REG-FirstGroup PLC: AGM trading update

FirstgroupAnnouncement

15/09/2020 07:05

FirstGroup plc
AGM trading update

FirstGroup plc (‘FirstGroup’ or ‘the Group’) provides the following
update on developments between 1 April and 31 August 2020 (the ‘period’),
ahead of today’s Annual General Meeting.

Overview                                                                                                         
* Stronger than expected financial performance, with adjusted operating profit
and cash from operations ahead of our expectations during the period, driven
by better revenue recovery and strong cost control
* Governments and our customers are extending the funding measures necessary
to underpin our critical services in light of ongoing social distancing rules,
the delayed start of in-person teaching by many of our school customers in
North America and other effects of the coronavirus pandemic
* The Group is now expecting to deliver a small adjusted operating profit for
the seasonally weaker first half of the financial year, ahead of our
expectations earlier this summer
* c.£850m in committed undrawn liquidity has improved since April, in part
reflecting positive cash from operations (and after debt financing costs)
* Reiterating confidence in comfortably meeting covenants as at 30 September
2020; net debt: EBITDA on the basis relevant for the bank test is expected to
be c.2 times (covenant requires less than 3.75 times)
* It is not possible to predict with certainty the medium-term effects of the
coronavirus pandemic on our business, however clarity is improving over time
as we agree responses to the evolving situation with our customers and
stakeholders
* The Board is resolutely focused on executing the portfolio rationalisation
strategy through divestment of the North American businesses and is encouraged
by significant interest from potential buyers
Update on operations – North America

Since the Group’s full year results were announced in early July, many US
states have experienced increases in the number of positive coronavirus cases,
resulting in changes to local guidance and differing views about the most
appropriate ways to return to pre-pandemic activities such as education and
intercity travel.

In First Student, many school districts continue to review and alter their
back to school plans in light of dynamic local conditions even as the school
year gets underway. We are supporting each of our 1,100 customers to implement
school transportation services in line with their requirements. Even though
many schools delayed the start of full in-person teaching for the new academic
year, by last week c.45% of our fleet were operating home to school services.
Of the remainder, most serve schools which are starting with a mixture of
in-person and online teaching, although a portion are all online at present.
We are in active discussions with all schools where full transportation is not
yet restored to ensure that when required we can restart services rapidly. As
was the case earlier in the year, we have begun negotiating full or partial
payments from many of our customers to support that objective. At this stage
we have already agreed payment in respect of approximately one third of those
buses where school start was delayed or full service has not yet been
restored, with an average recovery rate of c.70% of their pre-pandemic
revenue. We also continue to work hard to mitigate costs in light of these
rapidly changing requirements and to secure the appropriate government
funding. As anticipated, very little charter activity is currently being
undertaken.

We have been able to take on additional business from struggling smaller
competitors and our pipeline of potential bolt-on acquisitions remains strong.
We are also pleased that our Hopewell special education business acquisition
has successfully been awarded a number of new contracts in this year’s bid
season, demonstrating our growth potential in this area.

As in every year, First Student has incurred fixed and school start-up costs
but little revenue during the school summer holiday months, resulting in a
significant seasonal difference in its profitability between the first and
second half of our financial year.

Many of First Transit’s contracts are classed as essential services and are
based on payment for availability rather than volume, so the division
experienced less of an impact on revenues compared with our other divisions
during the lockdown phase. While recovery rates since then vary by
sub-segment, overall First Transit is now operating c.67% of pre-coronavirus
services compared with c.60% at the low point, and generating c.80-85% of the
revenue expected prior to the crisis. We have continued to secure future
business in the period, including retention of two important multi-year
contracts (in paratransit and fixed route respectively), each with base term
revenues of more than $50m. Amongst other new business, First Transit has
recently commenced a new mobility on demand shared transit service in
California and expanded its successful paratransit partnership with Lyft in
the period.

Incremental increases in Greyhound passenger volumes have been broadly in line
with our assumptions in the period. Revenue has improved to c.35-40% of
pre-pandemic levels reflecting this trend, as well as the ongoing suspension
of our Canadian operations due to the closure of the border with the US.
Negotiations with state agencies are on track to secure further CARES Act
intercity bus funding to operate our community-critical network. Greyhound
continues to improve yields, optimise its cost base and rationalise its
property footprint by moving operations to intermodal transport hubs or new
facilities better tailored to its needs. The division exited five small
surplus locations in the period, despite a hiatus in commercial property
transactions early in the pandemic, and a number of other property
transactions are progressing.

The Group is resolutely focused on executing the portfolio rationalisation
strategy to unlock material value through the sale of the North American
businesses and is encouraged by significant interest from potential buyers.
The pandemic and its attendant uncertainties have affected the speed at which
this process can be concluded but the Board is intent on achieving this as
expediently as possible and in the best interests of all shareholders.

Update on operations – UK

With schools and universities restarting in the UK, First Bus has recorded an
encouraging acceleration in the rate of patronage recovery in recent weeks.
Passenger volumes across the division have increased from c.10% of
pre-pandemic levels at the low point to more than 50% last week. The division
has recently increased operated mileage to almost 90% of pre-pandemic levels
to provide more capacity as demand increases, even as social distancing
restrictions remain in place. In August we welcomed the UK Government’s
extension of funding to support the provision of these vital services by
regional bus operators in England. The COVID-19 Bus Service Support Grant
Restart (CBSSG Restart) programme is now in place on a rolling basis until
such time as it is no longer needed, with an eight week notice period.

Passenger volumes on our First Rail operations have increased modestly during
the summer, but still remain at c.30% of pre-pandemic levels on average. Our
rail franchises have been operating under the terms of the Emergency Measures
Agreements (EMAs) put in place by the UK Government and have recently
increased capacity to c.90% of pre-pandemic levels on average to support the
return to places of work and schools.

At the start of September the EMA in respect of Great Western Railway (GWR)
was extended under its previous terms until at least 26 June 2021. GWR is our
largest railway operation and had £266m of cash ring-fenced within it as at
31 March 2020 out of a First Rail total of £612m. GWR’s original EMA was
signed on the same day as the new franchise agreement in March, and the
DfT’s option to review the EMA formed part of that contract. This process
and timing is different from our other three rail franchises which were
already on established franchise agreements before adopting EMAs in response
to the pandemic.

Discussions are progressing with the DfT about the other franchises which are
under EMAs until 20 September 2020, and further updates will be provided to
the market as appropriate.

Update on liquidity and financial position

As at the end of August 2020 FirstGroup had c.£850m in free cash (before rail
ring-fenced cash) and committed undrawn revolving banking facilities.
Liquidity has therefore improved since April, (after debt financing costs paid
in the period), benefitting from better than expected cash from operations in
recent months. The Group has also successfully reduced its capital expenditure
programme while meeting our commitments to our customers.

Overall, our divisions have delivered better revenue recovery and strong cost
control in the period and the Group is now expecting to generate a small
adjusted operating profit in the seasonally weaker first half of the financial
year. This anticipated result is ahead of our expectations earlier this
summer.

Net debt: EBITDA on the basis relevant to the bank covenant tests is expected
to be c.2 times as at 30 September 2020, comfortably complying with our 3.75
times bank covenant requirement. As noted in July the Board keeps the
liquidity and covenant position under constant review and will take
appropriate action, including the negotiation of covenant waivers, as required
or considered prudent.

Commenting on today’s announcement, FirstGroup Chief Executive Matthew
Gregory said:

“Passengers can be confident that public transport is safe and we are
encouraged that activity levels are increasing, especially since the start of
the new school year on both sides of the Atlantic. We continue to work with
our customers, communities and governments to maintain the availability of our
transportation services which are so crucial to the recovery of local
economies.

“Although the ongoing impact of the pandemic on the Group continues to
evolve, clarity is improving over time. We continue to take all necessary
action to protect the business and to ensure the Group is in the most robust
position possible to deliver on our strategic plans.

“As we head into the autumn, our priorities are to continue delivering safe,
reliable transport services that meet the changing needs of our customers and
communities, and to execute the sale of the North American businesses as
expediently as possible and in the best interests of all shareholders.”

Contacts at FirstGroup:
Faisal Tabbah, Head of Investor Relations
Stuart Butchers, Group Head of Communications
corporate.comms@firstgroup.com
Tel: +44 (0) 20 7725 3354

Contacts at Brunswick PR:
Andrew Porter / Simone Selzer, Tel: +44 (0) 20 7404 5959

Legal Entity Identifier (LEI): 549300DEJZCPWA4HKM93. Classification as per DTR
6 Annex 1R: 3.1.

Figures presented in this announcement are not audited. Certain statements
included or incorporated by reference within this announcement may constitute
‘forward-looking statements’ with respect to the business, strategy and
plans of the Group and our current goals, assumptions and expectations
relating to our future financial condition, performance and results. By their
nature, forward-looking statements involve known and unknown risks,
assumptions, uncertainties and other factors that cause actual results,
performance or achievements of the Group to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Shareholders are cautioned not to place undue
reliance on the forward-looking statements. Except as required by the UK
Listing Rules and applicable law, the Group does not undertake any obligation
to update or change any forward-looking statements to reflect events occurring
after the date of this announcement.

About FirstGroup
FirstGroup plc (LSE: FGP.L) is a leading provider of transport services in the
UK and North America. With £7.8 billion in revenue in 2020 and around 100,000
employees, we transported 2.1 billion passengers. Whether for business,
education, health, social or recreation – we get our customers where they
want to be, when they want to be there. We create solutions that reduce
complexity, making travel smoother and life easier. We provide easy and
convenient mobility, improving quality of life by connecting people and
communities. Each of our five divisions is a leader in its field: In North
America, First Student is the largest provider of home-to-school student
transportation with a fleet of 43,000 yellow school buses, First Transit is
one of the largest providers of outsourced transit management and contracting
services, while Greyhound is the only nationwide operator of scheduled
intercity coaches. In the UK, First Bus is one of Britain's largest bus
companies with 1.4 million passengers a day in 2020, and First Rail is one of
the country's most experienced rail operators, carrying 340 million passengers
in the year. Visit our website at www.firstgroupplc.com and follow us
@firstgroupplc on Twitter.



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