REG-FirstGroup PLC: FirstGroup Signs National Rail Contract for GWR

FirstgroupAnnouncement

14/06/2022 07:15

FIRSTGROUP SIGNS NATIONAL RAIL CONTRACT FOR GREAT WESTERN RAILWAY

FirstGroup plc (‘FirstGroup’ or ‘the Group’) is pleased to announce
the agreement of a National Rail Contract (‘NRC’) with the Department for
Transport (‘DfT’) for its Great Western Railway (‘GWR’) train
operating company. The new NRC will commence on 26 June 2022, when GWR’s
current contractual agreement ends.
* The NRC for GWR has a core three-year term to 21 June 2025 with an option
for the DfT to extend by up to three further years to June 2028
* FirstGroup bears no revenue risk and very limited cost risk under an annual
budget agreed with the DfT; there is also no significant contingent capital
risk
* Annual fee consists of a fixed management fee plus a performance-based fee.
 
The NRC is a management contract under which the DfT retains all revenue risk
and substantially all cost risk. GWR will earn a fixed management fee of
£6.9m per annum to deliver the contract, and there is the opportunity to earn
an additional performance-based fee of up to £17.8m per annum. The
punctuality and other operational targets required to achieve the maximum
level of performance fee are designed to incentivise the highest level of
performance for customers. The Group’s contingent capital for the GWR NRC is
£13m.

In 2019 GWR completed the introduction of brand new fleets of InterCity
Express and electric Thames Valley trains, and launched faster services for
customers, as part of the biggest upgrade on the route in a generation. During
the pandemic GWR operated under the Government’s emergency measures to
ensure critical services kept running, and has made prudent and efficient use
of this support by providing timetables closely matched to changes in demand.
Under the NRC, GWR will continue to evolve its customer offering to meet
changing passenger needs, helping customers switch to digital ticketing and
making digital channels and information more accessible and personalised. GWR
will continue to be a trusted delivery partner, making use of its strong
relationships with stakeholders to drive forward projects across the network,
including bringing into service three new stations.

FirstGroup’s ambition is to be the partner of choice for low- and
zero-emission transport. As part of the new contract GWR will continue to
develop and implement initiatives to reduce its operational impact on the
environment, in accordance with the UK Government’s decarbonisation and
climate resilience agenda. GWR will also continue work to improve air quality,
increase recycling and divert more waste from landfill, and will support the
switch to electric traction.

Commenting, Wendy Morton, Minister for Rail said:

“We’re delighted to continue our partnership with Great Western Railway,
and excited by its plans to deliver more benefits for local communities.
During the pandemic, GWR was instrumental in keeping critical services moving
and this new contract will see it continue to deliver our ambitious Plan for
Rail and provide a fantastic service for passengers.”

Commenting, Graham Sutherland, FirstGroup Chief Executive Officer, said:

“We welcome today’s agreement of a new National Rail Contract, which
enables us to build on the GWR customer experience and encourage passengers to
continue returning to the network. GWR’s experience of operating the route
over many years puts us in a strong position to help deliver the UK’s
economic, decarbonisation and levelling up agendas and we look forward to
providing vital connections for our customers as the recovery continues to
build.”

Notes

Additional background on financial terms of the GWR National Rail Contract
* Core 36-month term to 21 June 2025 with option to be extended by up to three
further years at the DfT’s discretion.
* The DfT retains all revenue risk and substantially all cost risk up to the
agreed annual business plan budgetary levels, with contractual change
mechanisms that allow the annual budget to be increased for items outside of
the operating company’s control or changes requested by the DfT.
* The Performance Based Fee is scored against four categories (Operational
Performance, Customer Satisfaction, Financial Performance and Business
Management) set by the DfT. There is a mix of quantitative metrics and
qualitative assessments with three levels (‘below acceptable’,
‘acceptable’, ‘good’) – an ‘acceptable’ rating results in
approximately 65% of the performance-based fee element being payable.
* The NRC makes provision for additional incentive fees to be earned for
participation in significant industry change projects outside normal operation
to be agreed between GWR and the DfT.
* Signing the NRC supports the continued operation by GWR of the separate
Heathrow Express (HEX) Services Agreement which GWR operates on behalf of
Heathrow Airport Limited. GWR will continue to operate HEX for an agreed fee
with contractual protection mechanisms and no passenger revenue risk. The
average annual fee for operating HEX over the core term of the NRC is c.£2.0m
per annum.
* The Group is obliged to retain the £20m parent company support for the
previous GWR agreement until final settlement of any net assets or liabilities
between GWR and the DfT relating to it. Thereafter, the contingent capital
reduces to £13m in total, half of which is bonded.
* GWR will continue to be fully consolidated in the Group financial statements
with the net cost of operations and capex to be funded in advance by the DfT.
* The Group financial statements for FY 2023 will include Right of Use assets
of c.£1.0bn recognised under IFRS 16 rules. Other impacts under IFRS 16
compared to an IAS 17 basis include EBITDA +c.£260m, EBIT +c.£30m and
interest cost +c.£30m.
* The Group will receive an annual dividend from GWR reflecting the post-tax
net management and performance fees and contribution from the HEX contract,
following the completion of the audited accounts.
* As previously announced, in 2021 both South Western Railway and TransPennine
Express train operating companies started operating under National Rail
Contracts which run to 2023 with potential extensions to 2025. The
pandemic-related emergency arrangements for the West Coast Partnership rail
contract are in place until October 2022 and discussions are ongoing with the
DfT for an NRC with a duration of up to ten years, with the core and extension
periods to be determined.
GWR plans under the National Rail Contract

GWR will deliver improvements for customers and communities across their
network during the NRC period, including:
* Transforming local services in the Greater Bristol area in collaboration
with Network Rail and local authorities to deliver MetroWest, generating 1m
new rail journeys and giving more than 80,000 people access to rail.
* Building on the successful delivery of the first Restoring Your Railway
project on the Dartmoor Line, working with the DfT and local communities on
developing proposals for further station and line improvements. In 2023/24
alone, GWR plan to open three new stations on the route.
* Reducing the impact of the railway on the environment. GWR will develop
plans to start replacing legacy diesel rolling stock, modernising our customer
offer, reducing the cost base of the business and supporting decarbonisation
of the industry.
* Making the best value of recent and future investment and meeting changing
customer needs returning to a growth-led organisation that reduces the support
provided by the taxpayer in the past two years.
Notes

Legal Entity Identifier (LEI): 549300DEJZCPWA4HKM93. Classification as per DTR
6 Annex 1R: 3.1.  

Contacts at FirstGroup:

Head of Investor Relations: Faisal Tabbah

Group Head of Communications: Stuart Butchers

corporate.comms@firstgroup.co.uk

Tel: +44 (0) 20 7725 3354

Contacts at Brunswick PR:

Andrew Porter / Simone Selzer

Tel: +44 (0) 20 7404 5959

About FirstGroup

FirstGroup plc (LSE: FGP.L) is a leading private sector provider of public
transport services. With £4.6 billion in revenue and around 30,000 employees,
our UK divisions transported nearly 1.5m passengers a day in the last
financial year. First Bus is the second largest regional bus operator in the
UK, serving two-thirds of the UK’s 15 largest conurbations with a fleet of
c.4,900 buses. First Rail is the UK’s largest rail operator, with many years
of experience running long-distance, commuter, regional and sleeper rail
services. We operate a fleet of c.3,800 rail vehicles through four management
fee-based train operating companies (Avanti, GWR, SWR, TPE) and two open
access routes (Hull Trains and Lumo)). We create solutions that reduce
complexity, making travel smoother and life easier. Our businesses are at the
heart of our communities and the essential services we provide are critical to
delivering wider economic, social and environmental goals. We are formally
committed to operating a zero-emission First Bus fleet by 2035 and to cease
purchasing further diesel buses after 2022; and First Rail will help support
the UK Government’s goal to remove all diesel-only trains from service by
2040. In 2022 FirstGroup was named as one of the world's cleanest 200 public
companies for the third consecutive year by sustainable business media group
Corporate Knights in partnership with US not-for-profit organisation, As You
Sow. Visit our website at www.firstgroupplc.com and follow us @firstgroupplc
on Twitter.

About GWR

First?Greater Western?Limited, trading as ‘Great Western Railway’ (GWR),
operates trains across the Great Western franchise area, which includes South
Wales, the West Country, the Cotswolds, across southern England and into
London.?GWR provides high speed, commuter, regional and branch line train
services, and before the covid-19 pandemic helped over 100 million passengers
reach their destinations every year.

Figures presented in this announcement are not audited. Certain statements
included or incorporated by reference within this announcement are, or may be
deemed to be, forward-looking statements. These forward-looking statements
include, without limitation, all matters that are not historical facts. They
appear in a number of places throughout this announcement and include, but are
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By their nature, forward-looking statements involve risk and uncertainty
because they relate to future events and circumstances. Forward-looking
statements are not guarantees of future performance and the actual results of
operations of the Group, or parts thereof, and the developments in the
industries in which they operate, may differ materially from those described
in, or suggested by, the forward-looking statements contained in this
announcement. A number of factors could cause results and developments to
differ materially from those expressed or implied by the forward-looking
statements including, without limitation, general economic and business
conditions, industry trends, competition, changes in law and regulation,
currency fluctuations, changes in business strategy and political and economic
uncertainty. Forward-looking statements may, and often do, differ materially
from actual results. Any forward-looking statements in this announcement
reflect FirstGroup’s current view with respect to future events and are
subject to risks relating to future events and other risks, uncertainties and
assumptions relating to FirstGroup and its operations, results of operations
and growth strategy. Other than in accordance with its legal or regulatory
obligations (including under the Listing Rules, the Disclosure Guidance and
Transparency Rules and the Prospectus Rules), the Group is not under any
obligation and the Group expressly disclaims any intention or obligation (to
the maximum extent permitted by law) to update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise.



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