REG-FirstGroup PLC: Final Results
31/05/2018 07:05
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
FIRSTGROUP PLC
RESULTS FOR THE YEAR TO 31 MARCH 2018
Overview of the year
*
Group revenue +1.0% in constant currency excluding benefit of new SWR
franchise and 53(rd) week
*
Adjusted(1) operating profit decreased by 10.4% in constant currency excluding
SWR and 53(rd) week
*
Balance sheet strengthened by net cash flow of £199.0m and bond refinancing
*
Stable adjusted EPS in constant currency, reflecting lower finance costs and
change to US tax rates
*
Statutory loss before tax principally reflects non-cash impairment of
Greyhound goodwill and onerous contract provision on TransPennine Express
(TPE) rail franchise
*
Tim O'Toole will be stepping down today from the Board and his position as
Chief Executive. Wolfhart Hauser to become Executive Chairman; Matthew Gregory
to become interim COO in addition to CFO
Adjusted (1) 2018 2017 £m Change Change in constant currency (2) SWR- and 53 (rd)week-adjusted change, in constant currency (3)
£m
Revenue 6,398.4 5,653.3 +13.2% +14.0% +1.0%
Operating profit 317.0 339.0 (6.5)% (4.3)% (10.4)%
Operating profit margin 5.0% 6.0% (100)bps (90)bps
Profit before tax 197.0 207.0 (4.8)% (1.2)%
EPS 12.3p 12.4p (0.8)% +3.4%
Net debt (4) 1,070.3 1,289.9 (17.0)% (15.5)%
Statutory 2018 2017 £m Change
£m
Revenue 6,398.4 5,653.3 +13.2%
Operating (loss)/profit (196.2) 283.6 n/m (6)
(Loss)/profit before tax (326.9) 152.6 n/m (6)
EPS (24.6)p 9.3p n/m (6)
Financial summary (percentage changes in constant currency unless otherwise
stated)
*
Group revenue +1.0% excluding the benefit of both the new SWR rail franchise
from August 2017 and the 53(rd) week in the Road divisions; +14.0% including
both
*
Adjusted(1) operating profit (10.4)% excluding SWR and 53(rd) week reflects
Greyhound long haul challenges, severe weather effects on both sides of the
Atlantic in the final quarter and ongoing US driver shortages, partially
offset by good performances in UK divisions in the year; (4.3)% including SWR
and 53(rd) week
*
Adjusted(1) profit before tax (1.2)% and adjusted(1) EPS +3.4%, reflecting
lower finance costs and US tax rates
*
Net cash inflow of £110.5m (2017: £147.2m including proceeds from sale of a
Greyhound terminal) before First Rail start of franchise cash flows, and
£199.0m after SWR start of franchise cash flows of £88.5m
*
Reported net debt: EBITDA improved to 1.5 times (2017: 1.9 times); Rail
ring-fenced cash adjusted net debt: EBITDA improved to 2.1 times (2017: 2.3
times)
*
Statutory loss before tax £326.9m (2017: profit of £152.6m), reflecting
£277.3m Greyhound goodwill and other asset impairments, £106.3m TPE onerous
contract provision and other adjusting items
*
Statutory EPS was (24.6)p (2017: 9.3p)
Divisional performance
*
First Student's pricing and cost saving actions offset driver shortage costs;
9.0% adjusted(1) margin reflects severe H2 weather and lower contract
retention rate than targeted
*
First Transit revenue +2.4% in constant currency excluding 53(rd) week as net
contract wins continue; 5.5% adjusted(1) margin for the year reflects the
improved margin performance in the second half as planned
*
Greyhound like-for-like(5) revenue (0.7)%, with +7.7% Express growth
insufficient to offset long haul demand challenges from intensifying airline
competition; consequential reduction in adjusted(1) margin to 3.6%
*
First Bus like-for-like(5) passenger revenue +1.1% with +0.2% commercial
volumes; 140bps adjusted(1) margin improvement to 5.7% driven by actions to
tailor network, fares, depot footprint and back office costs
*
First Rail like-for-like(5) passenger revenue +4.1%, and solid divisional
profitability, with contributions by Great Western Railway (GWR) and SWR,
partially offset by a small loss in TPE in the year
Outlook
*
Expecting overall improvement in Road margins and returns, offset by a smaller
contribution from the First Rail portfolio, resulting in broadly stable Group
earnings in constant currency
*
Higher free cash generation after disciplined investment expected from Road
divisions offset by a lower cash contribution from Rail in the year ahead
Commenting, Chief Financial Officer and interim Chief Operating Officer
Matthew Gregory said:
"In the year, our largest division First Student was broadly stable and First
Bus took an encouraging step forward in its margin improvement plans. This was
offset by the cost challenges experienced by First Transit in the first half
and by Greyhound’s inability to overcome the structural shift taking place
in its long haul markets, as ultra low cost airlines significantly increase
capacity and extend into new markets. In First Rail, although our GWR and SWR
rail franchises have operational challenges to overcome, they are both
profitable and are adding value to the Group. However our TPE franchise was
loss-making, and we have taken the decision to provide for forecasted losses
of up to £106.3m over the remaining life of the contract. This does not
affect our plans for the remainder of the franchise to increase capacity on
the TPE network by more than 80% and create a true intercity railway for the
North.
"Looking forward, we expect Group adjusted earnings to be broadly stable, with
opportunities to improve the margins, returns and cash generated from our Road
divisions, which together represent more than four fifths of the Group's
adjusted profit, in a period when we expect the contribution of our Rail
portfolio to be positive but smaller while we put in place the passenger
capacity and conditions for further profitable growth in the division in
future."
Executive Chairman Wolfhart Hauser said:
"The Group delivered stable adjusted earnings per share and sustained cash
generation this year, and the balance sheet has been strengthened through the
bond refinancing and further deleveraging. FirstGroup's vision and purpose is
to provide solutions for an increasingly congested world, keeping people
moving and communities prospering, and as such the Group plays a vital role in
all of our local areas. It is now a more stable and a more resilient
enterprise, with a growing ability to capitalise on the leading positions we
have in our markets. However, this year's results fell short of our ambitions
– we are disappointed that we did not make the further progress we intended
based on the trends we saw at the end of the previous financial year.
"The Board is examining all appropriate means to mobilise the considerable
value inherent in the Group. Initial actions from its evaluation are underway,
including conducting a full external review of Greyhound's business model and
prospects, which will conclude in the coming months. As we do so, we will
continue to strengthen the Group by using the sustained cash generated after
disciplined investment to reduce leverage further and for targeted growth.
Overall, we see considerable opportunity to deliver shareholder value in a
sustainable way while enhancing the services we provide to our customers and
communities."
Contacts at FirstGroup:
Faisal Tabbah, Head of Investor Relations
Stuart Butchers, Group Head of Media
Tel: +44 (0) 20 7725 3354
Contacts at Brunswick PR:
Jonathan Glass / Andrew Porter / Alison Kay, Tel: +44 (0) 20 7404 5959
A presentation for investors and analysts will be held at 9:00am today –
attendance is by invitation. A live telephone 'listen in' facility is
available – for joining details please call +44 (0) 20 7725 3354. A playback
facility will be available together with presentation slides and a pdf copy of
this report at www.firstgroupplc.com/investors.
Notes
(1) ‘Adjusted’ figures throughout this document are before
Greyhound goodwill impairment, TPE onerous contract provision, other
intangible asset amortisation charges and certain other items as set out in
note 4 to the financial statements.
(2) Changes 'in constant currency' throughout this document are
based on retranslating 2017 foreign currency amounts at 2018 rates.
(3) Growth excluding SWR franchise revenue (which became part of
First Rail in August 2017) and the 53(rd) week in the Road divisions, in
constant currency.
(4 ) Net debt is stated excluding accrued bond interest, as
explained on page 17.
(5) 'Like-for-like' revenue adjust for certain factors which
distort the period-on-period trends in our passenger revenue businesses,
described on page 17.
(6) Not meaningful.
Legal Entity Identifier (LEI): 549300DEJZCPWA4HKM93. Classification as per
DTR 6 Annex 1R: 1.1, 2.2. The person responsible for arranging the release of
this announcement on behalf of FirstGroup is Michael Hampson, Group General
Counsel and Company Secretary.
FirstGroup plc (LSE: FGP.L) is a leading transport operator in the UK and
North America. With £6.4 billion in revenue and around 100,000 employees, we
transported 2.1 billion passengers last year. Each of our five divisions is a
leader in its field: In North America, First Student is the largest provider
of student transportation with a fleet of 42,000 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 operators, transporting 1.6 million passengers a day, and First Rail is
one of the country's largest and most experienced rail operators, carrying
more than 260 million passengers last year.
Our vision is to provide solutions for an increasingly congested world...
keeping people moving and communities prospering.
Visit our website at www.firstgroupplc.com and follow us @firstgroupplc on
Twitter.
Year in summary
Although we are not satisfied with our progress this year, the Group delivered
stable adjusted earnings per share and strong cash flow, despite operating
challenges for some of our businesses. We have also strengthened our balance
sheet through the bond refinancing and further deleveraging.
Performance in the year
First Student's continued progress from the fourth year of our 'up or out'
contract pricing strategy and cost efficiency programmes was offset by
continued driver cost inflation and shortages in parts of the US, a lower
contract retention rate than targeted and the effects of the severe weather in
the second half. We have had an encouraging start to this year's bid season as
we continue to factor the driver cost inflation being experienced in many
parts of the US into our contract pricing.
First Transit continued to grow and to win net new business, though our
shuttle bus operation in the Canadian oil sands did not renew two contracts
towards the end of the year, which will have an impact on the margin of the
division going forward. The business delivered a 5.5% margin for the year,
with a 7% margin in the second half as planned, despite ongoing cost pressure
from driver shortages in certain regions, higher medical costs and some costs
in relation to certain poorly performing contracts which were resolved during
the year.
Greyhound's significant short haul and Express growth was more than offset by
declines in long haul demand as a result of intensifying competition from the
ultra low cost airlines, which are bringing significant additional aircraft
capacity into operation while also connecting to a growing number of secondary
airports. The growth in these businesses represents a meaningful shift in US
travel patterns. Our ability to mitigate these revenue challenges through
further cost efficiencies is limited by ongoing increases in fleet maintenance
and driver costs, resulting in a significant reduction in Greyhound's margin.
We are currently investing to support Greyhound's growth opportunities while
continuing to trim our timetables, and the Group is conducting a full external
review of Greyhound's business model and prospects to help determine the most
appropriate response to this long term structural challenge. We have also
updated our view of the carrying value of the division's goodwill and other
assets in light of these issues, impairing them by a total of $387.3m or
£277.3m accordingly.
We are encouraged that like-for-like passenger revenue growth in First Bus
accelerated in each quarter of the financial year, though market conditions
for the industry remain uncertain and vary by local market. We would have had
an even better outturn for the year had several of our local businesses not
been forced to shut down for several days in the face of the severe weather
conditions in the final quarter of the year. We are pleased that stabilising
volumes, the cumulative effect of our actions to tailor our network, fares,
depot footprint and other costs and a fuel tailwind have resulted in a
significant improvement in our margin. We shall maintain this momentum in
order to meet our ambitions to catch up with the most efficient in the
industry.
Although First Rail’s like-for-like passenger revenue growth accelerated
over the course of the year, we must acknowledge the slower rate of overall
industry growth that currently prevails. The overall financial result from our
Rail division was solid in the year, with contributions from GWR and SWR
(which we began operating in August 2017). However TPE's like-for-like
passenger revenue growth, though very substantial at 10.0%, is lower than our
projections at the time of the bid, resulting in an operating loss of £6.5m
for the year to March 2018. Our plans to increase capacity by more than 80%
and create a true intercity railway for the North over the remainder of the
franchise are the right ones for our passengers and communities, and we are
confident that they will drive a considerable acceleration in TPE's annual
patronage and revenue growth over time. However our assessment is that this
growth will be short of our bid assumptions due to current market conditions,
and we have therefore taken the decision to provide for forecast losses of up
to £106.3m over the remaining life of the TPE contract.
Overall the mixed performance in our divisions resulted in +1.0% Group revenue
growth and a reduction in adjusted operating profit of 10.4% in constant
currency (before SWR and the 53(rd) week in the Road divisions), with lower
finance and tax charges resulting in an increase in adjusted EPS of 3.4% in
constant currency. Principally as a result of the Greyhound goodwill and other
asset impairments and the TPE onerous contract provision, the Group reported a
statutory loss before tax of £326.9m (2017: profit of £152.6m) and EPS of
(24.6)p (2017: 9.3p).
We are however encouraged that we were able to sustain a strong cash flow
performance of £110.5m (2017: £147.2m including proceeds from sale of a
Greyhound terminal). This excludes the £88.5m of start of SWR franchise cash
flows; taken together we generated £199.0m of free cash flow, helping to
reduce our net debt: EBITDA ratio from 1.9 times to 1.5 times in the year, or
from 2.3 times to 2.1 times on a Rail ring-fenced cash adjusted basis.
Balance sheet
In the year we reached an important milestone with our long-dated bond
portfolio beginning to mature, allowing us to significantly reduce our future
interest burden by starting to refinance and rebalance the Group’s debt. We
are pleased by the support shown in the credit market for our improved
resilience and financial profile. We raised $275m in February 2018 at a
weighted average cost of 4.25%, and in March we used the proceeds and other
monies to redeem the £300m 8.125% coupon bond due September 2018. This action
will generate interest savings of an estimated £14m per year from next
financial year.
Investing in our passengers’ needs
We have continued to invest in passenger convenience including initiatives to
promote contactless payment, online and mobile ticketing and travel
information improvements and other technology to streamline and enhance our
operations and responsiveness to customers and other stakeholders. Meanwhile
our commitment to the safety of our passengers, our employees and all third
parties interacting with our businesses remains unwavering. Our approach to
safety is a combination of innovative technology, external assurance and our
behavioural change programme, Be Safe, all of which have made further progress
in the year towards ensuring we are always operating to the highest standards.
With increasing focus on local air quality and emissions we are constantly
striving to improve the performance of our vehicles and introduce even cleaner
engines.
Business priorities
The Board is examining all appropriate means to mobilise the considerable
value inherent in the Group. Initial actions from its evaluation are underway,
including conducting a full external review of Greyhound's business model and
prospects, which will conclude in the coming months. As we do so, we will
continue to strengthen the Group by using the sustained cash generated after
disciplined investment in our services to reduce leverage further and for
targeted growth. Although our balance sheet is less of a constraint on our
structural options than previously, our pension deficit clearly remains an
important consideration for the risk profile of the Group, and we continue to
actively manage it. Overall, we see considerable opportunity to create
shareholder value in a sustainable way while enhancing the services we provide
to our customers and communities.
Group outlook
Overall, we expect Group earnings in constant currency to be broadly stable in
the year ahead. The Group is expecting an overall improvement in the Road
divisions' margins and returns, underpinned by the momentum in the First Bus
turnaround and First Student's growth plans in the year ahead. We expect First
Transit's continuing growth to be tempered by the loss of high margin Canadian
oil sands business, and that sustaining Greyhound's earnings will be
challenging given the changes in the long haul competitive environment. The
overall progress of the Road divisions is however expected to be offset by a
smaller contribution from our First Rail portfolio in the year ahead,
reflecting the slower rate of industry growth and the rebasing of our margins
under new contract terms. We also expect higher free cash generation from the
Road divisions after the disciplined investment required to support our
passengers' needs, offset by a lower contribution from Rail in the year ahead.
Operating and financial review
Reported Group revenue in the year increased by 13.2% including the new SWR
franchise from 20 August 2017, the 53(rd) week in the Road divisions and the
translation of our US Dollar-based businesses into pounds Sterling at stronger
rates than the prior year. Adjusting for these factors, Group revenue
increased by 1.0% with growth in First Rail, First Transit and First Bus
partly offset by flat revenues in Greyhound and a small reduction in First
Student revenues.
Group adjusted operating profit in constant currency decreased by 10.4%
excluding the contribution from the new SWR franchise and the 53(rd) week in
the Road divisions, with growth in First Bus and First Rail more than offset
by reductions in the other divisions. Group adjusted operating profit margin
in constant currency decreased by 90bps to 5.0%, reflecting a 50bps reduction
for the Road divisions and the expected rebasing of the Rail margin. In
reported currency adjusted operating profit decreased by 6.5% to £317.0m
(2017: £339.0m).
Year to 31 March 2018 Year to 31 March 2017
Revenue Operating profit (1) Operating margin (1) Revenue £m Operating profit (1) £m Operating margin (1) %
£m £m %
First Student 1,771.1 156.5 8.8 1,780.3 171.1 9.6
First Transit 1,072.7 58.2 5.4 1,042.0 73.3 7.0
Greyhound 690.2 25.5 3.7 684.7 42.6 6.2
First Bus 879.4 50.2 5.7 861.7 37.0 4.3
Group items (2) 16.2 (31.2) 15.8 (38.8)
Road divisions 4,429.6 259.2 5.9 4,384.5 285.2 6.5
First Rail 1,968.8 57.8 2.9 1,268.8 53.8 4.2
Total Group 6,398.4 317.0 5.0 5,653.3 339.0 6.0
North America in USD $m $m % $m $m %
First Student 2,350.6 210.4 9.0 2,323.3 222.0 9.6
First Transit 1,420.4 77.8 5.5 1,358.9 95.2 7.0
Greyhound 912.7 32.8 3.6 894.0 55.2 6.2
Total North America 4,683.7 321.0 6.9 4,576.2 372.4 8.1
(1 ) Adjusted.
(2 ) Tramlink operations, central management and other items.
Net finance costs before bond 'make whole' costs decreased to £120.0m (2017:
£132.0m), resulting in adjusted profit before tax of £197.0m (2017:
£207.0m), a decrease of 4.8%. Adjusted profit attributable to ordinary
shareholders was £147.7m (2017: £149.4m), with the lower adjusted profit
partly offset by a lower effective tax rate. Adjusted EPS decreased by 0.8% to
12.3p (2017: 12.4p). In constant currency, adjusted EPS increased by 3.4%.
EBITDA increased by 0.6% to £690.6m (2017: £686.6m).
Statutory operating loss of £196.2m (2017: profit of £283.6m) and statutory
loss before tax of £326.9m (2017: profit of £152.6m), principally reflected
Greyhound goodwill and other asset impairments, the onerous contract provision
for the TPE rail franchise, non-recurrence of the gain on disposal of a
Greyhound terminal in prior year, adverse developments in aged North American
insurance claims, bond 'make whole' costs relating to redemption of the
September 2018 bond, and higher intangible asset amortisation and
restructuring and reorganisation costs than prior year. Statutory EPS was
(24.6)p (2017: 9.3p) in the year.
Net cash inflow (before First Rail start of franchise cash flows) was £110.5m
(2017: £147.2m including proceeds from sale of a Greyhound terminal). This
cash inflow, combined principally with First Rail start of franchise cash
flows of £88.5m and movements in debt due to foreign exchange, resulted in a
decrease in net debt of £219.6m (2017: £120.3m). As at 31 March 2018, the
net debt: EBITDA ratio was 1.5 times (2017: 1.9 times). Adjusting for cash
ring-fenced in the First Rail division, net debt: EBITDA improved to 2.1 times
(2017: 2.3 times).
Liquidity within the Group has remained strong; as at the year end there was
£766.4m (2017: £941.1m) of headroom on committed facilities and free cash,
being £603.0m (2017: £800.0m) of committed headroom and £163.4m (2017:
£141.1m) of free cash. In February 2018 the Group placed $275m in long term
US private placement notes with a weighted average fixed coupon of 4.25%. The
notes were placed in two tranches, with $100m due in March 2025 and $175m due
in March 2028, attracting interest costs of 4.17% and 4.29% respectively. In
March the Group redeemed the £300m 8.125% coupon bond due September 2018 in
full using the proceeds from the new notes, other cash on hand and our
committed bank facility. These refinancing activities incurred a 'make whole'
cost of £10.7m in the current financial year and will result in interest
savings of an estimated £14m per year from the next financial year. Our
average debt maturity increased to 4.1 years (2017: 3.6 years) following the
refinancing activities in the year.
During the year, gross capital investment of £439.5m (2017: £365.6m) was
invested in our business, with Road divisions capital expenditure broadly flat
and Rail increasing significantly as expected.
ROCE increased to 9.5% (2017: 7.9% at constant exchange rates and 7.3% as
reported).
First Student
Year to 31 March $m £m Change in
constant currency (1)
2018 2017 2018 2017
Revenue 2,350.6 2,323.3 1,771.1 1,780.3 +0.9%
Adjusted operating profit 210.4 222.0 156.5 171.1 (5.3)%
Adjusted operating margin 9.0% 9.6% 8.8% 9.6% (60)bps
(1 ) Based on retranslating 2017 foreign currency amounts at
2018 rates.
First Student’s revenue was $2,350.6m (2017: $2,323.3m), with increases from
the fourth year of our contract pricing strategy, some organic growth and
indexation on existing contracts offset by contracts not renewed. The business
operated for a similar number of days overall in the year, with the additional
operating days in the 53(rd) week offset by the timing of Easter. In constant
currency and excluding the 53(rd) week, revenue decreased by 1.1%. Reported
revenue was £1,771.1m (2017: £1,780.3m).
Adjusted operating pro?t decreased by 5.3% to $210.4m (2017: $222.0m) in
constant currency, an adjusted operating margin of 9.0% (2017: 9.6%). Contract
portfolio pricing improvements and cost ef?ciency savings were offset by
ongoing driver shortage costs and other inflation, lower contract retention
rates than we had targeted and the impact of the severe weather experienced in
the second half. The net impact from bad weather was made up of a relatively
high number of weather make up days in the first half (reflecting the severe
winter in 2017), largely offset by an unusually high number of days lost to
bad weather in the last quarter, some of which we expect to get back in the
2018/19 financial year as schools add them to the end of their academic
calendar. In reported currency, adjusted operating pro?t decreased 8.5% to
£156.5m (2017: £171.1m) and the division reported a statutory profit of
£88.4m (2017: £119.0m).
Focused and disciplined bidding
During the summer 2017 bid season we continued to focus our bidding strategy
on only retaining or bidding for contracts at prices that re?ect an
appropriate return on the capital we invest. With a substantial proportion of
the portfolio already benefiting from this strategy in previous years, the
moderating 5.3% average price increase on ‘at risk’ business was largely
as expected, as was the higher ‘at risk’ retention rate of 83% compared
with the prior year (equivalent to 94% of the entire fleet). Combined with a
modest level of organic growth and some conversions from in-house to private
provision, we are operating a bus fleet of approximately 42,000 vehicles for
the balance of this school year.
Continuous improvement in operating and financial performance
First Student delivered further cost ef?ciencies, including from changes to
our engineering practices using the expertise of First Transit’s vehicle
maintenance services segment, and from our ongoing focus on best practice
sharing and standardised processes within the division. These initiatives have
delivered recurring cost savings of approximately $13m in the year. These
initiatives have been delivered despite the ongoing challenge of finding and
retaining drivers in some locations due to the strong US employment market. We
continue to invest in our recruitment marketing, onboarding and retention
programmes to contain the resulting driver cost inflation. Despite driver
shortages, our non-school charter bus offering, which bene?ts our asset
utilisation rates, grew revenues by 7.1% on a per bus basis.
Prudent investment in our key assets
We have sustained our investment in systems and processes that differentiate
our offering and enhance our customer service levels and safety performance.
Our FirstView smartphone app, which provides real-time bus location tracking
for parents and school boards, now covers 140,000 students with 22,000
registered users to date; additional functionality for school districts has
recently been added to the system. We have sustained our investment in the
fleet and continue to improve our approach to cascading buses around our
operations, which is a signi?cant competitive advantage of our scale. Our
average ?eet age reduced slightly to 7.1 years.
During the year we completed a small acquisition in the Chicago area, which is
performing in line with our plans, and we are building up our pipeline of
potential bolt-on acquisition targets for the future.
Responsible partnerships with our customers and communities
We are entrusted with the safety and security of millions of children every
day, and we take that responsibility extremely seriously. We maintained our
safety track record during the year and are investing to improve our
performance further. We also maintained our already high customer service
scores and increased our likelihood to recommend scores. We have also begun a
partnership with the US School Superintendents’ Association to support the
National Superintendent of the Year Program as part of our commitment to
support our communities.
First Student priorities and outlook
In the year ahead our focus is increasingly on profitable growth. We have had
an encouraging start to the bid season with improved retention rates and some
major new contracts already secured. In addition to improving contract
retention and our ongoing pricing strategy, we intend to strengthen our
charter proposition, increase promotion of our nascent managed services
offering to school boards who provide home-to-school services in-house, and
will more actively consider inorganic sources of growth such as small bolt-on
acquisitions. We will continue to improve our cost efficiency through
initiatives such as enhanced on-board technology that will enhance daily
operations and driver management, the full roll out of an employee smartphone
app which is transforming our ability to communicate with our workforce and is
specifically aimed at helping boost driver retention, and the ongoing
integration of our maintenance organisation and practices with First Transit.
First Transit
Year to 31 March $m £m Change in
constant currency (1)
2018 2017 2018 2017
Revenue 1,420.4 1,358.9 1,072.7 1,042.0 +4.2%
Adjusted operating profit 77.8 95.2 58.2 73.3 (18.9)%
Adjusted operating margin 5.5% 7.0% 5.4% 7.0% (160)bps
(1 ) Based on retranslating 2017 foreign currency amounts at
2018 rates.
First Transit’s revenue was $1,420.4m (2017: $1,358.9m), an increase of 2.4%
in constant currency and excluding the 53(rd) week. As expected, contract
awards and organic growth in the rest of the division was partially offset by
lower shuttle bus activity in the Canadian oil sands region compared with the
prior year. Reported revenue increased to £1,072.7m (2017: £1,042.0m).
Adjusted operating pro?t was $77.8m (2017: $95.2m), representing an adjusted
operating margin of 5.5% (2017: 7.0%). A disappointing first half margin
principally reflected higher costs in relation to certain poorly performing
contracts; First Transit succeeded in improving its second half margin as
forecasted, reflecting the reversal of a provision against receivables made in
light of the hurricanes which devastated Puerto Rico in the first half and
despite higher medical costs and continued cost pressure from driver shortages
in certain regions. In reported currency, adjusted operating pro?t decreased
20.6% to £58.2m (2017: £73.3m) and the division reported a statutory profit
of £34.3m (2017: £71.3m).
Focused and disciplined bidding
Our shuttle business successfully renewed several university campus and
airport contracts in the year; however, two of our contracts in the Canadian
oil sands region were not, resulting in a £5.4m restructuring charge in the
year; the loss of these high margin contracts will have an impact on the
division's margin going forward.
In addition to the oil sands contracts, we also completed work on the two
relatively large poorly performing contracts discussed at the half year stage,
where we had bid significantly higher prices and lost, resulting in our
retention rate on ‘at risk’ contracts of 82% during the year. First
Transit did however have a good year for new business, with 33 new contracts
including major paratransit and fixed route wins from the Vancouver and Los
Angeles authorities, respectively. We were pleased to retain or extend a
number of significant pieces of business during the year, such as our Greater
Richmond paratransit contract where we initially fulfilled a short term
emergency contract that we have now extended into a multi-year relationship,
and our City of Phoenix fixed route contract which we have operated for over a
decade. We are taking a measured approach to applying our expertise to new
geographies and services to secure additional sources of growth. In the year,
we extended our successful Panama contract by an additional two-and-a-half
years, participated in significant North American commuter rail and light rail
competitions, and are working to establish a solid footprint in the Indian
market.
Continuous improvement in operating and financial performance
We continue to develop our technology infrastructure, management expertise and
national service platform to help to sustain First Transit’s performance in
highly competitive markets. We also upgraded our recruitment, retention and
training systems and processes to ensure we maintain the necessary capability
in what remains a tight US employment market. In the year we had some success
initiating a programme to recruit unemployed Puerto Rican drivers to take on
roles on the mainland in response to the driver shortages we are experiencing
in some areas.
Prudent investment in our key assets
In the majority of our contracts we operate or manage services on behalf of
our clients rather than providing vehicles. We have maintained our investment
in the latest driver management, predictive analytics and routing technology.
We are also investing in autonomous vehicle (AV) technology, and now have six
AV operational partnerships underway, including our first vehicle on public
streets scheduled to start in June 2018. Additionally we have established
teaming agreements with several leading AV manufacturers to provide new growth
opportunities in this market.
Responsible partnerships with our customers and communities
We remain committed to offering the best value package to our customers and
the communities we serve, which means our professionalism, technical and
operational expertise and safety standards are as important as our cost
effectiveness in winning or retaining business. We have completed the roll out
of our safety behavioural change programme, which has had a positive impact on
our safety performance, and we were pleased to have further increased our
already strong customer satisfaction score during the year.
First Transit priorities and outlook
First Transit continues to develop our diversified platform of sector
expertise and exceptional management strength in North American transit
markets through continuous investment in our people and technology. We see
opportunities for further growth in our core markets, particularly in shuttle
and in vehicle services, increasingly for corporate as well as public clients.
We also expect to have opportunities in adjacent markets where we have now
established our credentials – such as light rail, commuter rail and bus
rapid transit (BRT) – to become increasingly significant for our business.
We continue to develop partnerships with ridesharing companies to provide
Americans with Disabilities Act-compliant transportation.
We remain confident that our services are a compelling option for both local
authorities and private customers to outsource their transportation management
needs. We will therefore keep bidding for contracts offering good margins with
modest capital investment, while seeking to replenish and grow our portfolio
of contracts both within our core markets and by piloting new business models.
Greyhound
Year to 31 March $m £m Change in
constant currency (1)
2018 2017 2018 2017
Revenue 912.7 894.0 690.2 684.7 +1.7%
Adjusted operating profit 32.8 55.2 25.5 42.6 (39.0)%
Adjusted operating margin 3.6% 6.2% 3.7% 6.2% (250)bps
(1 ) Based on retranslating 2017 foreign currency amounts at
2018 rates.
Greyhound's revenue was $912.7m (2017: $894.0m), with like-for-like revenue
decreasing by 0.7%. This reflects short haul growth including 7.7%
like-for-like growth achieved by Greyhound Express being more than offset by
declines in long haul demand, where competition from ultra low cost airlines
in particular is intensifying. These competitors are bringing significant
additional aircraft capacity into operation while also connecting to a growing
number of secondary airports. We have also experienced reductions in traffic
in the southern border regions due to tighter immigration and law enforcement.
Including the 53(rd) week and reflecting stronger translation rates into
pounds Sterling, reported revenue increased by 0.8% to £690.2m (2017:
£684.7m).
Adjusted operating pro?t was $32.8m (2017: $55.2m), representing an adjusted
operating margin of 3.6% (2017: 6.2%), with our ability to mitigate the
revenue challenges noted above through further cost efficiencies limited by
the ongoing increases in fleet maintenance and driver costs previously
highlighted. Greyhound was also affected by this year's difficult weather
conditions in some of the busiest parts of our network. Recognising the
difficult trading conditions in the year and the outlook, we have impaired the
carrying value of the division's goodwill and other assets by $387.3m or
£277.3m. Adjusted operating pro?t in reported currency decreased 40.1% to
£25.5m (2017: £42.6m) and the division reported a statutory loss of £266.3m
(2017: £53.7m profit).
Driving growth through attractive commercial propositions
Greyhound is a unique business thanks to its iconic brand and access to by far
the largest intercity coach network in North America. Over recent years we
have taken major steps to transform all areas of the customer experience
throughout the business. With the trends in different parts of our business
diverging, we are adapting our business in response. Our point-to-point
Greyhound Express and BoltBus brands, which offer higher density timetables
between popular city pair destinations, have successfully grown since their
introduction and we aim to convert more of the traditional network to run
similar schedules. These have been strong beneficiaries of the transformation
in Greyhound’s business systems in recent years; and since February our
entire network is now benefiting from real-time pricing and yield management.
We are further developing our relationship management systems to offer
benefits for customers and deployed modest marketing spend during the year to
promote awareness of these changes through targeted online advertising. We are
continuing to upgrade our online offerings, building on the well-received
mobile app we introduced in 2016/17, with the majority of our customers now
buying tickets using this app or online. Throughout the US network e-tickets
and bus-side scanning have now been rolled out, streamlining the boarding
process. We have also strengthened our punctuality processes and systems, and
have recently updated and standardised our customer pledges on service
delivery whilst upgrading our terminals where needed to improve the passenger
experience.
Continuous improvement in operating and financial performance
Greyhound ended its long-standing pool arrangements with Peter Pan Lines in
the US North East during the year, allowing us to develop our own separate
offering in the region, providing customers with all of the benefits available
to our passengers elsewhere. We are also taking action to improve the
efficiency of our fleet management with the development of a new specialised
centre in Brownsville, Texas.
Our Canadian operations (15% of Greyhound revenue) remain loss-making. Despite
a range of cost-reduction and efficiency measures over several years, we
continue to experience demand challenges. In the year we applied to eliminate
services on the majority of our routes in British Columbia which will take
effect from 1 June 2018.
Prudent investment in our key assets
Following a number of years where the business required few additional
vehicles, this year our fleet renewal plan saw the introduction of 88 new
buses into our fleet with high-quality amenities as standard including free
Wi-Fi, leather seats and generous legroom. We regularly review opportunities
to move to intermodal transport hubs or new facilities tailored to our needs,
and during the year we relocated to the new Intercity Bus Terminal at the
Jacksonville Regional Transportation Center in Florida, as well as two
renovated terminals at the Amtrak station in Salem, Oregon and Union Station
in Springfield, Missouri. We now occupy a new intermodal terminal in
Baltimore, Maryland. July will mark the third anniversary of providing
international links to and domestic services within Mexico, where we provide
options for customers connecting from Monterrey to Nuevo Laredo and major hubs
in Texas. We will make further modest investments to deliver on the
opportunities available to us in this market.
Responsible partnerships with our customers and communities
Further customer service training was undertaken in the year, focusing on
allowing our employees to take advantage of the improved ticket data and
service information now available throughout the business.
Greyhound priorities and outlook
The strategic challenge for Greyhound is that our unique network across North
America is a significant competitive advantage versus other coach companies
but intensifying low cost airline competition is putting increasing pressure
on the long haul segment. The business review that is underway is directed at
determining the most appropriate response for the Group to this change in the
market conditions faced by Greyhound. In the near term we continue to invest
to support Greyhound's growth opportunities while adjusting the current
network and timetables, though maintaining the division's earnings will be
challenging given the changes in the long haul competitive environment.
First Bus
Year to 31 March £m Change in
constant currency (1)
2018 2017
Revenue 879.4 861.7 +1.9%
Adjusted operating profit 50.2 37.0 +34.6%
Adjusted operating margin 5.7% 4.3% +140bps
(1 ) Based on retranslating 2017 foreign currency amounts at
2018 rates.
First Bus reported revenue of £879.4m (2017: £861.7m) for the year, an
increase of 2.1%. Divisional like-for-like passenger revenue growth was 1.1%,
and we are encouraged that it accelerated in each quarter of the financial
year, though market conditions for the industry remain uncertain and vary by
local market. High street retail footfall trends, worsening congestion in
several localities, and general UK macroeconomic uncertainty all affect
passenger demand in different ways. Like-for-like commercial passenger volumes
increased by 0.2% in the year, though overall like-for-like volumes fell by
0.7%, reflecting further reductions in concessions volumes due to changes in
bus pass entitlement and funding. Our contract and tendered revenue increased
by 1.1%.
Adjusted operating profit was £50.2m (2017: £37.0m), or an adjusted margin
of 5.7% (2017: 4.3%). Adjusted margin increased by 140bps, reflecting
stabilised passenger volumes, the cumulative effect of our actions to tailor
our network, fares, depot footprints and other costs to become more efficient
and a fuel tailwind. Widespread service suspensions due to the severe
snowstorms in February and March had a negative impact on revenues and profit,
while the impact of the 53(rd) week was muted because the year included two
Easter weekends, when commuter and school patronage is lower. Principally
reflecting restructuring and reorganisation costs, the division reported a
statutory profit of £29.3m (2017: £26.1m).
Driving growth through attractive commercial propositions
We continue to improve the simplicity and convenience of our offering for
passengers, particularly in ticketing. Around 80% of our fleet has now been
fitted with contactless payment card readers and we will complete the
nationwide roll out by summer 2018, making us the first national UK bus
company to do so. Cashless ticketing now accounts for half of our sales in
some areas. In many markets, we are growing our mobile channel by
differentiating between cash and digital fares, reducing the volume of cash
transactions and accelerating bus boarding times. In April 2017 we launched
our upgraded passenger app which provides door-to-door journey planning and
our previously separate mobile ticketing system was integrated during the
year.
In the contract tender market, we are an industry leader in managing Park &
Ride services, winning or retaining several contracts in the year including
the country’s largest such operation in York. Our airport and university
shuttle portfolio also increased and we delivered services for high profile
events such as the UEFA Champions League final in Cardiff in June 2017.
Continuous improvement in operating and financial performance
We continue to take action to enhance our cost efficiency. At the beginning of
the year we consolidated from six to four depots serving the Greater
Manchester area and transferred our Galashiels-based Borders network to West
Coast Motors. We have also optimised our networks in many areas to save cost
and raise reliability and punctuality for passengers. Our IT investments have
allowed us to standardise many of our processes, including location tracking
and revenue collection, to increase the availability of accurate real-time
data and plan our services more accurately. Where possible we are centralising
shared functions to realise efficiencies.
Prudent investment in our key assets
As previously noted, we are investing in the First Bus fleet at lower levels
than the prior year, as we focus our capital budget only on those markets
where the local stakeholders recognise the importance of bus services in
responding to the problems of congestion, air quality, parking and issues of
social exclusion. We took delivery of 93 new Euro VI emissions standard
vehicles in the year. We also operate vehicles powered by a number of
alternative fuels, and alongside our hydrogen fleet in Aberdeen and electric
fleet in York, we have now introduced biomethane buses to Bristol. We are also
the lead partner on the first trial of autonomous vehicles on UK roads, a 30
month project at Milton Park business and science hub near Didcot.
Responsible partnerships with our customers and communities
Buses play a key role in keeping people moving and communities prospering,
with more passengers taking buses daily than any other form of public
transport. In addition, they are fundamental to delivering Clean Air or Low
Emissions Zones in partnership with local and regional authorities. In
February, the Department for Transport (DfT) announced that 20 councils are to
share a £40m fund to ‘retro-fit’ buses with cleaner engines. We worked
with several of our local authority partners to access to this funding.
In many areas, congestion prevents us from running reliable bus routes. Local
authorities are key to solving this, through measures such as bus priority and
traffic segregation, meaning that strong partnerships with councils are vital.
We are encouraged that last year’s Bus Services Act recognises the
importance of such partnerships. We are working with Bristol City Council and
the West of England Combined Authority on the Metrobus priority route network
which launched in May 2018 and is designed to improve the bus offering in the
city and attract new users. We also continue to work closely with Leeds City
Council; together we are aiming to double patronage by 2025, supported by a
£173.5m public funding package over four years to develop new bus-friendly
schemes, whilst First Bus is committed to investing in a fully ultra-low
emissions fleet by 2020 in the city.
First Bus priorities and outlook
Our focus remains on enhancing our ability to deliver efficient, cost
effective and passenger-focused services. In the year ahead we expect to
sustain the volume growth and margin improvement momentum we have delivered in
the 2017/18 year. We are targeting our investment plans to that end by
focusing on local markets where, by working closely in partnership with local
authorities, we can deliver compelling and sustainable transport solutions.
First Rail
Year to 31 March £m Change
2018 2017
Revenue 1,968.8 1,268.8 +55.2%
Adjusted operating profit 57.8 53.8 +7.4%
Adjusted operating margin 2.9% 4.2% (130)bps
In the year our First Rail division revenue increased to £1,968.8m (2017:
£1,268.8m), principally reflecting the inclusion of the SWR franchise since
August 2017. Like-for-like passenger revenue growth was 4.1% and passenger
volume growth was 1.4%, in part reflecting a shift away from season ticket
purchases and the way these are recorded by the industry in volume statistics.
Industry studies suggest the main drivers for recent slowing in growth across
the sector include UK macroeconomic uncertainty, modal shift due to sustained
lower fuel prices and working practices, and the effect of rail infrastructure
upgrade works taking place across the country. The latter is particularly
relevant to GWR, although like-for-like passenger revenue growth of 2.7% in
the franchise accelerated during the year, benefiting in part from the
additional capacity generated by the introduction into service of the
Intercity Express Trains (IETs). SWR's operational performance and revenue
growth has been affected by the Waterloo upgrades and other infrastructure
work which will permit the introduction of additional capacity by the end of
2020. TPE delivered like-for-like passenger revenue growth of 10.0%, with even
greater growth required as new fleets start to be introduced into service from
Autumn 2018.
Adjusted operating profit of £57.8m (2017: £53.8m) represents a margin of
2.9% (2017: 4.2%), Divisional profitability was driven by GWR and a solid
part-year contribution (despite its operating challenges) from SWR, partially
offset by an operating loss of £6.5m at TPE in the year, while our open
access operator Hull Trains performed well despite also experiencing some
operational challenges in the year. We have taken the decision to provide for
forecast losses of up to £106.3m over the remaining life of the TPE contract,
based on analysis of the impact of the ongoing industry-wide slowdown in
growth on the financial assumptions we made in our bid. As a result, the Rail
division reported a statutory loss of £50.6m (2017: £53.5m profit) for the
year.
Focused and disciplined bidding
GWR currently operates under a direct award which runs to the end of March
2020 following the DfT’s decision in the year to exercise an extension
option. We are shortlisted as bidders for the upcoming West Coast Partnership
franchise competition in partnership with Trenitalia. Outside franchising, we
continue to develop our plans for a new single-class open access service
between London, north east England and Edinburgh from 2021.
Continuous improvement in operating and financial performance
We have a strong track record in close partnership working with Network Rail,
the DfT and all industry partners to deliver infrastructure upgrade projects
whilst minimising disruption for passengers. Completion of these projects
typically permits the introduction into service of additional train capacity
or more intense timetables, which in turn generates the patronage growth that
drives the franchise business plans and consequentially the premium payments
to the government.
Network Rail's electrification work continues on the Great Western mainline,
albeit at a slower rate than originally envisaged, and we are working with our
industry partners to reflect the impact of these delays in the level of our
franchise commitments and model. Our rail franchises cover a period during
which there is significant change (major infrastructure work, electrification
and resignalling, and introduction of new trains). These changes require
careful planning, management and negotiation with industry partners, in
particular where delays can impact the delivery of franchise assumptions.
Failure to manage these risks adequately could result in financial and
reputational impacts to the Group.
With the line electrified as far as Didcot, the move of suburban electric
trains to run between London and Didcot under a new timetable was able to be
completed by January 2018, providing more capacity. In turn, we have also
begun cascading the London suburban Turbo trains to Bristol and the West
Country where they will provide more seats for the network there. We began
introducing the new higher capacity IETs on longer distances from last
October. When this fleet is fully operational it will enable a 40% increase in
seat numbers compared to 2015, with quicker journey times and more frequent
services.
We also adjust our own operating plans to take changing timescales into
account and to find alternative ways to deliver our improvements for customers
as soon as possible, as has been the case in TPE this year in respect of the
Bolton-Preston line. In all, more than £500m is being invested in our TPE
franchise to transform the operation into the true intercity network for the
North, with 13 million more seats across the operation. 220 new carriages are
being introduced from later this year, comprising a mix of Hitachi IET-type
trains and a further intercity fleet from CAF.
We began operation of the SWR franchise in the middle of the extensive upgrade
to London Waterloo station over the summer, when several platforms were
extended for longer trains. This has led to subsequent unplanned
infrastructure works with a disappointing impact on punctuality and other
performance metrics. However the outcome of this improvement work, and the
reopening of the former international platforms later in 2018, will deliver
the infrastructure needed to support our future capacity growth plans. These
include the introduction of 90 new trains manufactured by Bombardier,
providing a 46% increase in peak capacity on the suburban routes into
Waterloo.
In December 2017 the Rail Accident Investigation Branch (RAIB) released their
report into the tragic incident which took place the previous year on the tram
network in Croydon. We are grateful for their recommendations for improvements
to the tram system in Croydon and across the UK. Amongst its findings, the
RAIB concluded in respect of our subsidiary Tram Operations Limited (TOL) that
management of fatigue was not a factor in the incident, nor was there evidence
of a speeding culture contributing to it. Nevertheless, over the past year
from prior to the final RAIB report, TOL has taken a series of actions,
working closely with Transport for London (TfL) on whose behalf it operates
the tram services, to implement additional measures including enhanced speed
monitoring and restrictions, improved signage and renewed guidance on fatigue
management. TOL has learned from the RAIB’s analysis and its own internal
reviews and will continue working hard, alongside TfL, to follow the RAIB’s
recommendations and make further improvements where necessary.
Prudent investment in our key assets
As noted, we continue to deliver new trains for all of our rail companies. By
2020, 90% of our customers will be travelling on a train less than five years
old. Passenger benefits from these new trains include more seats and space,
Wi-Fi and onboard entertainment options. We are also completely refurbishing
other fleets throughout our business with similar amenities. Our redesigned
passenger app has now rolled out across all our train companies, allowing
customers to purchase tickets and reserve seats as well as plan door-to-door
journeys.
Responsible partnerships with our customers and communities
GWR were awarded the titles of Rail Operator of the Year and Rail Business of
the Year during the period, recognising the introduction of new fleets and
their highest ever National Rail Passenger Survey customer satisfaction
figures in 2016.
Our franchise commitments for SWR included more generous delay repay
compensation which was introduced a few days after the franchise began.
During the year an agreement with Heathrow Airport was reached for GWR to run
the operational aspects of Heathrow Express including the introduction of a
dedicated fleet of trains by December 2019. GWR also worked with TfL and
industry partners to prepare for the launch of the Elizabeth Line, with
suburban stations transferred to TfL Rail operation in early 2018.
Following the success of the Customer and Communities Improvement Funds at GWR
and TPE, a similar scheme is being launched by SWR this year, which will work
with community organisations across the network.
First Rail priorities and outlook
We remain focused on working with our industry partners to deliver our plans
for more capacity and better customer experiences, which will in turn drive
patronage growth over time.
Our current Rail portfolio as a whole has and will continue to generate good
returns for the Group. Our decision to provide for forecast losses of up to
£106.3m over the remaining life of the TPE contract does not affect our plans
for the remainder of the franchise to increase capacity on the TPE network by
more than 80% and create a true intercity railway for the North, in
conjunction with our industry partners. The balance of the rail portfolio –
GWR, SWR and Hull Trains – is expected to generate satisfactory returns. The
payments associated with network unavailability due to infrastructure
improvements and repairs will continue to cause swings in period-to-period
profits.
Finance costs and investment income
Net finance costs before adjustments were £120.0m (2017: £132.0m) with the
decrease principally reflecting lower level of net debt and lower interest
rates.
Profit before tax
Adjusted profit before tax as set out in note 4 to the financial statements
was £197.0m (2017: £207.0m), with the decrease due principally to lower
adjusted operating profit partly offset by lower net finance costs. An overall
charge of £523.9m (2017: £54.4m) for adjustments including other intangible
asset amortisation charges of £70.9m (2017: £60.2m) resulted in statutory
loss before tax of £326.9m (2017: profit of £152.6m).
Tax
The tax charge, on adjusted profit before tax, for the year was £44.2m (2017:
£53.8m) representing an effective tax rate of 22.4% (2017: 26.0%). This
reduction is primarily due to the US Corporate income tax rate reducing from
35% to 21% under the US Tax Cuts and Jobs Act which was signed into law on 22
December 2017. This change also resulted in the remeasurement of brought
forward deferred tax balances giving rise to a one-off tax credit in the
income statement of £24.6m (and a one-time tax debit through Other
Comprehensive Income of £21.8m). There was also a tax credit of £55.6m
(2017: £17.3m) relating to intangible asset amortisation charges and other
adjustments of £523.9m (2017: £54.4m). The total tax credit was £36.0m
(2017: charge £36.5m) representing an effective tax rate on the statutory
loss before tax of 11.0% (2017: 23.9%). This rate is lower than the effective
tax rate on adjusted profits primarily because no tax credit arises on the
impairment of Greyhound goodwill. The Group’s effective tax rate is
sensitive to the geographic mix of profits including tax rates in the US and
Canada (including state taxes) that are higher than in the UK and to changes
in tax law and rates in the jurisdictions in which it operates.
The actual tax paid during the year was £12.2m (2017: £10.2m) and differs
from the tax credit of £36.0m primarily because no cash benefit arises in
respect of the one-off tax credit for the US tax reform and the tax credit on
the TPE onerous contract provision.
EPS
Adjusted EPS decreased 0.8% to 12.3p (2017: 12.4p) and basic EPS decreased to
(24.6)p (2017: 9.3p).
Shares in issue
As at 31 March 2018 there were 1,203.1m shares in issue (2017: 1,207.3m),
excluding treasury shares and own shares held in trust for employees, which
increased in the year to 7.7m (2017: 0.4m) reflecting a new policy to spread
the purchase of own shares for employee share schemes across the year. The
weighted average number of shares in issue for the purpose of basic EPS
calculations (excluding treasury shares and own shares held in trust for
employees) was 1,205.1m (2017: 1,204.8m).
Reconciliation to non-GAAP measures and performance
Note 4 to the financial statements sets out the reconciliations of operating
(loss)/profit and (loss)/profit before tax to their adjusted equivalents. The
adjusting items are as follows:
Greyhound goodwill and other asset impairment
Recognising the difficult trading conditions experienced by Greyhound in
2017/18, the strategic plans for the business and estimates of future cash
flows generated by the Greyhound division were revised. The calculated value
in use of the division resulted in a £277.3m shortfall to the carrying value
of assets (2017: £360.4m surplus).
Following their review of these cash flow estimates, the Directors concluded
that there should be an impairment charge of £277.3m on the Greyhound CGU.
This is reflected in the financial statements as an impairment in full of the
carrying value of Greyhound goodwill of £260.6m, as well as impairment
charges of £12.3m on Greyhound's property, plant and equipment, £2.5m on the
brand and trade name and £1.9m on software.
TPE onerous contract provision
Management have prepared updated financial forecasts for this franchise until
the initial end date of 31 March 2023. The updated forecasts are based on a
number of assumptions, most significantly passenger revenue growth. These are
based on economic and other exogenous factors as well as changes in
timetables, capacity and rolling stock. Although we are already achieving
industry-leading revenue growth, our forecasts suggest that we will fall short
of the growth requirements in the original franchise bid. Based on these
forecasts the Group considers it has an onerous contract, the value of which
is estimated to be £106.3m. Accordingly this amount has been charged to the
income statement.
Other intangible asset amortisation charges
The amortisation charge for the year was £70.9m (2017: £60.2m). The increase
primarily reflects a higher charge in the North American divisions due to an
incremental £7.5m in software intangible amortisation.
North America insurance reserves
There have been adverse developments on a small number of aged insurance
claims in North America which mainly relate to the 2014/15 and 2015/16
financial years. In aggregate the adverse developments on these claims give
rise to a cost representing a significant proportion of the respective
divisional results and accordingly management consider that including such
amounts in operating profit would distort year on year comparisons for the
North American divisions. The impact of these adverse developments was a
charge of £32.7m comprising First Student £13.4m, First Transit £15.8m and
Greyhound £3.5m.
Restructuring and reorganisation costs
There was a charge of £26.0m (2017: £16.8m) in the year for restructuring,
impairment of assets and reorganisation costs relating to the business
turnarounds in First Bus (£20.6m) and costs related to contract losses and
impairment of assets in First Transit (£5.4m).
Bond ‘make whole’ costs
The early redemption of the £300m bond in March this year resulted in a
one-off £10.7m ‘make whole’ interest charge.
Capital expenditure
Cash capital expenditure was £425.6m (2017: £404.3m), of which £299.4m
(2017: £323.9m) was in the Road divisions. It comprised First Student
£186.0m (2017: £198.7m), First Transit £19.0m (2017: £17.8m), Greyhound
£46.6m (2017: £30.1m), First Bus £42.8m (2017: £74.4m), First Rail
£126.2m (2017: £80.4m) and Group items £5.0m (2017: £2.9m). First Rail
capital expenditure is typically matched by franchise receipts or other
funding. In addition, during the year we entered into operating leases for
passenger carrying vehicles with capital values in First Bus of £6.0m (2017:
First Transit £8.0m), and we expect our use of operating leases to increase
going forward.
Gross capital investment was £439.5m (2017: £365.6m) and comprised First
Student £205.1m (2017: £165.9m), First Transit £28.5m (2017: £25.8m),
Greyhound £44.4m (2017: £31.7m), First Bus £26.9m (2017: £63.9m), First
Rail £129.6m (2017: £75.4m) and Group items £5.0m (2017: £2.9m). The
balance between cash capital expenditure and gross capital investment
represents creditor movements in the year.
Cash flow
The net cash inflow (before First Rail start of franchise cash flows) was
£110.5m (2017: £147.2m) with the reduction driven by lower proceeds from the
disposal of property plant and equipment primarily due to the sale of a
Greyhound terminal last year and higher interest payments as a result of the
early bond redemption partly offset by the timing of certain working capital
flows. Net cash flow including the First Rail start of franchise cash flows of
£88.5m (2017: £nil) was £199.0m (2017: £147.2m) and this, combined with
movements in debt due to foreign exchange, resulted in a decrease in net debt
of £219.6m (2017: £120.3m) as detailed below.
2018 2017 £m
£m
EBITDA 690.6 686.6
Other non-cash income statement charges/(credits) 17.2 (6.2)
Working capital excluding First Rail start of franchise cash flows 36.9 23.9
Movement in other provisions (10.5) (30.6)
Pension payments in excess of income statement charge (47.9) (37.6)
Cash generated by operations excluding First Rail start of franchise cash flows 686.3 636.1
Capital expenditure and acquisitions (425.6) (404.3)
Proceeds from disposal of property, plant and equipment 11.4 43.0
Interest and tax (137.6) (116.3)
Acquisition of non-controlling interest (13.8) -
Dividends paid to non-controlling minority shareholders (1.1) (11.9)
Other (9.1) 0.6
Net cash inflow before First Rail start of franchise cash flows 110.5 147.2
First Rail start of franchise cash flows 88.5 -
Net cash inflow after First Rail start of franchise cash flows 199.0 147.2
Foreign exchange movements 23.2 (26.5)
Other non-cash movements (2.6) (0.4)
Movement in net debt in the year 219.6 120.3
Balance sheet
Net assets have decreased by £585.3m since the start of the year. The
principal reasons for this are the unfavourable translation reserve movements
of £324.9m and the retained loss for the year of £290.9m partly offset by
favourable after tax hedging reserve movements of £34.4m.
Goodwill
The carrying value (net assets including goodwill but excluding intercompany
balances) of each cash generating unit (CGU) was tested for impairment during
the year by reference to their projected value in use and following their
review of these projections, the Directors concluded that there should be an
impairment charge of £277.3m on the Greyhound CGU. This is reflected in the
financial statements as an impairment in full of the carrying value of
Greyhound goodwill of £260.6m, as well as impairment charges of £12.3m on
Greyhound's property, plant and equipment (note 10), £2.5m on the brand and
trade name and £1.9m on software (note 9). Apart from Greyhound, there
continues to be sufficient headroom in all other CGUs.
Funding and risk management
Liquidity within the Group has remained strong. At the year end there was
£766.4m (2017: £941.1m) of headroom on committed facilities and free cash,
being £603.0m (2017: £800.0m) of committed headroom and £163.4m (2017:
£141.1m) of free cash. Largely due to the seasonality of First Student,
committed headroom typically reduces during the financial year up to October
and increases thereafter. Treasury policy requires a minimum of £150m of
committed headroom at all times. Our average debt maturity was 4.1 years
(2017: 3.6 years). The Group does not enter into speculative financial
transactions and uses only authorised financial instruments for certain risk
management purposes.
Fuel price risk
We use a progressive forward hedging programme to manage commodity risk. In
2017/18 in the UK, 89% of our ‘at risk’ crude requirements (1.9m barrels
p.a.) were hedged at an average rate of $60 per barrel. We have hedged 82% of
our ‘at risk’ UK crude requirements for the year to 31 March 2019 at $58
per barrel and 57% of our requirements for the year to 31 March 2020 at $63
per barrel.
In North America 63% of 2017/18 ‘at risk’ crude oil volumes (1.4m barrels
p.a.) were hedged at an average rate of $56 per barrel. We have hedged 53% of
the volumes for the year to 31 March 2019 at $55 per barrel and 28% of our
volumes for the year to 31 March 2020 at $53 per barrel.
Interest rate risk
We seek to reduce our exposure by using a combination of fixed rate debt and
interest rate derivatives to achieve an overall fixed rate position over the
medium term of at least 50% of net debt.
Foreign currency risk
‘Certain’ and ‘highly probable’ foreign currency transaction exposures
including fuel purchases for the UK divisions may be hedged at the time the
exposure arises for up to two years at specified levels, or longer if there is
a very high degree of certainty. The Group does not hedge the translation of
earnings into the Group reporting currency (pounds Sterling), but accepts that
reported Group earnings will fluctuate as exchange rates against pounds
Sterling fluctuate for the currencies in which the Group does business. During
the year, the net cash generated in each currency may be converted by Group
Treasury into pounds Sterling by way of spot transactions in order to keep the
currency composition of net debt broadly constant.
Net debt
The Group’s net debt at 31 March 2018 was £1,070.3m (2017: £1,289.9m) and
comprised:
31 March 2018 31 March 2017
Analysis of net debt Fixed Variable Total Total £m
£m £m £m
Sterling bond (2018) - - - 298.8
Sterling bond (2019) - 249.9 249.9 249.8
Sterling bond (2021) - 348.3 348.3 348.3
Sterling bond (2022) 321.6 - 321.6 321.1
Sterling bond (2024) 199.8 - 199.8 199.6
Sterling bank loans - 197.0 197.0 -
HP contracts and finance leases 104.7 - 104.7 183.7
Senior unsecured loan notes 195.2 - 195.2 80.0
Loan notes 8.7 0.8 9.5 9.5
Gross debt excluding accrued interest 830.0 796.0 1,626.0 1,690.8
Cash (163.4) (141.1)
First Rail ring-fenced cash and deposits (391.5) (255.8)
Other ring-fenced cash and deposits (0.8) (4.0)
Net debt excluding accrued interest 1,070.3 1,289.9
Under the terms of the First Rail franchise agreements, cash can only be
distributed by the TOCs either up to the lower amount of their retained
profits or the amount determined by prescribed liquidity ratios. The
ring-fenced cash represents that which is not available for distribution or
the amount required to satisfy the liquidity ratio at the balance sheet date.
Foreign exchange
The most significant exchange rates to pounds Sterling for the Group are as
follows:
Year to 31 March 2018 Year to 31 March 2017
Closing rate Effective rate Closing rate Effective rate
US Dollar 1.40 1.34 1.25 1.29
Canadian Dollar 1.81 1.75 1.67 1.74
Pensions
In the year we successfully consolidated assets in three UK local government
pension schemes into one and on 1 April 2018 both of the main UK defined
benefit schemes were closed to defined benefit accrual. We have updated our
pension assumptions as at 31 March 2018 for the defined benefit schemes in the
UK and North America. The net pension deficit of £358.5m at the beginning of
the year has decreased to £273.7m at the end of the year principally due to
better asset returns together with favourable foreign exchange movements. The
main factors that influence the balance sheet position for pensions and the
sensitivities to their movement at 31 March 2018 are set out below:
Movement Impact
Discount rate +0.1% Reduce deficit by £30.0m
Inflation +0.1% Increase deficit by £25.0m
Contingent liabilities
Investigations into the Croydon tram incident are ongoing and it is uncertain
when they will be concluded. The tram network is operated by Tram Operations
Limited (TOL), a subsidiary of the Company, under a contract with a TfL
subsidiary. TOL provides the drivers and management to operate the tram
services, whereas the infrastructure and trams are owned and maintained by a
TfL subsidiary. No proceedings have been commenced and, as such, it is not
possible to assess whether any financial penalties or related costs could be
incurred.
Forward-looking statements
Certain statements included or incorporated by reference within this document
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 document.
Definitions
Unless otherwise stated, all figures for the year to 31 March 2018 (the 'year'
or '2018') include the results and financial position of First Rail for the
year to 31 March 2018 and the results and financial position of all the other
businesses for the 53 weeks ended 31 March 2018. The figures for the year to
31 March 2017 (the 'prior year' or '2017') include the results and financial
position of the First Rail division for the year to 31 March 2017 and the
results and financial position of all the other businesses for the 52 weeks
ended 25 March 2017.
All references to 'adjusted' figures throughout this document are before
Greyhound goodwill impairment, TPE onerous contract provision, other
intangible asset amortisation charges and certain other items as set out in
note 4 to the financial statements.
References to the 'Road' divisions combine First Student, First Transit,
Greyhound, First Bus and Group items.
‘ROCE’ or Return on Capital Employed is a measure of capital efficiency
and is calculated by dividing adjusted operating profit after tax by all year
end assets and liabilities excluding debt items.
'EBITDA’ is adjusted operating profit less capital grant amortisation plus
depreciation.
'Net debt' is the value of Group external borrowings excluding the fair value
adjustment for coupon swaps designated against certain bonds, excluding
accrued interest, less cash balances.
References to ‘like-for-like’ revenue adjust for changes in the
composition of the divisional portfolio, holiday timing, 53(rd) week, severe
weather and other factors, for example engineering possessions in First Rail,
that distort the period-on-period trends in our passenger revenue businesses.
Going concern
The Group has established a strong balanced portfolio of businesses with
approximately 50% of Group revenues secured under medium term contracts with
government agencies and other large organisations in the UK and North America.
The Group has a diversified funding structure with average debt duration at 31
March 2018 of 4.1 years (2017: 3.6 years) and which is largely represented by
medium term unsecured bank facilities and long term unsecured bond debt. The
Group has an £800m committed revolving banking facility of which £603m
(2017: £800m) was undrawn at the year end. This facility has a maturity of
July 2021.
The Directors have carried out a detailed review of the Group’s budget for
the year to 31 March 2019 and medium term plans, with due regard for the risks
and uncertainties to which the Group is exposed, the uncertain economic
climate and the impact that this could have on trading performance. Based on
this review, the Directors believe that the Company and the Group have
adequate resources to continue in operational existence for the foreseeable
future. Accordingly, the financial statements have been prepared on a going
concern basis.
Tim
O'Toole
Matthew Gregory
Chief
Executive
Chief Financial Officer and interim Chief Operating Officer
31 May
2018
31 May 2018
Consolidated income statement
For the year ended 31 March
Continuing Operations Notes 2018 £m 2017 £m
Revenue 2 6,398.4 5,653.3
Operating costs (6,594.6) (5,369.7)
Operating (loss)/profit (196.2) 283.6
Investment income 5 1.3 1.2
Finance costs 5 (132.0) (132.2)
(Loss)/profit before tax (326.9) 152.6
Tax 6 36.0 (36.5)
(Loss)/profit for the year (290.9) 116.1
Attributable to:
Equity holders of the parent (296.0) 112.3
Non-controlling interests 5.1 3.8
(290.9) 116.1
Earnings per share
Basic 7 (24.6)p 9.3p
Diluted 7 (24.2)p 9.2p
Adjusted results (1)
Adjusted operating profit 4 317.0 339.0
Adjusted profit before tax 4 197.0 207.0
Adjusted EPS 7 12.3p 12.4p
1 Adjusted for certain items as set out in note 4.
The accompanying notes form an integral part of this consolidated income
statement.
Consolidated statement of comprehensive income
Year ended 31 March
2018 £m 2017 £m
(Loss)/profit for the year (290.9) 116.1
Items that will not be reclassified subsequently to profit or loss
Actuarial gains/(losses) on defined benefit pension schemes 26.6 (89.7)
Deferred tax on actuarial gains/(losses) on defined benefit pension schemes (6.2) 7.3
Deferred tax on defined benefit pension schemes due to US tax reform (20.4) -
- (82.4)
Items that may be reclassified subsequently to profit or loss
Derivative hedging instrument movements 45.1 69.7
Deferred tax on derivative hedging instrument movements (9.3) (19.0)
Deferred tax on derivative hedging instruments due to US tax reform (1.4) -
Exchange differences on translation of foreign operations (324.9) 356.2
(290.5) 406.9
Other comprehensive (expense)/income for the year (290.5) 324.5
Total comprehensive (expense)/income for the year (581.4) 440.6
Attributable to:
Equity holders of the parent (586.5) 436.8
Non-controlling interests 5.1 3.8
(581.4) 440.6
The accompanying notes form an integral part of this consolidated statement of
comprehensive income.
Consolidated balance sheet
As at 31
March
Note 2018 £m 2017 £m
Non-current assets
Goodwill 8 1,496.8 1,956.1
Other intangible assets 9 89.8 150.6
Property, plant and equipment 10 2,090.1 2,276.5
Deferred tax assets 18 37.7 25.8
Retirement benefit assets 32.5 34.0
Derivative financial instruments 17 25.0 48.6
Investments 31.0 33.3
3,802.9 4,524.9
Current assets
Inventories 11 56.0 64.5
Trade and other receivables 12 888.0 790.9
Current tax assets 2.9 0.7
Cash and cash equivalents 555.7 400.9
Assets held for sale 0.9 2.9
Derivative financial instruments 17 27.3 1.7
1,530.8 1,261.6
Total assets 5,333.7 5,786.5
Current liabilities
Trade and other payables 13 1,437.4 1,155.3
Tax liabilities – Current tax liabilities 3.8 5.1
– Other tax and social security 31.7 20.3
Borrowings 14 351.5 204.4
Derivative financial instruments 17 6.7 29.5
1,831.1 1,414.6
Net current liabilities 300.3 153.0
Non-current liabilities
Borrowings 14 1,339.6 1,586.4
Derivative financial instruments 17 3.0 8.6
Retirement benefit liabilities 306.2 392.5
Deferred tax liabilities 18 22.2 24.3
Provisions 19 341.0 284.2
2,012.0 2,296.0
Total liabilities 3,843.1 3,710.6
Net assets 1,490.6 2,075.9
Equity
Share capital 20 60.5 60.4
Share premium 681.4 678.9
Hedging reserve 16.5 (17.9)
Other reserves 4.6 4.6
Own shares (6.3) (1.2)
Translation reserve 383.5 708.4
Retained earnings 340.6 621.9
Equity attributable to equity holders of the parent 1,480.8 2,055.1
Non-controlling interests 9.8 20.8
Total equity 1,490.6 2,075.9
The accompanying notes form an integral part of this consolidated balance
sheet.
Tim
O’Toole
Matthew Gregory
Chief
Executive
Chief Financial Officer and interim Chief Operating Officer
31 May
2018
31 May 2018
Consolidated statement of changes in equity
Year ended 31 March
Share capital £m Share premium £m Hedging reserve £m Other reserves £m Own shares £m Translation reserve £m Retained earnings £m Total £m Non- controlling interests £m Total equity £m
Balance at 1 April 2016 60.2 676.4 (68.6) 4.6 (1.4) 352.2 585.4 1,608.8 24.4 1,633.2
Total comprehensive income for the year – – 50.7 – – 356.2 29.9 436.8 3.8 440.6
Shares issued 0.2 2.5 – – – – – 2.7 – 2.7
Dividends paid/other – – – – – – – – (7.4) (7.4)
Movement in EBT and treasury shares – – – – 0.2 – (1.6) (1.4) – (1.4)
Share-based payments – – – – – – 8.2 8.2 – 8.2
Balance at 31 March 2017 60.4 678.9 (17.9) 4.6 (1.2) 708.4 621.9 2,055.1 20.8 2,075.9
Balance at 1 April 2017 60.4 678.9 (17.9) 4.6 (1.2) 708.4 621.9 2,055.1 20.8 2,075.9
Total comprehensive (expense)/income for the year – – 34.4 – – (324.9) (296.0) (586.5) 5.1 (581.4)
Acquisition of non-controlling interests (1) – – – – – – 13.8 13.8 (13.8) –
Shares issued 0.1 2.5 – – – – – 2.6 – 2.6
Dividends paid/other – – – – – – – – (2.3) (2.3)
Movement in EBT and treasury shares – – – – (5.1) – (8.0) (13.1) – (13.1)
Share-based payments – – – – – – 8.9 8.9 – 8.9
Balance at 31 March 2018 60.5 681.4 16.5 4.6 (6.3) 383.5 340.6 1,480.8 9.8 1,490.6
1 On 19 January 2018, the Group completed the acquisition of the
remaining 49% share in Miles Square Transportation, Inc from the
non-controlling interest party at a fixed price of $19.1m. The exercise of
this put option resulted in the reversal of the financial liability through
equity.
The accompanying notes form an integral part of this consolidated statement of
changes in equity.
Consolidated cash flow statement
Year ended 31 March
Note 2018 £m 2017 £m
Net cash from operating activities 21 636.9 520.4
Investing activities
Interest received 1.3 1.2
Proceeds from disposal of property, plant and equipment 11.4 43.0
Purchases of property, plant and equipment (395.9) (374.1)
Purchases of software (26.8) (30.2)
Acquisition of businesses (2.9) –
Acquisition of non-controlling interest (13.8) –
Net cash used in investing activities (426.7) (360.1)
Financing activities
Dividends paid to non-controlling shareholders (1.1) (11.9)
Shares purchased by Employee Benefit Trust (11.2) (1.5)
Shares issued 2.1 2.1
Proceeds from senior unsecured loans 193.3 –
Repayment of bond (300.0) –
Repayment of senior unsecured loans (76.5) (41.0)
Drawdowns from bank facilities 197.0 –
Repayment of loan notes – (0.1)
Repayments under HP contracts and finance leases (62.1) (75.0)
Fees for finance facilities (1.0) (1.8)
Net cash flow used in financing activities (59.5) (129.2)
Net increase in cash and cash equivalents before foreign exchange movements 150.7 31.1
Cash and cash equivalents at beginning of year 400.9 360.1
Foreign exchange movements 4.1 9.7
Cash and cash equivalents at end of year per consolidated balance sheet 555.7 400.9
Cash and cash equivalents are included within current assets on the
consolidated balance sheet.
Note to the consolidated cash flow statement –
reconciliation of net cash flow to movement in net debt
Year ended 31 March 2018 £m 2017 £m
Net increase in cash and cash equivalents in year 150.7 31.1
Decrease in debt and finance leases 48.3 116.1
Net cash flow 199.0 147.2
Foreign exchange movements 23.2 (26.5)
Other non-cash movements (2.6) (0.4)
Movement in net debt in year 219.6 120.3
Net debt at beginning of year (1,289.9) (1,410.2)
Net debt at end of year (1,070.3) (1,289.9)
Net cash flow is stated prior to cash flows in relation to debt and finance
leases.
Net debt excludes all accrued interest.
The accompanying notes form an integral part of this consolidated cash flow
statement.
Notes to the consolidated financial statements
1 General information
The financial information set out above does not constitute the Company’s
Statutory Accounts for the year ended 31 March 2018 or 2017, but is derived
from those accounts. Statutory Accounts for 2017 have been delivered to the
Registrar of Companies and those for 2018 will be delivered following the
Company’s Annual General Meeting. The auditors have reported on both sets of
account; their reports were unqualified and did not contain statements under
section 498 (2) or (3) of the Companies Act 2006.
Whilst the financial information included in this preliminary announcement has
been computed in accordance with International Financial Reporting Standards
(IFRSs), this announcement does not in itself contain sufficient information
to comply with IFRSs. The Company expects to publish full financial statements
that comply with IFRSs in June 2018. Copies of the Statutory Accounts for the
year ended 31 March 2018 will be available to all shareholders in June and
will also be available thereafter at the Registered Office of the Company at
395 King Street, Aberdeen, AB24 5RP.
2 Revenue
2018 £m 2017 £m
Services rendered 6,398.4 5,653.3
Investment income 1.3 1.2
Total revenue as defined by IAS 18 6,399.7 5,654.5
3 Business segments and geographical information
For management purposes, the Group is organised into five operating divisions
– First Student, First Transit, Greyhound, First Bus and First Rail. These
divisions are managed separately in line with the differing services that they
provide and the geographical markets which they operate in. The principal
activities of these divisions are described in the Strategic report. The
segment results for the year to 31 March 2018 are as follows:
First Student £m First Transit £m Greyhound £m First Bus £m First Rail £m Group items (1) £m Total £m
Revenue 1,771.1 1,072.7 690.2 879.4 1,968.8 16.2 6,398.4
EBITDA (2) 335.2 79.8 58.8 116.3 129.4 (28.9) 690.6
Depreciation (178.7) (21.6) (33.3) (66.1) (87.6) (2.3) (389.6)
Capital grant amortisation – – – – 16.0 – 16.0
Segment results (3) 156.5 58.2 25.5 50.2 57.8 (31.2) 317.0
Other intangible asset amortisation charges (54.7) (2.8) (11.0) (0.2) (2.1) (0.1) (70.9)
Other adjustments (note 4) (13.4) (21.1) (280.8) (20.7) (106.3) – (442.3)
Operating (loss)/profit (3) 88.4 34.3 (266.3) 29.3 (50.6) (31.3) (196.2)
Investment income 1.3
Finance costs (132.0)
Loss before tax (326.9)
Tax 36.0
Loss after tax (290.9)
The segment results for the year to 31 March 2017 are as follows:
First Student £m First Transit £m Greyhound £m First Bus £m First Rail £m Group items (1) £m Total £m
Revenue 1,780.3 1,042.0 684.7 861.7 1,268.8 15.8 5,653.3
EBITDA (2) 348.7 91.9 79.4 104.5 98.8 (36.7) 686.6
Depreciation (177.6) (18.6) (36.8) (67.5) (50.3) (2.1) (352.9)
Capital grant amortisation – – – – 5.3 – 5.3
Segment results (3) 171.1 73.3 42.6 37.0 53.8 (38.8) 339.0
Other intangible asset amortisation charges (49.6) (1.8) (8.5) – (0.3) – (60.2)
Other adjustments (note 4) (2.5) (0.2) 19.6 (10.9) – (1.2) 4.8
Operating profit (3) 119.0 71.3 53.7 26.1 53.5 (40.0) 283.6
Investment income 1.2
Finance costs (132.2)
Profit before tax 152.6
Tax (36.5)
Profit after tax 116.1
1 Group items comprise Tram operations, central management and other
items.
2 EBITDA is adjusted operating profit less capital grant
amortisation plus depreciation.
3 Although the segment results are used by management to measure
performance, statutory operating profit by operating division is also
disclosed for completeness.
4 Reconciliation to non-GAAP measures and performance
In measuring the Group and divisional adjusted operating performance,
additional financial measures derived from the reported results have been used
in order to eliminate factors which distort year-on-year comparisons. The
Group’s adjusted performance is used to explain year-on-year changes when
the effect of certain items are significant, including restructuring and
reorganisation costs, property disposals, aged legal and self-insurance
claims, onerous contract provisions, impairment charges and pension settlement
gains or losses. In addition, management assess divisional performance before
other intangible asset amortisation charges as these are typically a result of
Group decisions and therefore the divisions have little or no control over
these charges. Management consider that this overall basis more appropriately
reflects operating performance and provide a better understanding of the key
performance indicators of the business.
Reconciliation of operating (loss)/profit to adjusted operating profit 2018 £m 2017 £m
Operating (loss)/profit (196.2) 283.6
Adjustments for:
Other intangible asset amortisation charges 70.9 60.2
Greyhound impairment charges 277.3 –
TPE onerous contract provision 106.3 –
Restructuring and reorganisation costs 26.0 16.8
North America insurance reserves 32.7 –
Gain on disposal of property – (21.6)
Total operating profit adjustments 513.2 55.4
Adjusted operating profit (note 3) 317.0 339.0
Reconciliation of (loss)/profit before tax to adjusted profit before tax 2018 £m 2017 £m
(Loss)/profit before tax (326.9) 152.6
Operating profit adjustments (see table above) 513.2 55.4
Bond ‘make whole’ interest cost 10.7 –
Ineffectiveness on financial derivatives – (1.0)
Adjusted profit before tax 197.0 207.0
Adjusted tax charge (44.2) (53.8)
Non-controlling interests (5.1) (3.8)
Adjusted earnings 147.7 149.4
Reconciliation of tax (credit)/charge to adjusted tax charge 2018 £m 2017 £m
Tax (credit)/charge (36.0) 36.5
Tax effect of adjusting items 55.6 17.3
Tax effect of US tax reform 24.6 –
Adjusted tax charge 44.2 53.8
The adjusting items are as follows:
Other intangible asset amortisation charges
The amortisation charge for the year was £70.9m (2017: £60.2m). The increase
primarily reflects a higher charge in the North American divisions due to an
incremental £7.5m software intangible amortisation this year.
Greyhound impairment
Recognising the difficult trading conditions experienced by Greyhound in
2017/18, the strategic plans for the businesses and estimates of future cash
flows generated by the Greyhound division were revised. The calculated value
in use of the Greyhound division resulted in a £277.3m shortfall to the
carrying value of assets (2017: £360.4m surplus).
Following their review of these cash flow estimates, the Directors concluded
that there should be an impairment charge of £277.3m on the Greyhound CGU.
This is reflected in the financial statements as an impairment in full of the
carrying value of Greyhound goodwill of £260.6m (see note 8), as well as
impairment charges of £12.3m on Greyhound's property, plant and equipment
(note 10), £2.5m on the brand and trade name and £1.9m on software (note 9).
After these impairments, the carrying value of Greyhound is £313.1m
($438.8m).
TPE onerous contract provision
Management have prepared updated financial forecasts for this franchise until
the initial end date of 31 March 2023. The updated forecasts are based on a
number of assumptions, most significantly passenger revenue growth. These are
based on economic and other exogenous factors as well as changes in
timetables, capacity and rolling stock. Although we are already achieving
industry-leading revenue growth, our forecasts suggest that we will fall short
of the growth requirements in the original franchise bid. Based on these
forecasts the Group considers it has an onerous contract, the value of which
is estimated to be £106.3m. Accordingly this amount has been charged to the
income statement.
North America insurance reserves
There have been adverse developments on a small number of aged insurance
claims in North America which mainly relate to the 2014/15 and 2015/16
financial years. In aggregate the adverse developments on these claims give
rise to a cost representing a significant proportion of the respective
divisional results and accordingly management consider that including such
amounts in operating profit would distort the year on year comparisons for the
North American divisions. The impact of these adverse developments was a
charge of £32.7m comprising First Student £13.4m, First Transit £15.8m and
Greyhound £3.5m.
Restructuring and reorganisation costs
There was a charge of £26.0m (2017: £16.8m) in the year for restructuring,
impairment of assets and reorganisation costs relating to the business
turnarounds in First Bus (£20.6m) and costs related to contract losses and
impairment of assets in First Transit (£5.4m).
Bond ‘make whole’ costs
The early redemption of the £300m bond in March this year resulted in a
one-off £10.7m ‘make whole’ interest charge.
5 Investment income and finance costs
2018 £m 2017 £m
Investment income
Bank interest receivable (1.3) (1.2)
Finance costs
Bonds 84.3 83.7
Bank borrowings 8.8 11.4
Senior unsecured loan notes 1.3 4.3
Loan notes 1.1 1.0
Finance charges payable in respect of HP contracts and finance leases 4.6 6.4
Notional interest on long term provisions 11.0 17.5
Notional interest on pensions 10.2 8.9
Finance costs before adjustments 121.3 133.2
Bond ‘make whole’ cost 10.7 –
Hedge ineffectiveness on financial derivatives – (1.0)
Total finance costs 132.0 132.2
Finance costs before adjustments 121.3 133.2
Investment income (1.3) (1.2)
Net finance cost before adjustments 120.0 132.0
6 Tax on (loss)/profit on ordinary activities
2018 £m 2017 £m
Current tax 8.9 9.5
Adjustments with respect to prior years – (13.8)
Total current tax charge/(credit) 8.9 (4.3)
Origination and reversal of temporary differences (14.1) 50.4
Adjustments with respect to prior years (6.2) (9.6)
Adjustments attributable to changes in tax rates and laws (24.6) –
Total deferred tax (credit)/charge (44.9) 40.8
Total tax (credit)/charge (36.0) 36.5
7 Earnings per share (EPS)
EPS is calculated by dividing the loss attributable to equity shareholders of
£296.0m (basic loss) (2017: profit £112.3m) by the weighted average number
of ordinary shares of 1,205.1m (2017: 1,204.8m). The number of ordinary shares
used for the basic and diluted calculations are shown in the table below.
The difference in the number of shares between the basic calculation and the
diluted calculation represents the weighted average number of potentially
dilutive ordinary share options.
2018 m 2017 m
Weighted average number of shares used in basic calculation 1,205.1 1,204.8
Executive share options 17.9 11.5
Weighted average number of shares used in the diluted calculation 1,223.0 1,216.3
The adjusted EPS is intended to highlight the recurring operating results of
the Group before amortisation charges, ineffectiveness on financial
derivatives and certain other adjustments as set out in note 4. A
reconciliation is set out below:
2018 2017
£m EPS (p) £m EPS (p)
Basic (loss)/profit/EPS (296.0) (24.6) 112.3 9.3
Amortisation charges (note 9) 70.9 5.9 60.2 5.0
Ineffectiveness on financial derivatives - - (1.0) (0.1)
Bond ‘make whole’ cost 10.7 0.9 - -
Other adjustments (note 4) 442.3 36.7 (4.8) (0.4)
Tax effect of above adjustments (55.6) (4.6) (17.3) (1.4)
Tax effect of change in US tax legislation (24.6) (2.0) - -
Adjusted profit/EPS 147.7 12.3 149.4 12.4
2018 pence 2017 pence
Diluted EPS (24.2) 9.2
Adjusted diluted EPS 12.1 12.3
8 Goodwill
2018 £m 2017 £m
Cost
At 1 April 1,960.1 1,740.3
Additions 1.2 -
Foreign exchange movements (199.9) 219.8
At 31 March 1,761.4 1,960.1
Accumulated impairment losses
At 1 April 4.0 4.0
Impairment 260.6 -
At 31 March 264.6 4.0
Carrying amount
At 31 March 1,496.8 1,956.1
Impairment testing
At the year end the carrying value of goodwill was reviewed for impairment in
accordance with IAS 36 Impairment of Assets. For the purposes of this
impairment review goodwill has been tested for impairment on the basis of
discounted future cash flows arising in each relevant CGU.
The Group prepares cash flow forecasts derived from the most recent budget for
2018/19 and Three-Year Plan projections up to 2020/21 (2017: Three-Year Plan
projections up to 2019/20) which take account of both past performance and
expectations for future market developments. The projections for First Student
assume the incremental benefits of the existing recovery plan, the programme
to address contract portfolio pricing together with an economic recovery. Cash
flows beyond the plan period are extrapolated using estimated growth rates of
2.5% (2017: 2.5%) for the United Kingdom and 2.8% (2017: 3.0%) for North
America which do not exceed the long term average growth rate for the market.
Cash flows are discounted using a pre-tax discount rate of 7.3% (2017: 7.3%)
for the United Kingdom CGUs and 8.2% (2017: 8.7%) for the North American CGUs
to arrive at the value in use. The pre-tax discount rates applied are derived
from a market participant’s weighted average cost of capital. The
assumptions used in the calculation of the Group’s weighted average cost of
capital are benchmarked to externally available data.
The Directors consider the assumptions to be reasonable based on the historic
performance of each CGU and to be realistic in the light of economic and
industry forecasts.
The calculation of value in use for each CGU is most sensitive to the
principal assumptions of discount rate, growth rates and margins achievable.
Sensitivity analysis has been performed on the calculations and confirms that
no reasonably possible changes in the assumptions would cause the carrying
amount of the CGUs to exceed their recoverable amount in respect of the First
Transit, First Bus and First Rail divisions.
The value in use of the First Student division exceeds its carrying amount by
£662.5m (2017: £709.2m). The sensitivity analysis indicates that the First
Student margin or growth rates would need to fall in excess of 212 or 181
basis points respectively compared to medium term double digit margin
expectations for there to be an impairment to the carrying value of net assets
in this business. An increase in the discount rate in excess of 160 basis
points would lead to the value in use of the division being less than its
carrying amount.
Following the review of goodwill, the Directors have concluded that there is
no impairment to First Student, First Transit, First Bus and First Rail.
Recognising the difficult trading conditions experienced by the Greyhound
business in the 2017/18 financial year, the strategic plans for the businesses
and estimates of future cash flows generated by the Greyhound division were
revised. The calculated value in use of the Greyhound division resulted in a
£277.3m shortfall to the carrying value of assets (2017: £360.4m surplus).
Following their review of these cash flow estimates, the Directors concluded
that there should be an impairment charge of £277.3m on the Greyhound CGU.
This is reflected in the financial statements as an impairment in full of the
carrying value of Greyhound goodwill of £260.6m, as well as impairment
charges of £12.3m on Greyhound's property, plant and equipment (note 10),
£2.5m on the brand and trade name and £1.9m on software (note 9). After
these impairments, the carrying value of Greyhound is £313.1m ($438.8m).
The Greyhound business impairment review is sensitive to a change in the
assumptions used, most notably to changes in the discount rate, terminal
growth rate or terminal margin. A summary of the increase in the impairment
charge from an adverse change in these assumptions is as follows:
*
0.1% movement in the discount rate would increase or decrease the impairment
charge by £5.6m
*
0.1% movement in the terminal growth rate would increase or decrease the
impairment charge by £5.3m
*
0.1% movement in terminal margin would increase or decrease the impairment
charge by £9.8m.
9 Other intangible assets
Customer contracts £m Greyhound brand and trade name £m Rail franchise agreements £m Software £m Total £m
Cost
At 1 April 2016 433.8 66.0 5.5 11.6 516.9
Additions – – – 30.2 30.2
Cessation of franchise – – (5.5) – (5.5)
Foreign exchange movements 57.2 8.7 – 1.1 67.0
At 31 March 2017 491.0 74.7 – 42.9 608.6
Acquisitions 0.7 – – – 0.7
Additions – – – 26.8 26.8
Disposals – – – (1.9) (1.9)
Foreign exchange movements (52.0) (7.8) – (4.7) (64.5)
At 31 March 2018 439.7 66.9 – 63.1 569.7
Accumulated amortisation and impairment
At 1 April 2016 320.9 28.3 5.5 – 354.7
Charge for year 50.1 3.5 – 6.6 60.2
Cessation of franchise – – (5.5) – (5.5)
Foreign exchange movements 44.5 3.9 – 0.2 48.6
At 31 March 2017 415.5 35.7 – 6.8 458.0
Charge for year 53.3 3.5 – 14.1 70.9
Disposals – – – (1.0) (1.0)
Impairment – 2.5 – 1.9 4.4
Foreign exchange movements (47.1) (3.9) – (1.4) (52.4)
At 31 March 2018 421.7 37.8 – 20.4 479.9
Carrying amount
At 31 March 2018 18.0 29.1 – 42.7 89.8
At 31 March 2017 75.5 39.0 – 36.1 150.6
10 Property, plant and equipment
Land and buildings £m Passenger carrying vehicle fleet £m Other plant and equipment £m Total £m
Cost
At 1 April 2016 483.0 3,183.9 674.2 4,341.1
Additions in the year 13.3 218.0 96.1 327.4
Disposals (11.1) (97.4) (33.5) (142.0)
Reclassified as held for sale – (148.0) – (148.0)
Foreign exchange movements 36.9 312.8 41.1 390.8
At 31 March 2017 522.1 3,469.3 777.9 4,769.3
Acquisitions - 1.6 - 1.6
Additions in the year 11.1 243.5 150.5 405.1
Disposals (6.8) (42.4) (113.0) (162.2)
Reclassified as held for sale - (153.4) - (153.4)
Foreign exchange movements (33.6) (294.0) (36.9) (364.5)
At 31 March 2018 492.8 3,224.6 778.5 4,495.9
Accumulated depreciation and impairment
At 1 April 2016 82.2 1,614.8 501.9 2,198.9
Charge for year 12.8 249.6 90.5 352.9
Disposals (2.8) (97.4) (18.6) (118.8)
Impairment – 4.5 – 4.5
Reclassified as held for sale – (147.6) – (147.6)
Foreign exchange movements 7.9 165.7 29.3 202.9
At 31 March 2017 100.1 1,789.6 603.1 2,492.8
Charge for year 11.8 243.5 134.3 389.6
Disposals (2.9) (40.4) (110.7) (154.0)
Impairment 1.2 17.1 1.5 19.8
Reclassified as held for sale - (146.2) - (146.2)
Foreign exchange movements (7.7) (159.3) (29.2) (196.2)
At 31 March 2018 102.5 1,704.3 599.0 2,405.8
Carrying amount
At 31 March 2018 390.3 1,520.3 179.5 2,090.1
At 31 March 2017 422.0 1,679.7 174.8 2,276.5
11 Inventories
2018 £m 2017 £m
Spare parts and consumables 56.0 64.5
12 Trade and other receivables
Amounts due within one year 2018 £m 2017 £m
Trade receivables 482.2 457.3
Provision for doubtful receivables (4.3) (4.2)
Other receivables 106.8 74.6
Prepayments 103.7 79.0
Accrued income 199.6 184.2
888.0 790.9
13 Trade and other payables
Amounts falling due within one year 2018 £m 2017 £m
Trade payables 248.8 255.6
Other payables 230.2 217.6
Accruals 785.6 607.3
Deferred income 83.6 49.7
Season ticket deferred income 89.2 25.1
1,437.4 1,155.3
14 Borrowings
2018 £m 2017 £m
On demand or within 1 year
Finance leases (note 15) 47.1 65.3
Senior unsecured loan notes – 80.0
Bond 8.125% (repayable 2018) (1) – 12.9
Bond 6.125% (repayable 2019) 261.3 3.0
Bond 8.75% (repayable 2021) (1) 30.1 30.2
Bond 5.25% (repayable 2022) (1) 5.8 5.8
Bond 6.875% (repayable 2024) (1) 7.2 7.2
Total current liabilities 351.5 204.4
Within 1–2 years
Finance leases (note 15) 39.5 53.5
Loan notes (note 16) 9.5 9.5
Bond 8.125% (repayable 2018) – 298.8
Bond 6.125% (repayable 2019) – 270.0
49.0 631.8
Within 2–5 years
Syndicated loan facilities 197.0 –
Finance leases (note 15) 18.0 64.8
Bond 8.75% (repayable 2021) 358.9 369.0
Bond 5.25% (repayable 2022) 321.6 –
895.5 433.8
Over 5 years
Finance leases (note 15) 0.1 0.1
Senior unsecured loan notes 195.2 –
Bond 5.25% (repayable 2022) – 321.1
Bond 6.875% (repayable 2024) 199.8 199.6
395.1 520.8
Total non-current liabilities at amortised cost 1,339.6 1,586.4
¹Relates to accrued interest.
15 HP contracts and finance leases
The Group had the following obligations under HP contracts and finance leases
as at the balance sheet dates:
2018 2017
Minimum payments £m Present value of payments £m Minimum payments £m Present value of payments £m
Due in less than one year 48.3 47.1 66.9 65.3
Due in more than one year but not more than two years 41.6 39.5 56.4 53.5
Due in more than two years but not more than five years 19.6 18.0 70.2 64.8
Due in more than five years 0.1 0.1 0.1 0.1
109.6 104.7 193.6 183.7
Less future financing charges (4.9) – (9.9) –
104.7 104.7 183.7 183.7
16 Loan notes
The Group had the following loan notes issued as at the balance sheet dates:
2018 £m 2017 £m
Due in more than one year but not more than two years 9.5 9.5
17 Derivative financial instruments
2018 £m 2017 £m
Total derivatives
Total non-current assets 25.0 48.6
Total current assets 27.3 1.7
Total assets 52.3 50.3
Total current liabilities 6.7 29.5
Total non-current liabilities 3.0 8.6
Total liabilities 9.7 38.1
Derivatives designated and effective as hedging instruments carried at fair value Non-current assets
Coupon swaps (fair value hedge) 17.6 48.6
Fuel derivatives (cash flow hedge) 7.4 –
25.0 48.6
Current assets
Coupon swaps (fair value hedge) 11.4 –
Fuel derivatives (cash flow hedge) 15.9 0.6
Currency forwards (cash flow hedge) – 0.7
27.3 1.3
Current liabilities
Fuel derivatives (cash flow hedge) 1.4 29.4
Currency forwards (cash flow hedge) 5.3 0.1
6.7 29.5
Non-current liabilities
Currency forwards (cash flow hedge) 2.9 -
Fuel derivatives (cash flow hedge) 0.1 8.6
3.0 8.6
Derivatives classified as held for trading
Current assets
Currency forwards – 0.4
18 Deferred tax
The major deferred tax liabilities/(assets) recognised by the Group and
movements thereon during the current and prior reporting periods are
as follows:
Accelerated tax depreciation £m Retirement benefit schemes £m Other temporary differences £m Tax losses £m Total £m
At 1 April 2016 174.2 (78.3) 70.7 (212.3) (45.7)
Charge/(credit) to income statement 22.6 8.5 (19.2) 28.9 40.8
Charge/(credit) to other comprehensive income – (7.3) 19.0 – 11.7
Foreign exchange and other movements 21.2 (8.8) 11.7 (32.4) (8.3)
At 31 March 2017 218.0 (85.9) 82.2 (215.8) (1.5)
(Credit)/charge to income statement (19.9) (1.0) 2.7 (26.7) (44.9)
Charge to other comprehensive income - 26.6 10.7 - 37.3
Foreign exchange and other movements (23.7) 6.5 (9.7) 20.5 (6.4)
At 31 March 2018 174.4 (53.8) 85.9 (222.0) (15.5)
Certain deferred tax assets and liabilities have been offset. The following is
the analysis of the deferred tax balances for financial reporting purposes:
2018 £m 2017 £m
Deferred tax assets (37.7) (25.8)
Deferred tax liabilities 22.2 24.3
(15.5) (1.5)
19 Provisions
2018 £m 2017 £m
Insurance claims 231.7 236.1
Legal and other 28.1 45.7
TPE onerous contract 79.2 –
Pensions 2.0 2.4
Non-current liabilities 341.0 284.2
Insurance claims £m Legal and other £m TPE onerous contract £m Pensions £m Total £m
At 1 April 2017 391.0 60.4 – 2.4 453.8
Charged to the income statement 196.5 27.4 106.3 – 330.2
Utilised in the year (192.7) (17.3) – (0.4) (210.4)
Notional interest 11.0 – – – 11.0
Foreign exchange movements (37.0) (2.9) – – (39.9)
At 31 March 2018 368.8 67.6 106.3 2.0 544.7
Current liabilities 137.1 39.5 27.1 – 203.7
Non-current liabilities 231.7 28.1 79.2 2.0 341.0
At 31 March 2018 368.8 67.6 106.3 2.0 544.7
Current liabilities 154.9 14.7 – – 169.6
Non-current liabilities 236.1 45.7 – 2.4 284.2
At 31 March 2017 391.0 60.4 – 2.4 453.8
TPE onerous contract provision
The onerous contract provision in respect of TPE has been calculated based on
updated financial forecasts for this franchise until the initial end date of
31 March 2023. The updated forecasts are based on a number of assumptions,
most significantly passenger revenue growth. These are based on economic and
other exogenous factors as well as changes in timetables, capacity and rolling
stock. While the onerous provision is based upon management's current best
estimate, there can be no certainty that actual results will be consistent
with those forecast. The TPE onerous contract provision is sensitive to a
change in the assumptions used, most notably to passenger revenue growth. A
reduction or increase of 0.5% in the cumulative annual passenger growth rate
assumption would increase or decrease the onerous contract provision required
by £27.0m. The provisions are expected to be fully utilised within five
years.
20 Called up share capital
2018 £m 2017 £m
Allotted, called up and fully paid
1,210.8m (2017: 1,207.7m) ordinary shares of 5p each 60.5 60.4
The Company has one class of ordinary shares which carries no right to fixed
income. During the year 3.1m (2017: 2.8m) shares were issued to satisfy
principally SAYE exercises.
21 Net cash from operating activities
2018 £m 2017 £m
Operating (loss)/profit (196.2) 283.6
Adjustments for:
Depreciation charges 389.6 352.9
Capital grant amortisation (16.0) (5.3)
Amortisation charges 70.9 60.2
Impairment charges 284.8 4.5
Share-based payments 8.9 8.2
Loss/(profit) on disposal of property, plant and equipment 8.3 (18.9)
Operating cash flows before working capital and pensions 550.3 685.2
Decrease in inventories 4.6 1.3
Increase in receivables (168.7) (36.7)
Increase in payables 341.7 56.3
TPE onerous contract provision 106.3 –
Decrease in other provisions (10.5) (30.6)
Defined benefit pension payments in excess of income statement charge (47.9) (37.6)
Cash generated by operations 775.8 637.9
Tax paid (12.2) (10.2)
Interest paid (122.1) (100.9)
Interest element of HP contracts and finance leases (4.6) (6.4)
Net cash from operating activities 636.9 520.4
Responsibility Statement of the Directors on the Annual Report
The responsibility statement below has been prepared in connection with the
Group’s full annual report for the year ending 31 March 2018. Certain parts
thereof are not included within the announcement.
We confirm to the best of our knowledge:
*
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 Management Report, which is incorporated into the Directors’ Report,
includes 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.
*
The Directors consider that the annual report and financial statements, taken
as a whole, are fair, balanced and understandable and provide information
necessary for the shareholders to assess the Company’s and the Group’s
position and performance, business model and strategy.
This responsibility statement was approved by the Board of Directors and is
signed on its behalf by:
Tim
O’Toole
Matthew Gregory
Chief
Executive
Chief Financial Officer and interim Chief Operating Officer
31 May
2018
31 May 2018
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