REG-FirstGroup PLC: Business and liquidity update

FirstgroupAnnouncement

24/04/2020 07:05

FIRSTGROUP PLC
BUSINESS AND LIQUIDITY UPDATE

Further to the announcements made on 23 March and 3 April 2020, FirstGroup plc
(‘FirstGroup’ or the ‘Group’) today provides further updates on its
response to the COVID-19 (‘coronavirus’) pandemic.
* Liquidity further enhanced through £300m issuance under UK government’s
Covid Corporate Financing Facility (‘CCFF’) scheme; committed headroom and
free cash increases to c.£800m
* Greyhound uniquely positioned to access a significant share of the $326m in
CARES Act funding allocated to US states in support of intercity bus services
* North American contract businesses making continued progress in agreeing
revenue recovery; ongoing UK government support for critical bus and rail
transportation services
* Further cost control measures embedded across the Group; Executive Directors
and Board have volunteered a 20% reduction in salaries and fees, with salary
reductions and deferrals across wider senior management
* Triennial valuations agreed with trustees of First Bus pension schemes, with
lower overall deficit payments for year to 31 March 2021
* The Group’s full year results reporting calendar will be extended in
recognition of present challenges in producing audited accounts, consistent
with recent statements from UK regulators
Our people

We are deeply saddened to report that we have now seen colleagues from within
each of our five divisions across North America and the UK tragically lose
their lives as a result of the coronavirus outbreak. We offer our heartfelt
condolences and support to their families, friends and co-workers and we keep
in our thoughts all those affected by this global health crisis. The Group’s
first priority is to safeguard the health and wellbeing of our employees and
our customers, and across our businesses we are following the guidance of
governments and health authorities.

Supporting our communities

The Group’s operations are part of the critical infrastructure providing
essential transportation services, which enable key workers to travel to their
destinations and perform their vitally important roles. We are extremely proud
of our people who are playing such an important part in delivering these
much-needed services.

In addition, many of our colleagues and teams are also providing support and
assistance right at the heart of their communities during this challenging
time. We are grateful for and inspired by their actions, including the many
drivers at First Student and First Transit in North America who are delivering
food supplies to vulnerable members of the community as well as curriculum
support materials to school children. Greyhound is supporting first responder
and frontline medical professional volunteers by providing free transport to
those travelling to another town or city to provide assistance during the
outbreak. Greyhound are also delivering vital medical supplies and safety
equipment in partnership with the American Red Cross. In the UK we are making
space available at our bus terminals and railway stations for community
initiatives such as key worker food collection points or mobile blood donation
banks. In First Rail, we were pleased the Rail to Refuge scheme with Women’s
Aid went nationwide in April, following the successful trial in GWR. Where we
have a catering offer, our rail companies have been donating food from
on-board shops to NHS teams and charities. Finally, the Group is proud to team
up with Action for Children in the UK, our charity of choice partner, to
support some of the most vulnerable children and families in the UK. We are
particularly pleased to support their Coronavirus Emergency appeal through the
deployment of the matched funding proceeds raised from our partnership in the
last year to this important fund.

Update on liquidity including CCFF draw down

As anticipated in our update on 23 March 2020, the Group has been confirmed as
an eligible issuer for the UK Government’s CCFF scheme, with an issuer limit
of £300m based on its credit ratings under the terms of the scheme as
published by the Bank of England. Yesterday we requested a £300m issuance of
commercial paper through the scheme to further enhance our robust level of
liquidity.

As at 21 April 2020 (i.e. prior to the drawings made under the CCFF facility
announced today), the Group’s undrawn committed headroom and free cash had
increased to c.£ 500m. This comprised £190m in free cash and £310m of
undrawn committed bank revolving credit facilities and represents an
improvement of c.£100m compared with the position at the end of February
2020. Therefore, with the drawings under the CCFF facility announced today,
the Group has undrawn committed headroom and free cash of c.£800m.

The Group’s committed bank facilities include the £800m revolving credit
facility which matures in November 2023 and a £250m bank bridge facility for
the refinancing of the April 2021 bond. The Group’s free cash is in addition
to the ring-fenced cash inside our rail franchise operations. In addition to
vehicle leasing facilities, the Group also has access to a £150m accordion
feature on the bank revolving credit facility and available supplier financing
arrangements of more than $100m.

On 1 April 2020 Fitch Ratings maintained its long-term Issuer Default Rating
(IDR) at BBB- whilst revising the outlook to negative from stable.

Update on operations in North America

Throughout the business we continue to operate our services at levels required
to support critical transportation activities. As a leader in transportation
services, we have continued to reinforce the importance of maintaining the
appropriate level of operational capability both during the current situation
and as economies begin to reopen. In this area we have been very actively
engaged with our customers, both directly and through industry bodies, and
across all levels of government in North America. The US federal stimulus
package (‘CARES Act’) signed into law on 27 March 2020 provides
substantial funding to the states, municipal and local authorities including
school boards in support of critical transportation and educational services.

In particular, the CARES Act specifically allocates $326m in emergency funds
to US states to support continued intercity bus transportation on a cost per
mile basis via Title 49 section 5311(f) of the US Code. Given the unique
nature of its scale as the only provider of a national network of coach
services across 44 US states, Greyhound is expected to be a major recipient of
this funding. Greyhound’s revenues have fallen by c.80% since the start of
the coronavirus outbreak, and the business is operating just over a third of
its pre-outbreak timetabled mileage at present, sufficient to ensure that the
community-critical transportation network that it provides is maintained
through the present situation. Greyhound is well advanced in the processes to
access the CARES Act funding support in each state. 18 of these states already
have pre-existing arrangements where only small amendments to contracts are
required before Greyhound’s submissions can be processed. Where new or
additional arrangements are required, Greyhound is working with the states to
expedite this process.

As all North American schools are closed First Student is currently operating
no home-to-school and only minimal charter services. To date the division has
agreed terms to receive either full or partial payment from customers
representing c.70% of our bus fleet, based on which we presently anticipate
recovering c.53% of the home-to-school revenue expected prior to the crisis. A
number of customers have reduced the amount of revenue reimbursement to
reflect our ability to mitigate certain labour and fuel-related costs while no
services are running. Adjusting for this, our effective recovery rate is c.61%
of our pre-crisis expectations, based on the agreements reached with customers
so far.

At this point First Transit’s activity levels vary considerably between its
different sub-segments, but on average the division is operating at
approximately 60% of its activity levels prior to the outbreak. Of those
contracts with a material reduction in service, we have agreed terms to date
with the result that we currently expect to recover the equivalent of 75% of
the divisional revenue expected prior to the crisis.

Negotiations continue with many of our customers in First Student and First
Transit in light of the federal emergency funding that is now becoming
available to them and we anticipate that the revenue recovery levels will
increase further as a result.

Update on operations in the UK

First Bus is currently operating a level of service equivalent to
approximately 40% of normal capacity, broadly in accordance with the
industry-wide funding support agreement with the UK Government announced on 3
April 2020. Passenger volumes are approximately 90% lower but the agreement
(coupled with other commitments regarding continued payment of Bus Service
Operator’s Grant, concessionary fares and contract tenders at pre-crisis
levels) enables First Bus to run mileage in excess of customer demand to
support key workers’ needs. We welcome Transport for Scotland’s commitment
to maintain concessionary fares, Bus Service Operators Grant and tender
revenues through to March 2021 and the Welsh Government’s hardship fund for
the bus sector.

All of the Group’s First Rail franchises are operating under the Emergency
Measures Agreements announced on 23 March 2020, under which the Government has
waived each operator’s revenue, cost and contingent capital risk until at
least 20 September 2020 and during which time the operators will be paid a
fixed management fee. On 29 March 2020 we announced that our Hull Trains open
access business would suspend operations for an initial eight week period.

Cost control measures

In light of the very substantially reduced passenger volumes across all our
divisions, we continue to take proactive steps to prioritise cash flow. In
doing so, our objective is to protect the Group for the long term, while
ensuring we maintain critical services now and remain well positioned to raise
capacity rapidly when appropriate. Previously announced cost control measures
are now embedded, with a substantial proportion of our total workforce in
North America and the UK on furlough with the assistance of various government
schemes, and significant reductions in all non-essential operating and capital
expenditures. In certain areas it has been necessary to reduce headcount,
particularly where customers have chosen not to support employee retention by
maintaining some level of contractual payments during this time. The Group is
also utilising the tax payment holidays and other emergency measures announced
by governments to assist companies in managing their costs during this time.

The Chief Executive and Chief Financial Officer have volunteered to take a 20%
reduction in salaries for an initial period of three months, and the Chairman
and non-executive Board directors have volunteered a corresponding reduction
in their fees for the same initial period. In addition a wider group of senior
employees across the Group have made voluntary salary reductions and deferrals
for the same period.

First Bus pension schemes

Following a productive dialogue with the scheme trustees, the Group has
recently come to an agreement on the triennial valuation of the First Bus
defined benefit scheme on a funding basis as at 1 April 2019. An updated
deficit reduction profile for the scheme has also been agreed. Coupled with
the recent finalisation of the English Local Government Pensions Scheme
(‘LGPS’) valuations that First Bus is a party to, the Group’s overall
cash contribution to pension schemes relating to the First Bus business has
reduced by more than £10m for the year to 31 March 2021 compared with the
previous position, after which the overall contribution requirements remain
broadly in line with recent years.

Corporate reporting

In light of the widely publicised challenges of completing audits during the
current crisis, the Group is intending to follow UK regulatory advice to
review our full year reporting timetable. The Group will not therefore be
publishing its full year results on 28 May or convening the Annual General
Meeting (‘AGM’) on 28 July as previously indicated. The Group will provide
an update on its reporting plans as soon as possible, following agreement with
its auditors and other advisers on an appropriate timetable.

Matthew Gregory, FirstGroup Chief Executive said:

“I am deeply saddened that the coronavirus pandemic has now tragically
claimed the lives of colleagues from within each of our five divisions in
North America and the UK. Their families, friends and co-workers have our
heartfelt condolences and support, and the thoughts of everyone at FirstGroup
are with all those affected by the global pandemic.

“I am extremely proud of our people who are working hard to support our
communities during this time of crisis, both by maintaining critical transport
services and by providing support in their communities to the most vulnerable.

“As an organisation we have taken rapid action to manage our costs, preserve
cash and protect the Group’s financial position in order to ensure we are
able to deliver the continuity of transport that is so essential to
governments, local communities and our customers both now and once the present
crisis is overcome. The support we have received from governments and our
customers is testament to the importance of the services we provide. The
long-term fundamentals of our businesses remain sound, and we will continue to
take all necessary measures to ensure that the Group emerges from this
unprecedented situation in the most robust position possible to deliver our
strategic plans.”

Contacts at FirstGroup:
Faisal Tabbah, Head of Investor Relations
Stuart Butchers, Group Head of Communications
corporate.comms@firstgroup.com

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

Notes
Legal Entity Identifier (LEI): 549300DEJZCPWA4HKM93. Classification as per DTR
6 Annex 1R: 2.2. This announcement contains inside information. The person
responsible for arranging the release of this announcement on behalf of
FirstGroup is Keith Hubber, Group General Counsel and Company Secretary.

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. Notwithstanding the mitigations
and emergency measures referred to above, the overall impact COVID-19 will
have on the financial performance and prospects of the Group in the near as
well as the medium to longer term remains extremely unclear. The situation is
evolving very rapidly and while every effort has been made to verify the
accuracy of the information in this announcement figures in this announcement
that relate to the current impact COVID-19 is having on the financial
performance of the Group should be treated with extra caution because of the
difficulties in such a fast-evolving situation of obtaining accurate and
up-to-date data from across the businesses in the Group. 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.



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