KPMG INTERNATIONAL On the Road kpmg.com
4, 6, 7, 8, 9, 2 On the Road Contents. Introduction. Deutsche Bahn: Acquisition and Disposal Support. East London Bus Group: Lender Independent Business Review and Disposal. Asian Bus Operator: Procurement Process Review and 10, 11, Investigation. Transport for London: Independent Review of Bus Services in London. National Express Corporation: P2P Transformation. Storstockholm s Lokaltrafik: Transformation Design and Implementation. 12, Skyss: e-ticketing Privacy and Information Security. 13, Greater Manchester: Transport Fund Design. 14, KPMG Contacts.
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4 On the Road Introduction The global bus and coach industry finds itself in a state of flux. The global economic downturn is affecting operators in all countries, bringing with it challenges and opportunities for the industry. Margin Pressure Fuel is a major cost for any bus or coach company, and the ever-increasing fuel price has tightened margins for operators worldwide. This has also led manufacturers to innovate, resulting in more fuel-efficient buses and coaches in many countries. In some countries, governments seeking to reduce carbon have incentivised fuel efficient buses. This can benefit operators long term cost profiles, and help to re-enforce the industry s position as an environmentally friendly mode of transport. At the same time, government authorities are facing pressure to reduce their expenditure with obvious impacts on bus and coach operators income. Subsidies for bus operators in many cities are reducing. School bus operators are also feeling the pressure from local authorities. To improve margins, the priority for many operators worldwide is to improve cost efficiency. Operators are also reviewing their fares structure to try to maximise revenue. Regulatory Change Regulation and ownership of the industry is changing. Squeezed public sector budgets, particularly in the Eurozone, are leading to the sale of state-owned bus and coach companies. Deregulation is also accelerating. Germany is one of the latest countries to deregulate its long distance coach market. More countries will undoubtedly follow. In countries where bus and coach services have been privatised and deregulated, similar developments have taken place in the market. These typically include more competitive pricing, prioritisation of resources on the most highly used routes and, in some cases, an increase in niche operators. In these markets, public and private operators must adapt to face a different competitive dynamic. Different regulatory models are in place across countries, therefore companies which operate on a global scale must adapt to a variety of market models, from highly regulated through to openaccess. For cross-border acquisitions to deliver value, buyers must ensure their business model is sufficiently flexible to accommodate these differences.
On the Road 5 Emerging Opportunities. The global economic downturn presents an opportunity for operators. Increasing fuel prices are leading people to opt for public transport as a cheaper alternative to the car. This helps the bus and coach industry to attract new customers and retain existing ones. Technology and modern information systems are playing a crucial role in helping to inform passengers of their transport choices. This makes bus and coach travel even more accessible and attractive. As urbanisation continues to grow, many governments are recognising the importance of the bus in reducing traffic congestion. Bus travel is efficient and offers environmental benefits compared to the private car, while not requiring the level of infrastructure investment associated with rail and metro systems. To reduce congestion and to encourage people to move away from the car, measures such as bus priority lanes and bus rapid transit are being implemented. As a result, people are likely to continue migrating from car to bus, particularly where capacity constraints exist in rail and other urban transit. How KPMG can help. KPMG s global transport practice offers a wide range of services to public and private sector bus and coach operators. KPMG member firms provide advice to companies across the sector from long established, global brand names through to start up operators. Our partners and staff understand the different markets and the impact of local requirements, such as regulatory frameworks, local demand patterns and infrastructure capacity. KPMG member firms core services to this market have recently included: Transactions and Restructuring. Restructuring Advice Disposal Advice Vendor due diligence Acquisition and disposal support Buy-side due diligence (both Financial and Commercial) Tax advice on mergers, acquisitions, restructuring and disposals Tendering support (Bidding, Mobilisation, and Delivery phases). Business and Financial Improvement. Independent Business Reviews Business transformation design and implementation Benchmarking exercises Supply chain management advice Route profitability analysis Sourcing options review Pensions advice and buy-outs IT solution design and implementation P2P Transformation and Procurement Advice. Risk Management. Process Reviews Controls Testing Investigations of Fraud Privacy and/or information security assessments. Strategic Advice. Business Strategy Market Entry Regulatory Advice Advice on in-house operation vs. outsourcing Market testing with prospective suppliers Independent strategy reviews of Government bus and coach policy Funding advice
6 On the Road Deutsche Bahn: Acquisition and Disposal Support. Context. In August 2010, Deutsche Bahn acquired the UK listed Arriva PLC for 1.9 billion. In order to obtain approval from the European Commission Deutsche Bahn sold the German activities of Arriva in February 2011 to a consortium led by Ferrovie dello Stato in partnership with Cube Infrastructure. Deutsche Bahn is 100 percent owned by the German Federal Government and has approximately 276,000 employees in over 130 countries. In 2010 Deutsche Bahn earned revenue of 34.4 billion. Arriva is one of the largest providers of passenger transport in Europe. It has approximately 36,500 employees and in 2010 achieved revenue of over 3 billion outside of Germany. By acquiring Arriva, Deutsche Bahn aimed to strengthen its strategic position in Europe, principally through using Arriva to target Europe s increasingly liberalized and growing transport markets. The European Commission had imposed a tight timetable for the disposal of Arriva s German operations. KPMG s role. KPMG firms in Germany and the UK supported Deutsche Bahn by providing financial and tax analysis during its acquisition of Arriva. Given Arriva s significant UK and mainland Europe operations, a team with an understanding of both markets was vital. The KPMG member firms used the global network to provide a team with a mixture of UK and German staff who worked closely with Deutsche Bahn to complete the due diligence process. Following the acquisition of Arriva, KPMG in Germany and the UK were commissioned to prepare a financial and tax vendor due diligence report on the disposal of the German operations of Arriva. The KPMG member firms also assisted Deutsche Bahn with the purchase price allocation of Arriva PLC for acquisition accounting in its 2010 year end accounts. KPMG member firms work w as vital in helping Deutsche Bahn complete its financial and tax due diligence for its internal decision making and government approval process. Outcome. On 22 April 2010, Arriva held a press conference announcing it had reached an agreement with Deutsche Bahn and was recommending Deutsche Bahn s offer of 775p per share. KPMG member firms work was vital in helping Deutsche Bahn complete its financial and tax due diligence for its internal decisionmaking and government approval process, and ensuring that the European Commission s deadline for the disposal of Arriva s German operations was met.
On the Road 7 East London Bus Group: Lender Independent Business Review and Disposal. Context. The East London Bus Group was the third largest bus operator in the London market with approximately 15 percent market share. Its operation consisted of a fleet of 1,400 buses based in 10 depots in East London and Kent. The Group, which carried some 240 million of debt, was facing operational challenges and had consequently breached covenants under its debt facilities. The Group had asked its lenders to extend facilities to support it through an operational turnaround plan. KPMG s role. KPMG in the UK s Restructuring Practice was instructed by the lenders to carry out an Independent Business Review. Following delivery of this report, the lenders considered the company s operational turnaround plan to be too high risk and expensive to be supportable. They subsequently asked the Group to put itself up for sale and instructed KPMG in the UK as their restructuring advisers. KPMG in the UK s Restructuring, Corporate Finance and Tax practices worked with the Group and its advisers, on behalf of the lenders, to develop the most appropriate mechanism for the sale. Outcome. The operating companies were successfully sold to Stagecoach Group PLC. The delivery mechanism was a pre-packaged administration (with KPMG insolvency practitioners appointed) which fully preserved the business and around 4,800 jobs. KPMG in the UK s input to the sale ensured a smooth process with no disruption to passenger services. KPMG in the UK s Restructuring, Corporate Finance and Tax practices worked with the Group and its advisers, on behalf of the lenders, to develop a mechanism for sale and then effected the sale process itself through a pre-packaged administration.
8 On the Road Asian Bus Operator: Procurement Process Review and Investigation. Context The client s internal audit function had detected an alleged impropriety in the award of a contract to operate a bus route. The client sought external help to investigate this, and decided to use this opportunity to undertake a wider review of its procurement process and controls. KPMG s role KPMG s member firm examined the bus operator s procurement process and controls, looking specifically at the tendering evaluation and award process and criteria used to allocate bus routes to sub-contractors. KPMG s member firm used its knowledge of procurement best practice, as well as their forensic advisory skills, to examine whether the process and controls were appropriate and being followed to ensure compliance with tender regulations. These regulations included areas such as ensuring a minimum number of quotes were obtained, that correct limits of authority were applied and that the terms of service level agreements were met. Our member firm also assessed more general policies around staff supervision and management. Our member firm worked closely with key stakeholders to identify gaps in the tender process and controls and make recommendations to the client on areas for improvement. In respect of the specific alleged impropriety, the team also reviewed whether the established controls had been observed in the award of a bus route to a sub-contractor. The team comprised of our member firm s Risk Consulting, Business Process Advisory and Forensic Services practices, providing a multi-disciplinary service to the client. Outcome KPMG s member firm delivered a gap analysis and made recommendations to the client to strengthen its controls over the tender process. The client has welcomed and taken onboard the recommendations. It has strengthened its controls over procurement and HR and there is greater clarity over each individual s roles and responsibilities. Delegation of authority and escalation procedures are also better defined and communicated within the organisation.
On the Road 9 KPMG in the UK used their in-depth industry knowledge to analyse the efficiency and effectiveness of the current system of delivery of the bus network. Transport for London: Independent Review of Bus Services in London. Context The number of bus passenger journeys in London increased significantly in the five years to 2010. This rise in the number of journeys was accompanied by a necessary increase in bus mileage and network size to meet Transport for London (TfL) standards. This in turn made the subsidy requirement of the bus network larger. The subsidy had been growing since 2000 and was forecast to continue on this upward trend. TfL was faced with the prospect of reduced funding availability as a result of the prevalent economic climate and additional requirements for funding from other modes of travel and investment projects. The newly elected mayor wanted to review the current structure of the London bus market, and to better understand the historic reasons for the increase in bus subsidy requirement and asked for an independent review of the value for money of London s bus network. KPMG s role KPMG in the UK conducted this high-profile strategic review of the provision of bus services. The review covered three workstreams: Bus contracting looking at how TfL tenders and contracts with the private sector operators of London buses; Network development investigating the processes TfL uses when designing London s bus network, consulting stakeholders and undertaking business case appraisal; and Value for Money analysing trends in a number of KPIs, comparing bus to other modes of transport in the UK and incorporating comparisons against more than 15 international cities. KPMG in the UK used their industry knowledge to analyse the efficiency and effectiveness of the current system of delivery of the bus network and complemented this with specialist technical expertise and market knowledge from cities around the world. Outcome KPMG in the UK produced a thorough report that was presented to TfL s Board including the mayor and his key advisors. The report explained the reasons for the historic increase in subsidy and identified over 30 savings opportunities and potential process improvements. TfL used these recommendations to help it develop its strategy for London s Buses.
10 On the Road National Express Corporation: P2P Transformation. Context National Express Corporation (NEC) is the North American subsidiary of National Express Group PLC, one of the largest transport firms in the United Kingdom. NEC required assistance in improving its Procure to Pay (P2P) process to be able to increase financial control and deliver savings from sourcing, transactional procurement and working capital initiatives. KPMG s role KPMG firms in the US and the UK advised NEC on this important initiative and the role was split into two phases. In the first phase, the team analyzed the current state of the process and the procurement profile of NEC. KPMG used their knowledge of leading practice in P2P techniques to develop a list of potential opportunities for improvement, including both process improvements and technology enhancements. They then designed a future state model. As part of this phase, the KPMG firms worked with NEC to implement some Quick Wins, as well as putting in place the roll out plan. The second phase saw joint working with NEC to implement the new operating model. The team developed and implemented new policies and a new governance and compliance program and designed and rolled out a new Procurement Card Program. Our member firms IT Advisory specialists configured the Oracle System to ensure full support to the new operating model. In order to ensure full buy-in and understanding of the new processes, the team developed training and executed it in conjunction with NEC. Outcome The project results included: Reduced transaction volume (e.g. reduced accounts payable headcount, reduced number of checks processed and automation of approvals); Improved payment terms; Establishment of appropriate policies and governance with audit trail; Streamlined processes with appropriate controls to enable use of preferred vendors to maximize sourcing savings; Improved utilization of technology; and Established consistent performance across service centers and a uniform system of training.
On the Road 11 Storstockholms Lokaltrafik: Transformation Design and Implementation. Context During the 1990s AB Storstockholms Lokaltrafik (SL) was transformed through privatization from being a supplier to being a procurer of public transportation services. The transformation reduced total costs and increased quality. However, during the next decade, costs increased and several major projects exceeded both deadline and budget. The number of employees doubled even though the increase in supply of public transportation did not grow at the same rate. Overall, SL believed that it could improve its governance and conduct more strategic planning, so it could develop in its role as a procurer. Project Översyn SL was initiated with the overall objective to develop SL into becoming an effective and efficient procurer with high strategic competence. KPMG s role The project started with a feasibility study to identify the critical issues that needed to be solved in order to achieve a successful transformation. Further detailed analysis identified how to develop a holistic approach to SL s organisational design, including its vision, business goals, governance, business model, competence and culture. During the following phase, SL and KPMG in Sweden developed a new organizational design with clear roles and responsibilities for departments, management and employees. The new organizational design resulted in a saving of 100 positions. KPMG in Sweden and the UK also assisted SL in the development of their new strategy and business model and in the on-boarding of SL s new management. During the final phase, KPMG in Sweden guided SL in the recruitment of new hires. A new management reporting package was developed, which was aligned to support the new organization, vision and goals. Throughout the project, KPMG in Sweden and SL have executed a broad ranging change management agenda to enable effective communication and readiness for change. KPMG in Sweden used its access to the global network to bring in specialists from KPMG in the UK to ensure SL received the benefits of KPMG member firms worldwide industry expertise. Outcome Today SL has a new organizational structure, a new vision and mission, new goals and strategy, a new business model and redesigned processes which are established and accepted by management and employees. The improved structure, way of operating and governance clarifies SL s mission as a procurer of public transportation and long-term partner in the development of the Stockholm area. SL is now well prepared to provide its owner, The County Council of Stockholm (Stockholms läns landsting) with high quality information for decision making and to execute their strategy through effective and efficient procurements. Throughout the project, KPMG in Sweden and SL have executed a broad ranging change management agenda to enable effective communication and readiness for change.
12 On the Road Skyss: e-ticketing Privacy and Information Security.. Context Skyss is the second largest public transport procurer in Norway. It is responsible for planning, procuring and marketing all public transport services in the region of Hordaland. Skyss developed and now operates an e-ticketing system. When introducing the new e-ticketing system, it had to overcome challenges with regards to privacy and information security. In order to address this, Skyss engaged KPMG in Norway to assist it to meet the requirements of the Norwegian Privacy Act (based on EU directive 95/46/EF) and Book-keeping Act. KPMG s role KPMG in Norway with professionals from the Advisory and Legal teams developed a detailed understanding of the requirements of the client s operations, the e-ticketing system and the regulations that affected the project. The team then carried out a risk assessment that provided an overview of outstanding requirements and risks. Based on this assessment, the team developed an action plan, specifically identifying measures to ensure compliance with the regulations and reduce risks. The measures included both technical and contractual changes with the e-ticketing supplier and the development of an information security management system. Furthermore, the team used its knowledge of IT systems and management worldwide to support Skyss with various tasks regarding IT governance, such as developing processes on how to manage both internal and external IT suppliers. KPMG in Norway used this experience to support the public transport sector in Norway to develop a national standard for information security and privacy in e-ticketing. Outcome Skyss now has an overview of requirements that its e-ticketing system must comply with. This has reduced the risk of the project for Skyss and enabled it to implement a leading edge system with confidence. KPMG in Norway used this experience to support the public transport sector in Norway to develop a national standard for information security and privacy in e-ticketing.
On the Road 13 Greater Manchester: Transport Fund Design. Context Greater Manchester ( GM ) is a conurbation comprising 10 Local Authorities and has a population of around 2.5 million people. Central to the economic strategy of the sub-region is to invest in its transport infrastructure, such that congestion does not become a constraint to the future growth of the economy. GM had previously sought to fund a step change in the quality of its public transport network through the introduction of road pricing. When this proposition was not taken forward, GM turned to KPMG in the UK for advice on where to go next. KPMG s role KPMG in the UK advised GM on the establishment of a 1.5 billion Transport Fund. The role had two key elements: Developing a bespoke approach to economic appraisal which could help GM identify which investments in transport infrastructure contributed most per of expenditure to delivering its objective of maximizing growth in Gross Value Added ( GVA ) across GM; and Blending different funding and financing streams as effectively as possible in order to maximise the buying power of the Fund. The Fund combined a number of different funding sources including central government, local government, farebox revenues and private sector contributions. GM optimized its buying power from this funding by using low cost sources of finance including the Public Works Loan Board and the European Investment Bank. In optimizing the use of funding and finance, KPMG in the UK developed a financial model for GM which took a whole life view of the operating costs and revenues of the various projects within the Transport Fund. The outputs of this model, combined with the economic appraisal exercise, allowed the 10 GM districts to agree upon a package of schemes that satisfied their objectives as cost effectively as possible. Outcome The 10 GM districts unanimously agreed to commit to the 1.5 billion Transport Fund in May 2009. The Fund programme includes the following investments: extensions to the Metrolink light rail network; a Bus Rapid Transit scheme; town centre transport interchange schemes; and road schemes including the 10km A6 to Manchester Airport relief road. Economic analysis indicates that the improvements in transport infrastructure delivered by the Fund will increase the employment potential of GM by around 20,000 jobs over the next decade.
14 On the Road KPMG Contacts For more information, please contact a professional from the following KPMG member firms. Global leadership Dr Ashley Steel Global Chair Transport 15 Canada Square London, E14 5GL U.K. T: +44 20 7311 6633 E: ashley.steel@kpmg.co.uk David Williams Global Head of Bus and Coach 15 Canada Square London, E14 5GL U.K. T: +44 11 7905 4171 E: david.williams@kpmg.co.uk Contact us Argentina Eduardo H Crespo +54 11 4891 5673 ecrespo@kpmg.com.ar Australia Mal Ramsay +61 2 9335 8228 malramsay@kpmg.com.au Belgium Serge Cosijns +32 3 821 18 07 scosijns@kpmg.com Brazil Mauricio Endo +55 11 3245 8322 mendo@kpmg.com.br Canada Jim Pickles +1 604 691 3572 jpickles@kpmg.ca Chile Alejandro Cerda +56 2 798 1201 acerda@kpmg.com China and Hong Kong Andrew Weir +852 2826 7243 andrew.weir@kpmg.com.hk Czech Republic Eva Rackova +420 222 123 121 evarackova@kpmg.cz Denmark Jesper Ridder Olsen +45 3818 3593 jesperolsen@kpmg.dk Finland Pauli Salminen +358 20 760 3683 pauli.salminen@kpmg.fi France Philippe Arnaud +33 1 5568 6477 parnaud@kpmg.com Germany Steffen Wagner +49 69 9587-1507 steffenwagner@kpmg.com Hungary Zoltan Szekely +36 1 887 7394 zoltan.szekely@kpmg.hu India Manish Saigal +91 22 3090 2410 msaigal@kpmg.com Ireland Michele Connolly +353 1 410 1546 Michele.connolly@kpmg.ie Israel Guy Aharoni +972 4 861 4804 gaharoni@kpmg.com Italy Alessandro Guiducci +39 010 553 1913 aguiducci@kpmg.it Japan Shigeharu Kawahara +81 3 3266 7485 Shigeharu.Kawahara@jp.kpmg.com
On the Road 15 Korea Ha Kyoon Kim +82 2 2112 0271 hakyoonkim@kr.kpmg.com Malta Pierre Portelli +356 2563 1132 pierreportelli@kpmg.com.mt Mexico Luis Carrero +52 818 122 1818 luiscarrero@kpmg.com.mx Netherlands Herman van Meel +31 20 656 7222 vanmeel.herman@kpmg.nl New Zealand Paul Herrod +64 9 367 5323 pherrod@kpmg.co.nz Norway John Thomas Sørhaug +47 4063 9293 john.thomas.sorhaug@kpmg.no Portugal João Augusto +351 210 110 000 jaugusto@kpmg.com Russia Alexei Romanenko +7 495 663 8490 ext.12694 aromanenko@kpmg.ru Singapore Wah Yeow Tan +65 6411 8338 wahyeowtan@kpmg.com.sg South Africa Dean Wallace +27 11 647 6960 dean.wallace@kpmg.co.za Spain David Hohn +34 91 456 3886 dhohn@kpmg.es Sweden Anders Rostin +46 8 723 9223 Ander.rostin@kpmg.se Switzerland Marc Ziegler +41 44 249 20 77 mziegler@kpmg.com Taiwan Fion Chen +886 2 8101 6666 fionchen@kpmg.com.tw Thailand John Sim +66 2 677 2288 jsim@kpmg.co.th Turkey Fikret Cetinkaya +90 221 317 745 0437 fcetinkaya@kpmg.com U.K. David Williams +44 11 7905 4171 david.williams@kpmg.co.uk U.A.E. Robert Hall +971 4 403 0300 rhall1@kpmg.com U.S.A. Chris Xystros +1 757 616 7009 cmxystros@kpmg.com
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