REG-FirstGroup PLC: COVID-19 update

FirstgroupAnnouncement

23/03/2020 07:10

FIRSTGROUP PLC
COVID-19 UPDATE

FirstGroup plc (‘FirstGroup’ or the ‘Group’) provides the following
update on the rapidly evolving impact of the Coronavirus (‘COVID-19’)
pandemic on the business, our response to the UK government’s announcement
of emergency measures to support the rail industry which is vital in keeping
key workers moving, and the other actions the Group is taking to manage the
risks to passengers, employees and its operations.

Our first priority since the start of the COVID-19 outbreak has been the
health and safety of the Group’s passengers, employees and communities. The
Group continues to rigorously apply the advice of governments and health
authorities throughout our businesses, including implementing additional
cleaning regimes and the provision of advice to passengers. At the same time,
we recognise our leading role in providing essential transportation services,
to ensure that key workers and people who need to travel have the ability to
do so.

In recent days the Group has seen unprecedented changes in the market
environments for all its businesses. There have been substantial volume
reductions in our passenger demand businesses in North America and the UK.
First Student has been impacted by the closure of almost all of the schools
which it serves, while First Transit is experiencing significantly reduced
service requirements. Government advice and policy in our markets is changing
rapidly, and we are in very active discussions with many of our customers
about future service levels and full or partial payments in lieu of reduced
service. Given these changes are all taking place during a significant trading
period for the Group, we are no longer able to provide guidance on the outturn
for the remainder of the financial year to 31 March 2020.

However, the Group’s resilience in this situation reflects:
* The Group’s diverse portfolio of market-leading businesses * Benefit from
contractual structures and protections already in place in several businesses
* The fast and comprehensive emergency measures the UK Government has put in
place for the next six months, in order to support the continuity of critical
rail industry services during this unprecedented period of demand reductions
* Productive engagements with our major customers, including school boards
throughout North America, and local, state and national governments in the UK,
US and Canada
* Customers recognise the need to rapidly adjust services to fit current
demand including for key workers, whilst preserving ability to restore service
when required

* The Group has significant current liquidity * £400m in committed undrawn
facilities and free cash as at end of February 2020
* Access to additional sources of financing, including a £250m bank bridge
facility signed 19 March 2020
* The Group’s net debt: EBITDA ratio was 1.5 times on the banking covenant
test which requires less than 3.75 times at the end of the first half, and
typically improves in the second half

* Immediate and significant management actions to preserve cash * Actions
already implemented across entire Group to reduce operating expenditure
* Future capital expenditure orders on hold and managing existing commitments
accordingly
* Decisive management actions include a range of salary deferrals and
sacrifice, hiring freezes, and halting of consultant and contract labour where
possible across the Group
* We welcome the emergency support programmes to protect jobs and businesses
that governments have announced in our markets, and will access them as
appropriate
* Will continue to take all necessary actions to preserve cash through period
of uncertainty
Matthew Gregory, FirstGroup Chief Executive said:

“The health and safety of our people, our passengers and their communities
is our top priority and across all of our businesses we are working hard to
support the response to the growing pandemic, and closely following all
government and health authority guidance. I want to thank my colleagues across
the Group for their outstanding effort and commitment in providing vital
services for our customers and communities in the face of a rapidly changing
environment.

“Continuity of transport is essential to governments, local services and
many of our customers throughout this time, and they will also be critical to
a restoration of normal life when the present uncertain and extremely
difficult situation is overcome. We welcome and have accepted the UK
Government’s swift and comprehensive offer of emergency measures which
provides certainty for all of the Group’s franchises and the continuity of
our vital rail networks during this time.

“We have taken immediate and significant actions to preserve cash and
protect our financial position. Our customers recognise this is an
unprecedented situation, and we have led constructive and positive engagement
with them, including with school boards throughout North America and across
all levels of government in the UK and North America. Currently, the situation
is changing day by day, and accordingly we are fully utilising all levers at
our disposal to ensure the most effective management of our cost base through
this intense period of uncertainty.

“We have significant liquidity, and a diverse portfolio of leading
transportation assets that are critical to the 2.1 billion passengers we carry
and for the communities we serve, both now and in the future. The long-term
fundamentals of our businesses are sound, we have taken immediate action and
will continue to do all that is necessary to ensure the Group emerges from
this exceptional situation in the most robust position possible.”

Financial position and liquidity

The recent precipitous and continuing reductions in service levels and demand
resulting from the outbreak of and response to COVID-19, the very active
discussions underway with many of our customers about future service levels
and full or partial payments in lieu of reduced service, and the rapidly
evolving policies of governments in our markets are all taking place during a
significant trading period for the Group. As a result, we are no longer able
to provide guidance on the outturn for the remainder of the financial year to
31 March 2020.

The Group has considerable financial headroom and liquidity. As at the end of
February 2020, the Group’s undrawn committed headroom and free cash was
approximately £400m. The Group’s committed facilities include an £800m
revolving bank facility which matures in November 2023 and is currently less
than half drawn, as well as £82m in committed bank and leasing facilities
signed since the end of the first half of the financial year. The Group has
free cash in excess of £100m in addition to cash held inside our rail
franchise operations and available supplier financing arrangements of more
than $100m.

On 19 March 2020 the Group signed a new £250m bank bridge facility for the
refinancing of the next bond maturity in April 2021.

The Group also has access to a £150m accordion feature on the revolving bank
facility and other leasing facilities, which are currently unutilised. The
Group is in discussions to arrange additional facilities in a number of
lending and leasing markets to provide further headroom and greater security
for the Group. The Group also notes the recent announcement from the UK
Treasury and the Bank of England of a new commercial paper programme for which
we would expect to qualify given our investment grade ratings, significant UK
employment and UK headquarters.

The Group’s three bonds outstanding have no financial covenants and the
Group’s committed facilities and US private placement notes include a net
debt:EBITDA covenant of no more than 3.75 times and a fixed charge cover of no
less than 1.4 times. Both are measured at end September and end March on a
‘fixed GAAP’ basis, i.e. excluding the effects of the new IFRS16 operating
lease accounting standard (which increased ‘headline’ net debt by £1,022m
at end September, principally for rail rolling stock leases). As at 30
September 2019, FirstGroup’s net debt: EBITDA ratio was 1.5 times and the
fixed charge cover was 1.7 times on the banking covenant tests. Given the
nature of the fixed charge calculation, the EBITDA headroom on the two
covenants is broadly comparable.

As at end of February 2020, the Group’s remaining future cash exposure to
the rail franchise operating companies was £272m. For the duration of the
Emergency Measures Agreements with the UK government the Group does not expect
any cash outflow to support the rail franchise operating companies.

Covid-19 update by division

First Student (£352m or 50% contribution to 2019 Group EBITDA)

We are the market leader with a fleet of 42,500 yellow school buses across 40
US states and seven Canadian provinces. Following the recent changes in
government advice, almost all of the schools served by First Student have now
announced closures. Most closures are likely to be maintained until at least
the end of the Easter holidays, and there can be no certainty that schools
will start up again before the end of the summer holidays. School closures
also result in the cancellation of school charter trips and we have also seen
a significant decline in the demand for external charters (charter represents
approximately 8% of divisional revenue). Although some of our 1,100 contracts
include guaranteed minimum revenue commitments (mainly in Canada), the
majority do not. First Student is therefore currently in very active and
productive discussions with all of our school board customers on a
contract-by-contract basis to agree a level of payment that will ensure we
retain the capability to restart services when schools reopen. As the leader
in the industry, we have reinforced the importance of maintaining the driver
and operational capability for our customers through the current situation by
engaging with industry bodies and the sector. It should be noted that most
school districts remain fully funded to continue to provide education, school
transportation and other services. So far, we have resolved discussions with
customers representing approximately 55% of our school bus fleet in the US and
Canada, within which we have secured full or partial payment (either
contractually or by recent agreement) from more than 90%.

First Transit (£71m or 10% contribution to 2019 Group EBITDA)

We are a market leader and operate more than 300 contracts in the fixed route,
paratransit, shuttle, vehicle maintenance and other transit management
segments. The majority of contracts reflect payment for making services
available over agreed time periods, with the principal exception being in
paratransit where the revenue is driven more by the volume of trips undertaken
by the business. Our fixed route operations (35% of divisional revenue) are
largely classed as essential services but due to the significant reduction in
ridership, and increasing orders to ‘shelter in place’ by various US
states, we are likely to see reduced service requirements. Paratransit
operations (32% of divisional revenue) are seeing trip numbers decline by
approximately half. Shuttle operations (16% of divisional revenue) are seeing
service reductions in certain airport contracts and all university clients
have now reduced service requirements significantly to holiday timetables
and/or engaged e-learning protocols. As with First Student, we are in active
dialogue with our customers regarding payment through any reductions in
service to ensure the operations are in a position to restart efficiently at
the appropriate time. So far, we have proactively engaged with the 135
customers (representing more than 65% of divisional revenue) with identified
material service impacts, and to date 17% of those customers have already
agreed to make full or partial payments in lieu of reduced service
requirements. We are also requesting waivers for all liquidated damages
consequential on the outbreak and are typically receiving favourable responses
from our clients.

Greyhound (£39m or 5% contribution to 2019 Group EBITDA)

Revenues have fallen by approximately 65% as the outbreak and government
advice has developed, and border closure plans between the US and Canada have
recently been announced. The business is rapidly reducing capacity to match
lower demand levels and is reducing headcount. Alongside airlines and other
transport operators, Greyhound is urgently seeking federal and state
assistance to ensure that the community-critical transportation connections
that it provides, as the only national intercity bus operator in North
America, are maintained through the present situation. Greyhound is also in
active discussions with government transportation agencies to obtain relief on
rents and fees for intermodal facilities.

First Bus (£120m or 17% contribution to 2019 Group EBITDA)

In the UK our First Bus business, which operates approximately 20% of regional
bus services in the UK and Ireland, has seen fare-paying passenger revenue
declines and concessionary volume declines of approximately 65%. The bus
industry is engaging with national and local government to ensure that service
provision can be rapidly adjusted to meet reduced demand without any of the
usual notice periods, given the pace at which the situation is evolving. First
Bus anticipates further reductions in demand and is rapidly reducing service
levels to weekend timetables which will reduce mileage significantly across
its networks. We are working with all of our key stakeholders to ensure that
the changes to timetables, concessionary travel rules and provision of
specific services continue to support healthcare and other key workers, and
are communicating these developments to our customers. We are actively engaged
with the UK government, alongside the bus industry, for the purpose of
securing the urgent support required including a guarantee of already budgeted
sources of income for bus and coach operators.

First Rail (£127m or 18% contribution to 2019 Group EBITDA)

In line with the wider UK rail industry, passenger volumes in our businesses
have reduced substantially since last week with revenue up to 90% lower over
the last few days as Government advice has changed. Following consultation
with Government, the industry will operate a reduced timetable akin to weekend
service levels from Monday.

We welcome and have accepted the comprehensive response of the UK Government
who have acted swiftly to provide support for the country’s vital rail
networks. These measures provide continuity and certainty for all of the
Group’s rail franchises through Emergency Measures Agreements which will
last six months or longer if required. For the duration of the Agreements, the
Government will waive our revenue, cost and contingent capital risk. During
this time our train operating companies will be paid a fixed management fee,
which varies according to the individual profile of the franchise, and have
the potential for a small performance-based fee.

Cost reduction and cash management

There remains considerable uncertainty as to how the impact of the outbreak
and government guidance and policy will continue to affect demand going
forward. In addition to the actions taken to sustain revenue, the Group has
also taken immediate and significant actions to reduce costs and optimise cash
flow and liquidity, including removing all non-essential operating
expenditures, halting all future capital expenditure and managing any existing
capital expenditure commitments where practical(1). Across the Group, a
combination of salary sacrifice and deferrals, hiring freezes, and the halting
of consultant and contract labour are being implemented. We welcome the
government packages of emergency measures recently announced in North America
and the UK to assist companies in managing their employment costs during this
time.

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

(1)      Cash capital expenditure (excluding disposal proceeds) for the
Road divisions in the 2019 financial year of £322m comprised: First Student
£233m, First Transit £32m, Greyhound £32m and First Bus £25m. The Road
divisions’ net asset value excluding goodwill, other intangible assets, debt
and taxation as at 30 September 2019 was £1,641m.

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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