REG-FirstGroup PLC: Annual Financial Report
25/06/2019 17:00
FIRSTGROUP PLC
ANNUAL FINANCIAL REPORT
In compliance with Listing Rule 9.6.1R, FirstGroup plc (the “Company”) has
today submitted a copy of the documents listed below to the UK Listing
Authority and they will shortly be available for inspection via the National
Storage Mechanism at http://www.morningstar.co.uk/uk/NSM. These documents will
shortly be despatched or otherwise made available to shareholders.
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2019 Annual Report and Financial Statements (the “2019 Annual Report”)
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Notice of the 2019 Annual General Meeting of the Company which will be held at
De Vere Grand Connaught Rooms, 61-65 Great Queen Street, Holborn, London, WC2B
5DA at 2:30 pm on 25 July 2019 (the “2019 AGM Notice”); and
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Form of Proxy and Notice of Availability for the 2019 AGM.
As required under the Disclosure Guidance and Transparency Rules (“DTR”)
6.3.5R(3), the 2019 Annual Report and the 2019 AGM Notice will also be
available on the Company’s website www.firstgroupplc.com shortly.
A condensed set of the FirstGroup plc financial statements, including
information on important events that have occurred during the year and their
impact on the financial statements, were included in the Company’s
announcement of its full year results made on 30 May 2019. To view the final
results announcement, visit the Company website at www.firstgroupplc.com. That
information, together with the information set out below, which is extracted
from the 2019 Annual Report, constitute the material required under DTR 6.3.5R
to be communicated to the media in unedited full text through a Regulatory
Information Service.
This announcement is not a substitute for reading the 2019 Annual Report.
Cross-references and page numbers in the extracted information below refer to
sections in the 2019 Annual Report.
PRINCIPAL RISKS AND UNCERTAINTIES
Our risk management approach
We take a holistic approach to risk management, first building a picture of
the principal risks at divisional level, then consolidating those principal
risks alongside Group risks into a Group view.
Our risk management structure
Whilst some risks such as treasury risk are managed at a Group level, all of
our businesses are responsible for identifying, assessing and managing the
risks they face with appropriate assistance, review and challenge from the
Group functions.
We seek to continue to improve the quality of risk management information
generated by our businesses. The Group has a risk appetite framework which
informs the business on the Board’s appetite for certain risks.
Our current risk management structure is shown below:
Responsibility Process
The Board has overall responsibility for the Group’s systems of internal control and their effectiveness. The Audit Committee has a specific responsibility to review and validate the systems of risk management and internal control. The Board reviews and confirms Group and divisional risks and the Audit Committee reviews the Group’s risk management process.
The Executive Committee acts as Executive Risk Committee and reviews the Group’s risk management processes. Internal Audit provides assurance on the key risk mitigating controls and ensures that the audit plan is appropriately risk-based. The Executive Committee and other Group management review and challenge Group and divisional risk submissions.
The divisions and Group functions management have responsibility for the identification and management of risks, developing appropriate mitigating actions and the maintenance of risk registers. Divisional and Group risk champions maintain and update risk registers for their function or division. Risks and mitigating actions are monitored through normal business management processes.
Principal risks and uncertainties
Our risk management methodology is aimed at identifying the principal risks
that could:
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adversely impact the safety or security of the Group’s employees, customers
and assets;
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have a material impact on the financial or operational performance of the
Group;
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impede achievement of the Group’s strategic objectives and financial
targets; and/or
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adversely impact the Group’s reputation or stakeholder expectations.
The Group’s principal risks are set out in the table below. These risks have
been assessed taking into account their potential impact (both financial and
reputational), the likelihood of occurrence, and any change to this compared
to the prior year and the residual risk after the implementation of controls.
Further information on our risk management processes is contained in the
corporate governance report on pages 65 to 66 of the full Annual Report.
Areas of focus during the year
During the year work has continued in the development of a revised risk
management system, designed to capture risks and opportunities to the Group.
New and emerging risks
New vehicle technologies are evolving rapidly in response to market
innovation, increasing environmental regulation and consumer demand. Although
these do present significant opportunities for our businesses, there is risk
associated with the change required to our business models.
Strategic priorities
1 – Focused and disciplined bidding
2 – Driving growth through attractive commercial propositions
3 – Continuous improvement in operating and financial performance
4 – Prudent investment in our key assets
5 – Responsible partnerships with our customers and communities
Risk and potential impact Mitigation Comment and movement during the year
External Risks
Economic conditions including Brexit Changing economic conditions affect our different businesses in different ways. A less positive economic outlook, or a disruptive 1 2 3 4 To an extent, our First Bus and Greyhound operating companies are able to modify services to react to market changes. The geographic spread of our operations reduces the risk at a Group level. All of our businesses focus on controlling costs to ensure they remain competitive. The Group does not have any standalone operations entirely in the EU. Focus must be maintained to scan the economic environment and take proactive action so as to not adversely impact FirstGroup's execution of its strategy. ? The UK departure from the European Union may adversely impact the UK’s economic position which in turn may have an adverse impact on the Group’s UK and Irish operations. Action plans have been put in place to manage disruption caused by a disorderly exit from the EU.
exit from the EU could have a negative impact on our businesses in terms of reduced demand and reduced opportunities for growth or to retain or secure new business. Our
First Rail businesses are particularly sensitive to movements in key economic indicators. The same factors could also affect our key suppliers. A strong economic
climate, particularly when combined with lower fuel prices, may result in reduced demand for public transportation in our Greyhound and First Bus businesses as
alternative modes of transport become relatively more affordable. Economic conditions may also result in a tightening of labour markets resulting in employee shortages,
rising pay, or affect the availability of public funding for transport services.
Political and regulatory The political landscape within which the Group operates is constantly changing. Changes to government policy, funding regimes, infrastructure 1 2 3 4 5 The Group has dedicated legal teams in the UK and North America who advise on emerging issues. The Group actively engages with the relevant government and transport bodies and policy makers to help ensure that we are properly positioned to respond to any proposed changes. Our continued focus on service quality and delivery helps to mitigate calls for structural market change. We have a programme to measure and reduce our carbon emissions and are developing Group-wide carbon reduction targets with plans across our divisions to mitigate the regulatory risk and benefit from our operating markets transitioning to a low carbon economy. ? The political landscape in the US and the UK continues to present both risks and opportunities.
initiatives, or the legal and regulatory framework may result in structural market changes or impact the Group’s operations in terms of reduced profitability, increased
costs and/or a reduction in operational flexibility or efficiency. Following the 2016 Paris Agreement, a number of countries in which we operate have now engaged in
defining either city, state or national decarbonisation plans. These plans set ambitious targets for the reduction of transport-related GHG emissions and transition to
low carbon economies.
Strategic Risks
Contracted businesses including rail franchising Approximately half of the Group’s business is contracted, which is dependent on the ability to renew and secure new 1 2 3 4 5 The relevant divisions have experienced and dedicated bid teams who undertake careful economic modelling of contract bids and, where possible, seek to negotiate risk sharing arrangements with the relevant customer or contracting authority. The Group also has a comprehensive review process for rail bids as they are developed and finalised involving a number of divisional and Group functions as well as final Board sign off. Compliance with our rail franchise agreements is closely managed and monitored on a monthly basis by senior management and procedures are in place to minimise the risk of non?compliance. ? We continually review our contracts to take account of changing circumstances such as economic environment or infrastructure changes. Our rail franchise contracts are examples of this. Future commitments to UK rail will only be entered into if they have an appropriate balance of potential risks and rewards for shareholders.
contract wins on profitable terms. Failure to do so would result in reduced revenue and profitability and incorrect modelling or bid assumptions could lead to greater
than anticipated costs or losses. Failure to comply with contract terms could result in termination, litigation and financial penalties and failure to win new contracts
or non-renewal of existing contracts. This could also have a negative impact on delivering FirstGroup's strategy going forward. Competition for new rail franchises is
intense. We bid against rail operators from both the UK and other countries. Failure to win franchises in the future will result in a lower First Rail division
contribution and profitability. The GWR, TPE and SWR franchises cover a period during which there will be significant change including major infrastructure work,
electrification and resignalling as well as the introduction of new trains, which require careful planning and management. Failure to manage these risks adequately in
accordance with our plans could result in financial and reputational impacts to the Group.
Competition and emerging technologies All of the Group’s businesses (both contract and non?contract) compete in the areas of pricing and service and face competition 1 2 3 4 The Group continues to focus on service quality and delivery as priorities in making our services attractive to passengers and other customers, across our portfolio of businesses. We have a dedicated cross- divisional Consumer Experience Team focused on improving our service to customers and improving access to our services. In our contract businesses, a competitive bidding strategy and a strong bidding team are key. Wherever possible, the Group works with local and national bodies to promote measures aimed at increasing demand for public transport and the other services that we offer. We work with industry bodies advocating for the development of clean vehicle technologies and partners at a local level to develop integrated mobility solutions for our customers and transition our vehicles to modern low emission fleets. ? In North America, Greyhound has implemented new pricing technology tools to allow for a more rapid response to an increasingly competitive marketplace driven by low cost airline competition. We currently have a number of autonomous vehicle pilot projects in the US and are working on one in the UK. We are also running pilots for on demand technology both in the US and UK.
from a number of sources. Our main competitors include the private car and existing and new public and private transport operators across all our markets. Airline
competition impacts demand for bus travel, especially in Greyhound’s long haul business. Emerging services such as Uber, ride sharing apps and price comparison websites
make access to alternative transport solutions easier. However, emerging technologies such as autonomous vehicles and on demand schemes also provide opportunities to grow
and develop our market segments. As the uptake of electric vehicle technology rapidly increases, so the per passenger carbon footprint of all modes of transport can be
reduced, providing competition for our services on environmental grounds and opportunities for us to reduce our emissions further. Increased competition could result in
lost business, reduced revenue and reduced profitability, negatively impacting the effective execution of FirstGroup's strategy in line with its expectations.
Operational Risks
Information technology (IT) The Group relies on IT in all aspects of our business. Any significant disruption or failure, caused by external factors, denial of service, 1 2 3 4 The Group has continued to focus on removal of legacy assets with a focus on modern cloud-based assets which are naturally more resilient to failure. In addition the Group is fully focused on continuing to improve cyber security defences with additional resources being focused on the area and the appointment of a chief information security officer (CISO) to ensure clear focus. ?? We continue to improve key asset resilience, business and IT continuity as the importance of digital sales channels continues to grow.
computer viruses or human error could result in a service interruption, accident or misappropriation of confidential information. Process failure, security breach or
other operational difficulties may also lead to revenue loss or increased costs, fines, penalties or additional insurance requirements. Prolonged failure of our sales
websites could also adversely affect revenues. Continued successful delivery and implementation of the Greyhound IT transformation plan is required to improve yield
management and drive future growth. Failure to properly manage the implementation of new IT systems may result in increased costs and/or lost revenue.
Data security including cyber security and GDPR All business sectors are targeted by increasingly sophisticated cyber security attacks. Across our divisions we are seeing 1 2 3 4 5 We have a number of threat detection tools and processes across all our businesses which remain under constant review against emerging threats. ?? In the year we have appointed a CISO to provide further focus in the area of cyber security and compliance with GDPR, the Health Insurance Portability and Accountability Act, and Network and Information Systems directives. We have also invested in data and cyber security training and awareness programmes for employees and this is now part of a continuous campaign.
increased use of mobile and internet sales channels which gather large amounts of data and therefore the risk of unauthorised access to, or loss of, data in respect of
employees or our customers is growing. A failure to comply with the General Data Protection Regulation (GDPR), which came into force in May 2018, could result in
significant penalties and could have adverse impact on consumer confidence in the Group.
Treasury and credit rating As set out in further detail in note 24 to the financial statements on pages 139 to 144, treasury risks include liquidity risks, risks arising 1 3 4 The Group’s Treasury Committee manages treasury policy, and delegated authorities are reviewed periodically to ensure compliance with best practice and to control and monitor these risks appropriately. The Group is continuously focused on improving operating and financial performance as part of our strategic objectives as outlined on page 13. ? Leverage (Net Debt: EBITDA) remains within our target range. We refinanced our £800m Revolving Credit Facility in November 2018 and that is now committed until 2023, providing significant liquidity headroom for the Group.
from changes to foreign exchange and interest rates and fuel price risk. Foreign currency and interest rate movements may impact the profits, balance sheet and cash
flows of the Group. Ineffective hedging arrangements may not fully mitigate losses or may increase them. The Group is credit rated by Standard & Poor’s and Fitch. A
downgrade in the Group’s credit ratings to below investment grade may lead to increased financing costs and other consequences and affect the Group’s ability to invest in
its operations.
Pension scheme funding The Group sponsors or participates in a number of significant defined benefit pension schemes, primarily in the UK. Future cash contribution 1 3 4 Diversification of investments, hedging of liabilities, amendment of the defined benefit promises and the introduction of defined contribution benefits for new starters in First Bus, FirstGroup corporate functions and our Canadian businesses have reduced these risks. The Group also seeks to remove liabilities from the balance sheet where it can be achieved cost effectively. Under the First Rail franchise arrangements, the Group’s train operating companies are not responsible for any residual deficit at the end of a franchise so there is only short term cash flow risk within any particular franchise. ? The Group has closed most of its defined benefit schemes in its road divisions to future accrual. This will lead to the natural reduction of the size and volatility of the pension funding risk over time. Through our membership of the Rail Delivery Group we are engaged in an industry wide project to consider the long term funding model for The Railways Pension Scheme. The Group is also consolidating its Local Government Bus obligations across England and Scotland separately, which will achieve economies of scale in terms of investment and de-risking opportunities as well as ongoing running costs, with significant risk reduction already taking place.
requirements may increase or decrease based on pension scheme investment performance, rates of interest and inflation and estimated life expectancy as well as changes in
the underlying membership of the schemes. Other factors, such as changes to the relevant regulatory environments, can affect the pace of cash funding requirements.
Compliance, litigation, claims, health and safety The Group’s operations are subject to a wide range of legislation and regulation. Failure to comply can lead to 1 2 3 5 Compliance with Group and divisional policies and procedures. The Group has a very strong focus on safety and it is one of our five values. The Group self-insures third party and employee injury claims up to a certain level commensurate with the historical risk profile. We purchase insurance above these limits from reputable global insurance firms. Claims are managed by experienced claims handlers. Non-insured claims are managed by the Group’s dedicated in-house legal teams with external assistance as appropriate. ? The legal climate in North America, particularly in the US, continues to deliver judgements which are disproportionately in favour of plaintiffs, and at times unpredictable. The costs of dealing with this challenging legal environment are factored into our budgets. Due to the scale and scope of our operations, risk mitigation in this area continues to be an area of key focus for the Group.
litigation, claims, damages, fines and penalties. The Group has three main insurable risks: third party injury and other claims arising from vehicle and general
operations, employee injuries and property damage. The Group is also subject to other litigation, which is not insured, particularly in North America, including
contractual claims and those relating to employee wage and hour, and meal and break matters. A higher volume of litigation and claims can lead to increased costs,
reduced availability of insurance cover, and/or reputational impact. Increased frequency of accidents, clusters of higher severity losses, a large single claim, or a
large number of smaller claims may negatively affect profitability and cash flow.
Labour costs, employee relations, recruitment and retention Employee costs represent the largest component of the Group’s operating costs, and new regulation or pressure 1 2 3 4 5 The Group seeks to mitigate these risks via its recruitment and retention policies, training schemes and working practices. Our working practices include building communication and engagement with trade unions and the wider workforce. Examples of this engagement include regular employee communication, satisfaction surveys, and the presence of Employee Directors (who are voted for by the employees) on many of the Group’s UK operating company boards and the FirstGroup plc Board. Where increased wages and incentives are necessary to attract and retain employees, those extra costs are factored into our bid models, where possible, to ensure appropriate returns are achieved. ?? Strong economic conditions and low unemployment, continue to impact retention and recruitment. Competition for commercially-licensed drivers is increasing as more organisations offer delivery services. During the year, recruitment strategies have been refreshed across all five divisions, providing intensive recruitment support through initiatives such as expanded digital recruitment channels, retention and referral rewards and fast tracked on-boarding.
to increase wages could increase these costs. Competition for employees, particularly in an improved economic climate, can lead to shortages which increase costs and
affect service delivery. High employee turnover could lead to higher than expected increases in the cost of recruitment, training and labour costs and operational
disruption. Similarly, industrial action could adversely impact customer service and have a financial impact on the Group’s operations.
Disruption to infrastructure/operations Our operations, and the infrastructure on which they depend, can be affected by a number of different external factors, many of 1 2 3 5 We continue to develop and apply good practice, and provide guidance to our employees to help them identify and respond effectively to any potential threat or incident. We maintain close working relationships with specialist government agencies, in relation to terror threats, in both the UK and North America. We employ dedicated security specialists in the UK and North America. The geographic spread of the Group’s businesses offers some protection against specific incidents. In addition, some of our contract-based businesses have force majeure clauses in place. We have severe weather action plans and procedures to manage the impact on our operations. The Group continues to target reductions in our emissions, including through behaviour change initiatives, research and development and investment in new technology. We work closely with those responsible for planning and maintaining our network infrastructures and our asset plans for both our fleet and buildings consider potential climate change impacts. ?? Severe weather has led to service disruption in both our North American and UK operations but our businesses have well developed plans to limit as far as possible the disruption. In relation to terrorism, some developments including the weakened position of Islamic State in Syria have created the false perception that the threat may be reducing. This is not the case and the threat remains significant and consistent in relation to western societies.
which are not within our control. These factors include terrorism, adverse weather events and climate change or potentially pandemics. Greater and more frequent adverse
weather caused by climate change increases the risk of service disruption and reduced customer demand with consequent financial impact, potential increased costs and
accident rates. As a leading transport provider, we must prioritise these risks of addressing climate change, both through managing its physical and transitional impacts
and reducing emissions in support of international agreement to limit planetary warming to 1.5 degrees. As national governments align policies and plans with targets for
low-carbon and cleaner forms of energy, climate change also presents a business opportunity related to the falling cost of alternative energy sources and the development
of new mobility technologies. The threat from terrorism is enduring and continues to exist in all of our markets. Public transport continues to be regarded as an
attractive and viable target and has previously been subject to attack. Across our businesses, we take all reasonable steps to help guard against such activity on the
services we operate. An attack, or threat of attack, could lead to reduced public confidence in public transportation, and/or specifically in the Group’s security and
safety record and could reduce demand for our services, increase costs or security requirements and cause operational disruption.
The risks listed are not all of those highlighted by our risk management
processes and are not set out in any order of priority. Additional risks and
uncertainties not presently known to us, or currently deemed to be less
material, may also impact our business. Indication of a movement in a risk may
not indicate a change in the overall net risk position after taking into
account risk mitigations.
DIRECTORS’ RESPONSIBILITY STATEMENT
Statement of Directors’ responsibilities in respect of the Annual Report and
the financial statements
The Directors are responsible for preparing the Annual Report and the Group
and parent company financial statements in accordance with applicable law and
regulations. Company law requires the Directors to prepare financial
statements for each financial year. Under that law, the Directors are required
to prepare the Group financial statements in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European Union and
Article 4 of the IAS Regulation and have chosen to prepare the parent company
financial statements in accordance with applicable UK Accounting Standards,
including Financial Reporting Standard 101 ‘Reduced Disclosure Framework’
(FRS 101) and applicable law.
Under company law, the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss of the Company for that
period. In preparing the parent company financial statements, the Directors
are required to:
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select suitable accounting policies and then apply them consistently
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make judgements and accounting estimates that are reasonable and prudent
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state whether applicable UK Accounting Standards, including FRS 101, have been
followed, subject to any material departures disclosed and explained in the
financial statements
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prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business
In preparing the Group financial statements, International Accounting Standard
1 requires that Directors:
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properly select and apply accounting policies
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present information including accounting policies, in a manner that provides
relevant, reliable, comparable and understandable information
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provide additional disclosures when compliance with the specific requirements
in IFRSs are insufficient to enable users to understand the impact of
particular transactions, other events and conditions on the entity’s
financial position and financial performance
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make an assessment of the Company’s ability to continue as a going concern
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company’s transactions and disclose with
reasonable accuracy, at any time, the financial position of the Company and
enable them to ensure that the financial statements comply with the 2006 Act.
They are also responsible for safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and detection of fraud and
other irregularities, and have adopted a control framework across the Group.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company’s website.
Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
Responsibility statement
Each Director confirms to the best of their knowledge that:
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the financial statements, prepared in accordance with the relevant financial
reporting framework, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole
*
the Strategic report and Governance section include a fair review of the
development and performance of the business and the position of the Company
and the undertakings included in the consolidation taken as a whole, together
with a description of the principal risks and uncertainties that they face
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the Annual Report and Accounts, taken as a whole, is fair, balanced and
understandable and provides the information necessary for shareholders to
assess the Company’s and the Group’s position and performance, business
model and strategy
The Strategic report comprising pages 3 to 50, and the Governance section
comprising pages 51 to 102, and including the sections of the Annual Report
and Accounts referred to in these pages, have been approved by the Board and
signed on its behalf by:
Matthew Gregory
Chief Executive
RELATED PARTY TRANSACTIONS
Transactions between the Company and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this
note.
Remuneration of key management personnel
The remuneration of the Directors, which comprise the plc Board who are the
key management personnel of the Group, is set out below in aggregate for each
of the categories specified in IAS 24 Related Party Disclosures. Further
information about the remuneration of individual Directors is provided in the
Directors’ remuneration report on pages 76 to 97.
Year to 31 March 2019 £m Year to 31 March 2018 £m
Basic salaries (1) 0.8 1.6
Performance-related bonuses 0.1 0.1
Benefits in kind 0.0 0.1
Fees 0.9 0.7
Share-based payment 0.2 1.1
2.0 3.6
1 Basic salaries include cash emoluments in lieu of retirement
benefits and car and tax allowances
Contacts at FirstGroup:
Faisal Tabbah, Head of Investor Relations
Stuart Butchers, Group Head of Communications
Silvana Glibota-Vigo, Deputy Company Secretary
Tel: +44 (0) 20 7725 3354
Contacts at Brunswick PR:
Andrew Porter / Alison Lea, Tel: +44 (0) 20 7404 5959
Classification as per DTR 6 Annex 1R: 1.1. Legal Entity Identifier (LEI):
549300DEJZCPWA4HKM93.
About FirstGroup
FirstGroup plc (LSE: FGP.L) is a leading provider of transport services in the
UK and North America. With £7.1 billion in revenue and around 100,000
employees, we transported 2.2 billion passengers last year. 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 42,500 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 1.6 million
passengers a day, and First Rail is one of the country's largest and most
experienced rail operators, carrying 345 million passengers last year.
Visit our website at www.firstgroupplc.com and follow us @firstgroupplc on
Twitter.
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