REG-FirstGroup PLC: Final Results
30/05/2019 07:05
FIRSTGROUP PLC
RESULTS FOR THE YEAR TO 31 MARCH 2019
FirstGroup plc, a leading provider of transport services in the UK and North
America, today reports growth in revenue, adjusted operating profit and
adjusted EPS, and announces portfolio rationalisation plans
Results overview
* Underlying(1) Group revenue +5.7%, underlying(1) adjusted(2) operating
profit +10.5%; adjusted(2) EPS +15.2%(3)
* Adjusted(2) operating profit ahead of our expectations at £332.9m, led by
growth and margin expansion in First Student and First Bus
* Net cash inflow(4) of £197.3m, above expectations due to the phasing of
certain First Rail cash inflows
* Due to a number of uncertainties, FirstGroup’s share of future losses on
SWR franchise of £102.1m recognised while negotiations continue with the
Department for Transport; statutory operating profit of £9.8m also adversely
impacted by a North America self-insurance charge of £94.8m
* Plans announced to rationalise the portfolio with the Group’s future
emphasis on First Student and First Transit, our core North American
contracting businesses
Commenting, Chief Executive Matthew Gregory said:
“Our trading performance was ahead of our expectations for the year, with
First Student returning to growth with increased margins, First Bus delivering
growth and higher margins, and First Rail adjusted profit ahead of
expectations in the year; Greyhound faces challenging market conditions but we
are seeing early results from the plan we put in place last year.
“Although our UK rail franchise portfolio has generated £330.9m(5) in
adjusted profit with net cash and dividends to the Group over the last five
years, we have concerns with the current balance of risk and reward being
offered. We await the outcome of the Williams review as it seeks to address
these and other industry issues. Any future commitments to UK rail will need
to have an appropriate balance of potential risks and rewards for our
shareholders.
“Since becoming Chief Executive in November 2018, I have been focused on
setting the Group on a clear path to enhance value. By executing the portfolio
rationalisation plans we have detailed in a separate announcement today, our
future emphasis will be on First Student and First Transit, our core
contracting businesses in North America. We see significant potential to
generate long term sustainable value and growth from the solid platform these
businesses provide in the North American mobility services sector. We are
intent on executing this strategy at pace, having full regard to the
regulatory and stakeholder procedures and approvals that will be required.
“In parallel with our portfolio rationalisation plans we will continue to
drive forward the clear strategies now established in each of our divisions to
ensure they deliver further progress and growth in existing and adjacent
markets, underpinned by plans to enhance our cost base further.
“Our plans will create a more focused portfolio, with leading positions in
our core North American contracting markets, and is the most appropriate means
for us to deliver enhanced sustainable value for all our stakeholders.”
Mar 2019 Mar 2018 £m Change Change in constant currency (3) Underlying change (1)
£m
Revenue 7,126.9 6,398.4 +11.4% +11.0% +5.7%
Adjusted (2)operating profit 332.9 317.0 +5.0% +4.0% +10.5%
Adjusted (2)operating profit margin 4.7% 5.0% (30)bps (30)bps +20bps
Adjusted (2)profit before tax 226.3 197.0 +14.9% +13.1%
Adjusted (2)EPS 14.4p 12.3p +17.1% +15.2%
Net debt (6) 903.4 1,070.3 (15.6)% (17.2)%
Statutory Mar 2019 Mar 2018 £m Change
£m
Operating profit/(loss) 9.8 (196.2) n/m (7)
Operating profit/(loss) margin 0.1% (3.1)% n/m (7)
Loss before tax (97.9) (326.9) n/m (7)
EPS (5.5)p (24.6)p n/m (7)
Financial summary (percentage changes in constant currency unless otherwise
stated)
* Underlying(1) Group revenue +5.7%; including the South Western Railway (SWR)
franchise that started in August 2017 and the 53(rd) week in the prior year,
reported Group revenue growth was +11.0%
* Underlying(1) adjusted(2) operating profit growth +10.5%, reflecting growth
and adjusted(2) margin improvement in First Student and First Bus, and a
higher First Rail contribution, partially offset by lower Greyhound and First
Transit performances
* Road divisions’ growth excluding 53(rd) week +2.0% in revenue and +3.6% in
adjusted(2) operating profit
* Adjusted(2) profit before tax +13.1% and adjusted(2) EPS +15.2%, reflecting
refinancing and minority interests
* Increased net cash inflow of £197.3m (2018: £110.5m before SWR First Rail
start of franchise cash flows); overperformance reflects approximately £90m
of First Rail working capital inflows, and capital grant and external funding
receipts which will unwind as the related capital projects are undertaken
* Reported net debt: EBITDA reduced to 1.3 times (2018: 1.5 times); Rail
ring-fenced cash adjusted net debt: EBITDA 2.1 times (2018: 2.1 times)
* Charge of £94.8m recognised in the year to increase the level of North
American self-insurance reserves, following a number of adverse judgments and
deterioration in the claims environment and subsequent impact on actuarial
risk calculations. An external review of the claims portfolio has been carried
out as well as an additional independent actuarial review, resulting in a
decision to increase the estimated value of the provision. The majority of
these claims are expected to be settled over the next five years
* Statutory loss before tax of £(97.9)m (2018: loss before tax of
£(326.9)m), reflects the self-insurance reserve charge noted above, the SWR
onerous contract provision of £145.9m in total of which FirstGroup’s 70%
share is therefore £102.1m, £21.5m in respect of equalisation of guaranteed
minimum pensions in the UK defined benefit schemes, £24.1m for restructuring
and reorganisation costs principally from withdrawal of Greyhound services in
Western Canada and £16.2m for loss on disposal and asset impairments of First
Bus assets in Manchester, partially offset by a £9.3m gain on disposal of a
major Greyhound depot
* Statutory EPS was (5.5)p (2018: (24.6)p)
Divisional performance
* First Student delivered revenue and fleet growth from strong contract
retention and new business; ongoing pricing discipline and cost efficiencies
outweighed driver inflation with adjusted(1) margin expanding 50bps to 9.5%
* First Transit delivered increased contract retention and won new business in
both core and adjacent areas; adjusted(1) margin reduced by 70bps reflecting
higher costs in the year partially offset by efficiencies
* Greyhound contribution lower year-on-year, with like-for-like(8) revenue
+0.2%; action plan and withdrawal from Western Canada beginning to drive some
progress during the second half
* First Bus delivered +1.6% like-for-like(8) passenger revenue and 180bps of
adjusted(1) margin expansion to 7.5%, maintaining focus on making journeys
simpler for customers and investing in our key markets
* First Rail like-for-like(8) passenger revenue +5.8%, with increased
financial contribution driven mainly by GWR. Operational performance issues in
the first half began to improve in the second
Group outlook
* In 2019/20, we expect to deliver revenue growth and financial progress in
the Road divisions, offset by Rail’s particularly strong adjusted profit
contribution in 2018/19 moderating to more normal levels in the year ahead.
Overall, we expect adjusted earnings to be broadly in line with our
expectations
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:
Andrew Porter / Alison Lea, 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) Growth excluding SWR franchise (which became part of First Rail in
August 2017) and the 53(rd) week in the Road divisions in constant currency,
as set out in note 4 to the financial statements.
(2) ‘Adjusted’ figures throughout this document are before
self-insurance reserve charge, the SWR onerous contract provision,
restructuring and reorganisation costs, other intangible asset amortisation
charges and certain other items as set out in note 4 to the financial
statements.
(3) Changes 'in constant currency' throughout this document are based
on retranslating 2018 foreign currency amounts at 2019 rates.
(4 ) ‘Net cash inflow’ is described in the table shown on
page 17.
(5) Before onerous contract provisions recorded on SWR of £145.9m in
total of which FirstGroup’s 70% share is therefore £102.1m and on TPE of
£106.9m.
(6 ) Net debt is stated excluding accrued bond interest, as
explained on page 18.
(7) Not meaningful.
(8) 'Like-for-like' revenue adjust for certain factors which distort
the period-on-period trends in our passenger revenue businesses, described on
page 20.
Legal Entity Identifier (LEI): 549300DEJZCPWA4HKM93. Classification as per
DTR 6 Annex 1R: 1.1, 2.2. This announcement contains inside information. 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 provider of transport services in the
UK and North America. With £7.1 billion in revenue and around 100,000
employees, we transported 2.2 billion passengers last year. Whether for
business, education, health, social or recreation – we get our customers
where they want to be, when they want to be there. We create solutions that
reduce complexity, making travel smoother and life easier.
We provide easy and convenient mobility, improving quality of life by
connecting people and communities.
Each of our five divisions is a leader in its field: In North America, First
Student is the largest provider of home-to-school student transportation with
a fleet of 42,500 yellow school buses, First Transit is one of the largest
providers of outsourced transit management and contracting services, while
Greyhound is the only nationwide operator of scheduled intercity coaches. In
the UK, First Bus is one of Britain's largest bus companies with 1.6 million
passengers a day, and First Rail is one of the country's largest and most
experienced rail operators, carrying 345 million passengers last year.
Visit our website at www.firstgroupplc.com and follow us @firstgroupplc on
Twitter.
Chief Executive’s review
Introduction
I am pleased to report that the Group has taken action to move forward this
year in several areas. Our Road divisions have made progress, principally
reflecting the growth and adjusted margin expansion in First Student and First
Bus we have delivered over recent years. While Greyhound’s overall
performance this year was disappointing, the plan we put in place last autumn
is beginning to have a positive impact. The landscape of UK rail is
challenging, and we have concerns with the current balance of risk and reward
being offered. We await the outcome of the Williams review as it seeks to
address these and other industry issues.
As I reflect on the seven months since being appointed Chief Executive, I am
confident that each of our five businesses has a clear strategy in place, and
is working hard to deliver it. Overall the Group is making progress, but what
is equally clear is that different parts of our portfolio face increasingly
divergent opportunities and challenges as they work to deliver for our
customers – each requires an increasingly tailored approach and focus to
move forward and innovate to generate value for both customers and
shareholders alike.
Accordingly, we have separately announced today our plans to rationalise our
portfolio with the Group’s future emphasis on First Student and First
Transit, our market leading contract-based businesses, which share
increasingly similar attributes and opportunities to generate sustainable
value and growth from the strong platforms they provide in the North American
mobility services market.
Trading performance in the year
Our largest business First Student delivered a strong bid season last summer
with excellent retention rates and significant new business wins, resulting in
growth in revenue, bus count and market share for the first time in several
years. We were also pleased to maintain our high customer satisfaction scores
of 8.75 out of ten, reflecting our continued emphasis on serving our
customers. With a solid school start-up, continued focus on managing our
driver shortage challenges and more typical winter weather patterns, First
Student was able to expand margins by 50bps to 9.5%. With continued bidding
discipline, further operational, safety and efficiency improvement actions
underway, a growing focus on selective acquisitions in the fragmented
home-to-school market and opportunities to enter adjacent markets and develop
complementary mobility and transportation services, First Student is
increasingly well placed to build on its market leadership position in the
years ahead.
First Transit also delivered a good contract retention performance, and
together with the roster of new business wins we were able to offset the
completion of certain high margin contracts in the Canadian oil sands region
at the end of the prior year. The result was First Transit’s revenue was
essentially flat year-on-year, and the current inflationary cost environment
reduced margins. However, First Transit is at the front end of the Group in
capturing opportunities in Mobility as a Service (MaaS) and Shared Autonomous
Vehicles (SAV), and we are confident this puts our First Transit business in a
strong position to generate value in North American mobility services in
future.
Greyhound has faced a particularly challenging market environment, but we have
taken decisive action to chart a course to improved profitability with the
withdrawal from Western Canada in October, and the changes we made to our
pricing and yield strategies, commercial team, and the broader cost base
following the business review we conducted last summer. We are pleased with
the incremental signs of progress in yields since our plans were implemented.
Conditions in each of our local markets across the UK remain variable for
First Bus, but we are encouraged that the division as a whole continues to
achieve like-for-like growth and delivered 180bps of adjusted margin
improvement, responding to the investments in customer convenience and the
structural changes we have implemented in recent years.
The environment for our First Rail operations remains difficult, with
timetabling, infrastructure issues and strike action all having an effect on
our services for passengers. Since January our operational delivery for
passengers has begun to improve. With regard to SWR, we have prepared updated
financial forecasts until the initial franchise end date of 17 August 2024,
which are based on a number of assumptions, most significantly passenger
revenue growth and the impact of the Central London Employment and Gross
Domestic Product revenue protection mechanisms, as well as the impact of
changes in timetables, capacity, aging infrastructure and rolling stock. There
is considerable uncertainty about the level of passenger revenue growth and
future impact of the industrial action in addition to uncertainty as to the
level of strike amelioration recoverable from the DfT, and we remain in
negotiations with them. Progress has been made and we continue to be engaged
in discussions with the DfT to agree potential commercial and contractual
remedies but, at the current time, there is a range of potential outcomes.
Based on these forecasts the Group has concluded that it has an onerous
contract, the value of which is estimated to be £145.9m in total, which is
the maximum unavoidable loss under the Franchise Agreement. Accordingly, this
amount has been charged to the income statement. FirstGroup’s 70% share is
therefore £102.1m.
Overall, the Group delivered revenue growth of 5.7% and an increase in
adjusted operating profit of 10.5% in constant currency (adjusting for the
impact of a part-year of SWR and the 53(rd) week in the prior year), with
lower finance and tax charges resulting in an increase in adjusted EPS of
15.2% in constant currency, to 14.4p (2018: 12.3p). However the Group’s
statutory results were adversely impacted by a number of events, recorded as
adjusting items in the accounts. These arose principally as a result of the
SWR onerous contract provision noted above, the charge required to enlarge the
Group self-insurance reserve, costs associated with Greyhound’s withdrawal
from Western Canada, and the past service charge for the guaranteed minimum
pensions. As a result, the Group reported a statutory operating profit of
£9.8m in the year (2018: loss of £196.2m) and statutory EPS of (5.5)p (2018:
(24.6)p).
Investing in easy and convenient mobility
During the year we have aligned our commercial plans and investments to the
areas where they will make the most difference for our customers. For example,
our delivery of contactless ticketing machines across all of our First Bus
operations is offering our passengers an easy and convenient method of
payment. Greyhound have further enhanced their website and customer service
offering with strong take-up of online e-tickets which drivers can scan in a
fast, seamless and simple boarding process. First Student and First Transit
continue to roll out maintenance management and GPS-based driver systems to
enhance efficiency and service for our clients. Each of our First Rail train
operating companies is introducing new trains and refurbishing existing
rolling stock, the designs of all of which have been developed through
extensive consultation with passengers and other regional and national
stakeholders. While we focus on putting our customers first when we develop
these plans, we also aim to balance the needs of other stakeholders including
our people, local communities, and environmental groups.
Unlocking value in the year
In addition to our commercial and investment activities, we have taken other
significant actions to unlock value in the year. As well as the changes we
have made to Greyhound’s operational footprint in Canada, we have continued
to optimise its property portfolio. Amongst other changes, we sold a large
maintenance facility in Chicago in January. In First Bus we reviewed our
Manchester operations, and announced the sale of Queens Road depot during the
year.
Liability management
We continue to look for opportunities to optimise our funding costs. In the
year we amended and extended our core £800m revolving bank facility to
November 2023 and refinanced a £250m 6.125% coupon bond from cash on hand and
revolving bank facilities as planned. The Group’s next major refinancing is
a £350m 8.75% bond due April 2021. At the start of the year the Group and Bus
defined benefit schemes in the UK were closed to future accrual. In the year,
we continue to work with trustees to facilitate members’ engagement with and
utilisation of their pensions freedoms, which assists in improving funding
levels, and we are working with the various UK schemes to progressively derisk
their investment strategies. Engagement with the UK Bus trustees on funding
objectives was already well underway in advance of the 5 April 2019 triennial
valuation date.
The Group has recognised a charge of £94.8m in the year to increase the level
of the North American self-insurance reserves, following a deterioration in
the claims environment and therefore an increase in the estimated level of
settlements. A review of the claims portfolio has been carried out as well as
an additional independent actuarial review, resulting in a decision to
increase the estimated value of the provision. The majority of these claims
are expected to be settled over the next five years. The Group has a very
strong focus on safety and it is one of our five values. During the year the
Group’s continuous focus on behavioural change, safety assurance and
technology implementation has resulted in a reduction in the number of
injuries to passengers, employees and third parties, as well as vehicle
collisions – though we view every such incident as one too many, and it
strengthens our resolve to achieve zero harm.
Group trading outlook for the year ahead
In 2019/20, we expect to deliver revenue growth and financial progress in the
Road divisions, offset by Rail’s particularly strong adjusted profit
contribution in 2018/19 moderating to more normal levels in the year ahead.
Overall, we expect adjusted earnings to be broadly in line with our
expectations. Our margin expectations are underpinned by structural change and
efficiency programmes launched this year.
Matthew Gregory
Chief Executive
30 May 2019
Operating and financial review
Reported Group revenue in the year increased by 11.4% including a full year of
the SWR franchise and the translation of our US Dollar-based businesses into
pounds Sterling at stronger rates than the prior year, partly offset by the
53(rd) week in the Road divisions last year. Adjusting for these factors,
Group revenue increased by 5.7% with growth in all our divisions apart from
Greyhound, where revenues reflected the ongoing challenges in its long haul
markets and withdrawal of services in Western Canada.
Group adjusted operating profit in constant currency increased by 4.0% or by
10.5% adjusting for SWR and the 53(rd) week in the Road divisions last year,
reflecting progress in First Rail, First Bus and First Student partly offset
by Greyhound and First Transit. Group adjusted operating profit margin in
constant currency decreased by 30bps to 4.7%, with the Road divisions reduced
by 10bps and the expected rebasing of the Rail margin. In reported currency,
adjusted operating profit increased by 5.0% to £332.9m (2018: £317.0m).
Year to 31 March 2019 Year to 31 March 2018
Revenue Operating Operating margin (1) Revenue £m Operating profit (1) £m Operating margin (1) %
£m profit (1) %
£m
First Student 1,845.9 173.5 9.4 1,771.1 156.5 8.8
First Transit 1,075.8 51.5 4.8 1,072.7 58.2 5.4
Greyhound 645.1 11.4 1.8 690.2 25.5 3.7
First Bus 876.1 65.8 7.5 879.4 50.2 5.7
Group items (2) 17.3 (41.6) 16.2 (31.2)
Road divisions 4,460.2 260.6 5.8 4,429.6 259.2 5.9
First Rail 2,666.7 72.3 2.7 1,968.8 57.8 2.9
Total Group 7,126.9 332.9 4.7 6,398.4 317.0 5.0
North America in USD $m $m % $m $m %
First Student 2,424.9 230.0 9.5 2,350.6 210.4 9.0
First Transit 1,411.4 67.7 4.8 1,420.4 77.8 5.5
Greyhound 846.7 14.2 1.7 912.7 32.8 3.6
Total North America 4,683.0 311.9 6.7 4,683.7 321.0 6.9
(1 ) Adjusted. The statutory operating profit for the year was
£9.8m (2018: loss of £196.2m) as set out in note 4 to the accounts.
(2 ) Tramlink operations, central management and other items.
Net finance costs decreased to £106.6m (2018: £120.0m before bond ‘make
whole’ costs), resulting in adjusted profit before tax of £226.3m (2018:
£197.0m), an increase of 14.9%. Adjusted profit attributable to ordinary
shareholders was £173.6m (2018: £147.7m), reflecting the higher adjusted
profit and lower net finance costs. Adjusted EPS increased by 17.1% to 14.4p
(2018: 12.3p). In constant currency, adjusted EPS increased by 15.2%. EBITDA
decreased by 2.9% to £670.3m (2018: £690.6m).
Statutory operating profit of £9.8m (2018: loss of £196.2m) and statutory
loss before tax of £97.9m (2018: loss of £326.9m), principally reflected the
non-recurrence of Greyhound goodwill and other asset impairments, onerous
contract provision for the TPE rail franchise and the bond ‘make whole’
costs relating to redemption of the September 2018 bond from prior year,
together with the current year gain on disposal of a Greyhound facility and
lower intangible asset amortisation. These were partly offset by the North
America self-insurance reserve charge of £94.8m, the SWR onerous contract
provision of £145.9m in total of which FirstGroup’s 70% share is therefore
£102.1m, past service charge for the guaranteed minimum pensions and the loss
on disposal and impairments in First Bus. Statutory EPS was (5.5)p (2018:
(24.6)p) in the year.
The net cash inflow for the year was £197.3m (2018: £199.0m including
£88.5m in First Rail start of franchise cash flows), which combined with
movements in debt due to foreign exchange, resulted in a decrease in net debt
of £166.9m (2018: £219.6m). The cash inflow from First Rail was particularly
significant this year, though this reflects the phasing of approximately £90m
in working capital, grant and other funding inflows, which we expect to
reverse in the 2019/20 financial year. As at 31 March 2019, the net debt:
EBITDA ratio was 1.3 times (2018: 1.5 times). Adjusting for cash ring-fenced
in the First Rail division, net debt: EBITDA was 2.1 times (2018: 2.1 times).
Liquidity within the Group has remained strong; as at the year end there was
£520.6m (2018: £766.4m) of headroom on committed facilities and free cash,
being £353.3m (2018: £603.0m) of committed headroom and £167.3m (2018:
£163.4m) of free cash. Our average debt maturity increased to 4.3 years
(2018: 4.1 years), reflecting the Group’s agreement in November 2018 to
amend and extend our main revolving bank facilities to November 2023, and the
repayment of the £250m bond using free cash and drawings from our revolving
bank facilities in January 2019.
During the year, gross capital investment of £459.1m (2018: £309.9m) was
invested in our Road divisions, including operating leases with a capital
value of £127.1m (2018: £6.0m). The increase in the Road divisions' gross
capital expenditure was driven principally by the higher retention rates and
new business wins achieved in First Student's summer 2018 bid season.
ROCE increased to 10.5% (2018: 8.9% at constant exchange rates and 9.5% as
reported).
First Student
Year to 31 March $m £m Change in
constant currency (1)
2019 2018 2019 2018
Revenue 2,424.9 2,350.6 1,845.9 1,771.1 +3.4%
Adjusted operating profit 230.0 210.4 173.5 156.5 +9.1%
Adjusted operating margin 9.5% 9.0% 9.4% 8.8% +50bps
(1 ) Based on retranslating 2018 foreign currency amounts at 2019
rates.
First Student’s revenue increased to $2,424.9m (2018: $2,350.6m),
representing growth in constant currency of 3.4%. Following a number of years
when our ‘up or out’ returns-based bidding strategy resulted in net
business losses, this is the first year in more than a decade that First
Student has grown each of revenue, bus fleet, and market share. Growth was
driven by strong retention, net new business, pricing in excess of driver wage
cost inflation and a net positive weather effect, partially offset by fewer
operating days compared with the prior year due to the previous year’s
53(rd) week and the overlay of the academic calendar with our financial year.
Reported revenue was £1,845.9m (2018: £1,771.1m).
Adjusted operating pro?t increased faster than revenue to $230.0m (2018:
$210.4m), resulting in an adjusted operating margin of 9.5% (2018: 9.0%), with
contract portfolio pricing improvements, cost ef?ciency savings and new
business wins exceeding the costs of driver shortages that persist as a result
of the strong US employment market. The net weather impact was positive in the
year, with both higher weather make up days (reflecting the severity of the
winter in 2018) and a less severe 2019 winter. In reported currency, adjusted
operating pro?t increased 10.9% to £173.5m (2018: £156.5m) and the division
reported a statutory profit of £115.3m (2018: £88.4m), principally adjusting
for amortisation of intangibles and First Student’s portion of the North
American self-insurance charge.
Focused and disciplined bidding
As previously noted, First Student had a strong summer 2018 bid season
resulting in growth in bus fleet count for the first time in a number of
years. 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. We secured average price increases in excess of the employee cost
inflation we face from the strong employment market in parts of the US, while
achieving a retention rate on ‘at risk’ business of 92%, the highest level
for more than five years. Across the entire portfolio of multi-year contracts,
retention was 97%. This strong performance on existing business was
supplemented by new business won mainly from competitors and conversions from
in-house to private provision representing approximately 1,580 additional
buses, which was also ahead of our budget. Combined with a modest level of
organic growth, we will be operating a bus fleet of approximately 42,500
vehicles for the balance of this school year.
Continuous improvement in operating and financial performance
First Student delivered further cost ef?ciencies, mainly from improvements to
our engineering and maintenance practices and additional shop management
strategies, in part using the expertise and technology solutions of First
Transit’s vehicle maintenance services segment. These and other management
actions have delivered recurring cost savings of approximately $17m in the
year.
We continue to invest in our driver recruitment, onboarding and retention
programmes in response to the driver shortage pressures the industry faces,
and this year have launched a driver app to help connect and engage with our
geographically diverse workforce. We are also piloting additional driver
connectivity systems which will further improve the driver experience while
allowing us to manage and respond to route and other changes in real time. We
were very encouraged to see a significant improvement in employee satisfaction
scores in this year’s survey, given the importance of driver commitment to
the service we deliver for our customers.
We aim to grow our services to markets adjacent to the traditional
home-to-school market. This includes our charter business (now 9% of
divisional revenues) which benefits our asset utilisation rates, though growth
has been held back by the driver shortages experienced in our home-to-school
business. In the year we began to market First Transportation Services to
school boards who currently manage home-to-school bus services in-house, which
will grow to encompass a suite of managed technologies and mobility services
previously only available to our outsourcing customers.
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, is now available in 203 school districts
covering 350,000 students with 50,000 registered users to date. With the
increase in retention rates and new business wins our investment in our fleet
has increased and we continue to improve our approach to cascading buses
around our operations, a signi?cant competitive advantage of scale in the
industry. Our average ?eet age reduced to 6.9 years (2018: 7.1 years). In
August 2018 we acquired a 70 bus business in Ontario which is performing in
line with our plans. During the year we continued to build our pipeline of
other potential acquisition opportunities as we look to benefit from the
returns available from local consolidation in the highly fragmented
home-to-school market.
Responsible partnerships with our customers and communities
We are entrusted with the safety and security of millions of children every
day, and the seriousness of that responsibility is central to our culture as
an organisation. We maintained our firm commitment to safety during the year
and continue to focus on improving our performance further.
We were very pleased to maintain our high customer satisfaction score of 8.75
out of ten and our likelihood to recommend scores in the year, reflecting our
continued emphasis on serving our customers through deep relationships at a
local level and not just meeting our contractual obligations. We believe this
approach differentiates us from the competition, and is reflected in the award
of some contracts in the year where we were not the lowest priced bid, or
where we were able to deliver a flawless start-up for 6,000 students on six
weeks’ notice when a competitor was unable to proceed.
Our services also support our customers and communities in other ways. The
American School Bus Council estimates that each school bus takes 36 cars off
the road during the morning and evening peaks, reducing congestion and fossil
fuel use. Without school buses more than 17m more cars could be transporting
students to school each day in the US. First Student’s own emissions of
particulates and nitrogen oxides (NOx) have fallen by 29%, and 15%
respectively year-on-year, largely from our replacement of older fleet with
lower-emission alternatives. We also continue to add to our alternative fuel
fleet which now numbers more than 2,100 vehicles; principally Compressed
Natural Gas (CNG) buses. First Student’s carbon emissions have remained
largely unchanged at 741,854 tonnes CO(2)(e), comprising 28% of the entire
Group footprint.
First Student priorities and outlook
We are pleased with First Student’s improved performance in the year, and
confident that as the largest business in the home-to-school market, it is now
restored to a position of generating sustainable growth, cash and returns from
its multi-year contract portfolio. We are focused on delivering further
profitable growth through a combination of continued disciplined bidding, new
business wins based on our market leading credentials in safety and customer
service, some organic growth, development of complementary mobility services
and M&A. In the 2019 bid season we will be striving to repeat the extremely
strong retention and growth performance of last summer. We are also targeting
further incremental margin improvements underpinned by our pricing strategy
and efficiencies including several procurement, maintenance and driver labour
initiatives.
First Transit
Year to 31 March $m £m Change in constant currency (1)
2019 2018 2019 2018
Revenue 1,411.4 1,420.4 1,075.8 1,072.7 (0.4)%
Adjusted operating profit 67.7 77.8 51.5 58.2 (12.7)%
Adjusted operating margin 4.8% 5.5% 4.8% 5.4% (70)bps
(1 ) Based on retranslating 2018 foreign currency amounts at 2019
rates.
First Transit’s revenue was $1,411.4m (2018: $1,420.4m), a reduction of 0.4%
in constant currency (and increased by 1.4% adjusting for the 53(rd) week in
the prior year). As expected, contract awards and organic growth in the rest
of the division were sufficient to offset the loss of revenue from a number of
contracts in the Canadian oil sands region and elsewhere which completed at
the end of the prior year. Reported revenue increased modestly to £1,075.8m
(2018: £1,072.7m).
Adjusted operating pro?t was $67.7m (2018: $77.8m), representing an adjusted
operating margin of 4.8% (2018: 5.5%). New business wins and non-recurrence of
prior year effects such as the Puerto Rico hurricane did not fully offset the
impact of the completion of the high margin contracts in the Canadian oil
sands region noted above, and above-inflation cost increases reflecting
increased self-insurance costs and the acute driver shortages in certain
areas. In reported currency, adjusted operating pro?t decreased to £51.5m
(2018: £58.2m) and the division reported a statutory profit of £23.1m (2018:
£34.3m), principally adjusting for amortisation of intangibles and First
Transit’s portion of the North American self-insurance charge.
Focused and disciplined bidding
We were pleased that we significantly increased our retention of ‘at risk’
contracts to 89% (2018: 82%) in the year, though we converted fewer new
business opportunities this year compared with last. Notable renewals included
a major fixed route contract for the Denver Regional Transportation District,
a paratransit contract in Washington DC and one in Maryland that also included
a major extension. We also renewed shuttle contracts with United Airlines in
Houston, Texas and Georgia Southern University, Georgia, as well as a large
maintenance contract with New York City Parks and Recreation, New York. New
business wins included shuttle contracts for Stanford University, California,
the City of Lawrence/University of Kansas and an energy sector customer in
Western Canada, integrated fixed route and paratransit services for the city
of Visalia, California, Tulsa, Oklahoma, and Sussex County, Delaware, and a
fleet maintenance contract for the City of Roswell, New Mexico.
Continuous improvement in operating and financial performance
We continue to adapt and develop our technology infrastructure, management
expertise and national service platform to underpin First Transit’s
performance in highly competitive markets. We are focused on further
improvements to our recruitment, retention and training processes to offset
the challenges of the tight US employment market. We continue to invest in
systems to optimise our procurement, driver operations and maintenance
functions in order to remain competitive in a dynamic market place where
labour cost inflation remains a focus.
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 continue to invest in driver
management, predictive analytics and routing technology. First Transit has
more than 70 ASE Blue Seal-certified maintenance shops in North America, more
than all of our competitors combined, which demonstrates our commitment to
stewardship of our customers’ assets. We continue to take a disciplined
approach to applying our expertise to new services and geographies to secure
additional sources of growth. We are actively developing our expertise in
Mobility as a Service (MaaS) systems, and we were recently selected as a MaaS
preferred partner by Denton County Transportation Authority. We are actively
participating in several SAV pilot programmes, and secured four new operations
in Texas, California and Florida in the year. We continue to examine
opportunities to extend our presence in adjacent markets where we believe we
have a competitive advantage.
Responsible partnerships with our customers and communities
Our focus is on offering the best value package to our customers and the
communities we serve, which means our service standards, expertise and safety
credentials are as important as our cost efficiency in winning or retaining
business. We continue to develop our safety behavioural change programme,
focusing on our key risks, and we were pleased to have maintained our strong
customer satisfaction scores during the year. First Transit is also a leader
in operating mass transit technologies with low or no tailpipe emissions, such
as the electric vehicles we operate in Minnesota as well as for our various
SAV projects. We recently also added more than 40 electric vehicles to our
shuttle fleet for one of our university campus clients, with further vehicles
being added to the fleet in the year ahead.
First Transit priorities and outlook
Although revenue growth in any one year will as ever depend on the mix of
contract wins and losses, we have significant sector expertise and exceptional
management strength in North American transportation markets, where
outsourcing trends continue to produce opportunities to achieve attractive
returns and cash generation with relatively modest capital requirements. In
the near term we expect our margins to be flat, reflecting the current cost
inflationary environment in certain areas. We are confident in the long term
prospects for further growth in our core markets, particularly in shuttle and
in vehicle services, and we continue to pursue opportunities in certain
adjacent markets where we have now established our credentials – such as
commuter rail, bus rapid transit (BRT), and autonomous vehicle management. As
our markets continue to evolve, we will look to enhance existing and new
partnerships with ridesharing and other Transportation Network Companies
(TNCs).
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 where we can provide good value to
clients while achieving appropriate margins with modest capital investment, as
we continue to build our platform in mobility services.
Greyhound
Year to 31 March $m £m Change in
constant currency (1)
2019 2018 2019 2018
Revenue 846.7 912.7 645.1 690.2 (7.0)%
Adjusted operating profit 14.2 32.8 11.4 25.5 (54.8)%
Adjusted operating margin 1.7% 3.6% 1.8% 3.7% (180)bps
(1 ) Based on retranslating 2018 foreign currency amounts at 2019
rates.
In the year, Greyhound's revenue was $846.7m (2018: $912.7m), a reduction of
(7.0)% in constant currency, driven by the withdrawal from Western Canada in
October 2018, and the 53(rd) week in the prior year. Like-for-like revenue was
+0.2%. In the year short haul growth including like-for-like growth of 0.2% by
Greyhound Express was exceeded by growth in the 1,000+ mile long haul segment.
Mid-range trips were slightly down year-on-year, experiencing competition from
airline capacity increases in certain markets. Reported revenue reduced by
£45.1m to £645.1m (2018: £690.2m).
Adjusted operating pro?t was $14.2m (2018: $32.8m), representing an adjusted
operating margin of 1.7% (2018: 3.6%). The margin was heavily affected by
higher maintenance, driver training and fleet costs, partially offset by
management actions and gains on sales of property of $10.8m or £8.4m.
Adjusted operating pro?t in reported currency decreased by 55.3% to £11.4m
(2018: £25.5m) and the division reported a statutory loss of £33.8m (2018:
loss of £266.3m) reflecting restructuring and reorganisation costs associated
with the withdrawal from Western Canada and Greyhound’s share of the North
America insurance charge, partially offset by property disposals. The Group
estimates that disposal proceeds from surplus properties in Western Canada
will largely offset the cash costs of restructuring and reorganisation, over
time.
Greyhound’s performance has been disappointing, but it has begun to benefit
from the changes we made following a review of its business and prospects
during the first half of the financial year. We have brought new capabilities
into the commercial team including the appointment of a new commercial
director with a background at a leading US airline, delivered overhead
reductions, and implemented a series of revenue improvement, cost reduction
and investment initiatives in the middle of the year to turn around
Greyhound’s financial performance and enhance our services for customers. In
the year we also completed the withdrawal of service in Western Canada from
October, following the earlier closures of routes in British Columbia. In the
second half revenue per mile and yield trends were stronger than the first
half, benefitting from the pricing and other actions we have taken together
with an increase in demand in the US south west.
Driving growth through attractive commercial propositions
Greyhound is a unique business with an iconic brand and, by linking large
‘point-to-point’ short-haul markets together to serve more than 245,000
smaller ‘network’ markets, we have the only true intercity coach network
in North America. The business has taken several steps to transform all areas
of the customer experience over recent years through investment in technology.
During the current year the business has delivered further enhancements to its
website, mobile app, customer call handling, onboard infotainment systems, as
well as bus-side ticket scanning, which streamlines boarding times. Greyhound
also continues to refine and enhance our pricing and yield management system
by implementing forecasting and network optimisation functionality to leverage
our network, similar to large airlines. Strategic marketing expenditure,
highly targeted on our core customer demographic, is increasingly integrated
with the commercial team’s tactics across all market types.
Continuous improvement in operating and financial performance
We continue to strengthen our processes and maintenance systems to improve
reliability, and this, assisted by our fleet renewal programme, resulted in an
improvement in punctuality statistics from the middle of the year. In addition
to the changes made to the Canadian network footprint, we continue to optimise
overhead, procurement, driver training and other expenditures to improve
efficiency and reduce cost. In the year we have also largely completed the
integration of our Bolt point-to-point operations back into Greyhound.
Prudent investment in our key assets
Our maintenance and fleet availability performance is also beginning to
improve with the investments we are making in fleet renewal and refurbishment.
As noted elsewhere, following a number of years where the business required
few additional vehicles, we have stepped up our fleet renewal plan, resulting
in the addition of 108 new vehicles to the fleet this year. All have
high-quality amenities as standard, including free onboard entertainment,
Wi-Fi, leather seats and generous legroom. We continue to review our terminal
footprint, looking for opportunities to move to intermodal transport hubs or
new facilities better tailored to our needs. In addition to a number of
smaller terminal changes, this year we completed the sale of a major Greyhound
maintenance facility in Chicago. The resulting gain on sale of £9.3m was
treated as an adjusting item.
We were the first international operator to provide both international links
and domestic operations in Mexico, and in the year we launched a major new
route in this market.
Responsible partnerships with our customers and communities
We continue to invest in customer service training and apprenticeships to
improve our customer relationships further at the front line. We also continue
to work to improve our environmental impact, principally through our
investments in more efficient and aerodynamic buses. At 32.5g per passenger
km, intercity travel by Greyhound already offers the lowest per-passenger
carbon emissions of any modal alternative – around 89% lower emissions than
an equivalent domestic passenger plane journey and 85% lower than the average
US passenger car, largely unchanged from last year. Our 2018/19 investments in
new, lower emission vehicles helped us drive down emissions, energy use and
improve local air quality, reducing our emissions of particulates by 16%, and
we expect to make further progress as our fleet modernisation programme
continues.
Greyhound priorities and outlook
Since the changes we made following our review took effect during the year, we
have begun seeing an encouraging improvement in key indicators such as revenue
and yield per mile, which underpin our confidence that the mid-single digit
margin target will be achieved in the medium term. We believe that at this
stage in Greyhound’s development, value for shareholders can best be
delivered by seeking new owners for the business that will further support the
delivery of the improved performance potential. As such a formal sale process
for Greyhound is underway. During this time we will continue to execute our
plans to enhance Greyhound’s performance and our services for our customers
with pace and commitment.
First Bus
Year to 31 March £m Change in
constant currency (1)
2019 2018
Revenue 876.1 879.4 (0.4)%
Adjusted operating profit 65.8 50.2 +31.1%
Adjusted operating margin 7.5% 5.7% +180bps
(1 ) Based on retranslating 2018 foreign currency amounts at 2019
rates.
First Bus like-for-like passenger revenue growth was 1.6%, though reported
revenue of £876.1m (2018: £879.4m) was (0.4)% lower in constant currency
terms, largely reflecting the 53(rd) week in the prior year. Like-for-like
commercial passenger revenue increased by 2.0% and revenue per mile by 4.0%,
although conditions for the industry remain uncertain and demand patterns
continue to vary significantly amongst our local markets. As previously
reported, retail footfall trends continue to affect demand in many markets,
particularly in the North and Scotland, whilst traffic congestion in a number
of cities magnifies these challenges. The overall like-for-like passenger
volume decline of (0.7)% mainly reflected further reductions in concessionary
passengers due to changes in bus pass entitlement and funding in the year. Our
contract and tendered revenue decreased slightly in the year, primarily
reflecting reduced funding from local authorities.
Adjusted operating profit was £65.8m (2018: £50.2m), or an adjusted margin
of 7.5% (2018: 5.7%). Adjusted margin increased by 180bps, reflecting
stabilised passenger volumes, the cumulative effect of our past and present
cost efficiency and network actions and a fuel tailwind. Principally
reflecting restructuring and reorganisation costs and the loss on disposal and
impairments in Manchester, the division reported a statutory profit of £27.4m
(2018: £29.3m).
Driving growth through attractive commercial propositions
Our customer offering continues to develop with a particular focus on easy and
convenient ticketing. In September we became the first major UK bus operator
to offer contactless payment on all our buses. Combined with increased mobile
ticketing uptake we met our goal to reduce cash transactions to less than 45%
of on-bus revenue by year end. Digital and other non-cash payments will
accelerate boarding times while reducing our back office costs. We upgraded
our passenger app to incorporate both multi-modal journey planning and mobile
ticketing, and also introduced a customer feedback tool to the app in the
year.
Drawing on our extensive Park & Ride experience, in the year we have
rationalised and relaunched the Taunton, Somerset operations having taken
commercial responsibility for routes that would otherwise have been withdrawn
following reductions in local authority funding. We delivered contracted
services for events such as the European Championships in Glasgow in August
and numerous rail replacement services.
Continuous improvement in operating and financial performance
We continued to take action during the year to improve our cost efficiency,
including through consolidation of our depot footprint. We closed our Clacton,
Essex depot in July, and in Manchester we have made a number of changes,
including announcing in February the sale of the Queens Road depot and
operations to the Go-Ahead Group which will complete after year end. We
continuously review networks to ensure we maximise demand for our services and
enhance route performance for passengers using travel pattern data we are able
to track for the first time. With every bus now equipped with GPS systems we
can now optimise our routes in real time in response to traffic incidents.
During the year we have developed a shared service centre in Leeds which is
allowing us to centralise a variety of customer facing and back office
functions.
Prudent investment in our key assets
We remain focused on targeting our investment in areas where local authority
stakeholders recognise the importance of the bus sector’s role to meet air
quality targets, reduce congestion and strengthen local economies. As many of
our markets are introducing more stringent air quality plans, our investment
in low emission vehicles continues. We took delivery of 328 new EURO VI
emissions standard vehicles in the year, a more than twofold increase over the
prior year. We upgraded 215 vehicles to cleaner EURO VI standards in the year,
and anticipate retrofitting 1,200 more principally funded by grants, including
from the Government’s Clean Air Fund. At 84g of CO(2)(e) per passenger km
(2018: 81g), First Bus offers 26% lower per-passenger carbon emissions than
the average UK passenger car. Each of our double decker buses could take up to
68 cars off the road on average. We also continue to gain experience of
alternative fuel types such as hydrogen in Aberdeen and biogas in Bristol. In
York, First Bus will become one of the largest operators of electric buses
outside London with delivery of 21 double deck vehicles, partly funded by OLEV
grants, later this year for the Park & Ride network, joining the 12 single
deck electric buses which have been operating since 2014. We continue to work
with our partners toward the introduction in 2020 of autonomous vehicles at
the Milton Park Business Science Hub, providing services both on site and to
connect to nearby Didcot Parkway Station.
Responsible partnerships with our customers and communities
Buses have a huge role to play in delivering the UK’s clean air ambitions,
but for them to maximise their potential and make a real impact on mitigating
the effects of congestion, it is essential that operators and local
authorities work together in partnership. We are proud of our track record in
doing so, working for example over many years with Bristol City Council and
the West of England Combined Authority to deliver a 42% increase in bus use
over the past five years, the best performance in the UK. In May 2018 we
started operating the new Metrobus route network in the area which is
underpinned by dedicated bus lanes, bus priority at junctions and EURO
VI-compliant diesel and compressed natural gas buses which are designed
specifically for quicker and fewer stops, meaning faster journeys.
We have entered into a four-year partnership with Leeds City Council and the
West Yorkshire Combined Authority with the shared objective of doubling
passenger numbers by 2030 and securing compliance with air quality limits. We
have committed to invest in 284 ultra-low emission buses while the local
authorities are investing £174m to deliver five bus corridors, city centre
improvements and four new or extended Park & Ride sites. Another 105 new
vehicles joined this fleet during the year.
In Glasgow, we are collaborating with the City Council and other local
partners to relaunch the bus partnership. We have invested in 150 new buses in
support of Glasgow’s new Low Emission Zone; the City Council is in turn
developing a programme of bus priority measures.
We also engage extensively with the Department for Transport and the Welsh and
Scottish devolved governments, seeking to ensure that buses deliver their full
potential.
First Bus priorities and outlook
Over the past two years, First Bus has improved its adjusted margin by more
than three percentage points while growing revenues despite a relatively
challenging market backdrop. We have reinvested in our fleet and our systems,
and are benefitting from the growing digitisation of our revenue collection,
commercial decision making, and operations and maintenance processes. First
Bus is now on a much stronger footing as a business, with margins on a path
towards the double digit levels enjoyed by peers. There are however limited
synergies between First Bus and our North American businesses, and we
therefore believe now is the right time to pursue structural alternatives to
deliver value to shareholders, while managing the longer term liabilities of
the division. While we do this, our focus will remain on improving our returns
by making journeys simpler for our customers, enhancing our efficiency and
optimising investment in our core markets.
First Rail
Year to 31 March £m Change
2019 2018
Revenue 2,666.7 1,968.8 +35.4%
Adjusted operating profit 72.3 57.8 +25.1%
Adjusted operating margin 2.7% 2.9% (20)bps
First Rail division revenue increased to £2,666.7m (2018: £1,968.8m),
principally reflecting the inclusion of the SWR franchise for the full
financial year (FirstGroup operated SWR for seven months of the prior
financial year) and the transition of GWR from premium to subsidy in the year
due to the cost of new rolling stock. Like-for-like passenger revenue growth
was 5.8% and passenger volume growth improved to 2.0%. Growth rates across the
industry continue to be affected by UK macroeconomic uncertainty, modal shift
due to lower fuel prices and changing working practices, while our networks
have experienced challenges from strike action in SWR’s case and the effect
of rail infrastructure upgrade works. The latter is particularly relevant to
GWR, although like-for-like passenger revenue growth of 5.1% 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). TPE delivered like-for-like passenger revenue growth of 8.0%, with
greater growth expected as we complete the introduction into service of new
fleets in the coming period. At 6.0%, SWR's like-for-like passenger revenue
growth and operational performance has been affected by a number of factors
including infrastructure disruption.
Adjusted operating profit of £72.3m (2018: £57.8m) represents a margin of
2.7% (2018: 2.9%), and in part reflects payments associated with network
unavailability due to delays on infrastructure improvements and repairs at
GWR, as well as the resolution of certain historic claims in relation to
Network Rail. All of our train operating companies were to some extent
affected by the national rail industry decision to defer the December 2018
timetable changes, a significant and unforeseen change in circumstances which
meant we could not deliver some additional services and other passenger
benefits as originally scheduled under the franchises. Certain commercial and
contractual changes have been discussed with DfT and recognised in part during
the period, but we remain engaged in discussions with the DfT in relation to
their effects over the longer term. TPE did not utilise the provision for
forecast losses during the year, though we continue to expect the provision to
be used in full over the franchise life, due to the reprofiling of the
timetable changes. As noted elsewhere, management have prepared updated
financial forecasts for the SWR franchise. Due to the range of uncertainties
facing the franchise, the Group has made provision for £145.9m in total,
which is the maximum unavoidable loss under the Franchise Agreement, and this
has been charged to the income statement. FirstGroup’s 70% share of the
losses is therefore £102.1m. The Rail division reported a statutory loss of
£77.1m (2018: loss of £50.6m) 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 to exercise an extension option.
Discussions are ongoing regarding the DfT’s stated intention to award a
subsequent short-term contract to at least 2022. We are a shortlisted bidder
for the upcoming West Coast Partnership franchise with Trenitalia. Away from
franchising, we continue to develop our plans for a new single-class open
access service between London, the North and Edinburgh from 2021 and in March
this year we finalised an order with Hitachi for new trains for this
operation.
Continuous improvement in operating and financial performance
We work closely with Network Rail, the DfT and all industry partners to
deliver infrastructure upgrade projects while minimising disruption for
passengers. Completion of these projects allows additional train capacity or
services to be introduced, generating patronage growth that in turn drives
franchise business plans and premia to the government. Each of our three
franchises are undergoing periods of significant change, which require careful
planning, management and negotiation with Network Rail and our other partners,
in particular where delays can affect the delivery of franchise assumptions.
Failure to manage these risks adequately could result in financial and
reputational impacts to the Group.
Network Rail's upgrade work on the Great Western mainline, including
electrification, continues albeit to a different timescale than originally
envisaged. GWR have worked closely with our industry partners to ensure our
franchise plans reflect the impact of this extended delivery time. Suburban
electrification has now been completed on GWR’s Newbury line, which allowed
for further new electric trains and a new timetable to be introduced in
January 2019. In turn, our transfer of suburban diesel trains to enhance
capacity in Bristol and the West Country is ongoing. We have now taken
delivery of 93 IETs from Hitachi, enabling a 40% increase in seat numbers on
long-distance services compared to 2015, with quicker journey times and more
frequent services.
SWR performance levels were challenging during the 2018 calendar year,
reflecting historic infrastructure issues dating from before we took over the
franchise in August 2017. We are working with Network Rail on plans to return
service to levels that our customers expect, as set out in the independent
review by Sir Michael Holden. The improvements made as part of these plans
have helped lead to more stable performance since January. Our SWR customers
have also faced considerable disruption to their journeys due to unnecessary
and as yet unresolved RMT industrial action. We have guaranteed that a guard
with safety critical competencies will be rostered on every train, no guards
will lose their job because of these changes, and reminded our stakeholders
that SWR will want more guards in future since our plans call for more
services to be introduced. SWR remains focused on delivering a resolution of
the industrial dispute in the interests of our passengers. Later this year SWR
will begin introducing a fleet of 90 suburban trains manufactured by
Bombardier, providing a 46% increase in peak capacity on London routes.
Existing fleets are being completely refitted and refreshed, and an additional
set of 18 fully refurbished trains will be re-introduced to the
London-Portsmouth route by the summer. The May 2019 timetable change resulted
in more than 300 additional train services a week for customers across the
network, many of which have been introduced following extensive consultations
and feedback sessions with local stakeholders and customers.
Our TPE franchise is being transformed into a true intercity network for the
North, with capacity due to be increased by more than 80%. We have begun
taking delivery of the first of 220 new carriages, comprising Hitachi IET-type
trains and a further intercity fleet from CAF. TPE and others in the region
were able to make changes in the December 2018 timetable which have helped to
stabilise the poor performance resulting from the timetable changes earlier in
the year.
Our open access operator Hull Trains continues to score well in the
independent National Rail Passenger Survey. The company saw some challenges
due to performance issues with the fleet during the year. New trains are due
to be brought into the fleet later in 2019, and in the meantime two former GWR
trains have been redeployed to give greater resilience to the service.
Management of rail franchise commitments
All our plans envisage new trains to be delivered for all of our rail
operations and by next year, 90% of our customers are due to 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. Several
other fleets are being completely refurbished to provide customers with
similar amenities. Our franchises have also introduced more convenient
ticketing options including smartcards, barcodes and auto-renewing season
tickets. Easier, more generous and more flexible delay compensation has also
been introduced to each franchise.
Responsible partnerships with our customers and communities
Customer and Communities Improvement Funds are in place at all three of our
franchises, which work with community organisations across the network to give
grants for projects. First Rail has an industry leading position in partnering
to reduce carbon emissions. This includes the introduction of bi-mode diesel
and overhead electric powered trains, enabling us to make use of
electrification when it is available, without compromising our ability to
continue servicing non-electrified parts of the network. Tri-mode trains,
which also draw power from a third rail, are also due to be introduced during
this year. Electrification of our routes has contributed to a 15% reduction in
greenhouse gas emissions per passenger km in the past three years. This
progress is likely to continue as the UK power grid further decarbonises and
our rail network is progressively electrified.
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 at all our train operating
companies, which will in turn drive patronage growth over time. Our rail
portfolio has continued to generate good returns overall, although, because of
ongoing industry conditions and the difficult operational environment our
portfolio is experiencing, we expect a smaller year-on-year adjusted operating
profit contribution from the rail division in 2019/20. The payments associated
with network unavailability due to infrastructure improvements and repairs
will continue to cause swings in period-to-period profits.
Looking ahead, we have a portfolio of separately managed rail franchise
businesses in the UK which we will operate in accordance with their
contractual terms. The UK government’s rail franchising system is the
subject of a major review of the most appropriate organisational and
commercial frameworks to deliver services in future, which is currently
ongoing. Any future commitments we make to UK rail will need to have an
appropriate balance of potential risks and rewards for our shareholders.
Finance costs and investment income
Net finance costs before adjustments were £106.6m (2018: £120.0m) with the
decrease principally reflecting lower bond interest due to the early bond
redemption in March 2018 partly offset by the interest on the new senior
unsecured loan notes.
Profit before tax
Adjusted profit before tax as set out in note 4 to the financial statements
was £226.3m (2018: £197.0m), with the increase due principally to higher
adjusted operating profit and lower net finance costs. An overall charge of
£324.2m (2018: £523.9m) for adjustments including other intangible asset
amortisation charges of £29.9m (2018: £70.9m) resulted in statutory loss
before tax of £97.9m (2018: loss of £326.9m).
Tax
The tax charge, on adjusted profit before tax, for the year was £50.9m (2018:
£44.2m) representing an effective tax rate of 22.5% (2018: 22.4%). There was
also a tax credit of £40.8m (2018: £55.6m) relating to intangible asset
amortisation charges and other adjustments of £324.2m (2018: £523.9m). In
2018 the US corporate income tax rate reduced from 35% to 21% under the US Tax
Cuts and Jobs Act and this change also resulted in the re-measurement of
brought forward deferred tax balances giving rise to a one-off tax credit in
the income statement last year of £24.6m. The total tax charge was £10.1m
(2018: credit £36.0m) representing an effective tax rate on the statutory
loss before tax of (10.3)% (2018: 11.0%). This rate is different from the
effective tax rate on adjusted profits primarily because the potential tax
credit on the losses carried forward in SWR is not recognised. 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 £7.5m (2018: £12.2m) and differs
from the tax charge of £10.1m primarily because of capital allowances in
excess of depreciation and the utilisation of carried forward tax assets.
EPS
Adjusted EPS increased 17.1% to 14.4p (2018: 12.3p) and basic EPS was (5.5)p
(2018: (24.6)p).
Shares in issue
As at 31 March 2019 there were 1,208.6m shares in issue (2018: 1,203.1m),
excluding treasury shares and own shares held in trust for employees, which
decreased in the year to 5.3m (2018: 7.7m). 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 1,205.9m (2018:
1,205.1m).
Reconciliation to non-GAAP measures and performance
Note 4 to the financial statements sets out the reconciliations of operating
profit/(loss) and loss before tax to their adjusted equivalents. The adjusting
items are as follows:
Other intangible asset amortisation charges
The amortisation charge for the year was £29.9m (2018: £70.9m) with the
reduction due to a number of customer contract intangibles which have now been
fully amortised.
SWR onerous contract provision
Management have prepared updated financial forecasts for the SWR franchise
until the initial franchise end date of 17 August 2024, which are based on a
number of assumptions, most significantly passenger revenue growth and the
impact of the Central London Employment and Gross Domestic Product revenue
protection mechanisms, as well as the impact of changes in timetables,
capacity, aging infrastructure and rolling stock. There is considerable
uncertainty about the level of passenger revenue growth and future impact of
the industrial action in addition to uncertainty as to the level of strike
amelioration recoverable from the DfT, and we remain in negotiations with
them. Progress has been made and we continue to be engaged in discussions with
the DfT to agree potential commercial and contractual remedies but, at the
current time, there is a range of potential outcomes. Based on these forecasts
the Group has concluded that it has an onerous contract, the value of which is
estimated to be £145.9m in total, which is the maximum unavoidable loss under
the Franchise Agreement. Accordingly, this amount has been charged to the
income statement. FirstGroup’s 70% share is therefore £102.1m.
North America insurance provisions
The legal climate in North America, particularly in the US, continues to
deliver judgments which are unpredictable, increasingly in favour of
plaintiffs and punitive in certain regions. This is a complex and judgemental
area, and we continue to base our reserve on the levels recommended by our
actuarial advisors.
Following adverse settlements and developments on a number of aged insurance
claims, and against a backdrop of a hardening of the wider motor claims
environment and market, this has led to increasing our estimate of specific
case reserves and adverse development factors.
Once this trend was identified, we initiated an additional independent
actuarial review of the estimated risk position, including the claims
handler’s reserve position. This also confirmed a deterioration in the
claims environment and market and therefore an increase in the estimated value
of expected settlements. This has resulted in a decision to increase the
provision to reflect the costs of meeting existing claims in the current
environment.
This change in accounting estimate has resulted in the Group recording a
charge of £94.8m ($125.0m), to increase the self-insurance reserve to a
position towards the mid-point of the actuarial assessments undertaken. The
charge relates to First Student £47.3m ($62.3m), First Transit £26.2m
($34.5m) and Greyhound £21.3m ($28.2m). This charge has been highlighted as
an adjusted item. It is expected that the majority of these claims will be
settled over the next five years.
The charge to the operating profit for the current financial year reflects
this revised environment. For the 2019/20 financial year, the self-insurance
charge is expected to increase in line with the level of revenue growth in the
business, plus inflation. The Group has a strong focus on safety and risk
mitigation in this area will continue to be an area of focus for the Group.
Restructuring and reorganisation costs
During the year there was a charge of £24.1m for restructuring and
reorganisation costs principally relating to Greyhound's accelerated
withdrawal of services in Western Canada. The £26.0m charge in 2018 was for
the 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).
Gain on disposal of property
During the year the sale of a Greyhound facility in Chicago was completed
which resulted in a gain on sale of £9.3m (2018: £nil).
Guaranteed minimum pensions charge
A high court judgment in 2018 ruled that guaranteed minimum pensions should be
equalised between male and female scheme members. As a result of this there is
an increase in liabilities of £21.5m for the UK Bus and Group pension
schemes.
Loss on disposal/impairment charges
During the year the First Bus Queens Road depot and operations were agreed to
be sold to the Go-Ahead Group. This disposal, along with asset impairments on
the remaining Manchester depots to bring these to their likely recoverable
amounts, resulted in an overall charge of £16.2m.
Notional interest on TPE onerous contract provision
There was a charge of £1.1m (2018: £nil) in the year for notional interest
on the unwinding of the TPE onerous contract provision.
Capital expenditure
Cash capital expenditure in the Road divisions was £322.3m (2018: £299.4m).
It comprised First Student £232.3m (2018: £186.0m), First Transit £32.2m
(2018: £19.0m), Greyhound £31.7m (2018: £46.6m), First Bus £25.1m (2018:
£42.8m) and Group items £1.0m (2018: £5.0m). In addition, during the year
we entered into operating leases for passenger carrying vehicles with capital
values in First Bus of £61.9m, First Student of £27.0m, Greyhound of £34.8m
and First Transit £3.4m (2018: First Bus £6.0m) and we expect our use of
operating leases to increase going forward. First Rail cash capital
expenditure is typically matched by franchise receipts, capital grants or
other funding from third parties.
Gross capital investment was £571.1m (2018: £439.5m) of which £459.1m
(2018: £309.9m) related to the Road divisions. It comprised First Student
£284.8m (2018: £205.1m), First Transit £30.7m (2018: £28.5m), Greyhound
£62.8m (2018: £44.4m), First Bus £79.8m (2018: £26.9m) and Group items
£1.0m (2018: £5.0m). The balance between cash capital expenditure and gross
capital investment represents new operating leases and creditor movements in
the year.
Cash flow
The net cash inflow was £197.3m (2018: £110.5m before First Rail start of
franchise cash flows) with the increase driven by higher proceeds from the
disposal of property, plant and equipment primarily due to the sale of a
Greyhound facility this year and lower interest payments as a result of the
refinancing in March 2018 and the timing of certain working capital flows. Net
cash inflow of £197.3m (2018: £199.0m including the First Rail start of
franchise cash flows of £88.5m), combined with movements in debt due to
foreign exchange, resulted in a decrease in net debt of £166.9m (2018:
£219.6m) as detailed below.
2019 2018 £m
£m
EBITDA 670.3 690.6
Other non-cash income statement charges 3.7 17.2
Working capital excluding First Rail start of franchise cash flows 53.8 36.9
Movement in other provisions (24.8) (10.5)
Pension payments in excess of income statement charge (47.8) (47.9)
Cash generated by operations excluding First Rail start of franchise cash flows 655.2 686.3
Capital expenditure and acquisitions (432.5) (425.6)
Proceeds from disposal of property, plant and equipment 63.5 11.4
Interest and tax (88.8) (137.6)
Acquisition of non-controlling interest - (13.8)
Dividends paid to non-controlling minority shareholders - (1.1)
Other (0.1) (9.1)
Net cash inflow before First Rail start of franchise cash flows 197.3 110.5
First Rail start of franchise cash flows - 88.5
Net cash inflow after First Rail start of franchise cash flows 197.3 199.0
Foreign exchange movements (28.3) 23.2
Other non-cash movements (2.1) (2.6)
Movement in net debt in the year 166.9 219.6
Balance sheet
Net assets have increased by £32.7m since the start of the year. The
principal reasons for this are the favourable translation reserve movements of
£160.8m partly offset by the retained loss for the year of £108.0m and
actuarial losses on defined benefit pension schemes (net of deferred tax) of
£31.6m.
CGU carrying value
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 continues to
be sufficient headroom in all of the CGUs such that no reasonably possible
changes in the assumptions would cause the carrying amount of the CGUs to
exceed their recoverable amounts in respect of First Student, First Transit,
First Bus and First Rail. Sensitivities on Greyhound are set out in note 8.
Funding and risk management
Liquidity within the Group has remained strong. At the year end there was
£520.6m (2018: £766.4m) of headroom on committed facilities and free cash,
being £353.3m (2018: £603.0m) of committed headroom and £167.3m (2018:
£163.4m) 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 level of
committed headroom is maintained at all times. Our average debt maturity was
4.3 years (2018: 4.1 years). The Group’s main revolving bank facilities
require renewal in November 2023 following a two and a half year amendment and
extension agreed in November 2018. The Group does not enter into speculative
financial transactions and uses only authorised financial instruments for
certain financial risk management purposes.
Fuel price risk
We use a progressive forward hedging programme to manage commodity risk. In
2018/19 in the UK, 90% of our ‘at risk’ crude requirements (1.9m barrels
p.a.) were hedged at an average rate of $60 per barrel. We have hedged 84% of
our ‘at risk’ UK crude requirements for the year to 31 March 2020 at $65
per barrel and 45% of our requirements for the year to 31 March 2021 at $65
per barrel.
In North America 64% of 2018/19 ‘at risk’ crude oil volumes (1.3m barrels
p.a.) were hedged at an average rate of $58 per barrel. We have hedged 52% of
the volumes for the year to 31 March 2020 at $62 per barrel and 22% of our
volumes for the year to 31 March 2021 at $66 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.
Foreign exchange
The most significant exchange rates to pounds Sterling for the Group are as
follows:
Year to 31 March 2019 Year to 31 March 2018
Closing rate Effective rate Closing rate Effective rate
US Dollar 1.30 1.32 1.40 1.34
Canadian Dollar 1.74 1.72 1.81 1.75
Net debt
The Group’s net debt at 31 March 2019 was £903.4m (2018: £1,070.3m) and
comprised:
31 March 2019 31 March 2018
Analysis of net debt Fixed Variable Total Total £m
£m £m £m
Sterling bond (2019) - - - 249.9
Sterling bond (2021) - 348.4 348.4 348.3
Sterling bond (2022) 322.1 - 322.1 321.6
Sterling bond (2024) 199.8 - 199.8 199.8
Bank loans - 446.7 446.7 197.0
HP contracts and finance leases 59.9 - 59.9 104.7
Senior unsecured loan notes 210.0 - 210.0 195.2
Loan notes 8.7 0.7 9.4 9.5
Gross debt excluding accrued interest 800.5 795.8 1,596.3 1,626.0
Cash (167.3) (163.4)
First Rail ring-fenced cash and deposits (524.7) (391.5)
Other ring-fenced cash and deposits (0.9) (0.8)
Net debt excluding accrued interest 903.4 1,070.3
Under the terms of the First Rail franchise agreements, cash can only be
distributed by the Train Operating Companies (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. First Rail ring-fenced cash increased by £133.2m in the
period principally due to working capital inflows at all three franchises.
Pensions
We have updated our pension assumptions as at 31 March 2019 for the defined
benefit schemes in the UK and North America. The net pension deficit of
£273.7m at the beginning of the year has increased to £307.2m at the end of
the year principally due to lower real discount rates and unfavourable foreign
exchange movements partly offset by better asset returns and guaranteed
minimum pension equalisation. Based on the most recent actuarial valuations as
at 5 April 2016 and 5 April 2015 respectively, the combined funding deficit of
the First Bus and Group defined benefit schemes in the UK, taking into account
funding guarantees provided by FirstGroup plc, is approximately £250m higher
than the balance sheet position on an accounting basis. The main factors that
influence the balance sheet position for pensions and the principal
sensitivities to their movement at 31 March 2019 are set out below:
Movement Impact
Discount rate +0.1% Reduce deficit by £28m
Inflation +0.1% Increase deficit by £23m
Dividends
The Board recognises that dividends are an important component of total
shareholder return for many investors and remains committed to reinstating a
sustainable dividend at the appropriate time, having regard to the Group’s
financial performance, balance sheet and outlook. The Board is not proposing
to pay a dividend in respect of the year to 31 March 2019 but will continue to
review the appropriate timing for restarting dividend payments.
Seasonality
First Student generates lower revenues and profits in the first half of the
financial year than in the second half of the year as the school summer
holidays fall into the first half.
Impact of new accounting standards
IFRS 16 Leases replaces IAS 17 with effect from accounting periods commencing
1 January 2019. The new standard eliminates the operating lease classification
and therefore on the balance sheet the lessees will be required to recognise
an asset (the right to use the leased item) and lease liabilities for all
leases unless they have a remaining term of less than twelve months or are of
low value. On the income statement, the operating lease expense will be
replaced by a combination of depreciation and interest.
The Group has performed a detailed impact assessment of IFRS 16. This
assessment focused on the Group’s existing lease portfolio, as well as
considering wider contractual arrangements to determine if they constituted a
lease under the definitions of the new standard.
As at 31 March 2019, the Group holds a significant number of operating leases
that are expensed over the lease term. Management are finalising the
assessment of the potential impact of this standard on the financial
statements for the year ending 31 March 2020, and it is anticipated that the
transition to IFRS 16 will have a material impact on the value of lease assets
and liabilities recognised in the consolidated balance sheet.
As at the reporting date, the Group has non-cancellable operating lease
commitments of £3.0bn. However, of these commitments, £1.0bn relates to
track, station and depot access charges within the First Rail business which
does not meet the definition of a lease under IFRS 16. This reflects the fact
that either no identified asset exists or that the Group does not have the
right to obtain substantially all of the economic benefits from the use of the
asset throughout the period of use, or that Network Rail, not the Group,
directs how and for what purpose the assets are used. Furthermore, the Group
has entered into a number of leases where the commencement date falls after 1
April 2019. As such, lease commitments of £0.5bn have not been included in
the IFRS 16 lease liability. Some leases include components which do not meet
the definition of a lease under IFRS 16 as they relate to the ongoing
maintenance of assets. As a result lease commitments of £0.2bn have not been
included in the IFRS 16 lease liability.
In addition, approximately £12m of commitments relate to low value leases and
£30m of commitments relate to leases where the lease term ends within 12
months from the date of initial application which the Group will elect to
exempt and continue to expense through the Income Statement.
Based on the assessment performed to date, we anticipate that for the
remaining lease commitments, discounted to present value, as at 1 April 2019
the Group expects to recognise right-of-use assets and lease liabilities of
approximately £1.1bn, comprising approximately £0.8bn for First Rail and
approximately £0.3bn for the Road divisions.
Our review of other contractual arrangements across the Group is substantially
complete, and no further arrangements have been identified that meet the
definition of a lease under IFRS 16.
IFRS 16 will be adopted on 1 April 2019, using the modified retrospective
approach. Therefore, the cumulative effect of adopting IFRS 16 will be
recognised as an adjustment to the opening balance of retained earnings at 1
April 2019, with no restatement of comparative information.
Contingent liabilities
The Group’s operations are required to comply with a wide range of
regulations, including environmental and emissions regulations. Failure to
comply with a particular regulation could result in a fine or penalty being
imposed on that business, as well as potential ancillary claims rooted in
non-compliance.
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. Management continue to monitor developments. To date, no
proceedings have been commenced and, as such, it is not possible to assess
whether any financial penalties or related costs could be incurred.
On 14 November 2017, Reading Borough Council served First Greater Western
Limited (GWR), a subsidiary of the Group, and Network Rail Infrastructure
Limited (a third party) with a noise abatement notice in respect of the
operations at the Reading railway depot. The serving of the notice has been
appealed and the related court hearing is currently anticipated to take place
in early 2020 (unless the matter is settled between the parties before that
date). It is not possible at this stage to quantify the implications for the
GWR operations, if any, if they are not ultimately successful with respect to
this appeal.
On 26 February 2019, class action proceedings were commenced in the UK
Competition Appeal Tribunal (CAT) against First MTR South Western Trains
Limited (SWR). Equivalent claims have been brought against Stagecoach South
Western Trains Limited and London & South Eastern Railway. It is alleged that
SWR and the other defendants breached their obligations under competition law,
by (i) failing to make available, or (ii) restricting the practical
availability of, boundary fares for TfL Travelcard holders wishing to travel
outside TfL fare zones. The first substantive hearing, at which the CAT will
decide whether or not to certify the class action, is scheduled to take place
in November 2019. It is not possible at this stage to determine accurately the
likelihood or quantum of damages and costs, if any, or timing of such damages
and costs, which may arise from the proceedings.
The Pensions Regulator (TPR) has been in discussion with the Railways Pension
Scheme (the Scheme) regarding the long term funding strategy of the Scheme.
The Scheme is an industry-wide arrangement, and the Group, together with other
owning groups, has been participating in a review of scheme funding led by the
Rail Delivery Group. Whilst the review is still ongoing, changes to the
current funding strategy are not expected in the short term. Whilst TPR
believes that a higher level of funding is required in the long term, it is
not possible at this stage to determine the impact to ongoing contribution
requirements.
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 2019 (the 'year'
or '2019') include the results and financial position of First Rail for the
year to 31 March 2019 and the results and financial position of all the other
businesses for the 52 weeks ended 30 March 2019. The figures for the year to
31 March 2018 (the 'prior year' or '2018') include the results and financial
position of the First Rail division 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.
All references to 'adjusted' figures throughout this document are before
Greyhound goodwill impairment, TPE onerous contract provision, SWR onerous
contract provision, North American insurance 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, 53rd 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 2019 of 4.3 years (2018: 4.1 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 £353.3m
(2018: £603.0m) was undrawn at the year end. This facility has a maturity of
November 2023.
The Directors have carried out a detailed review of the Group’s budget for
the year to 31 March 2020 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.
Matthew Gregory
Chief Executive
30 May 2019
Consolidated income statement
For the year ended 31 March
Continuing operations Notes 2019 £m 2018 £m
Revenue 2 7,126.9 6,398.4
Operating costs (7,117.1) (6,594.6)
Operating profit/(loss) 9.8 (196.2)
Investment income 5 2.7 1.3
Finance costs 5 (110.4) (132.0)
Loss before tax (97.9) (326.9)
Tax 6 (10.1) 36.0
Loss for the year (108.0) (290.9)
Attributable to:
Equity holders of the parent (66.9) (296.0)
Non-controlling interests (41.1) 5.1
(108.0) (290.9)
Earnings per share
Basic 7 (5.5)p (24.6)p
Diluted 7 (5.5)p (24.6)p
Adjusted results (1)
Adjusted operating profit 4 332.9 317.0
Adjusted profit before tax 4 226.3 197.0
Adjusted EPS 7 14.4p 12.3p
Adjusted diluted EPS 7 14.3p 12.1p
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
2019 £m 2018 £m
Loss for the year (108.0) (290.9)
Items that will not be reclassified subsequently to profit or loss
Actuarial (losses)/gains on defined benefit pension schemes (38.7) 26.6
Deferred tax on actuarial (losses)/gains on defined benefit pension schemes 7.1 (6.2)
Deferred tax on defined benefit pension schemes due to US tax reform – (20.4)
(31.6) –
Items that may be reclassified subsequently to profit or loss
Derivative hedging instrument movements 23.5 45.1
Deferred tax on derivative hedging instrument movements (4.1) (9.3)
Deferred tax on derivative hedging instruments due to US tax reform – (1.4)
Exchange differences on translation of foreign operations 160.8 (324.9)
180.2 (290.5)
Other comprehensive income/(loss) for the year 148.6 (290.5)
Total comprehensive income/(loss) for the year 40.6 (581.4)
Attributable to:
Equity holders of the parent 81.7 (586.5)
Non-controlling interests (41.1) 5.1
40.6 (581.4)
The accompanying notes form an integral part of this consolidated statement of
comprehensive income.
Consolidated balance sheet
As at 31 March
Note 2019 £m 2018 £m
Non-current assets
Goodwill 8 1,598.1 1,496.8
Other intangible assets 9 75.1 89.8
Property, plant and equipment 10 2,165.9 2,090.1
Deferred tax assets 18 40.6 37.7
Retirement benefit assets 69.2 32.5
Derivative financial instruments 17 20.5 25.0
Investments 34.1 31.0
4,003.5 3,802.9
Current assets
Inventories 11 60.2 56.0
Trade and other receivables 12 1,141.4 888.0
Current tax assets 3.4 2.9
Cash and cash equivalents 692.9 555.7
Assets held for sale 31.7 0.9
Derivative financial instruments 17 15.5 27.3
1,945.1 1,530.8
Total assets 5,948.6 5,333.7
Current liabilities
Trade and other payables 13 1,547.3 1,233.7
Tax liabilities – Current tax liabilities 3.9 3.8
– Other tax and social security 29.0 31.7
Borrowings 14 84.9 351.5
Derivative financial instruments 17 3.4 6.7
Provisions 19 265.9 203.7
1,934.4 1,831.1
Net current assets/(liabilities) 10.7 (300.3)
Non-current liabilities
Borrowings 14 1,564.1 1,339.6
Derivative financial instruments 17 1.9 3.0
Retirement benefit liabilities 376.4 306.2
Deferred tax liabilities 18 16.5 22.2
Provisions 19 532.0 341.0
2,490.9 2,012.0
Total liabilities 4,425.3 3,843.1
Net assets 1,523.3 1,490.6
Equity
Share capital 20 60.7 60.5
Share premium 684.0 681.4
Hedging reserve 17.5 16.5
Other reserves 4.6 4.6
Own shares (4.7) (6.3)
Translation reserve 544.3 383.5
Retained earnings 248.1 340.6
Equity attributable to equity holders of the parent 1,554.5 1,480.8
Non-controlling interests (31.2) 9.8
Total equity 1,523.3 1,490.6
The accompanying notes form an integral part of this consolidated balance
sheet.
Matthew Gregory
Chief Executive
30 May 2019
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 2017 60.4 678.9 (17.9) 4.6 (1.2) 708.4 621.9 2,055.1 20.8 2,075.9
Loss for the year – – – – – – (296.0) (296.0) 5.1 (290.9)
Other comprehensive (loss)/income for the year – – 34.4 – – (324.9) – (290.5) – (290.5)
Total comprehensive (loss)/income for the year – – 34.4 – – (324.9) (296.0) (586.5) 5.1 (581.4)
Acquisition of non-controlling interests – – – – – – 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
Balance at 1 April 2018 60.5 681.4 16.5 4.6 (6.3) 383.5 340.6 1,480.8 9.8 1,490.6
Loss for the year – – – – – – (66.9) (66.9) (41.1) (108.0)
Other comprehensive income/(loss) for the year – – 19.4 – – 160.8 (31.6) 148.6 – 148.6
Total comprehensive income/(loss) for the year – – 19.4 – – 160.8 (98.5) 81.7 (41.1) 40.6
Shares issued 0.2 2.6 – – – – – 2.8 – 2.8
Derivative hedging instrument movements transferred to balance sheet (net of tax) – – (18.4) – – – – (18.4) – (18.4)
Dividends paid/other – – – – – – – – 0.1 0.1
Movement in EBT and treasury shares – – – – 1.6 – (3.1) (1.5) – (1.5)
Share-based payments – – – – – – 9.1 9.1 – 9.1
Balance at 31 March 2019 60.7 684.0 17.5 4.6 (4.7) 544.3 248.1 1,554.5 (31.2) 1,523.3
The accompanying notes form an integral part of this consolidated statement of
changes in equity.
Consolidated cash flow statement
Year ended 31 March
Note 2019 £m 2018 £m
Net cash from operating activities 21 563.7 636.9
Investing activities
Interest received 2.7 1.3
Proceeds from disposal of property, plant and equipment 63.5 11.4
Purchases of property, plant and equipment (421.3) (395.9)
Purchases of software (8.9) (26.8)
Acquisition of businesses (2.3) (2.9)
Net cash used in investing activities (366.3) (412.9)
Financing activities
Acquisition of non-controlling interest – (13.8)
Dividends paid to non-controlling shareholders – (1.1)
Shares purchased by Employee Benefit Trust – (11.2)
Shares issued 2.1 2.1
Proceeds from senior unsecured loans – 193.3
Repayment of bond (250.0) (300.0)
Repayment of senior unsecured loans – (76.5)
Drawdowns from bank facilities 255.0 197.0
Repayment of loan notes (0.1) –
Repayments under HP contracts and finance leases (53.1) (62.1)
Fees for finance facilities (2.2) (1.0)
Net cash flow used in financing activities (48.3) (73.3)
Net increase in cash and cash equivalents before foreign exchange movements 149.1 150.7
Cash and cash equivalents at beginning of year 555.7 400.9
Foreign exchange movements (11.9) 4.1
Cash and cash equivalents at end of year per consolidated balance sheet 692.9 555.7
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
2019 £m 2018 £m
Net increase in cash and cash equivalents in year 149.1 150.7
Decrease in debt and finance leases 48.2 48.3
Net cash flow 197.3 199.0
Foreign exchange movements (28.3) 23.2
Other non-cash movements (2.1) (2.6)
Movement in net debt in year 166.9 219.6
Net debt at beginning of year (1,070.3) (1,289.9)
Net debt at end of year (903.4) (1,070.3)
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 2019 or 2018, but is derived
from those accounts. Statutory Accounts for 2018 have been delivered to the
Registrar of Companies and those for 2019 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 2019. Copies of the Statutory Accounts for the
year ended 31 March 2019 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.
Adoption of new and revised standards
The accounting policies adopted are consistent with those of the previous
financial year except for the changes arising from new standards and
amendments to existing Standards which have been adopted in the current year.
IFRS 9 and IFRS 15 came into effect on 1 January 2018 and have been applied by
the Group for the first time in the current year. The nature and effect of the
changes from adopting these new accounting standards are described below.
Several other amendments and interpretations apply for the first time in the
current year, but their adoption has not had any significant impact on the
amounts reported in these financial statements.
IFRS 9 Financial Instruments
This standard replaces IAS 39 with effect from accounting periods commencing 1
January 2018. The new standard covers three distinct areas: the classification
and measurement of financial assets and liabilities; the impairment of
financial assets; and new hedging requirements designed to give increased
flexibility in relation to hedge effectiveness.
There are no changes in classification and measurement for the Group’s
financial liabilities. The Group continued measuring at fair value all
financial assets previously held at fair value under IAS 39. The new general
hedge accounting requirements retain the three types of hedge accounting which
were available under IAS 39: fair value hedges, cash flow hedges and net
investment hedges. However, the effectiveness testing requirements have been
simplified. The Group has applied the IFRS 9 hedge accounting requirements
prospectively from the date of initial application of 1 April 2018. All
existing hedging relationships are eligible, and continued to be effective,
under IFRS 9. IFRS 9 requires a new impairment model with impairment
provisions based on expected credit losses rather than incurred credit losses
under IAS 39. The simplified approach has been applied to trade receivables to
determine expected credit losses. The transitional increase/decrease in the
impairment allowance as a result of this change in accounting policy is
immaterial.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 introduced a new revenue recognition model that recognises revenue
either at a point in time or over time. It is based on the principle that
revenue is recognised when control of a good or service transfers to the
customer and is based on the fulfilment of performance obligations. The
adoption of IFRS 15 has not had a material impact on Group revenue
recognition, and there have been no adjustments required to opening retained
earnings.
As the Group has the right to consideration corresponding directly with the
value of performance completed to date, customer contract revenue is
recognised consistent with the amount that the Group has a right to invoice.
The Group is therefore exercising the practical expedient not to explain
transaction prices allocated to unsatisfied performance obligations at the end
of the reporting period.
The Group has applied the new rules prospectively from 1 April 2018, having
performed a detailed assessment of the effects of applying the new standard.
Note 5 sets out a numerical disaggregation of revenue in accordance with the
disclosure requirements of the new standard, with an explanation of the types
of revenue included in the note set out below:
Passenger revenues
Passenger revenues primarily relate to ticket sales through First Bus, First
Rail and Greyhound. Passenger revenue is recognised at both a point in time
and over time. Ticket sales for journeys of less than one week’s duration
are recognised on the first date of travel. Ticket sales for season tickets,
travel cards and open return tickets are initially deferred then recognised
over the period covered by the relevant ticket. Concessionary amounts are
recognised in the period in which the service is provided.
Contract revenues
Contract revenues mainly relate to First Student school bus contracts and
First Transit contracts in North America. Revenues are recognised as the
services are provided over the length of the contract and based on a
transactional price which is defined in the terms of the contract.
Charter/private hire
Charter and private hire predominantly relates to charter work in First
Student for both school districts with extracurricular activities and third
parties with general transportation needs. Revenue is recognised over the
period in which the charter/private hire is provided to the customer.
1 General information (continued)
Rail franchise subsidy receipts
Revenue in First Rail includes franchise subsidy receipts from the DfT and
amounts receivable under franchise arrangements including certain funded
operational projects. Amounts receivable are set out in the franchise
agreement for each year of the franchise. The franchise agreement includes a
minimum specification of passenger services to be provided, which is the key
performance obligation. Franchise premium payments to the DfT for amounts due
under the terms of a franchise are included in operating costs. Revenue also
includes amounts attributable to the Train Operating Companies (TOCs),
predominantly based on models of route usage, by the Railway Settlement Plan
in respect of passenger receipts. Revenue is recognised over time as the
performance obligations are met.
Other revenues
Other revenues mainly relate to Greyhound Package Express, non-rail subsidies,
revenue arising from ancillary services to other rail and road passenger
service providers for maintenance, refuelling and other associated services
and to sundry third parties for the use of space at terminals and on-board
vehicles for other business activities, e.g. retail outlets, taxi ranks,
catering and advertising. Other revenues are recognised at both a point in
time and over time. Interest income is recognised on an accruals basis.
New standards and interpretations not applied
At the date of authorisation of these Financial Statements, the Group has not
applied the following standards that have been issued but are not yet
effective:
IFRS 16 Leases
IFRS 16 Leases replaces IAS 17 with effect from accounting periods commencing
1 January 2019. The new standard eliminates the operating lease classification
and therefore on the balance sheet the lessees will be required to recognise
an asset (the right to use the leased item) and lease liabilities for all
leases unless they have a remaining term of less than twelve months or are of
low value. On the income statement, the operating lease expense will be
replaced by a combination of depreciation and interest.
The Group has performed a detailed impact assessment of IFRS 16. This
assessment focused on the Group’s existing lease portfolio, as well as
considering wider contractual arrangements to determine if they constituted a
lease under the definitions of the new standard.
As at 31 March 2019, the Group holds a significant number of operating leases
that are expensed over the lease term. Management are finalising the
assessment of the potential impact of this standard on the financial
statements for the year ending 31 March 2020, and it is anticipated that the
transition to IFRS 16 will have a material impact on the value of lease assets
and liabilities recognised in the consolidated balance sheet.
As at the reporting date, the Group has non-cancellable operating lease
commitments of £3.0bn. However, of these commitments, £1.0bn relates to
track, station and depot access charges within the First Rail business which
does not meet the definition of a lease under IFRS 16. This reflects the fact
that either no identified asset exists or that the Group does not have the
right to obtain substantially all of the economic benefits from the use of the
asset throughout the period of use, or that Network Rail, not the Group,
directs how and for what purpose the assets are used. Furthermore, the Group
has entered into a number of leases where the commencement date falls after 1
April 2019. As such, lease commitments of £0.5bn have not been included in
the IFRS 16 lease liability. Some leases include components which do not meet
the definition of a lease under IFRS 16 as they relate to the ongoing
maintenance of assets. As a result lease commitments of £0.2bn have not been
included in the IFRS 16 lease liability.
In addition, approximately £12m of commitments relate to low value leases and
£30m of commitments relate to leases where the lease term ends within 12
months from the date of initial application which the Group will elect to
exempt and continue to expense through the Income Statement.
Based on the assessment performed to date, we anticipate that for the
remaining lease commitments, discounted to present value, as at 1 April 2019
the Group expects to recognise right-of-use assets and lease liabilities of
approximately £1.1bn, comprising approximately £0.8bn for First Rail and
around £0.3bn for the Road divisions.
Our review of other contractual arrangements across the Group is substantially
complete, and no further arrangements have been identified that meet the
definition of a lease under IFRS 16.
IFRS 16 will be adopted on 1 April 2019, using the modified retrospective
approach. Therefore, the cumulative effect of adopting IFRS 16 will be
recognised as an adjustment to the opening balance of retained earnings at 1
April 2019, with no restatement of comparative information.
The following amended standards and interpretations are not expected to have a
significant impact on the Group’s Consolidated Financial Statements:
IFRIC 23 uncertainty over tax treatments
Amendments to IFRS 9 – Prepayment features with negative compensation
Amendments to IAS 28 – Long-term interests in associates and joint ventures
Amendments to IAS 19 – Plan amendment, curtailment or settlement
Annual improvements to IFRS standards 2015–2017 cycle – various standards
Amendments to references to conceptual framework in IFRS standards
IFRS 17 insurance contracts
2 Revenue
2019 £m 2018 £m
Services rendered 6,933.1 6,398.4
First Rail franchise subsidy receipts 193.8 –
Revenue 7,126.9 6,398.4
3 Business segments and geographical information
The segment results for the year to 31 March 2019 are as follows:
First Student £m First Greyhound (1) First Bus £m First Rail £m Group Items (2) £m Total £m
Transit £m
£m
Passenger revenue – – 571.3 796.3 2,300.0 – 3,667.6
Contract revenue 1,680.0 947.7 – 68.3 – 17.1 2,713.1
Charter/private hire 153.2 4.9 3.3 – – – 161.4
Rail franchise subsidy receipts – – – – 193.8 – 193.8
Other 12.7 123.2 70.5 11.5 172.9 0.2 391.0
Revenue 1,845.9 1,075.8 645.1 876.1 2,666.7 17.3 7,126.9
EBITDA (3) 352.3 71.4 38.6 119.7 127.4 (39.1) 670.3
Depreciation (178.8) (19.9) (27.7) (56.1) (81.0) (2.5) (366.0)
Capital grant amortisation – – 0.5 2.2 25.9 – 28.6
Segment results 173.5 51.5 11.4 65.8 72.3 (41.6) 332.9
Other intangible asset amortisation charges (10.9) (2.2) (12.0) (0.7) (3.5) (0.6) (29.9)
Other adjustments (note 4) (47.3) (26.2) (33.2) (37.7) (145.9) (2.9) (293.2)
Operating profit/(loss) (4) 115.3 23.1 (33.8) 27.4 (77.1) (45.1) 9.8
Investment income 2.7
Finance costs (110.4)
Loss before tax (97.9)
Tax (10.1)
Loss after tax (108.0)
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
Passenger revenue – – 597.2 795.5 1,825.0 – 3,217.7
Contract revenue 1,604.0 943.7 – 67.3 – 16.2 2,631.2
Charter/private hire 154.6 4.5 5.4 3.2 – – 167.7
Other 12.5 124.5 87.6 13.4 143.8 – 381.8
Revenue 1,771.1 1,072.7 690.2 879.4 1,968.8 16.2 6,398.4
EBITDA (3) 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 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 (4) 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)
1 Greyhound segment results contains £8.4m of property gains on the
disposal of four properties.
2 Group items comprise Tram operations, central management and other
items.
3 EBITDA is adjusted operating profit less capital grant amortisation
plus depreciation.
4 Although the segment results are used by management to measure
performance, statutory operating (loss)/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, significant adverse development factors on insurance provisions,
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 provides a better understanding of the key
performance indicators of the business.
Reconciliation of operating profit/(loss) to adjusted operating profit Year to 31 March 2019 £m Year to 31 March 2018 £m
Operating profit/(loss) 9.8 (196.2)
Adjustments for:
Other intangible asset amortisation charges 29.9 70.9
Restructuring and reorganisation costs 24.1 26.0
North America insurance provisions 94.8 32.7
SWR onerous contract provision 145.9 –
Gain on disposal of property (9.3) –
Guaranteed minimum pensions charge 21.5 –
Loss on disposal/impairment charges 16.2 –
Greyhound impairment charges – 277.3
TPE onerous contract provision – 106.3
Total operating profit adjustments 323.1 513.2
Adjusted operating profit (note 3) 332.9 317.0
Reconciliation of loss before tax to adjusted profit before tax and adjusted earnings Year to 31 March 2019 £m Year to 31 March 2018 £m
Loss before tax (97.9) (326.9)
Operating profit adjustments (see table above) 323.1 513.2
Notional interest on TPE onerous contract provision 1.1 –
Bond ‘make whole’ interest cost – 10.7
Adjusted profit before tax 226.3 197.0
Adjusted tax charge (see below) (50.9) (44.2)
Non-controlling interests (1) (1.8) (5.1)
Adjusted earnings 173.6 147.7
1 Statutory non-controlling interest of £41.1m credit comprise a
£1.8m charge in respect of the results for the year and a £42.9m credit on
the SWR onerous contract provision.
Reconciliation of tax charge/(credit) to adjusted tax charge Year to 31 March 2019 £m Year to 31 March 2018 £m
Tax charge/(credit) (note 6) 10.1 (36.0)
Tax effect of adjusting items (note 7) 40.8 55.6
Tax effect of US tax reform – 24.6
Adjusted tax charge 50.9 44.2
The adjusting items are as follows:
Other intangible asset amortisation charges
The amortisation charge for the year was £29.9m (2018: £70.9m) with the
reduction due to a number of customer contract intangibles which have now been
fully amortised.
Restructuring and reorganisation costs
During the year there was a charge of £24.1m for restructuring and
reorganisation costs relating to Greyhound’s accelerated withdrawal of
services in Western Canada, net of a £8.8m gain on disposal relating to the
initial property disposals completed in the region.
The £26.0m charge in 2018 was for the 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).
4 Reconciliation to non-GAAP measures and performance (continued)
Gain on disposal of property
During the year the sale of a Greyhound facility in Chicago was completed
which resulted in a gain on sale of £9.3m (2018: £nil).
Guaranteed minimum pensions charge
A high court judgement in 2018 ruled that guaranteed minimum pensions should
be equalised between male and female scheme members. As a result of this there
is an increase in liabilities for the UK Bus and Group pension schemes.
Loss on disposal/impairment charges
During the year the First Bus Queens Road depot and operations were agreed to
be sold to the Go-Ahead Group. This disposal along with asset impairments on
the remaining Manchester depots to bring these to their likely recoverable
amounts resulted in an overall charge of £16.2m.
Notional interest on TPE onerous contract provision
There was a charge of £1.1m (2018: £nil) in the year for notional interest
on the unwinding of the TPE onerous contract provision.
North America insurance provisions
The legal climate in North America, particularly in the US, continues to
deliver judgments which are unpredictable, increasingly in favour of
plaintiffs and punitive in certain regions. This is a complex and judgemental
area, and we continue to base our reserve on the levels recommended by our
actuarial advisors.
Following adverse settlements and developments on a number of aged insurance
and incurred but not received claims, and against a backdrop of a hardening of
the wider motor claims environment and market, this has led to increasing
specific case reserves and adverse development factors.
Once this trend was identified, we initiated an independent actuarial review
of the expected risk position, including the claims handler’s reserve
position. This also confirmed a deterioration in the claims environment and
market and therefore an increase in the expected level of settlements and loss
factors. This revised position has resulted in a requirement to increase the
provision, in respect of claims from prior years, to reflect the costs of
meeting existing claims in the current environment.
This change in accounting estimate has resulted in the Group recording an
adjusting charge of £94.8m ($125.0m), to increase the self-insurance
provisions to a position approximately at the mid-point of the increased
actuarial assessments undertaken. The charge relates to First Student £47.3m
($62.3m), First Transit £26.2m ($34.5m) and Greyhound £21.3m ($28.2m).
The charge to the income statement for the current financial year reflects
this revised environment. For the 2019/20 financial year, the self-insurance
charge is expected to increase in line with the level of revenue growth in the
business, plus inflation.
The Group has a strong focus on safety and it is one of our five values, and
risk mitigation in this area will continue to be an area of focus for the
Group. It is expected that the majority of these claims will be settled within
the next five years.
SWR onerous contract provision
Management have prepared updated financial forecasts for the SWR franchise
until the initial franchise end date of 17 August 2024, which are based on a
number of assumptions, most significantly passenger revenue growth and the
impact of the Central London Employment and Gross Domestic Product revenue
protection mechanisms, as well as the impact of changes in timetables,
capacity, aging infrastructure and rolling stock.
There is considerable uncertainty about the level of passenger revenue growth
and future impact of the industrial action in addition to uncertainty as to
the level of strike amelioration recoverable from the DfT, and we remain in
negotiations with them.
Progress has been made and we continue to be engaged in discussions with the
DfT to agree potential commercial and contractual remedies but, at the current
time, there is a range of potential outcomes. Based on these forecasts the
Group has concluded that it has an onerous contract, the value of which is
estimated to be £145.9m in total, which is the maximum unavoidable loss under
the Franchise Agreement. Accordingly, this amount has been charged to the
income statement. FirstGroup’s 70% share is therefore £102.1m.
Reconciliation of underlying (1)adjusted (2) Year to 31 March 2019 Year to 31 March 2018
Reported £m SWR franchise £m SWR Adjusted £m Reported £m Impact of 53 (rd)Week £m Effect of foreign exchange £m Adjusted Constant Currency £m % change
Revenue 7,126.9 (425.1) 6,701.8 6,398.4 (80.5) 24.8 6,342.7 +5.7%
Operating profit 332.9 8.9 341.8 317.0 (10.7) 3.1 309.4 +10.5%
4 Reconciliation to non-GAAP measures and performance (continued)
Year to 31 March 2018
Reconciliation of constant currency (3) Year to 31 March 2019 £m Reported £m Effect of foreign exchange £m Constant Currency £m % change
Revenue 7,126.9 6,398.4 24.8 6,423.2 +11.0%
Operating profit 332.9 317.0 3.1 320.1 +4.0%
Adjusted profit before tax 226.3 197.0 3.1 200.1 +13.1%
Adjusted EPS 14.4p 12.3p 0.2p 12.5p +15.2%
Net debt 903.4 1,070.3 20.9 1,091.2 (17.2)%
(1) Growth excluding SWR franchise (which became part of First Rail in
August 2017) and the 53(rd) week in the Road divisions in constant currency.
(2) ‘Adjusted’ figures throughout this document are before
self-insurance reserve charge, the SWR onerous contract provision,
restructuring and reorganisation costs, other intangible asset amortisation
charges and certain other items as set out in note 4 to the financial
statements.
(3) Changes 'in constant currency' throughout this document are based
on retranslating 2018 foreign currency amounts at 2019 rates.
5 Investment income and finance costs
2019 £m 2018 £m
Investment income
Bank interest receivable (2.7) (1.3)
Finance costs
Bonds 59.9 84.3
Bank borrowings 14.0 8.8
Senior unsecured loan notes 8.9 1.3
Loan notes 1.1 1.1
Finance charges payable in respect of HP contracts and finance leases 2.7 4.6
Notional interest on long term provisions 14.6 11.0
Notional interest on pensions 8.1 10.2
Finance costs before adjustments 109.3 121.3
Notional interest on TPE onerous contract provision 1.1 –
Bond ‘make whole’ cost (1) – 10.7
Total finance costs 110.4 132.0
Finance costs before adjustments 109.3 121.3
Investment income (2.7) (1.3)
Net finance cost before adjustments 106.6 120.0
1 The early redemption of the £300m bond in March last year resulted
in a one-off £10.7m ‘make whole’ interest charge.
6 Tax on loss on ordinary activities
2019 £m 2018 £m
Current tax 8.1 8.9
Adjustments with respect to prior years 0.1 –
Total current tax charge 8.2 8.9
Origination and reversal of temporary differences 4.8 (14.1)
Adjustments with respect to prior years (2.9) (6.2)
Adjustments attributable to changes in tax rates and laws – (24.6)
Total deferred tax charge/(credit) (note 18) 1.9 (44.9)
Total tax charge/(credit) 10.1 (36.0)
7 Earnings per share (EPS)
EPS is calculated by dividing the loss attributable to equity shareholders of
£66.9m (2018: £296.0m) by the weighted average number of ordinary shares of
1,205.9m (2018: 1,205.1m). 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.
2019 Number m 2018 Number m
Weighted average number of shares used in basic calculation 1,205.9 1,205.1
Executive share options 8.1 17.9
Weighted average number of shares used in the diluted calculation 1,214.0 1,223.0
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:
2019 2018
£m EPS (p) £m EPS (p)
Basic loss / EPS (66.9) (5.5) (296.0) (24.6)
Amortisation charges (note 9) 29.9 2.5 70.9 5.9
Notional interest on TPE onerous contract provision 1.1 0.1 – –
Bond ‘make whole’ cost – – 10.7 0.9
Other adjustments (note 4) 293.2 24.3 442.3 36.7
Non-controlling interest share of the SWR onerous contract provision (42.9) (3.6)
Tax effect of above adjustments (40.8) (3.4) (55.6) (4.6)
Tax effect of change in US tax legislation – – (24.6) (2.0)
Adjusted profit/EPS 173.6 14.4 147.7 12.3
Diluted EPS 2019 pence 2018 pence
Diluted EPS (5.5) (24.6)
Adjusted diluted EPS 14.3 12.1
8 Goodwill
2019 £m 2018 £m
Cost
At 1 April 1,761.4 1,960.1
Additions 0.6 1.2
Foreign exchange movements 100.7 (199.9)
At 31 March 1,862.7 1,761.4
Accumulated impairment losses
At 1 April 264.6 4.0
Impairment – 260.6
At 31 March 264.6 264.6
Carrying amount 1,598.1 1,496.8
At 31 March
Goodwill acquired in a business combination is allocated, at acquisition, to
the CGUs that are expected to benefit from that business combination. The
carrying amount of goodwill has been allocated as follows:
2019 £m 2018 £m
Carrying amount
First Student 1,218.5 1,137.6
First Transit 296.1 275.4
First Bus 77.9 78.2
First Rail 5.6 5.6
1,598.1 1,496.8
8 Goodwill (continued)
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
2019/20 and Three Year Plan projections up to 2021/22 which take account of
both past performance and expectations for future developments. Cash flows
beyond the plan period are extrapolated using estimated growth rates of 2.5%
(2018: 2.5%) for the United Kingdom and 2.8% (2018: 2.8%) 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 7.8% (2018: 7.3%) for
the United Kingdom CGUs and 8.3% (2018: 8.2%) 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 Student, First Bus and First Rail divisions.
The value in use of the Greyhound division exceeds its carrying amount of
£295.4m (2018: £590.4m) by £85.2m (2018: £(277.3)m shortfall). Sensitivity
analysis indicates that the Greyhound margin would need to fall by 0.8% or
more or growth rates would need to fall below 1.5% for there to be an
impairment on this CGU. An increase in the discount rate of 134 basis points
or more would lead to the value in use of the CGU being less than the carrying
value. A reduction in the margin of 1.0% in all years, including the terminal
margin, would result in an impairment charge of approximately £32.5m. A
reduction in the growth rate of 2.0% in all years, including the terminal
growth rate, would result in an impairment charge of approximately £35.2m.
Following their review of goodwill, the Directors have concluded that there is
no impairment of goodwill in any of the CGUs.
9 Other intangible assets
Customer contracts £m Greyhound brand and trade name £m Software £m Total £m
Cost
At 1 April 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
Acquisitions 0.7 – – 0.7
Additions – – 8.9 8.9
Transfers – – 1.9 1.9
Disposals – – (1.6) (1.6)
Foreign exchange movements 31.0 4.6 3.9 39.5
At 31 March 2019 471.4 71.5 76.2 619.1
Accumulated amortisation and impairment
At 1 April 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
Charge for year 8.6 3.2 18.1 29.9
Transfers – – 0.1 0.1
Foreign exchange movements 30.0 2.7 1.4 34.1
At 31 March 2019 460.3 43.7 40.0 544.0
Carrying amount
At 31 March 2019 11.1 27.8 36.2 75.1
At 31 March 2018 18.0 29.1 42.7 89.8
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 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
Acquisitions – 1.5 – 1.5
Additions in the year 13.8 283.2 136.0 433.0
Transfers – – (1.9) (1.9)
Disposals (39.8) (87.9) (58.9) (186.6)
Reclassified as held for sale (22.4) (202.1) (8.8) (233.3)
Foreign exchange movements 19.5 165.3 22.0 206.8
At 31 March 2019 463.9 3,384.6 866.9 4,715.4
Accumulated depreciation and impairment
At 1 April 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
Charge for year 15.4 235.8 114.8 366.0
Transfers – – (0.1) (0.1)
Disposals (12.8) (82.5) (57.8) (153.1)
Impairment – 10.7 2.3 13.0
Reclassified as held for sale (8.8) (176.0) (7.9) (192.7)
Foreign exchange movements 4.7 87.7 18.2 110.6
At 31 March 2019 101.0 1,780.0 668.5 2,549.5
Carrying amount
At 31 March 2019 362.9 1,604.6 198.4 2,165.9
At 31 March 2018 390.3 1,520.3 179.5 2,090.1
11 Inventories
2019 £m 2018 £m
Spare parts and consumables 60.2 56.0
In the opinion of the Directors there is no material difference between the
balance sheet value of inventories and their replacement cost. There was no
material write-down of inventories during the current or prior year.
12 Trade and other receivables
Amounts due within one year 2019 £m 2018 £m
Trade receivables 617.9 482.2
Loss allowance (3.6) (4.3)
Trade receivables net 614.3 477.9
Other receivables 84.9 106.8
Amounts recoverable on contracts 43.3 –
Prepayments 164.0 103.7
Accrued income 234.9 199.6
1,141.4 888.0
13 Trade and other payables
Amounts falling due within one year 2019 £m 2018 £m
Trade payables 278.7 248.8
Other payables 299.8 230.2
Accruals 710.3 581.9
Deferred income 167.8 83.6
Season ticket deferred income 90.7 89.2
1,547.3 1,233.7
14 Borrowings
2019 £m 2018 £m
On demand or within 1 year
Finance leases (note 15) 41.5 47.1
Bond 6.125% (repayable 2019) – 261.3
Bond 8.75% (repayable 2021) (1) 30.4 30.1
Bond 5.25% (repayable 2022) (1) 5.8 5.8
Bond 6.875% (repayable 2024) (1) 7.2 7.2
Total current liabilities 84.9 351.5
Within 1-2 years
Finance leases (note 15) 18.1 39.5
Loan notes (note 16) 9.4 9.5
27.5 49.0
Within 2-5 years
Syndicated loan facilities 446.7 197.0
Finance leases (note 15) 0.2 18.0
Bond 8.75% (repayable 2021) 357.7 358.9
Bond 5.25% (repayable 2022) 322.1 321.6
1,126.7 895.5
Over 5 years
Finance leases (note 15) 0.1 0.1
Senior unsecured loan notes 210.0 195.2
Bond 6.875% (repayable 2024) 199.8 199.8
409.9 395.1
Total non-current liabilities at amortised cost 1,564.1 1,339.6
1 Relates 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:
2019 Minimum payments £m 2019 Present value of payments £m 2018 Minimum payments £m 2018 Present value of payments £m
Due in less than one year 42.7 41.5 48.3 47.1
Due in more than one year but not more than two years 19.0 18.1 41.6 39.5
Due in more than two years but not more than five years 0.3 0.2 19.6 18.0
Due in more than five years 0.1 0.1 0.1 0.1
62.1 59.9 109.6 104.7
Less future financing charges (2.2) – (4.9) –
59.9 59.9 104.7 104.7
16 Loan notes
The Group had the following loan notes issued as at the balance sheet dates:
2019 £m 2018 £m
Due in more than one year but not more than two years 9.4 9.5
17 Financial instruments
2019 £m 2018 £m
Total derivatives
Total non-current assets 20.5 25.0
Total current assets 15.5 27.3
Total assets 36.0 52.3
Total current liabilities 3.4 6.7
Total non-current liabilities 1.9 3.0
Total liabilities 5.3 9.7
Derivatives designated and effective as hedging instruments carried at fair value Non-current assets
Coupon swaps (fair value hedge) 16.2 17.6
Fuel derivatives (cash flow hedge) 2.7 7.4
Currency forwards (cash flow hedge) 1.6 –
20.5 25.0
Current assets
Coupon swaps (fair value hedge) – 11.4
Fuel derivatives (cash flow hedge) 11.3 15.9
Currency forwards (cash flow hedge) 4.2 –
15.5 27.3
Current liabilities
Fuel derivatives (cash flow hedge) 3.4 1.4
Currency forwards (cash flow hedge) – 5.3
3.4 6.7
Non-current liabilities
Currency forwards (cash flow hedge) – 2.9
Fuel derivatives (cash flow hedge) 1.9 0.1
1.9 3.0
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 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)
Charge/(credit) to income statement 2.8 3.5 10.3 (14.7) 1.9
Credit to other comprehensive income and equity – (7.1) (0.6) – (7.7)
Foreign exchange and other movements 11.7 (2.6) 7.1 (19.0) (2.8)
At 31 March 2019 188.9 (60.0) 102.7 (255.7) (24.1)
Certain deferred tax assets and liabilities have been offset. The following is
the analysis of the deferred tax balances for financial reporting purposes:
2019 £m 2018 £m
Deferred tax assets (40.6) (37.7)
Deferred tax liabilities 16.5 22.2
(24.1) (15.5)
19 Provisions
2019 £m 2018 £m
Insurance claims 292.7 231.7
Legal and other 35.5 28.1
TPE onerous contract 76.6 79.2
SWR onerous contract 125.5 –
Pensions 1.7 2.0
Non-current liabilities 532.0 341.0
Insurance claims £m Legal and other £m TPE onerous contract £m SWR onerous contract £m Pensions £m Total £m
At 1 April 2018 368.8 67.6 106.3 – 2.0 544.7
Charged to the income statement 278.5 39.1 – 145.9 – 463.5
Utilised in the year (210.0) (40.5) (0.5) – (0.3) (251.3)
Notional interest 11.0 3.6 1.1 – – 15.7
Foreign exchange movements 23.5 1.8 – – – 25.3
At 31 March 2019 471.8 71.6 106.9 145.9 1.7 797.9
Current liabilities 179.1 36.1 30.3 20.4 – 265.9
Non-current liabilities 292.7 35.5 76.6 125.5 1.7 532.0
At 31 March 2019 471.8 71.6 106.9 145.9 1.7 797.9
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
The current liabilities above are included within accruals in note 13.
The insurance claims provision arises from estimated exposures for incidents
occurring prior to the balance sheet date. It is anticipated that the majority
of such claims will be settled within the next five years although certain
liabilities in respect of lifetime obligations of £27.9m (2018: £22.2m) can
extend for up to 30 years. The utilisation of £210.0m (2018: £192.7m)
represents payments made against the current liability of the preceding year
as well as the settlement of certain large aged claims.
The insurance claims provisions contains £21.5m (2018: £15.5m) which is
recoverable from insurance companies and is included within other receivables
in note 12.
Legal and other provisions relate to estimated exposures for cases filed or
thought highly likely to be filed for incidents that occurred prior to the
balance sheet date. It is anticipated that most of these items will be settled
within 10 years. Also included are provisions in respect of costs anticipated
on the exit of surplus properties which are expected to be settled over the
remaining terms of the respective leases and dilapidation, other provisions in
respect of contractual obligations under rail franchises and restructuring
costs. The dilapidation provisions are expected to be settled at the end of
the respective franchise.
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 2025. 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. Whilst the onerous contract provision is based upon management’s
current best estimate, there can be no certainty that actual results will be
consistent with those forecasts. The TPE onerous contract provision is
sensitive to a change in the assumptions used, most notably to passenger
revenue growth and the outcome of commercial negotiation with industry bodies.
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 approximately £24m. The provisions are expected to be fully utilised
within six years.
The onerous contract provision in respect of SWR has been calculated based on
updated financial forecasts for this franchise until the initial franchise end
date of 17 August 2024. The updated forecasts are based on a number of
assumptions, most significantly passenger revenue growth and the impact of the
Central London Employment and Gross Domestic Product revenue mechanisms, as
well as the impact of changes in timetables, capacity and rolling stock. In
addition, the effects of infrastructure performance and the ongoing effect
from industrial action during the year continue. There is considerable
uncertainty about the future impact of the industrial action and the level of
strike amelioration recoverable from the DfT, and we remain in discussions
with the DfT. Whilst the onerous contract provision is based on management’s
current best estimate, there can be no certainty that actual results will be
consistent with those forecast. The SWR onerous contract is sensitive to the
underlying assumptions, most notably to passenger revenue growth and to the
extent or timing of impacts from strikes and the recovery of amelioration from
the DfT. The £145.9m provision comprises £87.4m parent company support,
£15.0m performance bond, £30.0m agreed funding commitments and £13.5m of
retained earnings which represents the maximum exposure. These factors make it
impractical to provide a sensitivity analysis on one single measure and its
impact on the onerous contract provision. The provision is expected to be
fully utilised within six years although the timing is highly sensitive to the
underlying assumptions.
The pension’s provision relates to unfunded obligations that arose on the
acquisition of certain First Bus companies. It is anticipated that this will
be utilised over approximately five years.
20 Called up share capital
2019 £m 2018 £m
Allotted, called up and fully paid
1,213.9m (2018: 1,210.8m) ordinary shares of 5p each 60.7 60.5
The Company has one class of ordinary shares which carries no right to fixed
income.
During the year 3.1m shares were issued to satisfy principally SAYE exercises.
21 Net cash from operating activities
2019 £m 2018 £m
Operating profit/(loss) 9.8 (196.2)
Adjustments for:
Depreciation charges 366.0 389.6
Capital grant amortisation (28.6) (16.0)
Amortisation charges 29.9 70.9
Impairment charges 13.0 284.8
Share-based payments 9.1 8.9
(Profit)/loss on disposal of property, plant and equipment (23.5) 8.3
Operating cash flows before working capital and pensions 375.7 550.3
(Increase)/decrease in inventories (2.0) 4.6
Increase in receivables (209.4) (168.7)
Increase in payables and provisions due within one year 332.5 341.7
SWR onerous contract provision 145.9 –
TPE onerous contract provision (0.5) 106.3
Increase/(decrease) in other provisions 37.3 (10.5)
Defined benefit pension payments in excess of income statement charge (24.3) (47.9)
Cash generated by operations 655.2 775.8
Tax paid (7.5) (12.2)
Interest paid (81.3) (122.1)
Interest element of HP contracts and finance leases (2.7) (4.6)
Net cash from operating activities 563.7 636.9
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 2019. 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:
Matthew Gregory
Chief Executive
30 May 2019
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