing the new ADL Enviro400H City at Coach & Bus Live, ADL also provided details of a new double deck model being produced in North America called the Enviro500 SuperLo. Did Colin think there was scope for this elsewhere?
‘Absolutely; 12ft 9in-12ft 10in opens up pretty much all of North America, it really does. We started off at 14ft, went down to 13ft 6in and now we’re down to 12ft 10in. It takes away the need for permits and the fear of driving through low tunnels and bridges.’
I asked what this meant for the headroom on lower deck of the vehicle given that the upper deck headroom remained the same. It probably was rather a detailed question for a CEO but Colin brought Tommy Morrison back in to telephone a friend who explained that the minimum lower deck height was 1840mm.
Turning to the subject of support, I asked Colin how happy he was with the support side and how he thought ADL was performing comparatively?
‘I think we’re doing well,’ he said. ‘I don’t want to sound arrogant but when I joined ADL back in 2007 we worked hard and we transitioned immediately from estate cars to proper mobile workshops with properly trained technicians, diagnostics and vehicles stacked, packed and racked and ready to go to work.’
‘We spent a lot of money analysing our warranty and reliability statistics. There’s never a day goes by that I don’t get a daily report in terms of vehicles off the road in the UK (actually twice daily) and vehicles off the road internationally. We have a standard and have set a target of 99% which sounds like a high figure but if you have a fleet of 1,000 buses, that’s still 10 too many vehicles that are off the road, which is unacceptable.’
Colin said, ‘Between measuring the number of vehicles off the road, return to service times, having the right bums in the right seats, having the right mobile workshops, a fantastic call centre, all of our vehicles GPS enabled, all of our guys submitting the various job reports coded on i-pads and continually raising the bar in terms of reliability, I don’t think we’re perfect, far from it, but I think we’re as good as any of the competition.
‘Looking at today for example, at 9.00 and 16.00 I get the daily MMC VOR report. Currently, of 325 MMC vehicles in service in the UK, 323 are in service which is 99.38%.’
I noticed that the faults were all subdivided to highlight any issues and mentioned that there was a separate column for door issues. Colin explained, ‘A door issue will keep a vehicle off the road, so we bought a couple of test rigs and sent Paul Hopwood, who heads-up our customer training centre, to Hong Kong to train all the technicians there. So a lot of the issues are about self-help, in terms of diagnostics and adjustments and things like that. If you’ve got 12 out of 1,200 vehicles off the road you have a 99% success factor but 1% failure is 1% too much. Our aim is to constantly raise the bar.
‘It’s a long answer to a short question but I do think ADL used to be in denial. Now we say, “Bring it on.” The quicker we know about it, as ugly as it might be, the quicker we can get it fixed. Then we take that information into a monthly warranty and service call. We then really drive key solutions. Some are supplier driven, some are design driven or manufacturing process driven, some are customer driven, maybe abuse, maybe training, and we’re on it. I’m paranoid about the competition. Anybody can sell a cheap bus, but if we can walk in our customers’ shoes and have an outstanding value proposition around keeping vehicles on the road, then we should be the market leader. And if we want to maintain our market leadership, we’ve got to nail it.’
‘Everything I’ve just talked about is backed up with quality information. Only two monthly meetings are mandatory at ADL. One’s a management meeting that deals with sales, finance and all that, and the other is our customer service meeting, which I chair.’
Colin called over George McAdam, who has been Group Quality and Customer Service Director since 2009. He showed me the service availability of all ADL vehicles with every one of them, including hybrids, showing over 99% availability. Anything under 97.5% would be coded in red, although this would tend to be where there were very small batches. The same thing is done for every territory.
‘We really walk the talk here,’ said Colin.
A lot is going on in the field of alternative power technology systems so I questioned some of the issues, starting with the GKN Gyrodrive system, asking Colin what its’ potential might be?
‘I think there’s a real gap in the market for mild hybrid, a relatively low cost hybrid solution; anything that can save 20-30% in fuel, which is what they are saying, though we’re not there yet. If you can get 20-30% with a technology that gives a two to three year payback, there’s a definite place for it. Could it be 30-40-50% of the single deck market, yes absolutely! But in the first instance they need to prove that it can consistently deliver that level of fuel economy at an attractive capital cost. We’ve got a follow up meeting with GKN in the next couple of weeks to review how the project is going.’
ADL has a long-standing alliance with BAE Systems, whose Steve Trichka had earlier said on the ADL stand that the price of hybrid systems was coming down. I asked Colin how far and what the potential was?
While not wanting to give away any of BAE’s commercial secrets, Colin did say, ‘If you go back to 2006-2007 when hybrid buses were originally launched, the cost premium for a double deck was typically £115,000-£125,000. Seven or eight years on, if you take that number and add inflation it’s probably come down by 40% to 50% in real terms. Hopefully there’s more to come but it’s now about wringing out the dishcloth. I don’t think we’re ever going to have the volumes like computers or phones that exponentially drive costs down.’
Finally, I remembered that some years ago Colin had talked about building a £1 billion turnover business, so was ADL still on target to achieve this?
‘Absolutely,’ he said. ‘We set out in 2007 to be at £0.5billion by 2015 and we did that in 2012. In 2015 we’re going to be close to £600m, it may be £590m, it might be £602m but it will be in that range. In terms of new product initiatives, new international markets and organic growth we are well positioned to exploit opportunities, so we remain very focused on our billion pound objective.
‘I’m not saying it’s going to be easy but public transport is a great space to be in. We’ve got market-leading products in the UK; cracking vehicles and exciting new concepts for global markets – a solid foundation of international manufacturing partnerships and a terrific service and support infrastructure, so why shouldn’t we go for it. Frankly, we’ve gone from £150m/£160m in 2006/7 to £600m in nine years. If we do the same again, just half of that gets us to the billion pound mark in the next four years. In terms of organic growth we’ve been averaging around 12-13% per annum and would only need to do 7-8% to go through the billion by 2020.’
‘Nobody said it is going to be easy, of course. What I really like because I’ve been coming to these shows for a long time, is that every customer and potential customer that I’ve met in bus and coach, seems to like us now. That hasn’t always been the case. They like the product, they like the people, they like what we stand for, they like our drive, passion and enthusiasm. I think our products now stack up against anything in this hall and our service capability is best-in-class. Commercially it’s still a very competitive market but in the grand scheme of things we have worked hard and we don’t take anything for granted. Nor will we become complacent but I have to say that we are a better company today than we were five years ago.’
‘This is my ninth bus show. From being at the NEC in 2007 and looking at the product and wondering if I’d joined the right company, I’m happier than I’ve ever been. We’ve had a lot of issues to resolve, we’ve had to raise our game on quality, customer care and delivery. I think today we’ve got a great team, we’ve got a great product line-up and we’re really focused on our customers, trying to be the easiest and best to work with and to make their business lives straight-forward. I’m fiercely proud of what we have achieved and remain passionate about the journey ahead. As long as I’m here we are going to keep running at 100mph.’