REG-FirstGroup PLC: Final Results
08/07/2020 07:05
FIRSTGROUP PLC
RESULTS FOR THE YEAR TO 31 MARCH 2020
* Our first priority is the health and safety of the Group’s passengers and
employees. The Board is immensely proud of our people who are working so hard
to support our communities during the coronavirus pandemic
* Trading trends prior to the pandemic were broadly similar throughout the
year – industry cost pressures including labour and insurance costs largely
offset by revenue growth in First Student, First Transit and First Bus
(excluding disposals) and management actions. A more difficult trading
environment for Greyhound was offset by a strong financial performance from
GWR and the start of West Coast Partnership in First Rail
* The impact of coronavirus in March, traditionally a significant trading
period, resulted in average passenger volumes declining by c.90% by month end,
with international lockdowns in place and all North American schools we serve
closed
* Group partially offset this impact through initial cost actions and the
start of fiscal and contractual support, but it resulted in a significant
effect on revenue and a material impact to adjusted(1) operating profit, which
reduced to £256.8m (2019: £314.8m)
* Statutory operating loss of £(152.7)m (2019: profit of £9.8m) reflects
charges relating to the North American self-insurance provision, Greyhound
impairment charges, restructuring and reorganisation costs and
coronavirus-related charges
* Adjusted cash flow(2) was ahead of our expectations in the year and net
debt: EBITDA on ‘frozen accounting standards’ basis(3) was 1.4 times
(2019: 1.3 times). Pre-IFRS 16, net debt(5) was flat year-on-year with
reported net debt higher as expected due to the implementation of IFRS 16
(leases) in the year
* Liquidity increased to c.£850m in free cash and committed undrawn
facilities as at end of June 2020
* Generated positive cash from operations before capital expenditure in first
quarter of FY21
* Swift and comprehensive funding and support measures across all our
divisions from governments and customers demonstrate the critical importance
of public transportation. As lockdowns ease, our services will play an
integral role in the restoration of economic activity as evidenced by
additional funding and support, though we recognise there is material
uncertainty as to the continuation of these measures
* Board is resolutely committed to and engaged in rationalisation of the
Group’s portfolio through divestment of the North American businesses
Statutory Mar 2020 Mar 2019 £m
£m
Revenue 7,754.6 7,126.9
Operating (loss)/profit (152.7) 9.8
Loss before tax (299.6) (97.9)
EPS (27.0)p (5.5)p
Net debt (4) 3,278.1 903.4
* Of which, bonds, bank and other debt net of cash 896.2 903.4
* Of which, IFRS 16 right of use lease liabilities 2,381.9 -
Mar 2020 Mar 2019 £m Change Change in constant currency (4)
£m
Revenue 7,754.6 7,126.9 +8.8% +7.2%
Adjusted (1)operating profit 256.8 314.8 (18.4)% (20.1)%
Adjusted (1)operating profit margin 3.3% 4.4% (110)bps (110)bps
Adjusted (1)profit before tax 109.9 208.2 (47.2)% (48.2)%
Adjusted (1)EPS 6.8p 13.3p (48.9)% (49.6)%
Adjusted net debt (6) 1,508.1 1,428.1 +5.6% +3.9%
Financial summary (percentage changes in constant currency(4) unless otherwise
stated)
* Group revenue in constant currency(4) +7.2% or +2.6% excluding the West
Coast Partnership franchise (now branded Avanti West Coast) that started in
December 2019; reported Group revenue +8.8%
* Excluding the coronavirus impact, the Group’s adjusted(1) operating profit
performance was broadly comparable to the prior year, with revenue growth,
first time contribution of Avanti and management action broadly offsetting
labour cost pressures and increases to the self-insurance cost in the North
American divisions, two adverse legal judgements in First Transit, Greyhound
revenue reductions and cost pressures, and poor UK summer weather and slower
cost efficiency programme progress in First Bus
* Statutory operating loss of £(152.7)m (2019: profit of £9.8m) and
statutory EPS of (27.0)p (2019: (5.5)p) include the Greyhound impairment
charge of £186.9m (of which £124.4m was in the first half), North American
self-insurance provision of £141.3m, restructuring and reorganisation costs
of £58.2m, and coronavirus-related charges of £21.5m
* The North American self-insurance provision reflects the hardening motor
claims environment impacting historic claims together with a significant
change in the market-based discount rate used. The self-insurance charge to
operating profit for the year to March 2020 reflects this revised environment
and the businesses continue to build the higher costs into their bidding
processes and hurdle rates for investment
* Adjusted(1) operating profit decline of (20.1)% principally reflects the
sudden and substantial reductions in service volumes and revenue due to the
coronavirus outbreak in the final weeks of our financial year, which the Group
was successful in partially offsetting through initial cost savings and the
start of fiscal and contractual support. March is traditionally a significant
trading period for the Group
* Several of the funding measures with governments were only concluded at the
end of the financial year, and in most divisions we continue to negotiate
further funding and support from governments or customers
* Adjusted(1) profit before tax and adjusted(1) EPS decreased by (48.2)% and
(49.6)% respectively, reflecting the lower adjusted(1) operating profit and
first-time adoption of IFRS 16 (lease accounting) on finance costs
* Pre-IFRS 16 net debt(5) was essentially flat in the year at £896.2m (2019:
£903.4m). As expected, first time adoption of IFRS 16 resulted in £2,381.9m
of leased liabilities (mainly Rail rolling stock) being recognised, increasing
reported net debt(5) to £3,278.1m (2019: £903.4m)
* Net debt: EBITDA ratio on the ‘frozen accounting standards’ basis(3)
relevant to the bank covenant requirement of less than 3.75 times was 1.4
times (2019: 1.3 times) at year end. Adjusted net debt(6): EBITDA (excluding
Rail ring-fenced cash and the IFRS 16 leased assets) was 2.4 times (2019: 2.1
times)
* Broadly flat net pension deficit £313.4m (2019: £307.2m) reflects actions
taken to derisk the scheme and improved investment strategy
* As at 31 March 2020 the Group’s undrawn committed headroom and free cash
was £585.7m (2019: £520.6m). Subsequent to the year end, the Group issued
£300m in commercial paper through the UK Government’s Covid Corporate
Financing Facility (CCFF) scheme and entered into a committed £250m undrawn
bridging loan for redemption of the £350m bond maturing in April 2021. The
Group also has an uncommitted £150m accordion facility to the RCF, as well as
further lines of uncommitted leasing facilities and more than $100m of
uncommitted supplier credit
Divisional summary
* First Student: strong contract retention through excellent customer service,
positive pricing and acquisitions underpin market leadership position; despite
cost headwinds well positioned to restart at the appropriate time for each of
our schools with conversations underway about how and when that will be
* First Transit: positive pricing, new contracts, and cost actions only
partially offset a number of cost headwinds during the year. Pace of
restoration of service will vary by business line but starting to see
increases in activity being directed by our transit authority customers
* Greyhound: Coronavirus compounded a challenging year with lower
immigration-related demand, competition and lower fuel prices resulting in
like-for-like(7) revenue reductions of (5.3)% and an adjusted(1) operating
loss in the year; government grants for our national network provide a
framework from which to build back up our timetables as passenger demand
justifies
* First Bus: like-for-like(7) passenger revenue +0.7% reflects the previously
reported poor weather in H1 and the coronavirus outbreak. Fuel and other
inflationary pressures during the year were partially offset by initial
benefits of cost efficiency programme; new government ‘Restart’ grants in
place to enable increased service capacity while maintaining social distancing
* First Rail: like-for-like(7) passenger revenue +0.2%. Strong GWR performance
and successful start-up of the West Coast Partnership’s new Avanti franchise
were offset by previously reported challenges in TPE and SWR. Secured GWR
contract from April 2020 until at least 2023. All franchises underpinned by
Emergency Measures Agreements with UK government until at least September
Current trading and outlook
* Government and societal responses to the pandemic have had a significant
impact on all of our markets, and will continue to do so for some time to
come. Travel volumes have reduced very substantially and while guidance to
limit travel and socially distance remains in place, this will have a
significant impact on our service capacity and financial performance
* At the same time, governments and customers recognise the need to maintain
our transport services and are enabling this through fiscal, contractual and
other support
* There are material uncertainties as to how rapidly demand will increase, the
rate at which fiscal support tapers and the duration of social distancing
rules, as well as the timing of North American schools reopening. Therefore it
is currently not possible to provide guidance for the financial year to 31
March 2021
* While the Group currently has material fiscal and contractual support for
running essential services across the divisions during the pandemic and
committed undrawn liquidity of c.£850m as at the end of June, there are
material uncertainties as to the future consequences of the coronavirus
pandemic. The potential impact of certain scenarios have been highlighted in
the going concern statement on page 23
* However, based on current government and customer measures, and the cost
reductions made in response to lower demand, the Group delivered adjusted(1)
operating profit and positive cash from operations before capital expenditure
since the start of the current financial year. Recognising the usual
seasonality of our First Student business over the school summer holiday
period, we would expect this relatively resilient financial performance to
persist while these arrangements remain in place
Commenting, Chief Executive Matthew Gregory said:
“The funding and support we have received from governments and our customers
to sustain critical transport services is testament to their importance now
and for the future. We took rapid action to protect our ability to deliver
continuity of the transport services that are so essential to our economies.
Our priority since the start of the outbreak has been the health and safety of
the Group’s passengers and employees. I am immensely proud of our people who
are working so hard to support our communities during the crisis, by
maintaining essential transport services and providing direct assistance to
those who need it most.
“There is no way of predicting with any certainty how the coronavirus
pandemic will continue to affect the public transportation sector and the
impact it may have on customer trends longer-term. However, as leading
operators in each of our markets we are strongly positioned for a recovery in
passenger demand and for the opportunities that may emerge from this
exceptional period. This will become ever more pertinent as the focus and
drive towards zero-carbon public transportation systems inevitably increases,
helping to create a better connected and more sustainable world.
“Despite the near-term uncertainty, the long-term fundamentals of our
businesses remain sound. We are resolutely committed to delivering our
strategy to unlock material value for all shareholders through the sale of our
North American divisions at the earliest appropriate opportunity. The
importance of public transport to society has never been more clearly
demonstrated, and we will continue to take all necessary measures to enable
the Group to emerge from this unprecedented situation in a robust position.”
Contacts at FirstGroup:
Faisal Tabbah, Head of Investor Relations
Stuart Butchers, Group Head of Communications
corporate.comms@firstgroup.com
+44 (0) 20 7725 3354
Contacts at Brunswick PR:
Andrew Porter / Simone Selzer, Tel: +44 (0) 20 7404 5959
A conference call for investors and analysts will be held at 9:00am today –
attendance is by invitation. Please email corporate.comms@firstgroup.com in
advance of the call to receive joining details. To access the presentation to
be discussed on the conference call, together with a pdf copy of this
announcement, go to www.firstgroupplc.com/investors. A playback facility will
also be available there in due course.
Notes
(1 ) ‘Adjusted’ figures throughout this document reflect the
adoption of IFRS 16 in the period and are before the Greyhound impairment
charges, North American self-insurance provisions, restructuring and
reorganisation costs, other intangible asset amortisation charges and certain
other items as set out in note 4 to the financial statements.
(2 ) ‘Adjusted cash flow’ is described in the table shown on
page 29.
(3 ) Net debt: EBITDA on the ‘frozen accounting standards’
basis refers to the methodology required for calculating the Group’s
compliance with the covenants on its banking facilities.
(4 ) Changes 'in constant currency' throughout this document are
based on retranslating 2019 foreign currency amounts at 2020 rates.
(5 ) Net debt is stated excluding accrued bond interest, as
described on page 31.
(6) Adjusted net debt is stated after excluding cash ring-fenced in
the Rail division and IFRS 16 operating leases.
(7 ) 'Like-for-like' revenue adjust for certain factors which
distort the period-on-period trends in our passenger revenue businesses,
described on page 34.
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 Keith Hubber, 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 £7.8 billion in revenue in 2020 and around 100,000
employees, we transported 2.1 billion passengers. 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 43,000 yellow school buses, First Transit is
one of the largest providers of outsourced transit management and contracting
services, while Greyhound is the only nationwide operator of scheduled
intercity coaches. In the UK, First Bus is one of Britain's largest bus
companies with 1.4 million passengers a day in 2020, and First Rail is one of
the country's most experienced rail operators, carrying 340 million passengers
in the year. Visit our website at www.firstgroupplc.com and follow us
@firstgroupplc on Twitter.
Chairman’s Statement
I joined as Chairman in August and since then I have spent a great deal of
time with our businesses and also met regularly with our major shareholders to
develop a full understanding of their range of views and perspectives. It was
clear to me that there are limited synergies, particularly between the UK and
North American divisions, and significant value to be unlocked by separating
them, in addition to improving the performance of our UK businesses.
North American sale processes
Working with management and supported by independent advisers, the Board
formally reviewed the various options to maximise value for all shareholders
(acknowledging that a sale process for Greyhound was already underway) and
formally announced in December 2019 that the Group would explore all options
in respect of our North American contract businesses, First Student and First
Transit, including a potential disposal. By this point preparatory work had
been undertaken, in conjunction with expert third-party consultants and
advisers, for a possible carve-out and sale of these businesses, and the team
began designing the optimal structure for implementation and compiling the
detailed materials and reports necessary for a transaction of this scale. We
formally announced the commencement of the sale process in early March 2020
having been encouraged by the significant interest expressed in our North
American contract businesses.
The onset of the coronavirus pandemic and all its attendant uncertainties for
potential buyers and their finance providers has impacted the speed at which
this process can be concluded but it remains the objective. The Board has
continued to regularly review all options to deliver value from these assets
and continues to believe that the sale of these businesses remains the best
way to unlock material value for all FirstGroup shareholders. Clearly the
state of financing markets and the availability of capital, as well as greater
visibility on the pace and profile of the resumption of services, will be
important factors for buyers to be able to make an informed assessment of the
divisions' prospects
I believe the management, supported by the current Board, are well placed to
deliver this outcome and that execution of this strategy at the right time is
still the best route to enhance the long-term value of our businesses, while
respecting our commitments to all our stakeholders.
Opportunities for bus and rail
On completion of the North American divestments the Group will become a
UK-based transportation provider with bus and rail operations at the core of
its business. We will continue to capture the benefits of our strong market
positions and build on them to deliver significantly enhanced performance in
First Bus over the medium term.
I believe that this is one of the most interesting moments for the bus
industry, and for public transport more generally, that I have seen in my
career in the sector. There is huge potential to play a key role in delivering
the benefits of the UK Government’s announced plans to invest in improving
city connectivity, raising air quality and lowering carbon intensity, and
‘levelling up’ harder hit parts of the country through improved economic
infrastructure and opportunity. These important issues are arguably even more
relevant as the UK emerges from the coronavirus crisis. Public transport can
and will be at the heart of all of these agendas.
In addition, we will continue to manage First Rail’s existing portfolio of
rail franchises to deliver sustainable benefits for passengers, shareholders
and our other stakeholders. Despite some well-trailed challenges in SWR and
TPE, First Rail as a whole has continued to deliver positive cash flow. I
believe that with the appropriate political will and structural changes to the
franchises, rail can deliver significant benefits for passengers and
shareholders in and of itself and as part of an integrated transport strategy.
We look forward to further clarity around the future shape of the rail
industry in the UK in light of the government’s long-awaited review of
franchising and the indications of their potential strategy that are implied
by more recent contract awards and the structure of the Emergency Measures
Agreements currently in place.
Coronavirus
The coronavirus pandemic that has swept through our communities has
undoubtedly overshadowed the year and its effects may well be felt for many
years to come. The Group has responded quickly to the many issues presented by
the pandemic and I am extremely proud of our employees who have more than
risen to the challenges of the present situation. We are deeply saddened by
the loss of employees in each of our five divisions due to the outbreak. On
behalf of the Board and all employees at FirstGroup, I offer our heartfelt
condolences and support to their families, friends and colleagues.
I have been very impressed by how quickly and comprehensively our businesses
have responded to the unprecedented challenges created by the pandemic.
Although passenger volumes decreased very rapidly during the final weeks of
the financial year due to the actions taken by governments to control the
outbreak, it was vital that we maintained a critical level of service so that
people, such as key workers, could continue to travel. Our people, together
with our local knowledge and platforms have allowed us to provide much needed
services, support and assistance to our communities during this challenging
time.
Consistent with our leadership position in our markets, and the trusted role
we play for our stakeholders, we also took an active role in engaging with
policymakers at all levels of government to ensure that our operations
providing essential transportation services were sustained during the crisis.
As described in more detail in the Chief Executive’s review and the business
reviews, the various forms of funding and support made available amply
demonstrate how important the services we provide are to governments and our
customers.
In light of the very substantially reduced passenger volumes across all our
divisions, the Group also took a series of proactive steps to reduce costs and
prioritise cash flow. By their nature, these types of decisions are very
difficult but were necessary in order to protect the Group for the long term.
Wherever possible we have sought to use the emergency schemes put in place by
governments to maintain our people in employment during the crisis, and in
several divisions we have now begun to bring employees back to work as
activity levels have started to increase. The imperative has been to maintain
critical services in the short term and be ready to respond quickly to resume
the services that will reconnect people and re-open communities as
restrictions are eased.
The fact that all of our businesses are leaders in their markets gives me
confidence they are well placed to restore services rapidly when required, and
potentially will see new opportunities for us to do more to deliver for all
our stakeholders.
Preparing for the future
There are many uncertainties ahead which create a range of potential scenarios
for our businesses to consider as our markets on both sides of the Atlantic
emerge from the lockdown. The effects potentially will be felt at the
macroeconomic level, the level of customer behaviour in our markets, in the
level and duration of continued fiscal support provided to our and others’
industries and in other ways we cannot yet predict. The material uncertainties
facing the Group and the Board’s consideration of them are discussed in more
detail in the going concern section on page 23. However, while the precise
timing and details are unclear, I am confident that the underlying demand for
children to travel to school, for commuters to get to work, friends and family
to visit each other and meet up to socialise, and for people to shop and to do
business face to face will return.
Since my appointment in mid-August, I have been actively engaging with our
divisions’ commercial plans to stay at the forefront of our markets and I am
encouraged by the innovations in customer experience we are delivering.
Clearly another key factor, of increasing importance to our customers and
communities, is for the public transport industry to make further progress in
support of the environmental sustainability agenda. Our Group-wide
sustainability framework focuses on innovating for our customers, being a
partner of choice for low- and zero-emission transport and supporting our
people to help make the transition to greener transportation a reality.
The Board
The Board’s composition, activities and processes have changed and adapted
as a result of the events of this year, and have been working well. In
addition to my appointment as Chairman, Ryan Mangold joined the Board as Chief
Financial Officer while Julia Steyn and Sally Cabrini joined the Board as
Non-Executive Directors during the year. I am satisfied that the Board has the
appropriate mix of skills, experience and knowledge to provide effective input
and oversight to the portfolio rationalisation strategy.
Our people
The dedication and resilience of our more than 100,000 employees has been
vividly demonstrated during the coronavirus pandemic and I am extremely proud
of all of our employees who have more than risen to the challenges of the
present crisis in support of our customers and communities.
Conclusion
Despite near-term uncertainty in the wider markets, there remains a
fundamental need for people to travel safely and conveniently for business,
education, social or recreational purposes which is essential to sustainable
and thriving economies and communities. We are resolutely focused on
delivering our plans – including the sale processes for the North American
divisions – at the earliest appropriate opportunity and in the best
interests of all shareholders. In the year ahead the Board will continue to
focus its collective experience and expertise on the task of delivering value
for all our stakeholders.
David Martin
Chairman
8 July 2020
Chief Executive’s review
This year will come to be remembered mainly for the rapid escalation of the
coronavirus outbreak in our key markets in North America and the UK which took
place in the final weeks of the financial year. I would like to echo the
Chairman’s remarks in expressing my deepest condolences to the families and
loved ones of our employees who have tragically lost their lives as a result
of the coronavirus outbreak. We keep all those affected by the global health
crisis in our thoughts.
The spread of the virus itself and government decisions to mandate lockdowns
or ‘shelter in place’ orders resulted in a very rapid reduction in service
volumes for all our businesses. The Group acted quickly and decisively to
ensure we could continue to deliver essential services in the midst of the
lockdowns and to restore capacity as restrictions on travel start to ease. Our
ability to respond was enhanced by the actions we had been taking throughout
the year to strengthen our businesses and execute their clear commercial
strategies to deliver future progress and growth. While the pandemic has
inevitably delayed our plans to rationalise the portfolio as potential buyers
and providers of finance assess recent events, we remain committed to
delivering this at the earliest appropriate opportunity. We face the future
with strong market positions in each of our businesses to build on
commercially, substantial liquidity and a clear strategy to reshape the
Group’s structure going forward.
Coronavirus response
Our priority since the start of the outbreak has been the health and safety of
the Group’s passengers, employees and communities. As the pandemic has
progressed, we have worked closely with our suppliers to ensure we have the
appropriate equipment in place, and we are following all relevant public
health authority guidance for our businesses. The situation continues to
evolve but we are following and also developing best practice in areas such as
enhanced cleaning and decontamination of vehicles, depots and terminals and
operating under social distancing rules.
We noted at our regular trading update in the middle of March that we had seen
no significant impact from the coronavirus outbreak at that point and affirmed
that the Group’s overall outlook was in line with our expectations. Within
days of that update we began to see rapid and unprecedented changes in the
market environments for all our businesses. All of our passenger revenue
businesses in North America and the UK experienced volume reductions, with
Greyhound, First Bus and First Rail patronage reduced by between 80 and 90%
compared with pre-pandemic levels. All of the schools served by First Student
were closed by the end of March, and First Transit also experienced reduced
service requirements. Government advice and policy in our markets has changed
rapidly throughout the pandemic, and at an early stage we began very active
discussions with many of our customers about future service levels and full or
partial payments in lieu of reduced service.
Our customers and government partners recognised the need to rapidly adjust
services to fit demand from key workers, whilst preserving our ability to
restore service when required. We had productive engagement with our major
customers on revenue recovery, including school boards throughout North
America, and local, state and national governments in all our markets. In
particular, the UK Government quickly put in place comprehensive emergency
measures, initially for six months, to maintain continuity of critical rail
services and also introduced a package of funding to maintain bus industry
capacity for key workers, which has subsequently been extended to support
increased capacities with social distancing. Meanwhile, the US federal
stimulus package (CARES Act) signed into law on 27 March 2020 provided
substantial funding to the states, municipal and local authorities, including
school boards, to sustain critical transportation and educational services and
support businesses and their employees.
In light of the very substantially reduced passenger volumes across all our
divisions, we took immediate and significant management actions to reduce
costs and preserve cash. In doing so, our aim has been to protect the Group
for the long term, ensuring critical services continued while travel
limitations were at their most restrictive in our markets, while retaining the
ability to increase capacity rapidly when appropriate. Actions implemented
across the Group included reducing operating expenditure, halting
discretionary spend and placing future capital expenditure orders on hold
whilst managing existing commitments accordingly.
A substantial proportion of our total workforce in North America and the UK
were placed on temporary furlough under the emergency job retention schemes
put in place by governments in response to the pandemic. In several divisions
we have now begun to bring employees back out of the schemes as activity
levels have started to increase again. We also introduced hiring freezes and
halted consultant and contract labour where possible across the Group. In
certain areas it was regrettably necessary to reduce headcount permanently,
particularly where customers chose not to support employee retention by
maintaining some level of contractual payments during this time. We are also
utilising the tax payment holidays and other emergency measures announced by
governments to assist companies in managing their costs during this time. Both
Ryan Mangold, Chief Financial Officer, and I volunteered to take a 20%
reduction in salaries, and the Chairman and non-executive Board directors
volunteered a corresponding reduction in their fees. In addition, a wider
group of senior employees across the Group have also made voluntary salary
reductions and deferrals.
Through our actions we have worked hard to deliver the key services our
customers and communities rely on while ensuring that we remain in a position
to support an increase in service levels as our economies begin to emerge from
the crisis.
Our people
I am proud of our immensely diverse workforce across the UK and North America,
which is a strength of our business as we reflect the communities of which we
are a part. We are committed to maintaining that diversity, with all the
benefits it brings to our communities and the Group. Our businesses are part
of the critical infrastructure providing essential transportation services to
our communities, which have enabled key workers to travel to their
destinations and perform their vitally important roles, and our people have
played an important part in delivering these much-needed services. In
addition, many of our colleagues and teams across the Group are providing
direct assistance right at the heart of their local areas, offering support to
those who are most in need. These examples include our drivers delivering food
and medical supplies to vulnerable people in the community as well as
curriculum support materials to school children; offering free transport to
first responders and frontline medical professional volunteers or creating
space in our bus terminals and train stations for community initiatives
including key worker food collection points. I want to express my gratitude
and thanks to all our employees who are working so hard to keep vital services
running at this difficult time.
Year in review
As noted, the pandemic inevitably affected our financial results because March
is typically a significant trading period for the Group, with all divisions
usually operating at near-full capacity throughout the month. The sudden and
substantial reductions in service volumes and revenue due to the coronavirus
outbreak contributed significantly to a decline of (20.1)% in Group adjusted
operating profit to £256.8m (2019: £314.8m), which the Group was successful
in partially offsetting through a cost and cash savings programme undertaken
as we reacted to the start of the crisis as well as the initial phases of
fiscal and contractual support from governments and customers in the period.
The coronavirus outbreak reduced revenue significantly and its effect on
adjusted operating profit in the final weeks of the year was material. The
Group reported a statutory operating loss of £(152.7)m (2019: profit of
£9.8m), reflecting the Greyhound impairment charge of £186.9m (of which
£124.4m was in the first half), North American self-insurance provision of
£141.3m, restructuring and reorganisation costs of £58.2m, and
coronavirus-related charges of £21.5m.
Progress was being made in executing our clear commercial strategies for our
five divisions during the rest of year, up to the point when the coronavirus
outbreak rapidly affected our business.
North American divisions
In particular, we were pleased to have delivered another strong bid season and
three complementary acquisitions in our largest business First Student, based
in no small part on the strong reputation for customer service and safety we
have built up and sustained over many years. First Student’s average
customer satisfaction score reached an all-time high this year of 8.93 out of
10, underpinning our success in both retaining business and winning customers
over from our competitors. First Transit was also successful in several
contract bids which are likely to be of significance in future, including our
paratransit partnership with Lyft and a major shuttle contract at Los Angeles
airport, albeit the division experienced a number of cost headwinds throughout
the year. We were disappointed with the deterioration in the US motor claims
environment which, together with lower discount rates, have required an
increase in the insurance reserves provided for all of our North American
businesses. Greyhound also faced further challenges throughout the year, as a
result of the substantial reduction in long-distance passenger numbers from
the south western US, fuel prices and increasing competition, particularly in
shorter haul routes.
UK divisions
In the UK, First Bus has sought to move to the forefront of the industry in
terms of technology and customer experience, bringing to passengers a number
of upgrades to our highly regarded passenger app, including becoming the first
large operator to add the capability for customers to check in real time how
full each bus is, and the availability of wheelchair spaces, helping them to
make more informed travel decisions. This innovation was fast-tracked given
its particular significance while bus capacity is limited due to social
distancing requirements. We were the first major operator to bring contactless
payment to the entire fleet; this, together with our mobile app, have become
the preferred payment mechanisms for our customers, overtaking cash
transactions during the year. Currently only 10% of our customers are paying
by cash. A significant change in the political climate for local bus service
and innovation funding has also been very welcome. We are focused on First Bus
becoming a leader in the transition to a low-carbon future for public
transportation. We are committing to operate a zero-emission bus fleet in the
UK by 2035, and do not plan to purchase any new diesel buses after December
2022. We look forward to working closely with our supply chain, industry
partners and the UK Government to ensure that our shared ambitions can be
taken forward following the current crisis. This builds on our investments in
buses to help deliver local authorities’ air quality commitments over recent
years.
We also continued to actively address the cost base of First Bus through a
comprehensive efficiency programme, although the pace of progress has been
slower than planned, in part due to the pandemic. This incorporates reviews of
our networks using more granular passenger data than ever before thanks to our
new digital ticketing systems, as well as changes to our procurement, back
office and other functions. All of these actions have been incorporated into
our plans for reintroducing service as the coronavirus-related restrictions on
travel begin to ease. The announcement last May of our intention to
rationalise our portfolio of businesses also enabled us to undertake more
detailed engagement in the development of a framework for funding the First
Bus pension scheme towards low dependency. Importantly, it is anticipated that
this framework should be deliverable in a range of transaction scenarios.
In First Rail we were pleased with the award and subsequent start-up of the
West Coast Partnership by our 70:30 rail venture with Trenitalia, which was
re-branded Avanti West Coast in December. In addition to Avanti we announced
on 30 March 2020 an extension to our GWR contract for an additional three
years, extendable by up to a year at the DfT’s discretion. This follows a
year when GWR successfully delivered substantial new fleets and the biggest
timetable change in a generation, which contributed to a very strong
improvement in its passenger satisfaction scores this year. By contrast, TPE
experienced difficult operating conditions during the year, with the delayed
delivery of new trains and network issues affecting our performance, while
SWR’s performance continued to be challenged principally by deep-rooted
Network Rail infrastructure problems outside of our control, as well as
protracted and unnecessary industrial action by the RMT. We remain resolved to
finding a solution that will be of benefit to everyone involved with SWR.
There is considerable uncertainty about the level of future rail passenger
demand and hence the risk and reward balance for operators under existing
contracts when the present emergency measures in place across the rail
industry end in September or later. Notwithstanding these issues, we continue
to work with our industry partners to deliver better customer experiences at
all our train operating companies.
The future
Continuity of transport has been essential to governments, local communities
and many of our customers throughout the coronavirus crisis, and it will also
be critical to the restoration of economic growth when the present uncertain
and difficult situation is overcome. The funding and support advanced by
governments and customers to sustain these critical transport services is
testament to their importance now and in the future.
Our businesses have always been proud of the role they play as part of the
critical infrastructure of society, crucial to our local economies and their
environmental impact, and today our teams are playing a vital role in helping
communities to reopen safely and in accordance with local regulations and
advice. At the same time, the world has had no experience of a similar
pandemic in recent times, so there is no way of predicting with any certainty
how the crisis will continue to evolve, nor the long-term effect coronavirus
will have on demand for our services, with the possibility that working and
hence commuting patterns may change or more shopping may move online, for
example. Travel restrictions and social distancing are likely to remain in
place for some time to come and there is uncertainty as to what the
medium-term funding models from governments may be in that context, as well as
their impact on consumer behaviour.
However, we are market leaders in all of our businesses, and are well
positioned to assist customers if smaller operators are unable or less willing
to do so, and we are already seeing an increase in potential acquisition or
new business opportunities in some of our markets as a consequence. Whilst the
coronavirus pandemic has been a huge challenge to our societies and economies,
it has also shown what life with far fewer cars on the road is like. This has
not only meant benefits in terms of reduced emissions and improved air
quality, but it has led to less congested roads, and hence faster, more
reliable and safer journeys by other means as well. It has long been clear
that public transport is a vital part of the solution in achieving radical
decarbonisation, and the present emergency ought to hasten the transition to a
vibrant zero-carbon public transportation system, fully playing its part in
creating a better connected and healthier world. Our Group-wide sustainability
framework, which focuses on innovating for our customers, being a partner of
choice for low- and zero-emission transport and supporting our people, sets
out how we aim to help make this transition a reality. Ultimately there are
significant gains for governments, society and our businesses if long-term
modal shift to public transport from the car is one of the consequences of the
present emergency. Our zero-emission commitment in First Bus, together with
the innovative work we are doing to support autonomous vehicle programmes and
developing Mobility as a Service (MaaS) business models will ensure we remain
at the forefront of developments as transportation continues to change.
Our strategy
Despite the near-term uncertainty, the long-term fundamentals of our
businesses are sound and we remain committed to our strategy to rationalise
our portfolio, with the sale of our North American businesses remaining the
best means to realise value. This is most likely to be delivered when there is
sufficient clarity on the pace and profile of service resumption (including on
schools reopening in North America), to allow potential buyers to make an
informed assessment of the divisions’ value, supported by fully functioning
leveraged finance markets. Meanwhile we will continue to progress a range of
value-creating business opportunities for these divisions, in accordance with
their commercial strategies.
We took immediate action as soon as we began to see the pandemic’s effects
and will continue to do all that is necessary to ensure the Group emerges from
this exceptional situation in the most robust position possible to deliver on
our strategic plans.
Current trading and outlook
The coronavirus pandemic and actions taken by governments and society in
response to it have had a significant impact on all of our markets, and will
continue to do so for some time to come. Travel volumes on all of our services
have reduced very substantially and while guidance to limit travel and
socially distance from other travellers remains in place, this will have a
significant impact on our service capacity and hence financial performance. At
the same time, governments and customers have recognised the critical
necessity that we maintain a level of capacity for our transport services and
are enabling us to do that through fiscal support, contractual and other
means. Given the material uncertainties as to how rapidly demand will
increase, the rate at which current fiscal support measures are tapered and
the duration of social distancing measures, as well as the timing of schools
reopening in North America, it is currently not possible to provide guidance
on the outturn for the financial year to 31 March 2021. While the Group
currently has material fiscal and contractual support for running essential
services across the divisions during the pandemic and committed undrawn
liquidity of c.£850m as at the end of June, there are material uncertainties
as to the future consequences of the coronavirus pandemic. The potential
impact of certain scenarios have been highlighted in the going concern
statement on page 23. However, based on current government and customer
measures, and the cost reductions made in response to lower demand, the Group
delivered adjusted operating profit and positive cash from operations before
capital expenditure since the start of the current financial year. Recognising
the usual seasonality of our First Student business over the school summer
holiday period, we would expect this relatively resilient financial
performance to persist while these arrangements remain in place.
Matthew Gregory
Chief Executive
8 July 2020
Operating and financial review
The Group has received contractual and direct fiscal support as a result of
the coronavirus pandemic. The basis of preparation of the financial statements
is that this support will continue to be provided to the Road Divisions until
passenger volumes and operated service activities return towards
pre-coronavirus pandemic levels. In addition it is assumed that Emergency
Measures Agreements (EMA) or similar arrangements will exist for the duration
of our existing First Rail franchises. Further details are set out in the
Going Concern statement on page 23. During the year the principal contractual
and direct fiscal support recognised comprised £131.8m of EMA funding in
First Rail, £48.2m of coronavirus recoveries and £10.4m of CARES Act
employee retention credits in First Student, £6.6m of CARES Act 5311(f)
funding in Greyhound, £7.4m of CBSSG and other funding in First Bus and
£1.6m of coronavirus recoveries in First Transit.
Group revenue in the year increased by 8.8%. In constant currency, revenue
increased by 7.2%, or by 2.6% excluding the initial contribution of the Avanti
rail franchise. This principally reflects growth in First Student, First
Transit and First Rail; like-for-like passenger revenue growth in First Bus
was offset by disposals while Greyhound experienced like-for-like passenger
revenue declines compared with the prior year and the effect of the withdrawal
from loss-making routes in Western Canada. The coronavirus outbreak and the
measures taken by authorities to control its spread in the final weeks of the
year significantly affected revenue in all divisions.
Group adjusted operating profit decreased by (20.1)% in constant currency, or
by (24.5)% adjusting for Avanti, reflecting a material impact from the
coronavirus outbreak in the period comprising drop through of lower revenues
offset by lower variable costs from reduced service levels, limited initial
customer support and government funding and commencement of cost actions in
the final week. The Road divisions' contribution to adjusted operating profit
decreased by (25.4)% in constant currency, reflecting the impact of the
coronavirus outbreak, £29.4m ($36.8m) increase in insurance costs for the
year reflecting the continued hardening of the North American insurance
market, labour cost pressures in the US, two adverse legal judgements in First
Transit, Greyhound revenue reductions, and poorer UK summer weather compared
with prior year and slower cost efficiency programme progress in First Bus,
partially offset by the First Student, First Transit and First Rail revenue
growth noted above and management actions. Software amortisation in the year
of £16.1m (2019: £18.1m) has been charged to divisional results in arriving
at adjusted operating profit and prior year Group and divisional adjusted
operating profit has been restated accordingly. In prior years this was
separately disclosed as an adjusting item. In the year, Greyhound recorded a
£8.3m profit (2019: £8.4m) on sale of real estate. The adjusted operating
profit contribution from First Rail in the year was flat, with the impact of
the coronavirus outbreak and moving to the Emergency Measures Agreements from
1 March largely offset by the first-time contribution from Avanti. Group
adjusted operating profit margin in constant currency decreased by (110)bps.
In reported currency, adjusted operating profit decreased by (18.4)% to
£256.8m (2019: £314.8m).
Year to 31 March 2020 Year to 31 March 2019
Revenue Adjusted operating Adjusted operating margin (1) Revenue £m Adjusted operating profit (1) £m Adjusted operating margin (1) %
£m profit (1) %
£m
First Student 1.940.4 158.8 8.2 1,845.9 171.2 9.3
First Transit 1,171.4 28.3 2.4 1,075.8 49.3 4.6
Greyhound 603.2 (11.6) (1.9) 645.1 2.6 0.4
First Bus 835.9 46.1 5.5 876.1 65.1 7.4
Group items (2) 17.8 (33.7) 17.3 (42.2)
Road divisions 4,568.7 187.9 4.1 4,460.2 246.0 5.5
First Rail 3,185.9 68.9 2.2 2,666.7 68.8 2.6
Total Group 7,754.6 256.8 3.3 7,126.9 314.8 4.4
North America in USD $m $m % $m $m %
First Student 2,474.9 205.9 8.3 2,424.9 227.1 9.4
First Transit 1,488.3 36.2 2.4 1,411.4 64.8 4.6
Greyhound 766.0 (15.3) (2.0) 846.7 2.7 0.3
Total North America 4,729.3 226.8 4.8 4,683.0 294.6 6.3
(1 ‘)Adjusted’ figures throughout this document reflect the
adoption of IFRS 16 in the period and are before the Greyhound impairment
charges, North American self-insurance provisions, restructuring and
reorganisation costs, other intangible asset amortisation charges and certain
other items as set out in note 4 to the financial statements. The statutory
operating loss for the year was £(152.7)m (2019: profit of £9.8m) as set out
in note 4.
(2 ) Tramlink operations, central management and other items.
The statutory operating loss for the year was £(152.7)m (2019: profit of
£9.8m), reflecting a total of £409.5m in costs and charges that have been
excluded from the adjusted operating profit measure. This includes the
Greyhound impairment charge of £186.9m of which £124.4m was taken in the
first half, £141.3m in relation to the North American self-insurance
provision reflecting historic claims experience in the insurance market and
lower discount rates at the balance sheet date, restructuring and
reorganisation costs of £58.2m, £21.5m in coronavirus-related charges
(comprising a First Student onerous contract provision of £14.1m and a fuel
over hedge charge of £7.4m due to lower than forecast fuel utilisation), and
£8.0m of profit on sale of real estate in First Student.
Net finance costs were £146.9m (2019: £106.6m) with the increase mainly
reflecting the transition to IFRS 16, resulting in adjusted profit before tax
of £109.9m (2019: £208.2m). Adjusted earnings were £82.7m (2019: £159.8m)
with the decrease due to the lower adjusted profit before tax together with
higher non-controlling interests while the effective tax rate was stable at
22.4% (2019: 22.4%). Adjusted EPS was 6.8p (2019: 13.3p). In constant
currency, adjusted EPS decreased by 49.6%, or by 33.3% excluding the net
effect of implementing IFRS 16. EBITDA was £1,108.9m (2019: £670.3m);
excluding the effect of adopting IFRS 16, EBITDA was £619.2m, a decrease of
(9.4)% over the prior year, with Road EBITDA decreasing by (13.2)% in constant
currency and Rail EBITDA increasing by 7.1%, benefiting from Avanti.
The statutory loss attributable to equity shareholders was £(327.2)m (2019:
£(66.9)m), and statutory EPS was (27.0)p in the year (2019: (5.5)p).
The pre-IFRS 16 adjusted cash inflow of £98.5m (2019: £197.3m) includes a
Rail net cash inflow of £90.6m (2019: inflow of £172.7m). This includes a
net £67.3m of capital expenditure for which funding was received in prior
periods and a £106.8m outflow for the utilisation of onerous contract
provisions at SWR and TPE. Rail ring-fenced cash increased by £87.2m to
£611.9m (2019: £524.7m) including the start-up of Avanti. Under the
Emergency Measure Agreements, the working capital requirements for each of our
TOCs are being provided by the DfT. The Road divisions’ cash inflow of
£7.9m (2019: £24.6m) was after capital expenditure of £283.4m as our
targeted fleet investment programmes continued during the year.
Pre-IFRS 16 net debt was flat at £896.2m (2019: £903.4m). Net debt: EBITDA
on the ‘frozen accounting standards’ basis relevant to the Group’s
banking covenants was broadly flat at 1.4 times (2019: 1.3 times) and Rail
ring-fenced cash adjusted net debt: EBITDA on the same basis was 2.4 times
(2019: 2.1 times).
Liquidity within the Group increased compared with the prior year; as at 31
March 2020 the Group’s undrawn committed headroom and free cash was £585.7m
(2019: £520.6m), comprising £237.1m (2019: £167.3m) in free cash and
£348.6m (2019: £353.3m) of undrawn committed bank revolving credit
facilities. Subsequent to the year end, the Group was confirmed as an eligible
issuer for the UK Government’s Covid Corporate Financing Facility (CCFF)
scheme, with an issuer limit of £300m based on its credit ratings under the
terms of the scheme as published by the Bank of England. On 27 April 2020 the
Group issued £300m in commercial paper through the scheme to further enhance
liquidity levels. The Group’s diversified funding structure also includes
undrawn facilities comprising a committed £250m bridging loan entered into in
March 2020 for the redemption of the £350m bond that matures in April 2021,
an uncommitted £150m accordion facility to the RCF, as well as further lines
of uncommitted leasing facilities and more than $100m of uncommitted supplier
credit for the procurement of buses. Average maturity of bond debt, senior
unsecured loan notes and bank facilities was 3.3 years (2019: 4.3 years). As
at the end of June 2020 the Group had c.£850m in free cash (before Rail
ring-fenced cash) and committed undrawn revolving banking facilities. The
level of free cash and undrawn committed revolving banking facilities has
increased over the past two months and is anticipated to decline with the
normal seasonal decline in revenues in First Student when schools are closed
for the summer and due to working capital requirements as the business
prepares for school start-up during August.
During the year, gross capital expenditure, excluding right of use assets, of
£489.8m (2019: £444.0m) was invested in our business, with the Road
divisions’ capital expenditure being £366.7m (2019: £459.1m). Road
divisions' gross capital expenditure was driven principally by the higher
retention rates and new business wins achieved in First Student's recent bid
season and targeted investment in our other fleets in Greyhound and First Bus
during the year. ROCE pre-IFRS 16 was 8.2% (2019: 10.5%), or 4.4% following
the addition of right of use assets to capital employed under IFRS 16.
While the Group currently has material fiscal and contractual support for
running essential services across the divisions during the pandemic and
committed undrawn liquidity of c.£850m as at the end of June, there are
material uncertainties as to the future consequences of the coronavirus
pandemic. The potential impact of certain scenarios have been highlighted in
the going concern statement on page 23.
Impact of new accounting standards (IFRS 16)
The new accounting standard, IFRS 16 (Leases) came into effect on 1 January
2019, and was adopted by the Group from 1 April 2019. The new standard
eliminates the operating lease classification and therefore on the balance
sheet the lessees are 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 12 months or are of low value. On the income statement, the
operating lease expense are replaced by a combination of depreciation and
interest.
IFRS 16 has been adopted in the period using the modified retrospective
method. This resulted in a right of use asset of £1,140.4m and a lease
liability of £1,168.2m recognised on 1 April 2019. The transition method has
not required the balance sheet comparatives to be restated. All statutory and
adjusted figures for the year to 31 March 2020 throughout this document are
reported under IFRS 16 unless otherwise stated.
The impact of IFRS 16 is detailed further in note 1, and is summarised below:
Year to 31 March 2020 Year to 31 March 2019
Per IAS 17 accounting treatment £m Impact of IFRS 16 £m Per IFRS 16 accounting treatment Per IAS 17 accounting treatment £m
£m
EBITDA 619.2 +489.7 1,108.9 670.3
Adjusted operating profit 250.4 +6.4 256.8 314.8
Net finance costs (106.7) (40.2) (146.9) (106.6)
Adjusted profit before tax 143.7 (33.8) 109.9 208.2
Adjusted EPS 9.0p (2.2)p 6.8p 13.3p
Net debt 896.2 +2,381.9 3,278.1 903.4
In accordance with IAS 36 (impairment of assets) the opening onerous contract
provision for SWR of £145.9m was reclassified as an impairment on right of
use assets (ROUA) on adoption of IFRS 16. Similarly, £62.7m of the opening
TPE onerous contract provision was reclassified as an opening impairment on
ROUA with the remaining balance of £44.2m being reclassified as impairment on
ROUA additions in the year.
The adoption of IFRS 16 has impacted the Rail division’s results more
significantly than the Road divisions, reflecting the high value of rolling
stock leases as well as the change in accounting for onerous contract
provisions. To aid understanding, set out overleaf are the impacts by division
on adjusted operating profit and EBITDA:
Pre-IFRS 16 basis
Year to 31 March 2020 Revenue £m Adjusted op. profit £m Adjusted margin % EBITDA £m EBITDA margin %
First Student 1,940.4 158.0 8.1 350.2 18.0
First Transit 1,171.4 28.1 2.4 51.3 4.4
Greyhound 603.2 (16.3) (2.7) 15.7 2.6
First Bus 835.9 44.6 5.3 95.9 11.5
Group items 17.8 (33.8) (30.4)
Road divisions 4,568.7 180.6 4.0 482.7 10.6
First Rail 3,185.9 69.8 2.2 136.5 4.3
Total Group 7,754.6 250.4 3.2 619.2 8.0
North America in USD $m $m % $m %
First Student 2,474.9 204.8 8.3 449.1 18.1
First Transit 1,488.4 35.9 2.4 65.3 4.4
Greyhound 766.0 (21.3) (2.8) 19.1 2.5
Total North America 4,729.3 219.4 4.6 533.5 11.3
IFRS 16 impact
Year to 31 March 2020 Adjusted op. profit £m EBITDA £m
First Student +0.8 +37.4
First Transit +0.2 +11.6
Greyhound +4.7 +19.6
First Bus +1.5 +17.3
Group items +0.1 +1.7
Road divisions +7.3 +87.6
First Rail (0.9) +402.1
Total Group +6.4 +489.7
North America in USD $m $m
First Student +1.1 +47.6
First Transit +0.3 +14.7
Greyhound +6.0 +24.9
Total North America +7.4 +87.2
Post IFRS 16 basis
Year to Revenue Adjusted op. profit Adjusted margin EBITDA EBITDA margin
31 March 2020 £m £m % £m %
First Student 1,940.4 158.8 8.2 387.6 20.0
First Transit 1,171.4 28.3 2.4 62.9 5.4
Greyhound 603.2 (11.6) (1.9) 35.3 5.9
First Bus 835.9 46.1 5.5 113.2 13.5
Group items 17.8 (33.7) (28.7)
Road divisions 4,568.7 187.9 4.1 570.3 12.5
First Rail 3,185.9 68.9 2.2 538.6 16.9
Total Group 7,754.6 256.8 3.3 1,108.9 14.3
North America in USD $m $m % $m %
First Student 2,474.9 205.9 8.3 496.7 20.1
First Transit 1,488.4 36.2 2.4 80.0 5.4
Greyhound 766.0 (15.3) (2.0) 44.0 5.7
Total North America 4,729.3 226.8 4.8 620.7 13.1
First Student
Year to 31 March $m £m Change in
constant currency (1)
2020 2019 2020 2019
Revenue 2,474.9 2,424.9 1,940.4 1,845.9 +2.2%
Adjusted operating profit 205.9 227.1 158.8 171.2 (9.4)%
Adjusted operating margin 8.3% 9.4% 8.2% 9.3% (100)bps
(1 ) Based on retranslating 2019 foreign currency amounts at 2020
rates.
First Student revenue was $2,474.9m or £1,940,4m (2019: $2,424.9m or
£1,845.9m), representing growth in constant currency of 2.2%. This comprised
growth of 4.1% in constant currency to the end of February 2020,
benefiting from the pricing and contract wins we achieved in the summer 2019
bid season as well as from acquisitions made in the year. This was partially
offset in March when substantially all North American schools had closed by
the end of month due to the coronavirus pandemic, albeit we continued to
recover a proportion of our expected home-to-school revenue from school board
customers as noted below.
Adjusted operating profit was $205.9m or £158.8m (2019: $227.1m or £171.2m),
representing an adjusted operating profit margin of 8.3% (2019: 9.4%). Prior
to the effect of the outbreak, net growth, management efficiencies and
continued contract pricing discipline were largely offsetting the wage
inflation from the tight US employment market experienced during the year and
higher self-insurance costs. The division reported a statutory profit of
£89.4m (2019: £115.3m) including the amortisation of intangibles, and after
First Student’s £52.5m portion of the North American self-insurance charge
and profit on sale of property of £8.0m in the year).
Year in review
Following another strong bid season over the summer of 2019, First Student
grew our already market leading school bus fleet and market share for the
second year in a row; we have contracts to operate c.43,000 buses at year end
(2019: 42,500) with strong pricing accompanying this growth. Our operational
excellence drove record high customer satisfaction scores which underpinned
our contract retention rate of 88% (2019: 92%) on business up for renewal,
which was ahead of our expectations. Across our entire portfolio of multi-year
relationships, retention was 96% (2019: 97%). This was notwithstanding the
pricing requirements we had to seek from our customers due to the tight US
employment market last year and resulting persistent driver shortages as well
as higher self-insurance costs. We attribute this continuing retention success
to our excellent safety track record and consistent focus on building
sustained customer relationships over many years, resulting in this year’s
record-breaking willingness to recommend and satisfaction scores, which saw
fully 75% of our customers rating us nine or ten on a ten-point scale for
overall satisfaction.
Our retention success was supplemented with organic growth, continuing
conversions from in-house to private provision and good net market share gains
from our larger competitors, in several cases at higher pricing than proposed
by the incumbent.
We also continued to build out our ability to supplement growth and expand our
addressable market via acquisitions in this fragmented segment of the mobility
services industry. Since the start of the financial year we have closed three
transactions adding a total of 850 buses. The most notable was Hopewell
Transportation, a leading provider of transportation for students with special
needs in the Chicago, Illinois area, utilising smaller ‘vans’. Special
needs transportation is a faster growing part of the overall student
transportation market. This is also a segment where specialised training for
frontline employees is especially valuable, which is an area where Hopewell
Transportation has always been strong, and plays to our longstanding goal to
recruit, train and retain the safest and best driver population in the
industry. We assess all of our transaction opportunities on the same returns
criteria as any other avenue for growth. Since the start of the coronavirus
pandemic, we have begun to see fewer participants in bids due to capital
constraints, and situations where incumbents have withdrawn from their
contract obligations for the next school year. Additionally, some operators
have become more willing to discuss acquisitions.
We further grew our market-leading school bus charter business by redesigning
the consumer experience of finding our services, getting quotes, and booking
trips despite the impact of the pandemic. In the year, charter generated
revenues of $204.7m (2019: $203.6m) or 8% of divisional revenues.
Throughout the year we have worked to improve the efficiency of our
procurement, maintenance and operational practices as well as investing in
innovations to enhance the quality of our services for our school board
customers, student passengers and their parents. In addition to the continued
expansion of our FirstView(®) bus tracking app, this year we have been
developing and scale-testing our tablet-based driver workflow system
DriverHub, which provides real-time navigation assistance, provides data links
into our operations and maintenance systems and enables us to monitor and
coach our drivers’ on-road performance individually, further enhancing our
focus on safety.
We are also actively exploring opportunities at the frontier of the transition
to alternative fuel-powered school bus services, with a number of electric
vehicle pilots now underway and 6% of our fleet currently powered by
alternative fuels. School start-up last autumn went well, and we are confident
that our playbook is in good shape to restore service at the right time for
each of our customers whenever they need it in the months ahead.
Coronavirus response
All schools served by First Student in North America were closed by the end of
March as federal, state and local authorities responded to the coronavirus
pandemic. The school closures also resulted in the cancellation of school
charter trips and we have also seen a significant decline in the demand for
external charters. While we have already restarted some school routes in
Quebec and British Columbia the majority of our school board customers are not
anticipating restarting school activities again before the end of the summer
holidays. Although some of our 1,100 contracts include guaranteed minimum
revenue commitments (mainly in Canada), the majority do not. First Student
therefore rapidly began very active and productive discussions with all of our
school board customers on a contract-by-contract basis to agree a level of
payment to ensure we retain the capability to restart services when each
school takes the decision to reopen. As the leader in the industry, we have
reinforced the importance of maintaining the driver and operational capability
for our customers through the current situation by engaging with industry
bodies and the sector. It should be noted that most school districts remain
fully funded to continue to provide education, school transportation and other
services, and received additional funding to do so under the CARES Act and
subsequent coronavirus response spending. To date First Student has agreed
terms to receive either full or partial payment from customers representing
c.74% of our bus fleet, based on which we have been recovering c.52% of the
home-to-school revenue expected prior to the crisis. A number of customers
have reduced the amount of revenue reimbursement to reflect our ability to
mitigate certain labour and fuel-related costs while no services are running.
Adjusting for this, our effective recovery rate is c.61% of our pre-crisis
expectations, based on the agreements reached with customers since March.
Key cost actions to mitigate the reduced service activities include the
temporary furloughing of employees, insurance savings, salary deferrals and
reductions, the ending of all non-essential contract staff, together with some
more permanent reductions in headcount where unavoidable. In some cases, the
terms of the Federal Pandemic Unemployment Compensation programme meant it was
more appropriate to assist our people to use this scheme temporarily than to
maintain their employment. First Student is also making use of the CARES Act
employee retention tax credit for companies whose business has been disrupted
by government order, as well as other government tax deferral and other
schemes to the extent possible. All non-essential capital expenditure has been
reviewed in accordance with customers’ requirements and some discretionary
spend has been deferred, reprofiled or converted to leasing.
During the coronavirus crisis we have been very proud of the hundreds of First
Student locations that have been actively supporting school districts with a
variety of services. Our drivers have delivered more than 1.4 million meals
and counting to students across North America, as well as instructional
materials, including books and laptops. Many First Student locations have
provided transportation shuttles for healthcare workers and others on the
frontline of the pandemic, while First Transportation Solutions has also
supported more than 25 school districts with the logistics and planning of
their own meal and school supply deliveries.
We are in active discussions with our stakeholders about how we will support
restarting schools safely and efficiently at the appropriate time, in
accordance with their local requirements. We have set up a cross-functional
team of experts to establish guidelines for leading our business and our
stakeholders through the changes to our services that will be required to do
so, including maintaining social distancing (which may require more buses or
potentially split shift school days), protective personal equipment (PPE),
enhanced bus and location cleaning and disinfection regimes, potential testing
and screening protocols and additional driver training. Initial indications
suggest that driver recruitment is likely to be less of a challenge in some
regions than in previous years.
Current trading and the future
While some school districts may start earlier or later and with potentially
varying approaches to maintaining social distancing, we are currently
preparing for the majority to restart in August and early September, at the
end of the summer holidays. We are not anticipating that summer school
activities will take place this year, and are assuming at present that
discretionary charter services will take longer to be restored than
home-to-school services. First Student is always a highly seasonal business,
with much lower activity levels over the school summer holiday period
contributing to a significant weighting to the second half of our financial
year in terms of profitability.
First Student is the clear market leader in the provision of contracted public
transportation services across 40 US states and seven Canadian provinces, as
well as a significant provider of charter bus services. The business has
long-term, trusted relationships with a high-quality client base of schools
across the continent, generating stable predictable revenues. The business
benefits from its substantial scale, best-in-class operating track record,
renowned customer service and strong safety expertise, which are testament to
the long-term strategy of the highly experienced management team. We are
confident that this is a very strong, resilient platform with several
opportunities in its marketplace to add value for all stakeholders.
First Transit
Year to 31 March $m £m Change in
constant currency (1)
2020 2019 2020 2019
Revenue 1,488.4 1,411.4 1,171.4 1,075.8 +5.6%
Adjusted operating profit 36.2 64.8 28.3 49.3 (44.7)%
Adjusted operating margin 2.4% 4.6% 2.4% 4.6% (220)bps
(1 ) Based on retranslating 2019 foreign currency amounts at 2020
rates.
First Transit’s revenue was $1,488.4m or £1,171.4m (2019: $1,411.4m or
£1,075.8m), an increase of 5.6% in constant currency. This comprised growth
of 6.6% in constant currency to the end of February, reflecting positive
pricing, new contract opportunities throughout the portfolio and some
pass-through revenue, followed by a meaningful reduction in activity levels
during March with the start of the coronavirus pandemic.
Adjusted operating profit was $36.2m or £28.3m (2019: $64.8m or £49.3m),
representing an adjusted operating margin of 2.4% (2019: 4.6%). Prior to the
outbreak the division was experiencing a number of cost headwinds, principally
higher self-insurance and legal costs, driver shortages in certain areas,
changing business mix and the two adverse legal judgments in the first half of
the year, which were being partially offset by pricing, net growth and cost
efficiencies. The abrupt impact of the pandemic on revenue during the final
month of the financial year was partially offset through variable cost
reductions, but nevertheless had a meaningful impact. The division reported a
statutory loss of £(21.9)m (2019: profit of £23.1m) including the
amortisation of intangibles, the division’s £43.5m portion of the North
American self-insurance adjusting item charge, a legacy pension settlement,
which are disclosed separately from adjusted operating profit.
Year in review
In the year First Transit continued to build its broad portfolio of both
existing and emerging multi-year mobility services contracts, benefiting from
consistently highly rated customer service credentials and its reputation for
safe, innovative and best value solutions to customers. We were pleased with
fixed route and paratransit wins in Merced, Arlington and San Bernardino from
two of our largest competitors, along with securing the shuttle contract
between airport terminals and the new taxi/Transportation Network Company
(TNC) passenger waiting lots at Los Angeles airport. Additionally we were
pleased to expand our largest paratransit contract which operates in the
greater Chicago area.
In emerging mobility services, our partnership with Lyft to provide wheelchair
accessible and other paratransit services has been extended to several more US
cities. We have continued to position ourselves as a leader in the maintenance
and operation of both autonomous vehicles (AV) and electric vehicles (EV) with
recent wins in Houston and Colorado. After the year end we were awarded a
contract on a US military base to be the maintenance and operations partner
for an innovative ‘stackable’ AV pilot – using AV technology that has
been retrofitted to traditional manned vehicles.
Our contract retention rate on ‘at risk’ contracts was flat at 89% (2019:
89%), despite the loss of the two relatively large underperforming contracts
mentioned at the half year stage. Since the start of the coronavirus pandemic,
we have seen some commercial bidding processes slow down given the current
uncertainties about the pace of emergence from current travel restrictions; in
several cases our customers have proposed extensions to existing contracts
that were approaching their end dates. We continue to assess all commercial
opportunities on a rigorous risk-adjusted return on investment basis, using
our broad-based expertise and leading operational and maintenance delivery
platforms.
Throughout the year we continued to drive through further cost efficiencies
and operational improvement from investments in lean maintenance, predictive
analytics, procurement, systematic employee engagement/ retention programmes
and further back office alignment with First Student where value-adding, in
order to help mitigate the cost headwinds we face. Although for the most part
we operate vehicles procured and owned by our customers, wherever possible we
continue to roll out the DriveCam safety system, which complements our safety
standards and procedures and our behavioural change programme.
Coronavirus response
Clearly the onset of the coronavirus outbreak and government actions to
control its spread toward the end of the last financial year will have a
significant impact on the coming year. The majority of First Transit’s
contracts reflect payment for making services available over agreed time
periods, with the principal exception being in paratransit where the revenue
is driven more by the volume of trips undertaken by the business. Our fixed
route operations are largely classed as essential services so, despite a
significant reduction in ridership and increasing orders to ‘shelter in
place’ by the majority of US states, we saw service requirements reduce by
only c.30% overall. Paratransit operations are seeing non-essential trips
decline, although the requirement for social distancing has offset this to
some extent, with overall activity levels down c.50%. Shuttle operations are
seeing service reductions in certain airport contracts and all university
clients have now reduced service requirements significantly to holiday
timetables and/or engaged e-learning protocols. Overall the division has on
average experienced a reduction of c.35% in its activity levels.
While many of our drivers and other employees have continued to maintain the
essential transport links that our customers rely on, they have also been
delivering food supplies across our communities to vulnerable members of the
community.
The CARES Act made available $25bn for “the operating expenses of transit
agencies related to the response to a coronavirus public health emergency”
which has been helpful for many of our transit agency customers, although it
does have a complex interplay with other aspects of the Act most notably the
short-term funding made available to workers under the Federal Pandemic
Unemployment Compensation programme. Since the onset of the outbreak we have
maintained an active dialogue with our customers regarding payment through any
reductions in service to ensure the operations are in a position to restore
normal levels of operation efficiently at the appropriate time. Of those
contracts with a material reduction in service, we have agreed terms to date
with the result that we are currently recovering the equivalent of 79% of the
divisional revenue expected prior to the crisis.
Key cost actions to mitigate the reduced service activities include the
temporary furloughing of employees under the various emergency schemes put in
place to support workers through the crisis, salary deferrals and reductions,
the ending of all non-essential contract staff, together with some more
permanent reductions in headcount where unavoidable. We have also utilised
government tax deferral and other schemes to the extent possible. First
Transit is not as capital intensive as some of the Group’s other businesses,
but all non-essential capital expenditure has been deferred or halted.
Current trading and the future
We continue to plan for a range of potential scenarios, but it is likely that
customers in different regions and sub-segments of the division seek to raise
service levels from their current provision at varying rates. Based on such
decisions made so far and the latest discussions with our customers, our
overall expectation is that revenues will only gradually improve from their
present levels over the summer, and will begin to step up further from
September.
Notwithstanding the near-term uncertainties, the market for mobility services
in North America continues to evolve and we are embracing the disruption. We
aim to stay at the forefront of the changes, providing simplified mobility
solutions that enhance our customers’ lives. Our services are a compelling
option for both local authorities and private customers to outsource their
transportation management needs. We remain focused on bids that provide good
value to clients while achieving appropriate margins with modest capital
investment, as we continue to build our platform in mobility services over
time.
Greyhound
Year to 31 March $m £m Change in
constant currency (1)
2020 2019 2020 2019
Revenue 766.0 846.7 603.2 645.1 (9.4)%
Adjusted operating profit (15.3) 2.7 (11.6) 2.6 Not meaningful
Adjusted operating margin (2.0)% 0.3% (1.9)% 0.4% (240)bps
(1 ) Based on retranslating 2019 foreign currency amounts at 2020
rates.
Greyhound’s revenue was $766.0m or £603.2m (2019: $846.7m or £645.1m),
reflecting an increasingly challenging trading environment throughout the
year. Lower fuel prices which typically make travel by car more
cost-competitive, continuing reductions in immigration-related demand in the
southern border states and intensifying competition in several markets from
both coach and low-cost airline operators all contributed to a (3.5)%
reduction in like-for-like revenues to the end of February, which was then
compounded by a further reduction in passenger demand in March with the onset
of the coronavirus pandemic. Greyhound total revenue for the full year reduced
by (9.4)% in constant currency, representing a reduction of (5.7)% in the US
and a (45.3)% reduction in Canada, due to our decision to withdraw from
significant parts of that business during the prior year.
Despite further management action including commercial initiatives, mileage
reductions, profit on certain property sales of $10.6m or £8.3m (2019: $10.8m
or £8.4m) and the withdrawal from Western Canada, the reduction in revenue
during the year and higher-self-insurance costs were not fully offset and as a
result, Greyhound’s adjusted operating loss was $(15.3)m or £(11.6)m (2019:
profit of $2.7m or £2.6m). The division reported a statutory loss of £
(253.4) m (2019: loss of £33.8m) reflecting restructuring and reorganisation
costs associated with the withdrawal from Western Canada, Greyhound’s
£45.3m share of the North American self-insurance adjusting item charge, and
the £186.9m of impairments in the carrying value of the assets, partially
offset by property disposals. Following the further impairment and the effects
of IFRS 16, Greyhound is carried at a cash generating unit value of £188.7m
($235.2m). The net book value of £(156.3)m ($(194.7)m) is stated after
£172.4m ($214.8m) for pensions deficits under IAS19 and £111.4m ($138.8m)
relating to the self-insurance reserve provision. The impairment has been
recognised in the results on a pro-rata basis against the assets of the
division excluding property. The valuations in excess of book value suggest no
impairment to the carrying value of Greyhound’s property.
Year in review
During the year Greyhound sought to build on its iconic brand and unique scale
by continuing to transform all areas of its customer experience and cost
efficiency through investment in technology. During the year the business has
delivered further enhancements to its website, mobile app, customer call
handling, revenue management and digital ticketing systems while completing
the roll out of the new on-board entertainment platform to the entire US
active fleet. These developments, coupled with disciplined fleet investments
and several maintenance, procurement and operational projects during the year
will deliver recurring savings over time. Meanwhile these improvements also
resulted in improved customer perceptions, increased punctuality and lower
emissions. At 33.6g CO(2)(e) per passenger km, intercity travel by Greyhound
already offers the lowest per-passenger carbon emissions of modal alternatives
– around 87% lower emissions than an equivalent domestic passenger plane
journey and 81% lower than the average US passenger car.
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 Richmond, VA, with the gain on sale of $6.1m or £4.8m
included in adjusted operating profit.
Greyhound has been actively responding to the changes in demand throughout the
year with tactical commercial initiatives to target overall revenue per mile
growth, by optimising pricing and capacity allocation across our different
markets and adjusting mileage in response to demand changes.
Coronavirus response
The pricing, mileage and capacity optimisation activity was stepped up as the
coronavirus outbreak and government advice developed in March, with Greyhound
revenues initially reducing by c.80%, compounded by border closures between
the US and Canada. Greyhound rapidly reduced capacity and cost (principally
through reduced variable costs, furlough and permanent headcount reductions)
to match lower demand levels, including through the temporary cessation of the
entirety of its Canadian services from 13 May 2020, and is utilising
government tax deferral and other schemes as appropriate. In the US during the
first quarter of the current year, Greyhound operated c.40% of its
pre-outbreak timetabled mileage, sufficient to ensure that the
community-critical transportation network that it provides is maintained.
Almost all of its main coach competitors have not been operating during this
period.
As the only national intercity bus operator, Greyhound urgently sought federal
and state assistance to sustain its network through the present crisis, and
also sought to obtain relief on rents and fees for intermodal facilities from
government transportation agencies. Following these efforts, the emergency
federal appropriations bill (the ‘CARES Act’) signed into law on 27 March
2020 specifically allocated $326m in funds to US states to fund continued
intercity bus transportation via Title 49 section 5311(f) of the US Code. The
CARES Act also waived normal requirements for matching state funds. Given its
scale as the only provider of a national network of coach services across 44
US states, Greyhound anticipates being a major recipient of this funding.
Greyhound continues to work through the processes to access the CARES Act
funding for services in each state where it operates. A number of these states
already have pre-existing arrangements where minor amendments to contracts are
required before Greyhound’s submissions can be processed. Where new or
additional arrangements are required, Greyhound is working to expedite
securing contracts and commencing billing.
Greyhound has deferred or halted all non-essential capital expenditure, and
has improved the cost per mile, operational performance and customer
perception of its active fleet by primarily operating its newest and most
efficient buses. Greyhound has invested in industry-leading enhanced cleaning
regimes for its buses and locations, mandated the use of face coverings on all
its operations across the country and actively led the industry in providing
prospective passengers with the latest coach travel safety information, as
well as instituting a flexible booking policy to ease passengers’ concerns.
Greyhound has been supporting our communities during the outbreak by providing
free transport to first responder and frontline medical professional
volunteers travelling to another town or city to provide assistance, and is
also delivering vital medical supplies and safety equipment in partnership
with the American Red Cross.
Current trading and the future
Greyhound’s current focus is on continuing to secure support for its
community-critical services from the CARES Act funding via state agencies,
while very actively managing service levels and cost to match observed demand.
As certain states have begun to ease ‘shelter in place’ restrictions and
government advice has evolved, we are beginning to experience an incremental
increase in passenger volumes, to c.70% below pre-pandemic levels in June
compared with c.85% below in March/April. Revenue is currently c.60% below
pre-pandemic levels, reflecting increased yields. As volumes increase, we are
focused on delivering a safe, punctual service for our passengers while
maintaining our discipline around incremental cost and agreeing further
intercity bus funding contracts with the states we operate in.
A sale process in respect of Greyhound is ongoing and we will update the
market as appropriate.
First Bus
Year to 31 March £m Change in
constant currency (1)
2020 2019
Revenue 835.9 876.1 (4.6)%
Adjusted operating profit 46.1 65.1 (29.2)%
Adjusted operating margin 5.5% 7.4% (190)bps
(1 ) Based on retranslating 2019 foreign currency amounts at 2020
rates.
First Bus reported revenue of £835.9m (2019: £876.1m), in part reflecting
the sale of two operating depots during the year. Adjusting for this and other
factors, like-for-like passenger revenue increased by +0.7%, with commercial
passenger volumes decreasing by(4.3)% including the effects of coronavirus.
The role of buses has been increasingly recognised during the year,
highlighted in particular by significant and high profile commitments to
invest in the industry’s future by the UK Government. First Bus delivered
like-for-like passenger revenue growth of 1.8% to the end of February, with
the local operations experiencing varying demand patterns due to changing
retail footfall, challenging congestion issues and differing local economic
conditions. Clearly the imposition of government guidelines to avoid all but
essential travel in early March to check the spread of coronavirus meant
passenger volumes and revenues were significantly affected from that point, as
discussed further below.
Adjusted operating profit was £46.1m (2019: £65.1m) and adjusted operating
margin was 5.5% (2019: 7.4%), mainly reflecting the substantial reduction in
passenger demand in March which was difficult in the short term to offset
through cost reductions. The division also experienced poorer weather in the
previous summer which capped like-for-like growth and higher hedged fuel
prices and other inflation, which was not fully offset by continued cost
efficiencies and the actions we have been taking to improve the passenger
experience. The division reported a statutory operating profit of £32.4m
(2019: £27.4m) as a result of restructuring and reorganisation costs and
trading losses up to the point of disposal of the two depots sold in
Manchester.
Year in review
We are creating a better offering to our passengers, designed and delivered
around their needs and aspirations, with a particular focus on easy,
innovative and convenient ticketing. We were the first major bus operator to
offer contactless payment on every bus, which simplifies payment, enhances
convenience and speeds up journeys by reducing boarding time. We have made
regular upgrades to our highly regarded passenger app which reached 1m monthly
active users during the year, including in recent months being the first large
operator to bring to our app the capability for passengers to check in real
time how full each bus is, including for wheelchair spaces, helping them to
make more informed travel decisions. This exciting development was delivered
in just two weeks given buses’ reduced capacity under social distancing
rules. Contactless and our mobile app have become the preferred payment
mechanisms for our passengers, overtaking cash and now accounting for more
than half of all commercial revenue. We have introduced capped fares via
contactless payments in Aberdeen and Doncaster, representing a price promise
to customers as well as significantly faster boarding times, and are
developing plans for further roll out. We are working alongside other
companies in developing similar multi-operator products.
We have continued to take action to improve our efficiency, including by
continuously optimising networks to both meet existing and stimulate new
demand for our services, deploying our resources accordingly. We can now do
this in much finer detail than ever before by interrogating the much richer
data sets we have available to us as a result of the GPS-enabled ticketing
system rolled out in previous years, enabling us to identify significant
efficiencies by matching timetables with actual running times. We are also
implementing improvements to our back office procedures, for example by
redesigning engineering practices to be leaner and more agile.
Our capital investment this year was focused on areas where we work closely
with stakeholders to progress our shared ambitions to deliver thriving and
sustainable bus services, with investment in Leeds, Glasgow, Norfolk,
Portsmouth and Bristol. Buses have a huge role to play in creating a connected
and healthy world by contributing to local prosperity and growth and there is
growing recognition of this by all stakeholders. In February we welcomed the
UK Government’s announcement of a new £5bn, five-year funding package for
buses, cycling and walking which will include support for simpler fares,
thousands of new green buses, improved routes and higher frequencies across
England. The Scottish Government has also announced more than £500m in
investments for infrastructure, including new bus priority routes and other
schemes to encourage more people to use public transport and reduce congestion
across the country. Across all our networks we work very closely with all our
stakeholders, including local authorities, to determine the most effective
application of these monies to improve the passenger offering. The landmark
West Yorkshire bus alliance has made good progress in delivering bus priority
measures during the year. In March the UK Government committed to significant
Transforming Cities Fund spending on bus priority in Leicester, Southampton,
South Yorkshire and West Yorkshire with DfT negotiating further settlements
for Norwich, Portsmouth/Solent and Stoke at year end. An outline Bus Deal has
been agreed with Bristol, and discussions are continuing on a Bus Deal for
Glasgow.
We are a leader in the industry for low emission buses and our vehicles play a
key role in helping reduce congestion on the roads, improving air quality and
lowering carbon emissions. We are focused on First Bus becoming a leader in
the transition to a low-carbon future for public transportation, and are
committing to operate a zero-emission bus fleet by 2035, and do not plan to
purchase any new diesel buses after December 2022. We look forward to working
closely with our supply chain, industry partners and the UK Government to
ensure that our shared ambitions can be taken forward following the current
crisis. We are already pioneers in the use of various alternative fuel buses,
and over the last two years we have made considerable progress in downsizing
the diesel fleet and securing clean air compliance. 35% of our fleet is now
comprised of either Euro VI-compliant diesels or gas, electric or fuel cell
vehicles. In the year we introduced 193 new Euro VI or better buses, including
74 methane gas powered ‘bio-buses’ for Bristol and currently have 30
electric vehicles on order – including 21 double-decker buses for the York
Park & Ride network and nine single decks for Leeds. We have also taken
delivery of two single deck electric buses, funded by SP Energy Networks, for
Glasgow. We continue to bring hydrogen-powered buses into use in Aberdeen,
preparing to launch 15 double-deckers in the city with funding assistance from
the City Council, the EU and the Scottish Government. The coronavirus pandemic
has led to temporary deferrals in our fleet investment for 2020/21; future
investment will be focused on our environmental and partnership commitments,
while improving operating costs.
During the year we successfully launched our Bright Bus tour services in
Edinburgh, which competed well against the market leader. We took on full
responsibility for services to Swansea’s Park & Ride site, integrating it
into our core network and increasing the destinations offered. We upgraded our
services to Glasgow airport through investments in high-specification
double-deckers, significantly increasing capacity.
Following a review of our Manchester operations in anticipation of changes
proposed to the structure of that market we completed the sales of our
Queen’s Road and Bolton depots during the first half of the year. We
continue to operate from Oldham and on the award-winning Vantage guided bus
route.
Coronavirus response
When the coronavirus pandemic began to escalate in the UK in the second half
of March, within days First Bus experienced c.90% declines in fare-paying
passenger revenue and concessionary volumes. Across all our networks we
rapidly reduced service levels in consultation with our local authority
partners and were able to do so following relaxation of usual notice periods,
which was granted by the Traffic Commissioners. On the back of funding grants
we initially reduced service levels to c.40% of normal capacity, with a
corresponding mileage reduction, in order to continue to transport healthcare
and other key workers. The business furloughed c.55% of its workforce under
the UK Government’s job retention scheme in this period. Working with our
industry partners and CPT, we engaged with the government to agree an initial
three-month industry-wide funding agreement for crucial services provided by
regional bus operators in England. This funding totalled £167m across the
industry and completed a package of measures to maintain vital bus services
and networks committed by the DfT, Scottish and Welsh Governments to continue
to (either themselves or by directing local authorities to) fund the Bus
Service Operators Grant, concessionary fares and contracts for tendered
services at levels prior to the pandemic.
At the end of May, a further COVID-19 Bus Service Support Grant (CBSSG)
Restart programme for England was announced, which built on the previous
funding arrangements. Under the new scheme regional bus services in England
have initially been allocated £254m in additional funding by DfT allowing us
to increase bus service capacity as government guidance on travel restrictions
eases, supporting the restart of our local economies and getting people back
to work. Within four days of this funding being confirmed, we had increased
services to c.80% of pre-pandemic levels, passenger volumes have begun to
increase and the majority of our furloughed employees had returned to work.
The funding, which runs for an initial 12 week period backdated to 12 May, is
designed to support the industry while social distancing guidelines require
buses to run substantially below their potential capacity, and will be kept
under review. Bus operators will be able to claim funding for the difference
between their revenue from passenger and other non-tendered contractual
sources and the costs of operating services. Recoverable costs include all
reasonable operational costs as well as depreciation, pension funding and debt
finance costs reasonably allocated to English local bus services. In June, the
Scottish Government announced their intention to put in place a similar
system, and discussions are ongoing with the Welsh Government to secure the
additional funding necessary to support increases in service capacity there
through the recovery period.
Our bus services perform a vital service and are a critical piece of the daily
lives of many people in communities across the country. Our team has offered
additional support and assistance to these communities during the pandemic,
including making space available at our bus terminals for community
initiatives, and drivers volunteering to complete additional training in order
to drive local authority vehicles.
Current trading and the future
Our current priority is to ensure First Bus is able to support increases in
passenger demand in an effective and efficient way, under the terms of the
government funding schemes noted above while achieving a stronger bus division
for the future for all of our stakeholders. We will continue to actively
address our cost base through our comprehensive efficiency programme, the
benefits of which we expect will be more evident once the effects of the
coronavirus pandemic begin to subside.
Uncertainty remains about near-term customer demand due to coronavirus. While
local economic activity is weak and social distancing guidelines require buses
to run substantially below their potential capacity, a degree of funding will
remain critical to our ability to sustain service levels. However, the
fundamentals of First Bus are sound and coronavirus does not change the
principles of what we are doing nor that bus travel will play a critical role
in restoring the economies of the local communities in which we operate. We
will lead the way on sustainability including delivering a zero-emission fleet
by 2035. Being the partner of choice for public authorities and the travel
preference of our passengers will enable us to deliver an improved and
sustainable business in future.
First Rail
Year to 31 March £m Change
2020 2019
Revenue 3,185.9 2,666.7 +19.5%
Adjusted operating profit 68.9 68.8 +0.1%
Adjusted operating margin 2.2% 2.6% (40)bps
First Rail revenue increased to £3,185.9m (2019: £2,666.7m), principally
reflecting the inclusion of the West Coast Partnership’s Avanti West Coast
franchise from December 2019 and passenger revenue growth, higher subsidy
receipts and final settlement of certain GWR contractual amendments. Excluding
Avanti, like-for-like passenger revenue growth was 0.2% with passenger volume
decreasing by (1.3)% reflecting changing work patterns and lifestyles
resulting in a shift away from season tickets towards pay-as-you-go offerings
as well as the coronavirus impact. Operational conditions across the industry
this year were challenging with infrastructure upgrade works across our
networks and the industrial action in SWR affecting our franchise performance
levels. UK macroeconomic uncertainty also weighed on passenger revenue in the
year and the effect of coronavirus is likely to prolong this uncertainty.
Adjusted operating profit was £68.9m (2019: £68.8m) with a margin of 2.2%
(2019: 2.6%). Divisional profitability was driven by the additional capacity
and services as a result of the introduction of new trains by GWR, the
inclusion of Avanti, offset by the impact of the coronavirus outbreak and
moving to the Emergency Measures Agreements from 1 March, while the expected
effect of first time adoption of IFRS 16 on First Rail’s adjusted operating
profit was less than expected. The division reported a statutory operating
profit of £67.8m (2019: £27.4m).
Year in review
In August 2019 we were pleased that our 70:30 rail venture with Trenitalia was
awarded the West Coast Partnership contract to operate existing InterCity
services on the West Coast Mainline, and to help deliver High Speed 2 (HS2).
After a successful mobilisation and a constructive handover period with the
previous operators we launched the operation with the new brand of Avanti West
Coast in December 2019. Since launch, Avanti performed in line with our
expectations until the final weeks of March. Our future plans for new, greener
electric and bi-mode trains, more services and new destinations will
significantly enhance the quality of rail journeys for our customers on
Avanti, and we look forward to performing the role of 'Shadow Operator' to the
HS2 programme.
GWR’s new environmentally-friendly fleets of commuter Electrostar trains and
bi-mode InterCity Express Trains (IETs) have delivered more seats and
increased levels of punctuality. The new trains, in turn, allowed us to
redeploy the rolling stock previously used in London and the Thames Valley to
enhance capacity on routes in the South West. The largest timetable change
since the 1970s was successfully introduced in December 2019, taking advantage
of the new trains to offer faster journey times and more frequent services to
key locations. All of these changes led to the highest levels of customer
satisfaction GWR has recorded and a significant improvement in its independent
National Rail Passenger Survey (NRPS) score in the period. During the period
GWR also took over the operational aspects of Heathrow Express and is working
closely with contractor Heathrow Airport on further improvements to the
service. In the period the Group signed a direct award agreement with the DfT
to continue operating GWR until March 2023, with a possible extension of up to
one further year at the DfT’s discretion. Our experience of managing the
route over many years will be crucial to facilitating the ongoing
transformation of GWR through the biggest changes to the network in a
generation. In the near term the structure is superseded by the Emergency
Measures Agreements put in place across the industry by the UK Government as
discussed below, but at the conclusion of the Emergency Measures Agreement
period, GWR will operate services as a franchise with revenue risk shared with
the DfT through a Forecast Revenue Mechanism (FRM), which also makes provision
for a revenue rebasing exercise for GWR as required.
SWR’s performance was principally challenged in the year to March 2020 by
industrial action by the RMT trade union which caused significant issues for
our passengers throughout the year, including an unwarranted month-long strike
in December 2019. We are committed to delivering a resolution to this dispute
which remains ongoing despite our offer of an agreement that means no one
loses their jobs and a guard is kept on every train. We are resolved to
finding a solution that will be of benefit to everyone involved with SWR, in
particular our customers. Ongoing Network Rail infrastructure problems outside
of our control have also continued to have an impact on our performance and we
continue to work with them to mitigate these. In the meantime, we are focused
on delivering improvements to the passenger experience and as part of this we
introduced refurbished trains to the Portsmouth-London line in late 2019, with
new suburban rolling stock due in the next few months. Timetable changes in
May and December 2019 added more than 350 new services per week and we also
announced a package of investment for the Isle of Wight’s railway.
Our long-term ambition for our TPE franchise is for it to continue evolving
into the true intercity network for the North. To that end, capacity is being
significantly increased and we began to introduce the first of 220 new
carriages from late 2019, comprising Hitachi IET-type trains and a further
intercity fleet from CAF. Although TPE delivered growth and traded ahead of
expectations during the first half of the year, in the second half the
franchise experienced difficult operating conditions due to the delayed
delivery of these new train sets and infrastructure issues affecting our
performance. We were able to meet a major commitment by introducing a new
direct Liverpool-Glasgow service in December, although further key changes
which were included in the original bid have not yet taken place due to
industry-wide decisions not to alter timetables at the scale originally
envisaged. Our revised plans for transforming the franchise are continuing and
all of our new trains are now expected to be in service within the next twelve
months.
In December 2019 our open access operator Hull Trains began operating a new
leased fleet, which significantly improved the passenger experience on what
was already a successful route, and removed some of the performance
uncertainty that the previous fleet was causing. We are carefully considering
our plans for a second open access operation on the East Coast mainline in
light of the current demand environment.
We were pleased that in the autumn 2019 NRPS, all of the rail operations we
controlled in the period achieved year-on-year improvements in overall
satisfaction, with GWR being a standout performer having fully delivered new
trains into operation. All of our rail companies have further plans to improve
the passenger experience, principally by delivering new trains along some or
all of their routes. Customers will see benefits including more seats and
space, better Wi-Fi and on-board entertainment options and several other
fleets are being completely refurbished to provide customers with similar
amenities. Our franchises are also working to introduce convenient types of
ticket including smartcards, barcodes and auto-renewing or flexible season
tickets.
First Rail and our partners are industry leaders in reducing carbon emissions.
This includes the introduction of bi-mode diesel and overhead electric powered
trains enabling us to make use of electrification where available, whilst
still being able to operate on shorter sections of non-electrified track. We
are signatories to the UK Government’s challenge to take all diesel-only
trains out of service by 2040 and this progress will be made easier as the UK
power grid further decarbonises and our rail network is progressively
electrified.
Coronavirus response
In line with the wider UK rail industry, passenger volumes in our businesses
reduced substantially from the second half of March 2020 as government advice
and regulations changed, with revenue c.95% lower. Following consultation with
the DfT, the industry began operating a reduced timetable from 23 March.
Services are gradually being restored beginning with the 2020 timetable change
on 18 May although demand remains at unprecedentedly low levels. To try and
ensure current social distancing can be maintained in line with government
advice, some of our rail businesses introduced demand management measures such
as limiting the number of advance tickets on sale for certain services, and we
worked with our partners to ensure our customers could use stations safely.
The UK Government acted swiftly to sustain the country’s vital rail networks
during the pandemic, ensuring services could continue to be operated for
essential workers to travel by rail to perform their vital roles. In March all
of the Group’s rail franchises entered into Emergency Measures Agreements
with the UK Government which will last until September, or longer if required,
and which provide continuity and certainty. For the duration of these
agreements, the government will waive our revenue, cost and contingent capital
risk and pay our train operating companies a fixed management fee, which
varies according to the individual profile of the franchise. There is also the
potential for an additional performance-based fee. In preparing the accounts
the Directors have assumed that the Emergency Measures Agreements or a similar
structure remain in place until the end of their respective franchises. Hull
Trains was not eligible for the Emergency Measures Agreement system and as a
result we announced on 29 March that our Hull Trains open access business
would suspend operations for a period.
Our First Rail teams are also using their unique position as part of the
essential fabric of the communities in which they operate to deliver support
and assistance during this challenging time. We are responsible partners with
our customers and communities and we work with community organisations across
the network. In particular, we were pleased the Rail to Refuge scheme with
Women’s Aid, which offers free rail travel to those fleeing domestic
violence, went nationwide during the lockdown period following a successful
trial in GWR. Where we have a catering offer, our rail companies have been
donating food from on-board shops to NHS teams and charities.
Current trading and the future
First Rail is currently operating in accordance with the terms of the
Emergency Measures Agreements in place. There is uncertainty about the level
of future passenger demand and revenue growth in the light of the challenging
circumstances of coronavirus. Throughout the pandemic we have been in
discussions with the DfT concerning the commercial effects on our train
operating companies, and what continuing support or contractual variations may
be needed in due course. Those discussions are continuing. In preparing the
accounts the Directors have assumed that the Emergency Measures Agreements or
a similar structure remain in place until the end of their respective
franchises.
Over time our rail portfolio has generated good returns overall despite
challenging recent industry conditions. The UK’s rail franchising system is
currently undergoing a major review of the most appropriate commercial model
to deliver services in future, and we look forward to the outcome of the
Williams Review in order to understand the balance of risks and rewards on
offer for future UK rail opportunities. Notwithstanding these issues, we are
focused on working with our industry partners to deliver better customer
experiences at all our train operating companies, which will in turn result in
passengers returning to the railway over time.
Going concern assessment
The Group has a strong balanced portfolio of businesses that provide essential
services to the communities we serve.
Continuity of transport is proving essential to governments, local communities
and many of our customers throughout the coronavirus pandemic and it will also
be critical to the restoration of normal life when the present uncertain and
extremely difficult situation is overcome. The funding to sustain services
that we have received from governments and our customers is testament to the
importance of our offering to those we serve.
Both governments and our key contracted customers recognised the need to stop
or significantly reduce services as passenger demand declined rapidly when the
lockdowns and ‘shelter in place’ orders were made. They also recognised
that it was critical to maintain essential services for key workers to get to
their place of work, and to preserve the ability to restore services quickly
when required. Throughout the crisis, all our businesses had productive
engagement with major customers on revenue recovery, including school district
boards throughout North America, and local, state and national governments in
all of the markets served by the Group.
Details of the revenue protection measures and government funding and other
support are set out in the Chief Executive’s review and the operating and
financial review.
The impact of coronavirus on our business, and the support being provided by
customers and government, will continue to evolve throughout the coming
months. Despite these support measures, it is uncertain how and when these
support measures will be withdrawn and, if the crisis persists for a much
longer period, the extent to which governments and customers will continue to
have the ability to provide fiscal and contractual support.
It is difficult to assess with any degree of certainty what effect the
continued impact of the coronavirus crisis might have on the wider economy and
the transport sector in the markets in which the Group operates. It is
therefore highly uncertain what impact there might be on the Group’s future
trading performance and financial position.
Going concern assessment
The Directors used the financial forecasts prepared for business modelling and
liquidity purposes, as the basis for their assessment of the Group’s ability
to continue as a going concern for the 12 months from the date of the
financial statements. Those forecasts were prepared using ‘bottom up’
Divisional projections which were then subject to a series of Executive
Management reviews and subject to a Group risk overlay to produce a risked
outlook. This risked outlook formed the base case which was overlaid with a
reasonable downside scenario in order to stress test the adequacy of facility
headroom and provide assurance in relation to the risk of breaching financial
covenants.
The major assumptions and key areas of judgement taken into account in the
modelling included:
* the likelihood of coronavirus restrictions in the UK and North America
remaining in place for the balance of the fiscal year;
* the possible continuation of Rail Emergency Measures Agreement support
beyond September 2020;
* a possible further extension of the CBSSG Restart regime in Bus;
* the potential impacts on financial and trading performance without current
levels of customer and government support currently being provided;
* whether covenant waivers will be required under the Group’s banking
facilities;
* the timing of working capital flows;
* the ongoing availability of bank finance facilities, including the Bank of
England CCFF; and
* the impact on the triennial valuations for UK pensions that were completed
in 2019.
The risked outlook used for assessing going concern assumes continued fiscal
and contractual support broadly at the levels currently in place and the
businesses starting a gradual return to pre-crisis levels during the second
half of the financial year. Given the extent to which that fiscal and
contractual measures underpins the businesses to support current levels of
passenger demand under social distancing and the fact that that support is
being provided by governments and contract partners to allow the Group to
continue to run the diverse essential services, it was not felt necessary to
run alternative reverse stress tests.
Base Case: The key assumptions used in the Base Case were:
* First Student: All schools return in August 2020 at normal operational
levels, but with Charter recovering fully by April 2021.
* First Transit: All segments substantially back to normal operational levels
by September 2020.
* Greyhound: Passenger volumes remain subdued until October 2020, improving
gradually thereafter and to near pre-crisis levels by March 2022. Operated
miles increase broadly in line with increased demand. Fiscal support until
January 2021.
* First Bus: Operated miles increase significantly with CBSSG Restart support,
but that support assumed to cease in March 2021 with network miles dropping
back to circa 70-80% of pre-crisis levels in FY21/22.
* First Rail: All franchised TOCs continue under management contract for the
life of the existing franchise agreements. Hull Trains recommences operations
in September 2020.
* Brexit: Projections assume UK operates in a post-Brexit, post-crisis economy
with consensus macro-economic outlook in accordance with HM Treasury Economic
Forecast of April 2020.
* UK Pensions: the agreed deficit repair commitments relating to the 2019
triennial valuations continue to be made as planned.
Reasonable downside scenario: This assumed a delayed operational restart in
North America / part repayment of Rail ring-fenced cash. The key underlying
assumptions used in this case were:
* First Student: significant proportion of schools do not restart until
January 2021 (but capex kept at the same as Base Case levels).
* First Transit: University start delayed to January and slower recovery in
Paratransit.
* Greyhound: Slower passenger volume/yield recovery during FY22. Lower than
anticipated 5311(f) CARES Act funding received.
* First Bus: as Base Case.
* First Rail: Ring-fenced cash reduced by £200m at September 2020 and
continues at this lower level.
As noted on page 4, it remains the Group’s core strategic aim to complete
the disposal of First Student and First Transit at the earliest appropriate
opportunity. However, for the purpose of going concern testing, the disposal
is assumed not to complete in the going concern period. Should the disposals
complete in this period, the likely sales proceeds would allow the full
repayment of all debt at that point. Nevertheless, should the disposals not be
completed by March 2022, for viability testing purposes the Base Case in the
years beyond the going concern period includes a number of potential
refinancing options to replace maturing drawn facilities, including a £400m
bond, a £150m equity raise, and £300m USPP and/or bank debt, that might be
required in those years.
Liquidity
The Group has a diversified funding structure with average debt duration at 31
March 2020 of 3.3 years (2019: 4.3 years) and which is largely represented by
medium-term unsecured committed bank facilities and long-term unsecured bond
and private placement debt, and includes £250m undrawn committed bridging
loan entered into in March 2020 for the redemption of the £350m bond that
matures in April 2021.
As at 31 March 2020, the Group’s undrawn committed headroom under the bank
revolving credit facility and free cash (before Rail ringfenced cash) was
£586m.
In April and May a number of actions were taken to improve the Group’s
liquidity, including participating in and drawing down £300m under the UK
Government Covid Corporate Finance Facility (CCFF).
As at end of June, the Group’s undrawn committed headroom under the bank
revolving credit facility and free cash (before Rail ringfenced cash) was
c.£850m.
Overall, the Group currently has access to over £1.4bn of cash and facilities
as at end of June of which £850m is fully committed during the entirety of
the going concern period and a further c.£550m is either currently available
but not committed or committed and currently available but not committed for
the entirety of the going concern period.
On 1 April 2020 Fitch Ratings confirmed that it had maintained its long-term
Issuer Default Rating (IDR) for the Group at BBB- while changing its outlook
to negative from stable. On 4 May S&P Global Ratings also affirmed its
long-term issuer credit rating on the Group at BBB- and also changed its
outlook from stable to negative.
Liquidity headroom
Subject to the continued availability of Bank of England CCFF and uncommitted
facilities, positive liquidity headroom remains throughout the going concern
period under both the Base Case and the reasonable downside scenario.
Liquidity headroom in the Base Case includes £300m under the Bank of England
CCFF committed to March 2021 but is assumed to be extended, £150m Accordion
uncommitted facility to the RCF and £16m of other uncommitted overdraft
facilities together with $230m of the Daimler facility (current maturity in
June 2021) and further leasing facilities.
While the Bank of England CCFF facility is uncommitted after March 2021, the
Directors believe that the removal by the Bank of England of the ability to
redraw in March 2021 for another 364 days is remote. In addition, the
Directors believe that the Accordion and Daimler facilities are unlikely to be
withdrawn in the short term given the commercial arrangements that are in
place.
Covenant testing
Certain of the Group’s borrowing facilities are subject to ongoing covenant
testing. Covenants are measured twice a year, at full year and half year and
are measured under frozen accounting standards and therefore exclude the
effects of IFRS 16.
All banking covenants tests were met at the last testing point on 31 March
2020. The Base Case forecast indicates that banking covenants will be met
throughout going concern period but with limited headroom at the September
2020 and March 2021 test dates.
Under the reasonable downside scenario covenant compliance is still projected
to be achieved at 30 September 2020, although with much less certainty and
more limited headroom. The modelling also suggests that there could be
marginal fails on all covenants at 31 March 2021 under this downside scenario
before implementing any of the mitigating actions. Accordingly, there may be a
requirement to approach lenders for a covenant waiver should the outturn
assumed in the September 2020 and March 2021 downside scenarios begin to look
likely. The reasonable downside scenario does not take account of the
potential mitigating actions set out below.
Mitigating actions
If there are materially different outcomes to the Base Case and reasonable
downside scenario that have a materially adverse impact on the Group, the
continued impact of these events could result in a reduction in liquidity
and/or a longer period of lower EBITDA which in turn risks debt covenant
breaches. In that event the Group may choose to implement further cost
reduction measures, and/or further reductions or deferrals to capital
investment plans in First Student, First Transit and First Bus, and/or seek a
short-term covenant waiver from its banks.
Separately, the Group might also raise additional finance or refinance
maturing facilities by undertaking one or more of the following:
* the sale or sale and leaseback of existing First Student buses (where the
vast majority of these assets are unencumbered)
* the sale or sale and leaseback of part of Greyhound’s remaining property
portfolio;
* additional new PCV lease financing;
* raising equity through a placing; or
* the issuance of new longer-term debt.
The Group has also assumed that in its risked outlook it will continue to have
access to debt markets and if the sale of First Student and First Transit is
significantly delayed, the Group may also choose to refinance maturing
facilities during this period through:
* the issue of further long-term debt;
* obtaining further short-term bank financing;
* entering into a sale and lease back of property or First Student buses;
* issue additional equity through a placing; or
* a combination of these alternatives.
Significant judgements
In using these financial forecasts for the going concern assessment, the
Directors recognise that significant judgements had to be made in deciding
what assumptions to make regarding how the impact of the coronavirus pandemic
might evolve in the coming months and what impact that will have on the
ability of each of the business divisions to resume near normal levels of
service. Many of those judgements are, by their nature, highly subjective and
the modelled outcomes depend to a significant degree on how the coronavirus
pandemic evolves during the rest of the year. There is therefore a much higher
degree of uncertainty than would usually be the case in making the key
judgements and assumptions that underpin the financial forecasts.
The coronavirus pandemic is unprecedented, so there is no way of predicting
with certainty how the crisis will continue to evolve, nor what the long-term
effect the coronavirus pandemic will have on the wider economy or demand for
our services.
Material Uncertainty as to going concern
The Directors noted that the risks set out below indicate that a material
uncertainty exists that may cast significant doubt on the Group’s and the
Company’s ability to continue as a going concern and, therefore, that it may
be unable to realise its assets and discharge its liabilities in the normal
course of business.
Material uncertainty relates to:
* the uncertainty regarding the levels of fiscal financial and contractual
support which may be provided beyond the period for which that funding and
contractual support is currently being provided;
* whether passenger volumes recover to the levels necessary to sustain the
business without the current fiscal financial and contractual support;
* the ability of the Group to obtain covenant waivers from debt providers if
required;
* the ability of the Group to draw down on c. £550m of the currently
available but uncommitted facilities throughout the going concern period if
required; and
* the timing of cash flows, including movements in working capital and the
timing of receipts of contractual and fiscal support that may impact debt
levels at covenant test dates.
Going Concern statement
Based on their review of the financial forecasts and having regard to the
risks and uncertainties to which the Group is exposed, (including the material
uncertainty referred to above) the Directors believe that the Company and the
Group have adequate resources to continue in operational existence for the
twelve-month period from the date on which the financial statements were
approved. Accordingly, the financial statements have been prepared on a going
concern basis.
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, material property gains or losses, aged legal and
self-insurance claims, significant adverse development factors on insurance
provisions, significant movements on discount rates used to discount insurance
reserves, onerous contracts, impairment charges and pension settlement gains
or losses. Note 4 to the financial statements sets out the reconciliations of
operating (loss)/profit and loss before tax to their adjusted equivalents. The
adjusting items are as follows:
Other intangible asset amortisation charges
The charge for the year was £4.9m (2019: £11.8m) with the reduction due to a
number of customer contract intangibles which have now been fully amortised
with the remainder mainly relating to brand amortisation in Greyhound.
Greyhound impairment charges
We have assessed the value of Greyhound under a Fair Value Less Cost To Sell
(FVLCTS) approach, rather than the IAS36 Value-in-Use method applied to our
other trading Divisions and in the prior year. This approach considers the
value that a potential Market Participant may ascribe to Greyhound, including
recognition of significant unrealised property values in the Greyhound
portfolio.
An impairment charge of £124.4m was recorded in the first half of the year on
our Greyhound business largely as a result of a decline in immigration flows
on the Southern US border and increased competition on some routes leading the
Group to lower its short to medium term financial projections for this
business.
In the second half we have recorded a further impairment charge of £62.5m to
reflect poor business performance and an increase in the discount rate used to
value the future cash flows. As a result the total impairment charge for
Greyhound for the year was £186.9m (2019: £nil).
Both impairments have been recognised in the results on a pro-rata basis
against the assets of the division excluding property. Valuations in excess of
book value suggest no impairment to the carrying value of property.
North America insurance provisions
FirstGroup North American insurance arrangements involve retaining the working
loss layers in a captive and insuring against the higher losses. Based on our
actuaries’ recommendation and a second additional, independent actuarial
review, last year we increased our reserve to $533m. During this financial
year we have continued to see a deteriorating claims environment with legal
judgements increasingly in favour of plaintiffs and punitive in certain
regions. In this hardening motor claims environment, we have seen further
significant new adverse settlements and developments on a number of aged
insurance claims, and as a result our actuaries have increased their
expectation of the reserve required on historical claims.
In addition, there has been a significant change in the market-based discount
rate used in the actuarial calculation from 2.7% to 0.8%, creating the
requirement to increase the provision. This is the first time that a movement
in the discount rate has been treated as an adjusting item. Management
consider that this treatment is appropriate due to the size of the financial
impact. In other recent years movements in discount rates have not been
significant and the financial impact has been included in operating results.
In light of the continued change in claims environment we have increased the
provision to provide more protection for historical claims, and the resulting
self-insurance reserve level is above the midpoint of the actuarial range.
These changes in accounting estimates combined with the discount rate movement
has resulted in the Group recording an additional charge of $175.2m or
£141.3m (2019: $125.0m or £94.8m); $149.5m or £120.5m relating to losses
from historical claims and $25.7m or £20.7m relating to the change in the
discount rate. It is expected that the majority of these claims will be
settled over the next five years. Following these charges, the provision at 31
March 2020 stands at $657m (2019: $533m) compared with the actuarial range of
$551m to $683m (2019: $447m to $572m).
The charge to the adjusted operating profit for the current period reflects
this revised environment and the businesses continue to build the higher
insurance costs into their bidding processes and hurdle rates for investment.
The Group also actively evaluates alternatives to reduce insurance risk and
ongoing expense, and has made improvements to claims management processes
during the second half. It is anticipated that the Group would extinguish the
relevant self-insurance provisions as part of the sale processes for the North
American divisions.
The Group has a strong focus on safety and risk management. In First Student
for example, the culture of safety we have built and continue to foster has
resulted in four consecutive years of reduced injuries, down 34% over that
period. We continue to maintain high standards and levels of investment in
safety and this will continue to be a key area of focus for the Group.
Restructuring and reorganisation costs
There was a charge of £58.2m (2019: £24.1m) for restructuring and
reorganisation costs of which a large part relates to a Group-wide initiative
to achieve systematic and structured cost savings across the businesses with
the assistance of a market leading organisation in this field. Although this
assistance has now ended, the programme has shown some benefits in the year
just ended prior to the coronavirus pandemic and is anticipated to have
further benefits in future years. Restructuring costs also include legal,
professional and other costs associated with the proposed rationalisation of
the Group. In addition, trading losses in the two Manchester depots to the
date of disposal have been included.
Fuel over hedge
There was a charge of £7.4m (2019: £nil) relating to ineffectiveness on fuel
hedges as a result of dramatically lower than forecast volumes due to the
short-term reduction in services levels as a result of the coronavirus
pandemic, particularly in First Bus and First Student.
First Student onerous contract provision
As a result of the coronavirus pandemic, a significant number of school bus
contracts which have either been lost or were up for rebid at the balance
sheet date, will incur unavoidable losses from the start of the new financial
year until the end of the school year. The total charge for unavoidable losses
on these contracts was £14.1m (2019: £nil).
Legacy pension settlement
This relates to a legacy pension liability from a business disposal which
First Transit made in 2013.
Property profits
First Student recognised a profit of £8.0m on sale of property in the year.
Greyhound recognised a profit of £1.3m on sales of property, principally
relating to the withdrawal from Western Canada.
Finance costs and investment income
Net finance costs were £146.9m (2019: £106.6m) with the increase principally
reflecting the additional interest charges under IFRS 16. Finance costs
pre-IFRS 16 were £106.7m (2019: £106.6m) reflecting largely stable debt
levels relative to prior year.
Profit before tax
Adjusted profit before tax as set out in note 4 to the consolidated financial
statements was £109.9m (2019: £208.2m). An overall charge of £409.5m (2019:
£305.0m) for adjustments principally reflecting the Greyhound impairment of
£186.9m (2019: nil), North America self-insurance reserve charge of £141.3m
(2019: £94.8m), restructuring and reorganisation charges of £58.2m (2019:
£24.1m), a legacy pension settlement in First Transit of £4.9m (2019: £nil)
and other intangible asset amortisation charges of £4.9m (2019: £11.8m),
resulted in a statutory loss before tax of £299.6m (2019: loss before tax of
£97.9m).
Tax
The tax charge, on adjusted profit before tax, for the year was £24.6m (2019:
£46.6m) representing an effective tax rate of 22.4% (2019: 22.4%). There was
a tax credit of £39.6m (2019: a tax credit of £36.5m) relating to other
intangible asset amortisation charges and other adjustments, partly offset by
the write down of previously recognised deferred tax assets of £40.0m (2019:
nil). The total statutory tax charge was £25.0m (2019: £10.1m) representing
an effective tax rate on the statutory loss before tax of (8.3)% (2019:
(10.3)%). This rate is different from the effective tax rate on adjusted
profits primarily because the potential tax credit on the impairment in
Greyhound is not recognised and the write down of deferred tax assets. 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 £2.9m (2019: £7.5m) and differs from
the tax charge of £25.0m primarily because of the write down of deferred tax
assets, partly offset by capital allowances in excess of depreciation and the
utilisation of carried forward tax assets.
EPS
Adjusted EPS was 6.8p (2019: 13.3p). Basic EPS was (27.0)p (2019: (5.5)p).
Shares in issue
As at 31 March 2020 there were 1,210.8m shares in issue (2019: 1,208.6m),
excluding treasury shares and own shares held in trust for employees of 8.7m
(2019: 5.3m). 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 1,210.9m (2019: 1,205.9m).
Cash flow
The pre-IFRS 16 adjusted cash inflow was £98.5m (2019: £197.3m). This
includes a £106.8m outflow for the utilisation of onerous contract provisions
at SWR and TPE. Rail ring-fenced cash increased by £87.2m to £611.9m (2019:
£524.7m) reflecting the start-up of Avanti. The Road divisions’ cash inflow
of £7.9m was after £283.4m capital expenditure as our targeted fleet
investment programmes continued during the financial year.
Net debt increased in the period to £3,278.1m (2019: £903.4m). The increase
is principally due to a £1,168.2m adjustment on transition to IFRS 16 and
inception of new leases of £1,750.8m, primarily due to the commencement of
Avanti and the award of DA3 in GWR. The cash flow on a pre- and post-IFRS 16
basis is set out below:
Year to 31 March 2020 Year to 31 Mar 2019 £m
Pre- IFRS 16 £m IFRS 16 impact £m Post-
IFRS 16
£m
EBITDA 619.2 489.7 1,108.9 670.3
Other non-cash income statement charges (1.4) - (1.4) 3.7
Working capital 79.7 (7.1) 72.6 53.8
Movement in other provisions (171.3) 106.8 (64.5) (24.8)
Pension payments in excess of income statement charge (38.8) - (38.8) (47.8)
Cash generated by operations 487.4 589.4 1,076.8 655.2
Capital expenditure and acquisitions (352.8) - (352.8) (432.5)
Proceeds from disposal of property, plant and equipment 30.5 - 30.5 63.5
Proceeds from disposal of business 16.2 - 16.2 -
Interest and tax (85.9) (40.2) (126.1) (88.8)
Operating lease payments now in debt/other 3.1 (549.2) (546.1) (0.1)
Adjusted cash flow 98.5 - 98.5 197.3
Foreign exchange movements (12.0) (12.1) (24.1) (28.3)
Inception of new leases (77.3) (1,750.8) (1,828.1) -
Operating lease payments now in debt - 549.2 549.2 -
Other non-cash movements (2.0) - (2.0) (2.1)
Adjustment on transition to IFRS 16 - (1,168.2) (1,168.2) -
Movement in net debt in the period 7.2 (2,381.9) (2,374.7) 166.9
Capital expenditure
Road cash capital expenditure was £283.4m (2019: £322.3m) and comprised
First Student £193.0m (2019: £232.3m), First Transit £18.8m (2019:
£32.2m), Greyhound £38.8m (2019: £31.7m), First Bus £30.1m (2019: £25.1m)
and Group items £2.7m (2019: £1.0m). First Rail capital expenditure was
£115.7m (2019: £110.2m) and is typically matched by franchise receipts or
other funding. In addition, during the period we entered into leases in the
Road divisions with capital values in First Student of £75.1m (2019:
£27.0m), First Transit of £13.8m (2019: £3.4m), Greyhound of £21.3m (2019:
£34.8m) and First Bus of £6.3m (2019: £61.9m). During the period First Rail
entered into leases with a discounted present value of £1,719.8m, being
mainly for rolling stock.
Gross capital investment (fixed asset and software additions plus the capital
value of new leases) was £2,326.5m (2019: £571.1m) and comprised First
Student £331.9m (2019: £284.8m), First Transit £30.5m (2019: £30.7m),
Greyhound £65.4m (2019: £62.8m), First Bus £52.6m (2019: £79.8m), First
Rail £1,842.9m (2019: £112.0m) and Group items £3.2m (2019: £1.0m). The
balance between cash capital expenditure and gross capital investment
represents new leases and creditor movements in the year.
Balance sheet
Net assets have decreased by £346.6m since the start of the year. The
principal reasons for this are the retained loss for the year of £327.2m,
unfavourable hedging reserve movements of £45.8m, actuarial losses on defined
benefit pension schemes including deferred tax of £53.6m partly offset by
favourable translation reserve movements of £91.3m.
CGU carrying value
Other than Greyhound, 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 adequate headroom in First Student, First Transit, First
Bus and First Rail. Details of sensitivities to reasonably possible changes in
the assumptions for these CGUs is set out in note 8.
We assessed the value of Greyhound under a Fair Value Less Cost To Sell
(“FVLCTS”) approach, rather than the IAS36 Value-in-Use method applied to
our other trading Divisions and in the prior year. For Greyhound the carrying
value was assessed to be in excess of the Fair Value Less Cost To Sell for
this business due to poor business performance and an increase in the rate
used to discount the future cash flows. A further impairment charge of £62.5m
was recorded in the second half of the year which, together with the £124.4m
impairment charge recorded in the first half of the year, brought the full
year impairment charge to £186.9m.
Fuel price risk
We use a progressive forward hedging programme to manage commodity risk. In
2019/20 in the UK, 90% of our ‘at risk’ crude requirements (1.7m barrels
p.a.) were hedged at an average rate of $65 per barrel. We have hedged 63% of
our ‘at risk’ UK crude requirements for the year to 31 March 2021 at $64
per barrel and 41% of our requirements for the year to 31 March 2022 at $64
per barrel.
In North America 60% of 2019/20 ‘at risk’ crude oil volumes (1.3m barrels
p.a.) were hedged at an average rate of $62 per barrel. We have hedged 58% of
the volumes for the year to 31 March 2021 at $63 per barrel and 20% of our
volumes for the year to 31 March 2022 at $65 per barrel, predominantly in
relation to First Student and First Transit. Greyhound’s fuel exposure is
largely unhedged because its competitors – passenger cars and the airlines
– have no hedging on their exposures, so Greyhound’s pricing is responsive
to fuel price changes.
Funding and risk management
Liquidity within the Group increased compared with the prior year; as at 31
March 2020 the Group’s undrawn committed headroom and free cash was £585.7m
(2019: £520.6m, comprising £237.1m (2019: £167.3m) in free cash (before
Rail ring-fenced cash) and £348.6m (2019: £353.3m) of undrawn committed bank
revolving credit facilities. The level of free cash and undrawn committed
revolving banking facilities has increased over the past two months and is
anticipated to decline with the normal seasonal decline in revenues in First
Student when schools are closed for the summer and due to working capital
requirements as the business prepares for the school start-up during August.
Treasury policy requires a minimum level of committed headroom is maintained.
Subsequent to the year end, the Group was confirmed as an eligible issuer for
the UK Government’s Covid Corporate Financing Facility (CCFF) scheme, with
an issuer limit of £300m based on its credit ratings under the terms of the
scheme as published by the Bank of England. On 27 April 2020 the Group issued
£300m in commercial paper through the scheme to further enhance liquidity
levels. As at the end of June 2020 the Group had c.£850m in free cash (before
Rail ring-fenced cash) and committed undrawn revolving banking facilities.
The Group’s diversified funding structure also includes undrawn facilities
comprising a committed £250m undrawn bridging loan entered into in March 2020
for the redemption of the £350m bond that matures in April 2021, an
uncommitted £150m accordion facility to the RCF, as well as further lines of
uncommitted leasing facilities and more than $100m of uncommitted supplier
credit for the procurement of buses.
Average maturity of our bond debt, senior unsecured loan notes and bank
facilities is 3.3 years (2019: 4.3 years). The Group’s main revolving bank
facilities of £800m require renewal in November 2023. The Group does not
enter into speculative financial transactions and uses only authorised
financial instruments for certain financial risk management purposes.
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 2020 Year to 31 March 2019
Closing rate Effective rate Closing rate Effective rate
US Dollar $1.25 $1.29 $1.30 $1.32
Canadian Dollar $1.74 $1.72 $1.74 $1.74
Net debt
The Group’s net debt at 31 March 2020 was £3,278.1m (2019: £903.4m)
including first time recognition of £1,168.2m in operating leases under IFRS
16 as well as new operating leases under IFRS 16 relating to AWC of £820.9m
and DA3 award in GWR of £729.7m, and comprised:
31 March 2020 31 March 2019
Analysis of net debt Fixed Variable Total Total £m
£m £m £m
Sterling bond (2021) - 348.7 348.7 348.4
Sterling bond (2022) 322.7 - 322.7 322.1
Sterling bond (2024) 199.8 - 199.8 199.8
Bank loans - 574.0 574.0 446.7
Lease liabilities 2,473.0 - 2,473.0 59.9
Senior unsecured loan notes 219.8 - 219.8 210.0
Loan notes 8.7 0.7 9.4 9.4
Gross debt excluding accrued interest 3,224.0 923.4 4,147.4 1,596.3
Cash (237.1) (167.3)
First Rail ring-fenced cash and deposits (611.9) (524.7)
Other ring-fenced cash and deposits (20.3) (0.9)
Net debt excluding accrued interest 3,278.1 903.4
First Rail ring-fenced cash increased by £87.2m in the period principally due
to start-up of Avanti and working capital movements. Net debt excluding Rail
ring-fenced cash and IFRS 16 operating leases was £1,508.1m (2019:
£1,428.1m).
Pensions
We have updated our pension assumptions as at 31 March 2020 for the defined
benefit schemes in the UK and North America. The net pension deficit of
£307.2m at the beginning of the period has increased to £313.4m at the end
of the period. Assets performed well over the period to 29 February, although
the fall in global markets during March as a result of the coronavirus
pandemic reduced the value of some of our pension scheme assets.
Diversification and timely de-risking actions mitigated the impact of falling
equity prices. The value placed on liabilities has decreased due to changes in
financial conditions, especially lower levels of market implied inflation.
This was partially offset by changes in demographic assumptions and exchange
rate movements. The main factors that influence the balance sheet position for
pensions and the principal sensitivities to their movement at 31 March 2020
are set out below:
Movement Impact
Discount rate +0.1% Reduce deficit by £28m
Inflation +0.1% Increase deficit by £23m
Life expectancy +1 year Increase deficit by £63m
The Trustee and Group have agreed the results of the 2019 funding valuation
for the First UK Bus Pension Scheme, and are currently finalising the
documentation. The funding deficit as at the valuation date (April 2019) had
reduced compared with the previous triennial valuation (April 2016), and the
Trustee and Group have agreed a significantly shorter recovery period within
which contributions will be paid to repair the deficit.
Additionally, the Trustee and Group are in the final stages of agreeing an
updated long-term funding plan for the First UK Bus Pension Scheme. This plan
will work towards a funding target that is well aligned to the long-term
targets articulated in the Pension Regulator’s recently announced draft
Funding Code. Central to this plan is reducing the level of asset risk, and
the Group is making good progress with collaborative discussions with the
trustees on reducing the exposure to investment risk within the scheme in a
reasonably short time horizon.
The 2019 funding valuation for the Greater Manchester Pension Fund was
completed during the financial year, and it showed an improvement in funding
position compared to the previous valuation. This has allowed the Group to
stop paying additional secondary contributions to the Fund from the end of the
2020-21 financial year, and also enabled the Group to agree a significant
level of asset de-risking during the financial year. This has reduced the
exposure to assets that are primarily return-seeking (and therefore risk
bearing), such as equities, from c.32% to c.19%. The result of this funding
valuation has therefore been an immediate reduced cash requirement for the
Group, and reduced risk of continued cash requirements in the future.
Following on from the consolidation of the various LGPS plans in England
during the previous financial year, the Group has completed a rationalisation
of their LGPS plans in Scotland during the year to 31 March 2020. The merger
of the Strathclyde fund into the Aberdeen fund has improved the funding
position in the Aberdeen plan, and has also facilitated reduction of the
relative asset risk across these obligations.
During the financial year the Group has taken over the West Coast Partnership
rail franchise, and therefore the pension obligations have been brought onto
the balance sheet. The risks associated with pensions costs have been suitably
reflected in the overall contract, meaning the Group considers that it is
sufficiently well protected against any adverse movements in scheme funding
levels and cash contribution levels. These protections are also reflected
within the agreement to continue operating the Great Western franchise. The
low exposure to pensions risk across the rail franchises is reflected in the
treatment on the Group balance sheet, which reflects a zero surplus/deficit
position for all franchises currently operated by the Group.
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 FirstGroup plc for the year to 31 March 2020 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.
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.
While the British Transport Police have now concluded their investigations
into the Croydon tram incident in November 2016 without bringing any charges,
the Office of Rail & Road (ORR) investigations are ongoing and it is uncertain
when they will be concluded. The tram was operated by Tram Operations Limited
(TOL), a subsidiary of the Group, under a contract with a Transport for London
(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 ORR
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 noise abatement notices in respect of the
operations at the Reading railway depot. The serving of the notices has been
appealed and the parties agreed in principle in June 2020 that the related
court hearing should be put on hold until 31 May 2021 to allow the Council
further time to monitor GWR’s operations at the depot. The parties further
agreed that in May 2021 the Council will be obliged to consider whether the
2017 abatement notices should be withdrawn and, if the notices are not
withdrawn, the appeal proceedings will restart. The precise wording and
mechanisms to achieve this in principle agreement are currently being
negotiated by the parties – if it is not possible to agree this, a further
court hearing has been listed for 4 September 2020 at which the court will
decide how the appeal proceedings should be taken forward. As a result it is
not possible at this stage to quantify the implications for the GWR
operations, if any, if the notices are not withdrawn by the Council or if GWR
are not ultimately successful with respect to any appeal.
On 26 February 2019, collective 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 collective proceedings, has been
postponed pending the outcome of an appeal to the Supreme Court in a different
collective proceedings action and is therefore unlikely to occur until late
2020 at the earliest. It is not possible at this stage to determine accurately
the likelihood or quantum of any damages and costs, or the timing of any such
damages or 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.
Post-balance sheet events
The impact of the coronavirus pandemic on the Group’s operations is
discussed in the Chief Executive’s review and the operating and financial
review as well as set out within note 1 to the financial statements which
summarises the coronavirus scenarios modelled by the Group.
Subsequent to the balance sheet date, the Group has monitored the business
performance, internal actions, as well as other relevant external factors
(such as changes in any of the government restrictions and policy guidance).
No adjustments to the key estimates and judgements that impact the balance
sheet as at 31 March 2020 have been identified.
The following non-adjusting events have occurred since 31 March 2020:
* Use of the UK government’s Coronavirus Job Retention Scheme for furloughed
staff as required under the Covid-19 Bus Service Support Grant in England and
support in Scotland and Wales
* Use of the CARES Act support for our North American businesses for the
Employee Retention Credits
* Contracted with six states with 5311 (f) subsidy funding in Greyhound and
continued to progress agreements with other states we operate in
* Signed a DA3 award for GWR for a further three years plus one at the DfT’s
option
* The Group received confirmation from the Bank of England that it was an
eligible issuer under the UK government’s Covid Corporate Financing Facility
(CCFF) and allocated an issuer limit of £300m and issued £300m in commercial
paper on 27 April.
* Continued to progress contractual support arrangements in First Student and
First Transit
* Agreed CBSSG Restart in England and agreed fiscal support in Scotland for
increased bus service levels
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. As noted on page 26 the Directors recognise that
significant judgements had to be made in deciding what assumptions to make
regarding how the impact of the coronavirus pandemic might evolve in the
coming months and what impact that will have on the ability of each of the
business divisions to resume near normal levels of service. Many of those
judgements are, by their nature, highly subjective and the modelled outcomes
depend to a significant degree on how the coronavirus pandemic evolves during
the rest of the year. There is therefore a much higher degree of uncertainty
than would usually be the case in making the key judgements and assumptions
that underpin the financial forecasts. 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 financial figures for the year to 31 March 2020
include the results and financial position of the First Rail business for the
year ended 31 March 2020 and the results and financial position of all the
other businesses for the 52 weeks ended 28 March 2020. Figures for the year to
31 March 2019 include the results and financial position of the First Rail
division for the year ended 31 March 2019 and the results and financial
position of all the other businesses for the 52 weeks ended 30 March 2019.
References to the 'Road' divisions combine First Student, First Transit,
Greyhound, First Bus and Group items.
All references to 'adjusted' figures throughout this document reflect the
adoption of IFRS 16 in the period and are before the Greyhound impairment,
North American self-insurance charge, restructuring and reorganisation costs,
other intangible asset amortisation charges and certain other items as set out
in note 3 to the financial statements.
‘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, severe weather and
other factors, for example engineering possessions in First Rail, that distort
the period-on-period trends in our passenger revenue businesses.
Principal risks and uncertainties
The Board has conducted a thorough assessment of the principal risks facing
the Group during the year, including those that would threaten the successful
and timely delivery of its strategic priorities, future performance, solvency
and liquidity.
The most immediate risk currently facing the Group is the impact to the Group
and each of its businesses from the coronavirus pandemic. We have set out in
more detail elsewhere in this document the measures we are taking as a Group
and in each of our businesses to mitigate those risks. In our going concern
statement we have highlighted material uncertainties around passenger demand
and the continuation of fiscal support.
Other material risks include:
* Climate change – many jurisdictions in which the Group operates have
introduced decarbonisation plans, which set ambitious targets for the
reduction of transport-related emissions. These may result in structural
market changes or impact the Group’s operations in terms of reduced
profitability, increased costs and/or a reduction in operational flexibility
or efficiency.
* Economic environment including Brexit – the less certain economic outlook,
together with the on-going restrictions imposed as a result of the
coronavirus, and a disruptive exit from the EU, could have a negative impact
on our businesses in terms of reduced demand and reduced opportunities for
growth.
* Compliance, litigation, claims, health and safety – the Group’s
operations are subject to a wide range of legislation and regulation. A higher
volume of litigation and claims can lead to increased costs, reduced
availability of insurance cover, and/or reputational impact. Increased
frequency of accidents, clusters of higher severity losses, a large single
claim, or a large number of smaller claims may negatively affect profitability
and cash flow.
* Disruption to infrastructure/operations – the Group’s operations, and
the infrastructure on which they depend, can be affected by a number of
different external factors, including terrorism and adverse weather events. An
attack, or threat of attack, could lead to reduced confidence in public
transportation and/or the Group’s security record, and could reduce demand
for our services, increase costs and cause operational disruption. Greater and
more frequent adverse weather increases the risk of service disruption and
reduced customer demand with consequential financial impact.
A summary of the Principal Risks and Uncertainties will be set out in the
Annual Report and Accounts.
Matthew
Gregory
Ryan Mangold
Chief
Executive
Chief Financial Officer
8 July
2020
8 July 2020
Consolidated income statement
For the year ended 31 March
Continuing operations Notes 2020 £m 2019 £m
Revenue 2 7,754.6 7,126.9
Operating costs (7,907.3) (7,117.1)
Operating (loss)/profit (152.7) 9.8
Investment income 5 2.7 2.7
Finance costs 5 (149.6) (110.4)
Loss before tax (299.6) (97.9)
Tax 6 (25.0) (10.1)
Loss for the year (324.6) (108.0)
Attributable to:
Equity holders of the parent (327.2) (66.9)
Non-controlling interests 2.6 (41.1)
(324.6) (108.0)
Earnings per share
Basic 7 (27.0)p (5.5)p
Diluted 7 (27.0)p (5.5)p
Adjusted results (1) Restated (2)
Adjusted operating profit 4 256.8 314.8
Adjusted profit before tax 4 109.9 208.2
Adjusted EPS 7 6.8p 13.3p
Adjusted diluted EPS 7 6.7p 13.2p
1. Adjusted for certain items as set out in note 4.
2. Restated to charge £18.1m of software amortisation to divisional results
in arriving at adjusted operating profits.
The accompanying notes form an integral part of this consolidated income
statement.
Consolidated statement of comprehensive income
Year ended 31 March
2020 £m 2019 £m
Loss for the year (324.6) (108.0)
Items that will not be reclassified subsequently to profit or loss
Actuarial losses on defined benefit pension schemes (29.0) (38.7)
Deferred tax on actuarial losses on defined benefit pension schemes 1.1 7.1
Writing down previously recognised deferred tax assets on actuarial losses on defined benefit schemes (25.7) -
(53.6) (31.6)
Items that may be reclassified subsequently to profit or loss
Derivative hedging instrument movements (29.3) 23.5
Deferred tax on derivative hedging instrument movements 5.9 (4.1)
Exchange differences on translation of foreign operations 91.3 160.8
67.9 180.2
Other comprehensive income for the year 14.3 148.6
Total comprehensive (loss)/income for the year (310.3) 40.6
Attributable to:
Equity holders of the parent (312.9) 81.7
Non-controlling interests 2.6 (41.1)
(310.3) 40.6
The accompanying notes form an integral part of this consolidated statement of
comprehensive income.
Consolidated balance sheet
As at 31 March
Note 2020 £m 2019 £m
Non-current assets
Goodwill 8 1,663.2 1,598.1
Other intangible assets 9 51.9 75.1
Property, plant and equipment 10 4,374.5 2,165.9
Deferred tax assets 18 33.6 40.6
Retirement benefit assets 53.2 69.2
Derivative financial instruments 17 15.8 20.5
Investments 32.9 34.1
6,225.1 4,003.5
Current assets
Inventories 11 63.3 60.2
Trade and other receivables 12 1,170.6 1,141.4
Current tax assets 9.8 3.4
Cash and cash equivalents 869.3 692.9
Assets held for sale 1.0 31.7
Derivative financial instruments 17 4.8 15.5
2,118.8 1,945.1
Total assets 8,343.9 5,948.6
Current liabilities
Trade and other payables 13 1,799.7 1,547.3
Tax liabilities – Current tax liabilities 7.5 3.9
– Other tax and social security 42.9 29.0
Borrowings 14 694.3 84.9
Derivative financial instruments 17 44.2 3.4
Provisions 19 232.1 265.9
2,820.7 1,934.4
Net current (liabilities)/assets (701.9) 10.7
Non-current liabilities
Borrowings 14 3,502.9 1,564.1
Derivative financial instruments 17 19.2 1.9
Retirement benefit liabilities 366.6 376.4
Deferred tax liabilities 18 38.8 16.5
Provisions 19 419.0 532.0
4,346.5 2,490.9
Total liabilities 7,167.2 4,425.3
Net assets 1,176.7 1,523.3
Equity
Share capital 20 61.0 60.7
Share premium 688.6 684.0
Hedging reserve (28.3) 17.5
Other reserves 4.6 4.6
Own shares (10.2) (4.7)
Translation reserve 635.6 544.3
Retained earnings (141.5) 248.1
Equity attributable to equity holders of the parent 1,209.8 1,554.5
Non-controlling interests (33.1) (31.2)
Total equity 1,176.7 1,523.3
The accompanying notes form an integral part of this consolidated balance
sheet.
Ryan Mangold
Chief Financial Officer
8 July 2020
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 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
Balance at 1 April 2019 60.7 684.0 17.5 4.6 (4.7) 544.3 248.1 1,554.5 (31.2) 1,523.3
Adjustment on transition to IFRS 16 – – – – – – (15.6) (15.6) – (15.6)
Balance at 1 April 2019 60.7 684.0 17.5 4.6 (4.7) 544.3 232.5 1,538.9 (31.2) 1,507.7
Loss for the year – – – – – – (327.2) (327.2) 2.6 (324.6)
Other comprehensive income/(loss) for the year – – (23.4) – – 91.3 (53.6) 14.3 – 14.3
Total comprehensive (loss)/income for the year – – (23.4) – – 91.3 (380.8) (312.9) 2.6 (310.3)
Shares issued 0.3 4.6 – – – – – 4.9 – 4.9
Derivative hedging instrument movements transferred to balance sheet (net of tax) – – (22.4) – – – – (22.4) – (22.4)
Dividends paid/other – – – – – – 0.7 0.7 (4.5) (3.8)
Movement in EBT and treasury shares – – – – (5.5) – (4.2) (9.7) – (9.7)
Share-based payments – – – – – – 10.3 10.3 – 10.3
Balance at 31 March 2020 61.0 688.6 (28.3) 4.6 (10.2) 635.6 (141.5) 1,209.8 (33.1) 1,176.7
The accompanying notes form an integral part of this consolidated statement of
changes in equity.
Consolidated cash flow statement
Year ended 31 March
Note 2020 £m 2019 £m
Net cash from operating activities 21 958.2 563.7
Investing activities
Interest received 2.7 2.7
Proceeds from disposal of property, plant and equipment 30.5 63.5
Purchases of property, plant and equipment (321.8) (421.3)
Purchases of software (9.2) (8.9)
Disposal of business 16.2 –
Acquisition of businesses (21.8) (2.3)
Net cash used in investing activities (303.4) (366.3)
Financing activities
Shares purchased by Employee Benefit Trust (9.8) –
Shares issued 4.5 2.1
Repayment of bond – (250.0)
Drawdowns from bank facilities 122.9 255.0
Repayment of loan notes – (0.1)
Repayments of lease liabilities (596.5) (53.1)
Fees for finance facilities (2.1) (2.2)
Net cash flow used in financing activities (481.0) (48.3)
Net increase in cash and cash equivalents before foreign exchange movements 173.8 149.1
Cash and cash equivalents at beginning of year 692.9 555.7
Foreign exchange movements 2.6 (11.9)
Cash and cash equivalents at end of year per consolidated balance sheet 869.3 692.9
Cash and cash equivalents are included within current assets on the
consolidated balance sheet. Cash and cash equivalents includes ring-fenced
cash of £632.2m at March 2020 (March 2019:
£525.6m).
Note to the consolidated cash flow statement –
reconciliation of net cash flow to movement in net debt
2020 £m 2019 £m
Net increase in cash and cash equivalents in year 173.8 149.1
(Increase)/decrease in debt and leases excluding leases formerly classified as operating leases (75.3) 48.2
Adjusted cash flow 98.5 197.3
Payment of lease liabilities 549.2 –
Inception of new leases (1,828.3) –
Fees capitalised against bank facilities and bond issues 0.7 –
Foreign exchange movements (24.1) (28.3)
Other non-cash movements (2.5) (2.1)
Movement in net debt in year (1,206.5) 166.9
Adjustment for transition to IFRS 16 (1,168.2) –
Net debt at beginning of year (903.4) (1,070.3)
Net debt at end of year (3,278.1) (903.4)
Adjusted cash flow is stated prior to cash flows in relation to debt and
finance leases.
Net debt includes the value of derivatives in connection with the bond
maturing 2021 and excludes all accrued interest. These bonds are included in
current and non-current liabilities in the condensed consolidated balance
sheet.
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 2020 or 2019, but is derived
from those accounts. Statutory Accounts for 2019 have been delivered to the
Registrar of Companies and those for 2020 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 July 2020. Copies of the Statutory Accounts for the
year ended 31 March 2020 will be available to all shareholders in July and
will also be available thereafter at the Registered Office of the Company at
395 King Street, Aberdeen, AB24 5RP.
Basis of accounting
The financial statements have been prepared in accordance with IFRSs adopted
and endorsed for use in the European Union and therefore comply with Article 4
of the EU IAS Regulation.
The financial statements have been prepared on the historical cost basis,
except for the revaluation of certain financial instruments, and on a going
concern basis as described in the going concern statement within the Operating
and Financial Review on page 23.
For the reasons set out in the going concern statement on pages 23 to 26 the
Directors noted that the risks set out there indicate that a material
uncertainty exists that may cast significant doubt on the Group’s and the
Company’s ability to continue as a going concern and, therefore, that it may
be unable to realise its assets and discharge its liabilities in the normal
course of business.
Material uncertainty relates to:
* the uncertainty regarding the levels of fiscal financial and contractual
support which may be provided beyond the period for which that funding and
contractual support is currently being provided;
* whether passenger volumes recover to the levels necessary to sustain the
business without the current fiscal financial and contractual support;
* the ability of the Group to obtain covenant waivers from debt providers if
required;
* the ability of the Group to draw down on c.£550m of the currently available
but uncommitted facilities throughout the going concern period if required;
and
* the timing of cash flows, including movements in working capital and the
timing of receipts of contractual and fiscal support that may impact debt
levels at covenant test dates.
As set out on pages 23 to 26, the Group has undertaken detailed reviews of the
potential impact of COVID-19 using financial outlook modelling. Based on their
review of the financial forecasts and having regard to the risks and
uncertainties to which the Group is exposed, (including the material
uncertainty referred to above) the Directors believe that the Company and the
Group have adequate resources to continue in operational existence for the
twelve-month period from the date on which the financial statements were
approved. Accordingly, the financial statements have been prepared on a going
concern basis.
The financial statements for the year ended 31 March 2020, include the results
and financial position of the First Rail business for the year ended 31 March
2020 and the results and financial position of all the other businesses for
the 52 weeks ended 28 March 2020. The financial statements for the year ended
31 March 2019 include the results and financial position of the First Rail
businesses for the year ended 31 March 2019 and the results and financial
position of all the other businesses for the 52 weeks ended 30 March 2019.
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 16 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 16 Leases
The Group has applied for the first time IFRS 16 Leases. As required by IAS
34, the nature and effect of these changes are disclosed below.
IFRS 16 Leases replaces IAS 17 Leases and three interpretations (IFRIC 4
Determining whether an Arrangement contains a lease, SIC 15 Operating Leases
– Incentives and SIC 27 Evaluating the Substance of Transactions Involving
the Legal Form of a Lease). On transition the Group has applied IFRS 16 using
the modified retrospective approach, with the cumulative effect on adoption
being recognised as an adjustment to opening retained earnings. Prior periods
have not been restated.
Prior to the adoption of IFRS 16, leases were either classified as operating
or finance leases. Payments made in respect of operating leases were charged
to the income statement on a straight line basis over the duration of the
lease. Finance leases were recognised on the balance sheet with depreciation
and interest being charged to the income statement.
For leases previously classified as finance leases, the Group has recognised
the carrying amount of the finance lease asset and liability under IAS 17 as
at 31 March 2019 as the carrying amount of the right of use asset and the
lease liability under IFRS 16 at 1 April 2019.
The Group has elected not to include initial direct costs in the measurement
of the right of use asset for operating leases in existence at the date of
transition. At this date, the Group has also elected to measure the right of
use assets at an amount equal to the lease liability adjusted for any prepaid
or accrued lease payments that existed at the date of transition.
On transition, for leases previously accounted for as operating leases with a
remaining lease term of less than 12 months and for leases of low value assets
the Group has applied the available practical expedients, therefore these have
not been recognised as right of use assets but have been accounted for as a
lease expense on a straight line basis over the remaining lease term.
1 General Information (continued)
On transition to IFRS 16 the weighted average incremental borrowing rate
applied to lease liabilities recognised under IFRS 16 was 3.21%.
As previously reported at 31 March 2019 £m Impact of IFRS 16 £m Restated at 1 April 2019 £m
Assets
Property, plant and equipment cost 2,165.9 1,140.4 3,306.3
Property, plant and equipment impairment - (208.6) (208.6)
Trade and other receivables 1,141.4 (3.8) 1,137.6
Deferred tax assets 40.6 1.4 42.0
Other assets not impacted by IFRS 16 2,600.7 - 2,600.7
Total assets / impact on assets 5,948.6 929.4 6,878.0
Liabilities
Trade and other payables 1,547.3 (11.3) 1,536.0
Borrowings 1,649.0 (59.9) 1,589.1
Lease liabilities (1, 2) - 1,228.1 1,228.1
Deferred tax liabilities 16.5 (3.3) 13.2
Provisions 797.9 (208.6) 589.3
Other liabilities not impacted by IFRS 16 414.6 - 414.6
Total liabilities / impact on liabilities 4,425.3 945.0 5,370.3
Net assets / impact on net assets 1,523.3 (15.6) 1,507.7
Equity
Retained earnings 248.1 (15.6) 232.5
Other equity not impacted by IFRS 16 1,275.2 - 1,275.2
Total equity / impact on equity 1,523.3 (15.6) 1,507.7
(1 ) Lease liabilities are included within borrowings on the
condensed consolidated balance sheet.
(2 ) As at 1 April 2019, lease liabilities due within one year
were £549.7m. Lease liabilities due after one year were £678.4m.
Right of use assets of £1,140.4m were recognised at 1 April 2019, £829.4m
related to rolling stock, £217.2m related to leases of land and property,
£89.5m related to PCV’s and £4.3m related to the lease of other assets.
The lease liabilities as at 1 April 2019 can be reconciled to the opening
lease commitments as at 31 March 2019 as follows:
£m
Operating lease commitments at 31 March 2019 2,952.8
Short term and low value lease commitments straight line expensed under IFRS 16 (36.5)
First Rail charges for track, station and depot access (3) (997.0)
Leases entered into where the commencement date falls after 31 March 2019 (496.6)
IAS 17 lease commitments which do not meet the definition of a lease under IFRS 16 (4) (183.1)
Other 30.0
Effect of discounting using incremental borrowing rates (101.4)
Finance lease liabilities recognised under IAS 17 at 31 March 2019 59.9
Lease liabilities recognised at 1 April 2019 1,228.1
(3) Within First Rail, £1.0bn relates to track, station and depot
access charges which do 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 assets throughout the period of use, or that Network Rail,
not the Group, directs how and for what purpose the assets are used.
(4 ) IAS 17 lease commitments for ongoing rolling stock
maintenance costs which comprise of non-lease components and do not meet the
definition of a lease under IFRS 16.
In respect of the income statement impact, the application of IFRS 16 resulted
in a decrease in other operating expenses and an increase in depreciation and
interest expense compared to IAS 17. During the year ended 31 March 2020, the
impact of IFRS 16 resulted in the Group recognising the following amounts in
the consolidated income statement:
£m
Depreciation 483.2
Interest expense 40.2
Short term and low value lease expense 35.1
1 General Information (continued)
The Group’s ongoing accounting treatment per IFRS 16
Lease identification
At inception of a contract, the Group shall assess whether a contract is, or
contains, a lease. A contract is, or contains, a lease if the contract conveys
the right to control the use of an identified asset for a period of time in
exchange for consideration.
Right of use asset (ROUA)
At the commencement date, the right of use asset is initially measured at
cost, which comprises the initial amount of the lease liability adjusted for
any lease payments made at or before the commencement date, less any
incentives received, plus any initial direct costs incurred and an estimate of
costs to be incurred by the Group to dismantle and remove the underlying asset
or restore the underlying asset or the site on which it is located.
The right of use asset is depreciated on a straight line basis over the
shorter of the estimated useful life of the asset or the lease term. In
addition, the right of use asset is periodically reduced by impairment losses,
if applicable, and adjusted for certain remeasurements of the lease liability.
Lease liability
At the commencement date of the lease, the lease liability is initially
measured at the present value of lease payments to be made over the lease
term. The lease payments include fixed payments (including in-substance fixed
payments) less any lease incentives receivable, variable lease payments that
depend on an index or a rate, and amounts expected to be paid by the Group
under residual value guarantees. The lease payments also include the exercise
price of a purchase option if the Group is reasonably certain to exercise that
option. Payments of penalties for terminating a lease, if the lease term
reflects the Group exercising the option to terminate the lease, are also
included. The payments are discounted at the incremental borrowing rate since
the rates implicit in the leases cannot be readily determined.
The lease liability is measured by increasing the carrying amount to reflect
the interest on the lease liability and reducing the carrying amount to
reflect the lease payments made. The carrying value is re-measured when there
is a change in future lease payments arising from a change in an index or
rate, if there is a change in the Group’s estimate of the amount expected to
be payable under a residual value guarantee, or if the Group changes its
assessment of whether it will exercise a purchase, extension or termination
option.
In accordance with IAS 36 Impairment of assets the opening onerous contract
provision for SWR of £145.9m was reclassified as an impairment on ROUA on
adoption of IFRS 16. Similarly, £62.7m of the opening TPE onerous contract
provision was reclassified as an opening impairment on ROUA with the remaining
balance of £44.2m being reclassified as impairment on ROUA additions in the
period.
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to selected
leases that have a lease term of 12 months or less from the commencement date
and do not contain a purchase option and where it is not reasonably certain
that the lease term will be extended. It also applies the low-value assets
recognition exemption to leases of assets of low value based on the value of
the asset when it is new, regardless of the age of the asset being leased.
Lease payments on short-term leases and leases of low-value assets are
recognised as an expense on a straight-line basis over the lease term.
On the balance sheet, right of use assets have been included in property,
plant and equipment and lease liabilities have been included in borrowings.
The accounting policy for leasing for the year ended 31 March 2019 was as
follows:
Leases are classified as finance leases whenever the terms of the lease
transfer substantially all the risks and rewards of ownership to the lessee.
All other leases are classified as operating leases and the rental charges are
charged against income on a straight-line basis over the life of the lease.
Assets held under hire purchase contracts and finance leases are recognised as
assets of the Group at their fair value or, if lower, at the present value of
the minimum lease payments, each determined at the inception of the lease. The
corresponding liability is included in the balance sheet as a finance lease
obligation. Lease payments are apportioned between finance charges and
reduction of the lease obligation so as to achieve a constant rate of interest
on the remaining balance of the liability. Finance charges are charged
directly against income, unless they are directly attributable to qualifying
assets, in which case they are capitalised in accordance with the Group’s
general policy on borrowing costs (see below).
Benefits received and receivable as an incentive to enter into an operating
lease are spread on a straight-line basis over the lease term.
2 Revenue
2020 £m 2019 £m
Services rendered 7,380.2 6,933.1
First Rail franchise subsidy receipts Other income 369.1 5.3 193.8 –
Revenue 7,754.6 7,126.9
3 Business segments and geographical information
The segment results for the year to 31 March 2020 are as follows:
First Student £m First Transit £m Greyhound (1) £m First Bus £m First Rail £m Group items (2) £m Total £m
Passenger revenue – – 532.7 758.2 2,584.1 – 3,875.0
Contract revenue 1,764.9 1,031.9 – 63.5 – 17.8 2,878.1
Charter/private hire 159.4 5.0 3.5 – – – 167.9
Rail franchise subsidy receipts – – – – 369.1 – 369.1
Other 16.1 134.5 67.0 14.2 232.7 – 464.5
Revenue 1,940.4 1,171.4 603.2 835.9 3,185.9 17.8 7,754.6
EBITDA (3) 387.6 62.9 35.3 113.2 538.6 (28.7) 1,108.9
Depreciation (225.8) (32.2) (39.7) (69.2) (518.2) (4.3) (889.4)
Software amortisation (3.0) (2.4) (8.1) (0.9) (1.0) (0.7) (16.1)
Capital grant amortisation – – 0.9 3.0 49.5 – 53.4
Segment results 158.8 28.3 (11.6) 46.1 68.9 (33.7) 256.8
Other intangible asset amortisation charges (2.4) – (2.5) – – – (4.9)
Other adjustments (note 4) (67.0) (50.2) (239.3) (13.7) (1.1) (33.3) (404.6)
Operating (loss)/profit (4) 89.4 (21.9) (253.4) 32.4 67.8 (67.0) (152.7)
Investment income 2.7
Finance costs (149.6)
Loss before tax (299.6)
Tax (25.0)
Loss after tax (324.6)
1 Greyhound segment results contains £8.3m of property gains on the
disposal of 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.
3 Business segments and geographical information (continued)
The segment results for the year to 31 March 2019 are as follows:
First Student £m First Transit £m Greyhound (1) £m First Bus £m First Rail £m Group Items (2) £m Total £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 Software amortisation (178.8) (2.3) (19.9) (2.2) (27.7) (8.8) (56.1) (0.7) (81.0) (3.5) (2.5) (0.6) (366.0) (18.1)
Capital grant amortisation – – 0.5 2.2 25.9 – 28.6
Segment results (5) 171.2 49.3 2.6 65.1 68.8 (42.2) 314.8
Other intangible asset amortisation charges (8.6) – (3.2) – – – (11.8)
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)
1 Greyhound segment results contains £8.4m of property gains on the
disposal of 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.
5 Restated to charge £18.1m of software amortisation to divisional
results in arriving at adjusted operating profit.
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, material property gains or losses, aged legal and
self-insurance claims, significant adverse development factors on insurance
provisions, onerous contract provisions, impairment charges and pension
settlement gains or losses including GMP equalisation. 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 (loss)/profit to adjusted operating profit Year to 31 March 2020 £m Year to 31 March 2019 £m
Operating (loss)/profit (152.7) 9.8
Adjustments for:
Greyhound impairment charges 186.9 –
North America insurance provisions 141.3 94.8
Restructuring and reorganisation costs 58.2 24.1
Other intangible asset amortisation charges 4.9 11.8
Gain on disposal of properties (9.3) (9.3)
Fuel over hedge 7.4 –
Legacy pension settlement 4.9 –
First Student onerous contract provision 14.1 –
Increase in SWR performance bond 1.1 –
SWR onerous contract provision – 145.9
Guaranteed minimum pensions charge – 21.5
Loss on disposal/impairment charges – 16.2
Total operating profit adjustments 409.5 305.0
Adjusted operating profit (note 3) 256.8 314.8
4 Reconciliation to non-GAAP measures and performance (continued)
Reconciliation of loss before tax to adjusted profit before tax and adjusted earnings Year to 31 March 2020 £m Year to 31 March 2019 £m
Loss before tax (299.6) (97.9)
Operating profit adjustments (see table above) 409.5 305.0
Notional interest on TPE onerous contract provision – 1.1
Adjusted profit before tax 109.9 208.2
Adjusted tax charge (see below) (24.6) (46.6)
Non-controlling interests (1) (2.6) (1.8)
Adjusted earnings 82.7 159.8
1 Statutory non-controlling interest of £2.5m comprises a charge in
respect of the results for Avanti West Coast.
Reconciliation of tax charge to adjusted tax charge Year to 31 March 2020 £m Year to 31 March 2019 £m
Tax charge (note 6) 25.0 10.1
Tax effect of adjusting items (note 7) 39.6 36.5
Write-down of previously recognised deferred tax assets (40.0) –
Adjusted tax charge 24.6 46.6
The adjusting items are as follows:
Greyhound impairment charges
We have assessed the value of Greyhound under a Fair Value Less Cost Of
Disposal approach, rather than the IAS36 Value-in-Use method applied to our
other trading Divisions and in the prior year. This approach considers the
value that a potential Market Participant may ascribe to Greyhound, including
recognition of significant unrealised property values in the Greyhound
portfolio.
An impairment charge of £124.4m was recorded in the first half of the year on
our Greyhound business largely as a result of a decline in immigration flows
on the Southern US border and increased competition on some routes leading the
Group to lower its short to medium term financial projections for this
business.
In the second half we have recorded a further impairment charge of £62.5m to
reflect poor business performance and an increase in the rate used to discount
the future cash flows. As a result the total impairment charge for Greyhound
for the year was £186.9m (2019: £nil).
Both impairments have been recognised in the results on a pro-rata basis
against the assets of the division excluding property. Valuations in excess of
book value suggest no impairment to the carrying value of property.
North America Insurance provisions
FirstGroup North American insurance arrangements involve retaining the working
loss layers in a captive and insuring against the higher losses. Based on our
actuaries’ recommendation and a second additional, independent actuarial
review, last year we increased our reserve to $533m. During this financial
year we have continued to see a deteriorating claims environment with legal
judgements increasingly in favour of plaintiffs and punitive in certain
regions. In this hardening motor claims environment, we have seen further
significant new adverse settlements and developments on a number of aged
insurance claims, and as a result our actuaries have increased their
expectation of the reserve required on prior year claims.
In addition, there has been a significant change in the market based discount
rate used in the actuarial calculation from 2.7% to 0.8%, creating the
requirement to increase the provision. This is the first time that a movement
in the discount rate has been treated as an adjusting item. Management
consider that this treatment is appropriate due to the size of the financial
impact. In other recent years movements in discount rates have not been
significant and the financial impact has been included in operating results
In light of the continued change in claims environment we have increased the
provision to provide more protection for prior year claims, and the resulting
self-insurance reserve level is above the midpoint of the actuarial range.
These changes in accounting estimates combined with the discount rate movement
has resulted in the Group recording an additional charge of $175.2m or
£141.3m (2019: $125.0m or £94.8m); $149.5m or £120.5m relating to the
prior year settlements and $25.7m or £20.7m relating to the change in the
discount rate. 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 period reflects this revised environment and the businesses continue
to build the higher insurance costs into their bidding processes and hurdle
rates for investment. The Group also actively evaluates alternatives to reduce
insurance risk and ongoing expense, and has made improvements to claims
management processes during the second half. Following these charges, the
provision at 31 March 2020 stands at $657m (2019: $533m) compared with the
actuarial range of $551m to $683m (2019: $447m to $572m).
4 Reconciliation to non-GAAP measures and performance (continued)
The charge to the adjusted operating profit for the current period reflects
this revised environment and the businesses continue to build the higher
insurance costs into their bidding processes and hurdle rates for investment.
The Group also actively evaluates alternatives to reduce insurance risk and
ongoing expense, and has made improvements to claims management processes
during the second half. It is anticipated that the Group would extinguish the
relevant self-insurance provisions as part of the sale processes for the North
American divisions.
The Group has a strong focus on safety and risk management. In First Student
for example, the culture of safety we have built and continue to foster has
resulted in four consecutive years of reduced injuries, down 34% over that
period. We continue to maintain high standards and levels of investment in
safety and this will continue to be a key area of focus for the Group.
Restructuring and reorganisation costs
There was a charge of £58.2m (2019: £24.1m) for restructuring and
reorganisation costs of which a large part relates to a Group-wide initiative
to achieve systematic and structured cost savings across the businesses with
the assistance of a market leading organisation in this field. Although this
assistance has now ended, the programhas shown some benefits in the year just
ended prior to the coronavirus pandemic and is anticipated to have further
benefits in future years. Restructuring costs also include legal, professional
and other costs associated with the proposed rationalisation of the Group. In
addition, trading losses in the two Manchester depots to the date of disposal
have been included. The two Manchester depots were disposed of in the
financial year for £16.2m. The net book value of the assets sold totalled
£15.1m, resulting in a gain on sale of £1.1m which is included in the
operating loss.
Other intangible asset amortisation charges
The amortisation charge for the year was £4.9m (2019: £11.8m) with the
reduction due to a number of customer contract intangibles which have now been
fully amortised with the remainder mainly relating to brand amortisation in
Greyhound.
Gain on disposal of properties
First Student recognised a profit of £8.0m on sale of property in the year.
Greyhound recognised a profit of £1.3m on sales of property, principally
relating to the withdrawal from Western Canada. (2019: £9.3m).
Fuel over hedge
There was a charge of £7.4m (2019: £nil) relating to ineffectiveness on fuel
hedges as a result of dramatically lower than forecast volumes due to the
short-term reduction in services levels as a result of the coronavirus
pandemic, particularly in First Bus and First Student.
Legacy pension settlement
This relates to a legacy pension liability from a business disposal which
First Transit made in 2013.
First Student onerous contract provision
As a result of COVID-19, a significant number of school bus contracts which
have either been lost or were up for bid at the balance sheet date, will incur
unavoidable losses from the start of the new financial year until the end of
the school year. The total charge for unavoidable losses on these contracts
was £14.1m (2019: £nil).
Increase in SWR performance bond
The SWR Performance bond renewed in October 2019, 6 months before expiry. On
renewal the cost of the bond took into account increases in RPI and increased
from £15.0m to £16.1m.
Reconciliation of underlying (1)adjusted (2) Year to 31 March 2020 Restated (4) Year to 31 March 2019
Reported £m Avanti franchise £m Avanti Adjusted £m Reported £m Effect of foreign exchange £m Adjusted Constant Currency £m % change
Revenue 7,754.6 (331.2) 7,423.4 7,126.9 107.7 7,234.6 +2.6%
Operating profit 256.8 (14.3) 242.5 314.8 6.5 321.3 (24.5)%
Restated (4) Year to 31 March 2019
Reconciliation of constant currency (3) Year to 31 March 2020 £m Reported £m Effect of foreign exchange £m Constant Currency £m % change
Revenue 7,754.6 7,126.9 107.7 7,234.6 +7.2%
Operating profit 256.8 314.8 6.5 321.3 (20.1)%
Adjusted profit before tax 109.9 208.2 4.0 212.2 (48.2)%
Adjusted EPS 6.8p 13.3p 0.2p 13.5p (49.6)%
Net debt 3,278.1 903.4 23.3 926.7 +253.7%
(1) Growth excluding Avanti franchise (which became part of First Rail
in December 2019) 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.
(3) Changes 'in constant currency' throughout this document are based
on retranslating 2019 foreign currency amounts at 2020 rates.
(4) Restated to charge £18.1m of software amortisation to divisional
results in arriving at adjusted operating profits
5 Investment income and finance costs
2020 £m 2019 £m
Investment income
Bank interest receivable (2.7) (2.7)
Finance costs
Bonds 56.3 59.9
Bank borrowings 19.6 14.0
Senior unsecured loan notes 9.2 8.9
Loan notes 1.2 1.1
Finance charges payable in respect of leases 2.4 2.7
Interest cost on right of use assets 40.2 –
Notional interest on long term provisions 12.0 14.6
Notional interest on pensions 8.7 8.1
Finance costs before adjustments 149.6 109.3
Notional interest on TPE onerous contract provision – 1.1
Total finance costs 149.6 110.4
Finance costs before adjustments 149.6 109.3
Investment income (2.7) (2.7)
Net finance cost before adjustments 146.9 106.6
6 Tax on loss on ordinary activities
2020 £m 2019 £m
Current tax (0.7) 8.1
Adjustments with respect to prior years 1.2 0.1
Total current tax charge 0.5 8.2
Origination and reversal of temporary differences (14.1) 4.8
Adjustments with respect to prior years 1.4 (2.9)
Adjustments attributable to changes in tax rates and laws (2.8) –
Writing down of previously recognised deferred tax assets 40.0 –
Total deferred tax charge (note 18) 24.5 1.9
Total tax charge 25.0 10.1
7 Earnings per share (EPS)
EPS is calculated by dividing the loss attributable to equity shareholders of
£327.2m (2019: £66.9m) by the weighted average number of ordinary shares of
1,210.9m (2019: 1,205.9m). 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.
2020 Number m 2019 Number m
Weighted average number of shares used in basic calculation 1,210.9 1,205.9
Executive share options 14.8 8.1
Weighted average number of shares used in the diluted calculation 1,225.7 1,214.0
The adjusted EPS is intended to highlight the recurring operating results of
the Group before amortisation charges and certain other adjustments as set out
in note 4. A reconciliation is set out below:
2020 2019
£m EPS (p) £m EPS (p)
Basic loss/EPS (327.2) (27.0) (66.9) (5.5)
Other intangible asset amortisation charges (note 4) 4.9 0.4 11.8 1.0
Notional interest on TPE onerous contract provision – – 1.1 0.1
Other adjustments (note 4) 404.6 33.4 293.2 24.3
Non-controlling interest share of the SWR onerous contract provision – – (42.9) (3.6)
Tax effect of above adjustments (39.6) (3.3) (36.5) (3.0)
Write-down of previously recognised deferred tax assets 40.0 3.3 – –
Adjusted profit/EPS 82.7 6.8 159.8 13.3
2020 pence 2019 pence
Diluted EPS (27.0) (5.5)
Adjusted diluted EPS 6.7 13.2
8 Goodwill
2020 £m 2019 £m
Cost
At 1 April 2019 1,862.7 1,761.4
Additions 1.7 0.6
Foreign exchange movements 90.9 100.7
At 31 March 2020 1,955.3 1,862.7
Accumulated impairment losses
At 1 April 2019 264.6 264.6
Foreign exchange movements 27.5 -
At 31 March 2020 292.1 264.6
Carrying amount
At 31 March 2020 1,663.2 1,598.1
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:
2020 £m 2019 £m
Carrying amount
First Student 1,269.4 1,218.5
First Transit 309.8 296.1
First Bus 78.4 77.9
First Rail 5.6 5.6
1,663.2 1,598.1
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 Three Year Plan for
2020/21 to 2022/23 which takes account of both past performance and
expectations for future developments. Cash flows beyond the plan period are
extrapolated using estimated long term growth rates which do not exceed the
long term average growth rate for the market. Cash flows are discounted using
a pre-tax discount rate derived from a market participant’s weighted average
cost of capital, benchmarked to externally available data.
The long term average growth rate and pre-tax discount rate assumption applied
to each CGU are as follows:
Pre-tax discount rate applied to cash flow projections Growth rate used to extrapolate cash flows beyond three-year period of management plan
2020 2019 2020 2019
First Student 8.7% 8.3% 2.8% 2.8%
First Transit 8.7% 8.3% 2.6% 2.8%
First Bus 8.0% 7.8% 2.3% 2.5%
First Rail 3.2% 7.8% 2.5% 2.5%
The discount rate applied in First Rail reflects the significant level of
IFRS16 Right of Use asset funding within the First Rail CGU, principally in
respect of franchise rolling stock agreements.
Financial modelling adopting the assumptions outlined above confirms that the
carrying amount of the CGUs does not exceed their recoverable amount in
respect of the First Transit, First Student and First Bus divisions, and
accordingly no impairment charge is required for these CGUs. The assessment of
the value in use of First Rail is dependent on judgements surrounding EMA
emergency measures as detained in Note 2 under key sources of estimation
uncertainty.
As detailed in Note 2 under key sources of estimation uncertainty, the cash
flow forecasts include significant judgement in deciding what assumption to
make regarding how the impact of the COVID-19 pandemic might evolve over the
coming months in our First Student, First Transit and First Bus divisions.
This is covered in further detail in the Going Concern Statement at page 23
including the key assumptions and judgements made in the base case forecasts
for each CGU.
The calculation of value in use for each CGU is most sensitive to the
principal assumptions of discount rate, growth rates and margins achievable.
The table below summarises the % change in the principal assumptions which
would erode the headroom to zero: First
First Bus First Student First Transit
Discount Rate 12.0% 10.0% 13.8%
Long Term Growth Rate -2.4% 1.4% -3.5%
Terminal Margin 5.0% 7.8% 2.5%
Management have performed sensitivity analysis to assess the impact that a
combination of reasonably possible changes in the principal assumptions would
have on the recoverable amount in respect of the First Student, First Transit
and First Bus divisions.
The scenarios modelled include:
First Student: Reducing the long term growth rate to 2.0% (in line with
independent GDP forecasts for North America), maintaining an 8.7% discount
rate and adopting a terminal margin at 8.9% in perpetuity (2019/20 reported
margin: 8.2%) would lead to an £8.4m impairment on a total carrying value of
assets in use of £2,582.3m.
First Transit: Reducing the long term growth rate to 2.0% (in line with
independent GDP forecasts for North America), maintaining an 8.7% discount
rate and adopting a terminal margin at 2.8% in perpetuity (2019/20 reported
margin: 2.4%) would lead to a £14.8m impairment on a total carrying value of
assets in use of £423.3m.
First Bus: Reducing the long term growth rate to 1.7% (in line with
independent GDP forecasts for the UK), maintaining an 8.0% discount rate and
adopting a terminal margin at 5.6% in perpetuity (2019/20 reported margin:
5.5%) would lead to a £16.5m impairment on a total carrying value of assets
in use of £577.6m.
Hull Trains
The carrying value of non-current assets of the Group includes £32.5m in
respect of our Hull Trains operation, which does not benefit from the EMA
mechanism that supports our Franchised TOC portfolio. The impact of COVID 19
represents an indication of potential impairment on Hull Trains and we have
separately tested this CGU for impairment at 31 March 2020.
The Group prepares cash flow forecasts Hull Trains through to the end of the
current open access agreement in December 2029. These forecasts take into
account past performance and expectations for future developments. In order to
test for impairment, the cash flows are discounted using a pre-tax discount
rate derived from the IFRS16 Right of Use leases agreements, which are the
principle non-current assets of the business.
Cash flows have been projected forward beyond 2021/22 using an average annual
revenue growth rate of 7.0%, an operating cost growth rate of 2.9% and is
discounted using a 3.4% pre-tax discount rate assumption. On this basis the
value in use of Hull Trains exceeds its carrying value by £18.4m
The calculation of value in use for Hull Trains is most sensitive to the
principal revenue and operating cost growth rate assumptions. A reduction in
the average annual revenue growth rate to 5.7% from 2021/22 or an increase in
the annual operating cost growth rate to 4.6% would reduce the value in use
headroom to nil.
Management have performed sensitivity analysis to assess the impact that a
reasonably possible change to these principal assumptions would have on the
recoverable amount. This analysis highlights that under a scenario where
annual revenues are assumed to recover to pre-COVID19 levels of £30.9m in
2021/22 (2019/20: £30.9m) followed by average annual revenue and operating
cost growth of 1.7% thereafter (in line with independent GDP forecasts for the
UK) the CGU assets would be impaired by £20.6m
Greyhound
At 31 March 2019 the carrying value of the Greyhound CGU was reviewed for
impairment in accordance with IAS 36 Impairment of Assets. For the purposes
of this impairment the carrying value was tested for impairment on the basis
of discounted future cash flows arising. As at 31 March 2019 the calculated
value in use of the Greyhound division exceeded its carrying amount of
£295.4m by £85.2m. Following their review at 31 March 2019, the Directors
concluded that there should be no impairment in Greyhound.
An impairment charge of £124.4m was recorded in the first half of the year on
our Greyhound business largely as a result of a decline in immigration flows
on the Southern US border and increased competition on some routes leading the
Group to lower it’s short to medium term financial projections for this
business. This impairment has been recognised in the results and apportioned
on a pro-rata basis against the tangible and intangible assets of the division
excluding owned property. Market valuations in excess of book value suggest no
impairment to the carrying value of property. Note that the carrying value of
Goodwill Is zero, having been fully impaired in previous years.
For the year ended 31 March 2020 we have assessed the value of the Greyhound
CGU on a fair value less cost of disposal basis for the purposes of the
impairment review.. Fair value has also been assessed on a value in use basis,
but recent activity in line with the intention to divest of the business
indicated that using a fair value less cost of disposal basis would be a more
appropriate approach The CGU valuation on a fair value less cost of disposal
basis has been assessed as a Level 3 fair value in the hierarchy as defined by
IFRS13, assessing the value of a stand-alone Greyhound business using a
discounted cash flow approach. A risk adjusted view of the discounted future
cash flows for the next three years, including £136.0m of net property
disposal proceeds, was prepared to determine the potential value that a market
participant may ascribe to the Greyhound CGU. A long-term revenue growth rate
of 1.0% (March 2019: 2.8%) and terminal margin of 5.4% on a stand-alone CGU
basis (2019/20: -2.0% reported margin) has been assumed. Cash flows are
discounted using a pre-tax discount rate of 9.7% (March 2019: 8.3% on a value
in use basis). The pre-tax discount rates applied are derived from a risked
view of a potential market participant’s weighted average cost of capital at
1.0% above the discount rate applied to our other North American CGUs.
This indicated an impairment of £62.5m in addition to the £124.4m impairment
recorded in the first half of the year. The full year impairment is therefore
£186.9m and has been applied on a pro-rata basis against the assets of the
division excluding owned property. Market valuations in excess of book value
suggest no impairment to the carrying value of property. The carrying value of
the CGU after recognising the impairment is £215.3m ($268.3m).
The Greyhound impairment is sensitive to a change in the assumptions used,
most notably to changes in the discount rate, terminal growth rate or terminal
margin. Applying a 15.7% discount rate, a -6.0% terminal growth rate or a 3.3%
terminal margin would reduce the fair value less cost of disposal to £110.7m
($137.9m), being the carrying value of Greyhound owned property at 31 March
2020.
9 Other intangible assets
Customer contracts £m Greyhound brand and trade name £m Software £m Total £m
Cost
At 1 April 2018 439.7 66.9 63.1 569.7
Acquisitions 0.7 – – 0.7
Additions Transfers – – – – 8.9 1.9 8.9 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
Acquisitions 11.1 – – 11.1
Additions – – 9.2 9.2
Transfers – – (0.2) (0.2)
Disposals – – – –
Foreign exchange movements 19.3 2.7 2.7 24.7
At 31 March 2020 501.8 74.2 87.9 663.9
Accumulated amortisation and impairment
At 1 April 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
Charge for year 2.4 2.5 17.0 21.9
Transfers Impairment – – – 16.7 0.9 6.3 0.9 23.0
Foreign exchange movements 18.6 1.8 1.8 22.2
At 31 March 2020 481.3 64.7 66.0 612.0
Carrying amount
At 31 March 2020 20.5 9.5 21.9 51.9
At 31 March 2019 11.1 27.8 36.2 75.1
10 Property, plant and equipment
Owned assets Land and buildings £m Passenger carrying vehicle fleet £m Other plant and equipment £m Total £m
Cost
At 1 April 2018 492.8 3,224.6 778.5 4,495.9
Acquisitions (note 30) – 1.5 – 1.5
Additions in the year Transfers 13.8 – 283.2 – 136.0 (1.9) 433.0 (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
Adjustments on transition to IFRS 16 – (167.6) – (167.6)
At 1 April 2019 463.9 3,217.0 866.9 4,547.8
Acquisitions (note 30) – 16.2 – 16.2
Additions in the year 10.1 294.0 149.1 453.2
Transfers from right of use assets/assets held for sale 34.9 22.3 - 57.2
Disposals (15.6) (90.4) (161.4) (267.4)
Reclassified as held for sale (24.4) (122.9) 7.1 (140.2)
Foreign exchange movements 11.3 103.9 14.3 129.5
At 31 March 2020 480.2 3,440.1 876.0 4,796.3
Accumulated depreciation and impairment
At 1 April 2018 102.5 1,704.3 599.0 2,405.8
Charge for year Transfers 15.4 – 235.8 – 114.8 (0.1) 366.0 (0.1)
Disposals (12.8) (82.5) (57.8) (153.1)
Impairment (1) – 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
Adjustments on transition to IFRS 16 – (93.2) – (93.2)
At 1 April 2019 101.0 1,686.8 668.5 2,456.3
Charge for year 15.0 234.7 143.3 393.0
Transfers from right of use assets/assets held for sale 8.4 7.7 – 16.1
Disposals (4.9) (93.4) (160.5) (258.8)
Impairment (2) – 108.4 8.4 116.8
Reclassified as held for sale (2.8) (121.5) 6.4 (117.9)
Foreign exchange movements 3.2 55.9 12.3 71.4
At 31 March 2020 119.9 1,878.6 678.4 2,676.9
Carrying amount
At 31 March 2020 360.3 1,561.5 197.6 2,119.4
At 31 March 2019 362.9 1,604.6 198.4 2,165.9
1 The impairment charge of £13.0m in 2019 relates to assets associated
with First Bus (£10.3m) and Greyhound (£2.7m).
2 The impairment charge of £116.8m in 2020 relates to assets associated
with Greyhound.
10 Property, plant and equipment (continued)
Right of use assets
Rolling stock £m Land and buildings £m Passenger carrying vehicle fleet £m Other plant and equipment £m Total £m
Cost
At 31 March 2019 - - - - -
Adjustment on transition to IFRS 16 829.4 217.2 257.1 4.3 1,308.0
At 1 April 2019 829.4 217.2 257.1 4.3 1,308.0
Additions 1,712.0 36.8 85.6 2.3 1,836.7
Transfer to owned assets - - (22.3) - (22.3)
Foreign exchange movements - 7.3 12.4 0.2 19.9
At 31 March 2020 2,541.4 261.3 332.8 6.8 3,142.3
Accumulated depreciation and impairment
At 31 March 2019 - - - - -
Adjustment on transition to IFRS 16 208.6 - 93.2 - 301.8
At 1 April 2019 208.6 - 93.2 - 301.8
Transfer from onerous contract provision 44.2 - - - 44.2
Transfer to owned assets - - (7.7) - (7.7)
Charge for period 399.5 59.4 35.0 2.5 496.4
Impairment - 33.8 13.0 - 46.8
Foreign exchange movements - 0.8 4.9 - 5.7
At 31 March 2020 652.3 94.0 138.4 2.5 887.2
Carrying amount
At 31 March 2020 1,889.1 167.3 194.4 4.3 2,255.1
At 31 March 2019 - - - - -
The impairment charge of £46.8m relates to Greyhound.
The discounted lease liability relating to the right of use assets included
above are shown in note 14.
Owned assets and right of use assets
Rolling stock £m Land and buildings £m Passenger carrying vehicle fleet £m Other plant and equipment £m Total £m
Carrying amount
At 31 March 2020 1,889.1 527.6 1,755.9 201.9 4,374.5
At 31 March 2019 - 362.9 1,604.6 198.4 2,165.9
The maturity analysis of lease liabilities Is presented in note 15.
Amounts recognised in income statement 2020 £m 2019 £m
Depreciation expense on right of use assets 496.4 -
Interest expense on lease liabilities 42.6 2.7
Expense relating to short term liabilities 31.7 -
Expense relating to leases of low value assets 3.4 -
Expense relating to variable lease payments not included in the measurement of the lease liability - -
574.1 2.7
The total cash outflow for the leases recorded in the above amounted to
£646.6m (2019: £53.1m).
11 Inventories
2020 £m 2019 £m
Spare parts and consumables 63.3 60.2
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 2020 £m 2019 £m
Trade receivables 652.2 617.9
Loss allowance (4.9) (3.6)
Trade receivables net 647.3 614.3
Other receivables 90.2 84.9
Amounts recoverable on contracts 91.2 43.3
Prepayments 90.3 164.0
Accrued income 251.6 234.9
1,1170.6 1,141.4
13 Trade and other payables
Amounts falling due within one year 2020 £m 2019 £m
Trade payables 336.9 278.7
Other payables 385.7 299.8
Accruals 838.5 710.3
Deferred income 152.3 167.8
Season ticket deferred income 86.3 90.7
1,799.7 1,547.3
14 Borrowings
2020 £m 2019 £m
On demand or within 1 year
Leases (note 15) (2) 642.2 41.5
Loan notes (note 16) 8.7 –
Bond 8.75% (repayable 2021) (1) 30.4 30.4
Bond 5.25% (repayable 2022) (1) 5.8 5.8
Bond 6.875% (repayable 2024) (1) 7.2 7.2
Total current liabilities 694.3 84.9
Within 1-2 years
Leases (note 15) (2) 587.4 18.1
Loan notes (note 16) 0.7 9.4
Bond 8.75% (repayable 2021) 355.1 –
943.2 27.5
Within 2-5 years
Syndicated loan facilities 573.9 446.7
Leases (note 15) (2) 1,030.3 0.2
Bond 8.75% (repayable 2021) – 357.7
Bond 5.25% (repayable 2022) 322.6 322.1
Bond 6.875% (repayable 2024) 199.8 –
Senior unsecured loan notes 80.3 –
2,206.9 1,126.7
Over 5 years
Leases (note 15) (2) 213.3 0.1
Senior unsecured loan notes 139.5 210.0
Bond 6.875% (repayable 2024) – 199.8
352.8 409.9
Total non-current liabilities at amortised cost 3,502.9 1,564.1
1. Relates to accrued interest.
2. The right of use assets relating to lease liabilities are shown in note 10.
The maturity analysis of lease liabilities Is presented in note 15.
15 Lease liabilities
The Group had the following lease liabilities at the balance sheet dates:
2020 £m 2019 £m
Due in less than one year 702.4 42.7
Due in more than one year but not more than two years 632.8 19.0
Due in more than two years but not more than five years 1,089.3 0.3
Due in more than five years 240.6 0.1
2,665.1 62.1
Less future financing charges (191.9) (2.2)
2,473.2 59.9
The right of use assets relating to the lease liabilities is presented in Note
10
16 Loan notes
The Group had the following loan notes issued as at the balance sheet dates:
2020 £m 2019 £m
Due in less than 1 year Due in more than one year but not more than two years 8.7 0.7 – 9.4
9.4 9.4
17 Financial instruments
2020 £m 2019 £m
Total derivatives
Total non-current assets 15.8 20.5
Total current assets 4.8 15.5
Total assets 20.6 36.0
Total current liabilities 44.2 3.4
Total non-current liabilities 19.2 1.9
Total liabilities 63.4 5.3
Derivatives designated and effective as hedging instruments carried at fair value
Non-current assets
Coupon swaps (fair value hedge) 13.3 16.2
Fuel derivatives (cash flow hedge) – 2.7
Currency forwards (cash flow hedge) 2.5 1.6
15.8 20.5
Current assets
Fuel derivatives (cash flow hedge) – 11.3
Currency forwards (cash flow hedge) 4.8 4.2
4.8 15.5
Current liabilities
Fuel derivatives (cash flow hedge) 32.4 3.4
Currency forwards (net investment hedge) 4.4 –
36.8 3.4
Non-current liabilities
Fuel derivatives (cash flow hedge) 19.2 1.9
19.2 1.9
Derivatives designated classified as held for trading
Current liability
Fuel derivatives 7.4 –
7.4 –
18 Deferred tax
The major deferred tax liabilities/(assets) recognised by the Group and
movements thereon during the current and prior reporting periods are as
follows:
Accelerated tax depreciation £m Retirement benefit schemes £m Other temporary differences £m Tax losses £m Total £m
At 1 April 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 – (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)
Impact of adoption of IFRS 16 – – (4.7) – (4.7)
At 1 April 2019 188.9 (60.0) 98.0 (255.7) (28.8)
Charge to income statement 10.5 6.4 0.5 7.1 24.5
Charge/(credit) to other comprehensive income and equity – 24.6 (11.8) – 12.8
Foreign exchange and other movements 7.9 (1.6) 5.0 (14.6) (3.3)
At 31 March 2020 207.3 (30.6) 91.7 (263.2) 5.2
Certain deferred tax assets and liabilities have been offset. The following is
the analysis of the deferred tax balances for financial reporting purposes:
2020 £m 2019 £m
Deferred tax assets (33.6) (40.6)
Deferred tax liabilities 38.8 16.5
5.2 (24.1)
19 Provisions
2020 £m 2019 £m
Insurance claims 382.8 292.7
Legal and other 34.6 35.5
TPE onerous contract – 76.6
SWR onerous contract – 125.5
Pensions 1.6 1.7
Non-current liabilities 419.0 532.0
Insurance claims £m Legal and other £m TPE onerous contract £m SWR onerous contract £m Pensions £m Total £m
At 1 April 2019 471.8 71.6 106.9 145.9 1.7 797.9
Adjustment to transition to IFRS 16 – – (62.7) (145.9) – (208.6)
Charged to the income statement 309.5 15.1 – – – 324.6
Impairment of right of use asset additions – – (44.2) – – (44.2)
Utilised in the year (219.4) (28.0) – – (0.1) (247.5)
Notional interest 11.8 – – – – 11.8
Foreign exchange movements 15.2 1.9 – – – 17.1
At 31 March 2020 588.9 60.6 – – 1.6 651.1
Current liabilities 206.1 26.0 – – – 232.1
Non-current liabilities 382.8 34.6 – – 1.6 419.0
At 31 March 2020 588.9 60.6 – – 1.6 651.1
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
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 £35.4m (2019: £27.9m) can
extend for up to 30 years. The utilisation of £219.4m (2019: £210.0m)
represents payments made against the current liability of the preceding year
as well as the settlement of certain large aged claims.
The insurance claims provision contains £22.1m (2019: £21.5m) 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.
In accordance with IAS 36 Impairment of assets the opening onerous contract
provision for SWR of £145.9m was reclassified as an impairment on ROUA on
adoption of IFRS 16. Similarly, £62.7m of the opening TPE onerous contract
provision was reclassified as an opening impairment on ROUA with the remaining
balance of £44.2m being reclassified as impairment on ROUA additions in the
period
The pensions 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
2020 £m 2019 £m
Allotted, called up and fully paid
1,219.5m (2019: 1,213.9m) ordinary shares of 5p each 61.0 60.7
The Company has one class of ordinary shares which carries no right to fixed
income.
During the year 5.6m shares were issued to satisfy principally SAYE exercises.
21 Net cash from operating activities
2020 £m 2019 £m
Operating (loss)/profit (152.7) 9.8
Adjustments for:
Depreciation charges 889.4 366.0
Capital grant amortisation (53.4) (28.6)
Software amortisation charges 16.1 18.1
Other intangible asset amortisation charges 4.9 11.8
Impairment charges 189.0 13.0
Share-based payments 10.3 9.1
Profit on disposal of property, plant and equipment (12.9) (23.5)
Operating cash flows before working capital and pensions 890.7 375.7
Increase in inventories (1.7) (2.0)
Increase in receivables (9.0) (209.4)
Increase in payables due within one year 169.0 279.4
Increase in provisions due within one year 9.7 53.1
Increase in provisions due over one year 67.1 37.3
SWR onerous contract provision – 145.9
TPE onerous contract provision – (0.5)
Defined benefit pension payments in excess of income statement charge (38.8) (24.3)
Cash generated by operations 1,087.0 655.2
Tax paid (2.9) (7.5)
Interest paid (83.3) (81.3)
Interest element of leases (42.6) (2.7)
Net cash from operating activities (1) 958.2 563.7
1 Net cash from operating activities is stated after an inflow of £13.2m
(2019: inflow of £40.0m) in relation to financial derivative settlements.
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 2020. 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:
Ryan Mangold
Chief Financial Officer
8 July 2020
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