REG-FirstGroup PLC: Half-year Report <Origin Href="QuoteRef">FGP.L</Origin> - Part 1
15/11/2016 07:05
FIRSTGROUP PLC
HALF-YEARLY RESULTS FOR THE SIX MONTHS TO 30 SEPTEMBER 2016
Tramlink incident
On 9 November a tram derailed on the Tramlink network we operate on behalf of
Transport for London in Croydon, resulting in tragic loss of lives and
injuries. The thoughts of everyone at FirstGroup are with those affected,
their families, friends and colleagues. We are providing full support to the
ongoing investigation.
Results summary
· Overall trading as outlined at our results in June continued
during the first half
· Encouraging performances by our North American business were
partially offset by more challenging trading conditions for our UK operations
· Significantly improved cash performance in the period
Adjusted1 Statutory
H1 2016 H1 2015 £m Change Change in constant currency2 H1 2016 H1 2015 £m
£m £m
Revenue 2,564.7 2,440.9 +5.1% (1.0)% 2,564.7 2,440.9
Operating profit 89.0 88.4 +0.7% (1.7)% 77.9 58.5
Operating profit margin 3.5% 3.6% (10)bps flat 3.0% 2.4%
Profit/(loss) before tax 21.9 22.4 (2.2)% 11.1 (7.5)
EPS 1.4p 1.2p +16.7% 0.7p (0.4)p
Net debt3 1,491.5 1,588.0 (6.1)% (9.3)%
Financial performance:
· Group reported revenue +5.1% with First Student and First
Transit growth and favourable currency translation, offset by route remapping
and end of subsidy on TPE and lower Greyhound and First Bus demand. Group
revenue (1.0)% in constant currency
· Flat adjusted operating profit margin in constant currency,
with rebased First Rail margin on new contracts holding back Group margin
improvement
· Favourable currency translation of North American profits was
offset by higher dollar-based UK fuel costs in H1; however the second
half-weighted profile of First Student earnings will result in positive net
impact for the full year if recent currency trends continue
· Adjusted EPS increased by 16.7% with no non-controlling
interest in the new TPE franchise
· Seasonal net cash outflow is an improvement of £103.8m
compared with prior period, primarily driven by working capital performance;
net debt: EBITDA reduced to 2.4x compared with 2.6x in September 2015
Divisional summary:
· Robust First Student bid season with 7.3% average price
increases and solid contract retention; margin improved in the period and well
positioned for the full year following a successful school year start up
· First Transit growth and margin performance affected by lower
Canadian oil sands shuttle activity and cost headwinds in the period; secured
some important contract wins for future growth
· Greyhound like-for-like(4) revenue decreased 3.9% as competing
transport modes benefited from cheaper fuel; resilient margin performance from
cost control and growing benefits of our business model changes
· First Bus like-for-like(4) passenger revenue decreased by 1.3%
as a result of ongoing industry-wide demand challenges; cost actions partially
mitigated the impact of currency fluctuations on fuel
· First Rail like-for-like(4) passenger growth of 0.7% reflects
slowdown seen across the industry and major GWR infrastructure upgrade work;
trading margin rebased towards industry norms as previously indicated
Looking ahead:
· Overall trading in the first half has been consistent with our
expectation of good progress in the current year, recognising likely currency
tailwinds but an uncertain UK macroeconomic backdrop
· First half cash performance supports our objective to
significantly increase free cash generation for the 2016/17 financial year
Commenting, Chief Executive Tim O'Toole said:
"Our overall trading performance as outlined at the start of the financial
year continued during the first half, with encouraging performances by our
North American business partially offset by tough trading conditions for our
UK bus and rail operations. In the second half we will benefit from our normal
seasonal bias as well as our ongoing focus on executing our strategy. We
continue to expect good progress for the Group in the current year,
recognising we will likely benefit from currency tailwinds from our
substantial North American operations but will also face uncertain economic
conditions in the UK for the foreseeable future. Our cash performance in the
first half affirms our confidence in generating significantly increased cash
flow for the full year.
“I am shocked and saddened by the incident on Tramlink last week. On behalf
of everyone at FirstGroup I would like to express our condolences to the
bereaved families and friends and to those injured in this incident. We are
working with Transport for London and the authorities to provide assistance in
any way possible to those who have been affected and to the ongoing
investigation.”
A presentation for investors and analysts will be held at 8:15am today –
attendance is by invitation
A live telephone 'listen in' facility is available – for joining details
please call +44 (0) 20 7725 3354
A playback facility will be available together with presentation slides and
a pdf copy of this report at www.firstgroupplc.com/investors
Contacts at FirstGroup:
Faisal Tabbah, Head of Investor Relations
Stuart Butchers, Group Head of Media
Tel: +44 (0) 20 7725 3354
Contacts at Brunswick PR:
Michael Harrison / Andrew Porter, Tel: +44 (0) 20 7404 5959
Notes
(1 ) ‘Adjusted’ figures throughout this document are before other
intangible asset amortisation charges and certain other items as set out in
note 3 to the condensed consolidated financial statements.
(2 ) Changes ‘in constant currency’ throughout this document are based
on retranslating H1 2015 foreign currency amounts at H1 2016 rates.
(3 ) Net debt is stated excluding accrued bond interest.
(4 ) References to like-for-like revenue adjust for certain factors which
distort the period-on-period trends in our passenger revenue businesses as
described on page 11.
Chief Executive's review
On 9 November 2016 a tram derailed on the Tramlink network we operate on
behalf of Transport for London (‘TfL’) in Croydon, resulting in tragic
loss of lives and injuries. I am shocked and saddened by the incident, and on
behalf of everyone at FirstGroup I would like to express our condolences to
the bereaved families and friends and to those injured. We are working with
TfL and the authorities to provide assistance in any way possible to those who
have been affected and to the ongoing investigation.
Our overall trading performance as outlined at our results in June continued
during the first half, with encouraging performances by our North American
business partially offset by more challenging trading conditions for our UK
operations and the margin rebasing from new contracts in First Rail.
In First Student we concluded this year’s bid season with higher average
price increases than in the prior year, and while acute driver shortages
remain a significant ongoing challenge for the industry, we are now better
positioned to manage the issue. Our margin progress in the first half and a
successful school year start up due to improved training and planning at our
locations means we are well positioned to deliver our expected margin progress
to at least 9% for this financial year. In First Transit we continue to
experience the impact of reduced demand for our shuttle services in the
Canadian oil sands, but have made progress in a number of areas that will be
important for continuing the division’s track record of profitable growth
over the longer term, with contract awards in our existing markets and new
business wins in US commuter rail and internationally in the period. Although
Greyhound continues to face demand challenges from lower fuel prices compared
with the prior period and like-for-like revenues decreased by 3.9% in the
first half as a result, we delivered a relatively resilient margin performance
through actively managing our cost base and from the growing benefits of our
business model transformation.
In contrast our UK-based businesses experienced ongoing challenging trading
conditions in the period, with recent disappointing volume trends in both bus
and rail continuing throughout the first half. First Bus like-for-like
passenger revenue improved modestly in the second quarter compared with the
first but was still 1.3% lower overall compared with the first half of last
year, with high street retail footfall trends and worsening congestion
affecting passenger demand in many of our local markets. First Rail
like-for-like passenger revenues increased by 0.7% in the first half, with the
slowdown in growth seen across the industry exacerbated by the magnitude of
the infrastructure upgrade activity on our Great Western Railway (‘GWR’)
franchise in particular. Fuel cost savings in both First Bus and First Rail
have been partially offset by the US dollar-denominated nature of these costs.
First Bus continued to drive further passenger enhancements and cost
efficiencies in the first half, with more activity particularly on the cost
side to follow through the remainder of the year. As previously indicated,
First Rail’s trading margin has rebased in the period, reflecting the terms
of the new TransPennine Express (‘TPE’) franchise and the new GWR direct
award.
Outlook
In the second half we will benefit from our normal seasonal bias as well as
our continuing focus on stimulating passenger demand growth, targeted
investments and cost efficiencies. We continue to expect the Group to make
good progress in the current year, recognising that we will likely benefit
from currency tailwinds from our substantial North American operations but
also face uncertain economic conditions in the UK for the foreseeable future
following the EU referendum result. As usual, the seasonal nature of our
business resulted in a cash outflow in the first half, but this was £124.1m
lower than the prior year, or an improvement of £103.8m after adjusting for
the rail franchise outflows in the prior period. This substantial reduction in
our usual seasonal cash outflow during the first half affirms our confidence
in generating significantly increased cash flow over the full financial year.
Tim O'Toole
Chief Executive
15 November 2016
Operating and financial review
Group revenue in the first half increased by 5.1% due to translation of our US
dollar-based businesses (which generated more than two thirds of adjusted
operating profit in the prior year) into sterling at higher rates than the
prior period and growth in First Student and First Transit, offset by reduced
subsidy receipts and the remapping of certain routes out of the scope of First
Rail’s new TPE franchise, together with lower revenues in Greyhound and
First Bus. Group revenue decreased by 1.0% in constant currency.
Group adjusted operating profit in constant currency decreased by 1.7%, with a
significantly higher contribution from First Student principally offset by
rebased First Rail margins under new contract terms, resulting in a flat
adjusted operating profit margin in constant currency. In reported currency,
adjusted operating profit increased by 0.7%. In the period favourable currency
translation of North American profits was offset by higher dollar-based UK
fuel costs; the second half-weighted profile of First Student earnings will
result in a positive net impact from currency movements for the full year, if
recent trends continue.
Adjusted profit before tax was £21.9m (H1 2015: £22.4m), a decrease of 2.2%.
As a consequence of the completion of the previous TPE joint venture with
Keolis, profit related to non-controlling interests reduced to £0.1m (H1
2015: £2.1m). Adjusted EPS increased by 16.7% to 1.4p (H1 2015: 1.2p). EBITDA
increased by 3.8% to £251.7m (H1 2015: £242.4m).
Statutory operating profit increased by 33.2% to £77.9m (H1 2015: £58.5m),
principally reflecting the gain on disposal of a Greyhound terminal. Statutory
EPS increased from a loss of 0.4p to a profit of 0.7p in the period.
The net cash outflow for the period was £64.3m (H1 2015 outflow: £168.1m
before First Rail end of franchise cash flows), an improvement of £103.8m
compared with the prior year. This improvement was driven by lower working
capital outflows, proceeds from the sale of a Greyhound terminal in the period
and higher EBITDA. This seasonal cash outflow, combined principally with
movements in debt due to foreign exchange, resulted in a net debt increase in
the first half of £81.3m relative to the 31 March position (H1 2015 increase:
£180.7m).
As at 30 September 2016, the net debt: EBITDA ratio was 2.4 times (H1 2015:
2.6 times). Liquidity within the Group has remained strong; as at 30 September
2016 there was £824.8m (H1 2015: £801.3m) of committed headroom and free
cash, being £745.0m (H1 2015: £756.0m) of committed headroom and £79.8m (H1
2015: £45.3m) of free cash. Our average debt maturity was 3.9 years (H1 2015:
4.8 years).
During the period gross capital investment of £161.3m (H1 2015: £185.8m) was
made in our business. Our capital allocation decisions are increasingly
focused on the maintenance of our existing asset portfolio and selected growth
opportunities with good returns. ROCE was 7.1% (H1 2015: 6.1% at constant
exchange rates).
6 months to 30 September 2016 6 months to 30 September 2015 Year to 31 March 2016
Revenue Operating profit1 Operating margin1 Revenue £m Operating profit1 £m Operating margin1 % Revenue £m Operating profit1 £m Operating margin1 %
£m £m %
First Student 719.5 14.0 1.9 655.9 2.0 0.3 1,553.5 112.6 7.2
First Transit 482.5 30.0 6.2 419.2 30.1 7.2 864.8 60.1 6.9
Greyhound 333.4 25.8 7.7 312.4 25.8 8.3 605.1 35.5 5.9
First Bus 426.1 13.5 3.2 437.5 15.4 3.5 870.9 52.0 6.0
First Rail 595.8 22.1 3.7 608.9 32.9 5.4 1,308.4 72.9 5.6
Group2 7.4 (16.4) 7.0 (17.8) 15.4 (32.4)
Total Group 2,564.7 89.0 3.5 2,440.9 88.4 3.6 5,218.1 300.7 5.8
North America in US Dollars $m $m % $m $m % $m $m %
First Student 1,004.5 26.2 2.6 1,006.8 1.4 0.1 2,332.7 165.0 7.1
First Transit 663.6 41.4 6.2 645.6 46.3 7.2 1,303.4 90.6 7.0
Greyhound 457.5 34.3 7.5 481.6 40.2 8.3 914.0 54.4 6.0
Total North America 2,125.6 101.9 4.8 2,134.0 87.9 4.1 4,550.1 310.0 6.8
(1) Adjusted.
(2) Tramlink operations, central management and other items.
First Student
Six months to 30 September Six months to 30 September Change in constant currency1
2016 2015 $m 2016 2015 £m
$m £m
Revenue 1,004.5 1,006.8 719.5 655.9 +0.2%
Adjusted operating profit 26.2 1.4 14.0 2.0 n/m2
Adjusted operating margin 2.6% 0.1% 1.9% 0.3% +250bps
(1) Increase/(decrease) in constant currency are based on retranslating H1
2015 foreign currency amounts at H1 2016 rates.
(2) Period on period percentage change not meaningful as in constant currency
terms First Student made a loss in H1 2015.
In the recently completed bid season, First Student continued to execute our
pricing strategy to focus only on retaining or bidding for contracts at prices
that reflect an appropriate return on the capital we invest. We achieved
average price increases on ‘at risk’ business of 7.3% or 200 basis points
above the prior year, at a retention rate of 80% on ‘at risk’ contracts.
Across the entire portfolio of multi-year contracts, retention was 93%, with
overall price increases of 3.5%. Combined with a modest level of organic
growth and conversion of previously insourced work, we expect to operate a
smaller, but higher returning, bus fleet of approximately 45,000 vehicles for
the balance of the year, in line with our strategy.
First Student's revenue in the first half was $1,004.5m or £719.5m (H1 2015:
$1,006.8m or £655.9m). Compared with the prior period, revenues reflect the
net benefit of higher prices on a smaller contract portfolio, together with
additional school days due to the timing of Easter and Labor Day, partially
offset by fewer weather recovery days in the period due to the milder winter
last year.
Adjusted operating profit was $26.2m or £14.0m (H1 2015: $1.4m or £2.0m),
resulting in an adjusted operating margin of 2.6% (H1 2015: 0.1%). Margins
benefited from improved pricing net of inflation and lost business, and a
small increase in operating days as noted above. The US employment market has
continued to tighten over the period, sustaining a high level of driver
shortages in some areas. We are now better positioned to absorb the costs of
driver shortages as a result of our actions to improve recruitment processes
and marketing. We also continue to factor higher overall employee costs into
our bidding.
We delivered further cost actions in the period, through the previously
announced simplification of our regional management structure, ongoing driver
compensation efficiencies, and productivity enhancements to our maintenance
practices, while also benefiting from lower fuel prices.
Overall our performance in First Student in the first half has been
encouraging. In particular, this year’s school start up was successful as a
result of improved training and planning at our locations. The division’s
results are always significantly weighted to the second half because of the
overlay of our financial year on the North American school calendar, so as
ever our performance in the second half is key. However our performance in the
first half means we are well positioned to achieve our previously stated
margin objective of at least 9% for the full year.
First Transit
Six months to 30 September Six months to 30 September Change in constant currency1
2016 2015 $m 2016 2015 £m
$m £m
Revenue 663.6 645.6 482.5 419.2 +3.2%
Adjusted operating profit 41.4 46.3 30.0 30.1 (10.2)%
Adjusted operating margin 6.2% 7.2% 6.2% 7.2% (90)bps
(1) Increase/(decrease) in constant currency are based on retranslating H1
2015 foreign currency amounts at H1 2016 rates.
First Transit’s revenue in the first half was $663.6m or £482.5m (H1 2015:
$645.6m or £419.2m), an increase of 3.2% in constant currency. As
anticipated, contract awards and organic growth in the rest of the division
was partially offset by lower activity for our shuttle business in the
Canadian oil sands region.
Adjusted operating profit was $41.4m or £30.0m (H1 2015: $46.3m or £30.1m),
resulting in an adjusted operating margin of 6.2% (H1 2015 7.2%). The margin
decrease was principally due to business mix (reflecting contract starts and
completions in the period, together with less shuttle business at higher
margin), and the ongoing inflationary cost environment for transport services
in parts of North America.
We continue to enhance our offering for existing clients by offering real-time
information and other technologies, as well as improving service standards and
driving further cost efficiencies in order to sustain our returns. We were
awarded 12 new contracts in the period, and achieved a 97% retention rate,
including large contracts with the University of Alabama, TriMet in Portland,
Oregon, and Tri Delta Transit in Antioch, California in the period. In
addition we continue to enhance the breadth of our offering to secure
additional sources of growth: for example, the award in July of a contract by
the Denton County Transportation Authority in Texas was an important
credential for us in the emerging market for US commuter rail services. Our
measured approach to international opportunities also saw the continued
development of our relationship with the government of Panama and the start up
of a small but potentially high growth employee shuttle business in Pune,
India in the period.
Through the continued delivery of our longstanding strategy, First Transit
will continue to focus on driving growth and improved margins in the second
half and beyond.
Greyhound
Six months to 30 September Six months to 30 September Change in constant currency1
2016 2015 $m 2016 2015 £m
$m £m
Revenue 457.5 481.6 333.4 312.4 (4.6)%
Adjusted operating profit 34.3 40.2 25.8 25.8 (14.6)%
Adjusted operating margin 7.5% 8.3% 7.7% 8.3% (90)bps
(1) Increase/(decrease) in constant currency are based on retranslating H1
2015 foreign currency amounts at H1 2016 rates.
Greyhound’s revenue was $457.5m or £333.4m (H1 2015: $481.6m or £312.4m)
in the first half. Like-for-like passenger revenue decreased by 3.9%, due to a
further reduction in average fuel prices compared with the comparable period
last year. Passenger demand across the intercity coach industry is adversely
affected by falling fuel prices, which make journeys by both passenger car and
by air more competitive with coaches. Our point-to-point Greyhound Express
business was significantly more resilient, with like-for-like revenue
decreasing by 0.2% in the first half.
Through targeted mileage reductions in response to demand trends we achieved a
small increase in revenue per mile operated over the first half in the US, and
this was supplemented by encouraging initial results from our transition to
one-way ticket pricing in July, together with the ongoing development of our
algorithmic pricing and yield management engine. We have begun to experiment
with targeted advertising and social media activities which have demonstrated
promising results, and we would expect to increase our investment in this area
as the demand environment begins to stabilise. Taken together these
initiatives resulted in a relatively resilient margin given the demand
environment, with Greyhound achieving adjusted operating profit of $34.3m or
£25.8m (H1 2015: $40.2m or £25.8m), or an adjusted operating margin of 7.5%
(H1 2015: 8.3%).
Our transformation of Greyhound's business model will continue into the second
half with additional changes to the loyalty programme, a transition to
bus-side ticket scanning and investment in the customer focus of our
employees. The outlook for fuel prices and the consequent impact on customer
demand remains very uncertain, but we are confident that Greyhound is
increasingly well positioned to take full advantage of its unique brand and
scale.
First Bus
Six months to 30 September Change in
constant
currency1
2016 2015 £m
£m
Revenue 426.1 437.5 (2.9)%
Adjusted operating profit 13.5 15.4 (15.6)%
Adjusted operating margin 3.2% 3.5% (40)bps
(1) Increase/(decrease) in constant currency are based on retranslating H1
2015 foreign currency amounts at H1 2016 rates.
First Bus reported revenue of £426.1m (H1 2015: £437.5m) in the period, with
like-for-like passenger revenue decreasing by 1.3%. Industry conditions remain
challenging, with muted high street retail footfall trends and worsening
congestion affecting passenger demand in many of our markets, particularly in
the North and Scotland. We continue to adapt our commercial offering in
response to market conditions, with an ongoing focus on enhancing the
reliability of our services and the convenience of our ticket options. In the
period we have seen encouraging responses to our investments in mobile
ticketing and marketing to students and young people in particular, and
commercial passenger volumes were flat. However the overall macroeconomic
environment in the UK remains very uncertain.
Adjusted operating profit was £13.5m (H1 2015: £15.4m) and adjusted
operating margin was 3.2% (H1 2015: 3.5%). We continue to optimise our depot
portfolio and reduce other costs in light of the ongoing uncertainties in
passenger demand and concessionary revenue. We have made a number of changes
to our services in East Scotland following the release of certain restrictions
by the Competition and Markets Authority, and we have begun consultations on
closing our Rotherham depot while maintaining levels of service from nearby
locations. Meanwhile we continue to identify procurement savings, productivity
enhancements and lean engineering opportunities across the division. Expected
savings from lower fuel prices were partially offset by the US
dollar-denominated nature of these costs; the adverse foreign exchange impact
of fuel was £4.4m or 100bps on profit in the period.
Since the start of the year we have invested in a number of initiatives of
importance for the future. We are preparing to start a trial of contactless
bankcard payments in Bristol shortly and are planning our roll out of the
technology to the rest of the division over our next financial year, and we
have stepped up our focus on contract tender opportunities. This included the
highly successful launch of the Vantage guided busway scheme in Manchester, a
new park and ride contract in Bristol, and a multi-year joint venture to
provide bus services to the Hinkley Point construction project in Somerset
from January 2018. As a result of our fleet reinvestment programme First Bus
now operates the largest fleet of Department for Transport-certified ‘Low
Carbon Buses’ in the UK, and was recently recognised as Low Carbon Vehicle
Operator of the Year by a key industry body.
In light of the challenging and uncertain demand environment for the industry,
First Bus will continue to focus on margin improvement through procurement,
lean engineering and other cost saving programmes in the second half, while
maintaining our objective to grow through enhancing our customer offering.
First Rail
Six months to 30 September Change
2016 2015 £m
£m
Revenue 595.8 608.9 (2.2)%
Adjusted operating profit 22.1 32.9 (32.8)%
Adjusted operating margin 3.7% 5.4% (170)bps
First Rail revenues declined to £595.8m (H1 2015: £608.9m), reflecting
like-for-like passenger revenue growth of 0.7%, offset by reduced subsidy
receipts and the remapping of certain routes out of the scope of the new TPE
franchise which commenced on 1 April 2016. Passenger volumes in the first half
decreased by 0.1%, reflecting a slowdown in growth across the industry due to
macroeconomic uncertainty, some one-off events and modal shift due to
sustained lower fuel prices. The magnitude of the infrastructure upgrade works
taking place on the network has exaggerated the impact of these factors on our
GWR franchise, while revenue performance for TPE has been better than the
industry average in the period.
In the period First Rail has successfully launched the new TPE franchise,
managed several new rolling stock launches and a number of changes to Network
Rail’s infrastructure upgrade plans. GWR and TPE achieved improved customer
service ratings year-on-year in the recent National Rail Passenger Survey,
while Hull Trains maintained an overall satisfaction score of more than 90%.
As anticipated, the divisional margin has rebased in the period toward
industry norms under the terms of the new contract agreements. Reported
margins were also moderated by the £3.1m or 50bps impact of recent currency
movements on US dollar-denominated diesel fuel costs. Adjusted operating
profit was £22.1m (H1 2015: £32.9m), or a margin of 3.7% (H1 2015: 5.4%).
In the second half we will continue to focus on working with our industry
partners to improve the reliability and convenience of our services and
keeping passengers informed about the implications of ongoing infrastructure
works. We will also continue to examine opportunities to grow our rail
business through our disciplined approach to the Department for Transport’s
franchising process.
Reconciliation to non-GAAP measures and performance
Note 3 to the condensed consolidated financial statements sets out the
reconciliations of operating profit and profit before tax to their adjusted
equivalents. The principal adjusting items are as follows:
Other intangible asset amortisation charges
The charge for the period was £28.5m (H1 2015: £27.2m). The increase
primarily reflects a higher charge in the North America divisions due to the
impact of foreign exchange and the incremental £2.2m software intangible
amortisation this period, partly offset by a lower charge in First Rail as the
GWR franchise intangible was fully expensed at the end of its first Direct
Award period.
Gain on disposal of property
During the period the sale of a Greyhound terminal in San Jose, California was
completed which resulted in a gain on sale of £21.6m (H1 2015: £nil).
Restructuring and reorganisation costs
There was a charge of £4.2m (H1 2015: £nil) in the period for restructuring
and reorganisation costs across the Group relating to the business
turnarounds.
Finance costs and investment income
Net finance costs before adjustments were £67.1m (H1 2015: £66.0m) with the
increase principally reflecting US dollar-denominated costs converted at
prevailing rates.
Profit before tax
Adjusted profit before tax as set out in note 3 to the condensed consolidated
financial statements was £21.9m (H1 2015: £22.4m). An overall charge of
£10.8m (H1 2015: £29.9m) for adjustments including other intangible asset
amortisation charges of £28.5m (H1 2015: £27.2m) resulted in a statutory
profit before tax of £11.1m (H1 2015: loss before tax of £7.5m).
Tax
The tax charge, on adjusted profit before tax, for the period was £5.5m (H1
2015: £5.4m) representing an effective rate of 25.1% (H1 2015: 24.1%). There
was a tax credit of £3.5m (H1 2015: credit of £9.8m) relating to other
intangible asset amortisation charges and other adjustments. The total tax
charge was £2.0m (H1 2015: credit of £4.4m). The actual tax paid during the
period was £5.1m (H1 2015: £4.4m).
EPS
Adjusted EPS was 1.4p (H1 2015: 1.2p). Basic EPS was 0.7p (H1 2015: (0.4)p).
Shares in issue
As at 30 September 2016 there were 1,204.3m shares in issue (H1 2015:
1,204.1m), excluding treasury shares and own shares held in trust for
employees of 0.9m (H1 2015: 0.8m). 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 1,204.3m (H1 2015: 1,204.0m).
Cash flow
The seasonality of our First Student business combined with the phasing of
certain cash flows typically results in a net cash outflow at the half year.
The net cash outflow for the period was £64.3m (H1 2015: £168.1m before
First Rail end of franchise cash flows of £20.3m), an improvement of £103.8m
compared with the prior year. This improvement was driven by lower working
capital outflows, proceeds from the sale of a Greyhound terminal in the period
and higher EBITDA. This seasonal cash outflow, combined principally with
movements in debt due to foreign exchange, resulted in a net debt increase in
the first half of £81.3m relative to the 31 March position (H1 2015 increase:
£180.7m), as follows:
6 months to 6 months to 30 September 2015 £m Year to 31 March 2016 £m
30 September 2016
£m
EBITDA 251.7 242.4 615.9
Other non-cash income statement charges 8.0 2.3 6.4
Working capital excluding First Rail end of franchise cash flows (6.0) (84.0) (16.0)
Movement in other provisions (19.8) (12.9) (18.6)
Pension payments in excess of income statement charge (26.1) (28.6) (33.6)
Cash generated by operations excluding First Rail end of franchise cash flows 207.8 119.2 554.1
Capital expenditure (206.5) (201.9) (405.2)
Proceeds from disposal of property and plant and equipment 29.1 9.9 19.5
Interest and tax (81.3) (86.3) (122.4)
Dividends payable to non-controlling minority shareholders (11.9) (9.0) (10.0)
Shares purchased by Employee Benefit Trust (1.5) - -
Net cash inflow before First Rail end of franchise cash flows (64.3) (168.1) 36.0
First Rail end of franchise cash flows - (20.3) (20.8)
Foreign exchange movements (16.0) 8.7 (15.3)
Other non-cash movements in relation to financial instruments (1.0) (1.0) (2.8)
Movement in net debt in the period (81.3) (180.7) (2.9)
Capital expenditure
We continue to invest in our businesses. Cash capital expenditure was £206.5m
(H1 2015: £201.9m) and comprised First Student £97.2m (H1 2015: £131.8m),
First Transit £6.9m (H1 2015: £9.2m), Greyhound £14.9m (H1 2015: £3.0m),
First Bus £58.7m (H1 2015: £24.8m), First Rail £28.5m (H1 2015: £31.8m)
and Group items £0.3m (H1 2015: £1.3m). First Rail capital expenditure is
typically matched by franchise receipts or other funding.
In addition during the period we entered into operating leases for passenger
carrying vehicles with capital values in First Transit of £8.0m (H1 2015:
£1.3m).
Gross capital investment (fixed asset additions plus the capital value of new
operating leases) was £161.3m (H1 2015: £185.8m) and comprised First Student
£84.2m (H1 2015: £108.2m), First Transit £13.6m (H1 2015: £9.2m),
Greyhound £6.8m (H1 2015: £3.7m), First Bus £33.6m (H1 2015: £32.1m),
First Rail £22.8m (H1 2015: £31.3m) and Group items £0.3m (H1 2015:
£1.3m).
Net debt
The Group’s net debt at 30 September 2016 was £1,491.5m (H1 2015:
£1,588.0m) and comprised:
Analysis of net debt 30 September 2016 30 September 2015 £m 31 March 2016 £m
£m
Sterling bond (2018) 298.8 298.3 298.3
Sterling bond (2019) 249.8 249.8 249.8
Sterling bond (2021) 348.3 348.2 348.2
Sterling bond (2022) 320.5 320.0 320.5
Sterling bond (2024) 199.6 199.5 199.6
Sterling bank loans 52.5 40.6 -
HP contracts and finance leases 207.4 266.3 238.3
Senior unsecured loan notes 115.5 98.6 105.9
Loan notes 9.6 9.7 9.7
Gross debt excluding accrued interest 1,802.0 1,831.0 1,770.3
Cash (79.8) (45.3) (140.2)
First Rail ring-fenced cash and deposits (228.0) (197.1) (217.5)
Other ring-fenced cash and deposits (2.7) (0.6) (2.4)
Net debt excluding accrued interest 1,491.5 1,588.0 1,410.2
Under the terms of the First Rail franchise agreements, cash can only be
distributed by the Train Operating Companies (TOCs) either up to the lower
amount of their retained profits or the amount determined by prescribed
liquidity ratios. The ring-fenced cash represents that which is not available
for distribution or the amount required to satisfy the liquidity ratio at the
balance sheet date.
Financial risk management
Liquidity within the Group has remained strong. At 30 September 2016 there was
£824.8m (H1 2015: £801.3m) of committed headroom and free cash, being
£745.0m (H1 2015: £756.0m) of committed headroom and £79.8m (H1 2015:
£45.3m) of free cash. Largely due to the seasonality of First Student,
committed headroom typically reduces during the financial year up to October
and increases thereafter. Treasury policy requires a minimum of £150m of
committed headroom at all times. Our average debt maturity was 3.9 years (H1
2015: 4.8 years). The Group’s main revolving bank facilities require renewal
in June 2019.
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
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 period, 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.
Fuel price risk
We use a progressive forward hedging programme to manage commodity risk. We
have hedged 91% of the 'at risk' crude requirements for the current year in
the UK (1.8m barrels p.a.) at an average rate of $70 per barrel, 89% of our
'at risk' UK crude requirements for the year to 31 March 2018 at $61 per
barrel and 48% of our requirements for the year to 31 March 2019 at $56 per
barrel.
In North America we have hedged 68% of current year 'at risk' crude oil
volumes (1.4m barrels p.a.) at an average rate of $72 per barrel, 42% of the
volumes for the year to 31 March 2018 at $58 per barrel and 20% of our volumes
for the year to 31 March 2019 at $50 per barrel.
Balance sheet
Net assets have increased by £52.1m since the start of the period. The
principal reasons for this are favourable translation reserve movements of
£244.8m and favourable after tax hedging reserve movements of £37.7m, partly
offset by actuarial losses on defined benefit pension schemes (net of deferred
tax) of £233.3m.
Foreign exchange
The most significant exchange rates to Sterling for the Group are as follows:
6 months to 30 September 2016 6 months to 30 September 2015 Year to 31 March 2016
Closing rate Effective rate Closing rate Effective rate Closing rate Effective rate
US Dollar 1.30 1.45 1.52 1.52 1.41 1.49
Canadian Dollar 1.71 2.01 2.02 1.78 1.87 1.93
Pensions
We have updated our pension assumptions as at 30 September 2016 for the
defined benefit schemes in the UK and North America. The net pension deficit
of £270.9m at the beginning of the period has increased to £500.3m at the
end of the period, principally due to lower real discount rates partly offset
by an increase in asset returns. The main factors that influence the balance
sheet position for pensions and the sensitivities to their movement at 30
September 2016 are set out below:
Movement Impact
Discount rate +0.1% Reduce deficit by £43m
Inflation +0.1% Increase deficit by £37m
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. Greyhound operating profits are typically
higher in the first half of the year due to demand being stronger in the
summer months.
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 which cause actual results,
performance or achievements of the Group to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements.
Shareholders are cautioned not to place undue reliance on the forward-looking
statements. Except as required by the UK Listing Rules and applicable law, the
Group does not undertake any obligation to update or change any
forward-looking statements to reflect events occurring after the date of this
document.
Other information
Unless otherwise stated, all financial figures for the six months to 30
September 2016 (the ‘first half’, the ‘period’ or ‘H1 2016’)
include the results of the First Rail division for the period ended 17
September 2016 and the results of the other divisions for the 26 weeks ended
24 September 2016. The figures for the six months to 30 September 2015 (the
‘prior period’ or ‘H1 2015’) include the results of the First Rail
division for the period ended 19 September 2015 and the results of the other
divisions for the 26 weeks ended 26 September 2015. Figures for the year to 31
March 2016 include the results of the First Rail division for the period to 31
March 2016 and the results of the other divisions for the 52 weeks ended 26
March 2016. No account is taken of foreign exchange translation effects in the
description of divisional performances and outlook.
All references to 'adjusted' figures throughout this document are before other
intangible asset amortisation charges and certain other items as set out in
note 3 to the condensed consolidated financial statements.
Changes ‘in constant currency’ throughout this document are based on
retranslating H1 2015 foreign currency amounts at H1 2016 rates.
'EBITDA' is adjusted operating profit less capital grant amortisation plus
depreciation.
‘ROCE’ or Return on Capital Employed is calculated by dividing adjusted
operating profit after tax by all period end assets and liabilities excluding
debt items.
References to ‘like-for-like’ revenue adjust for changes in the
composition of the divisional portfolio, holiday timing, severe weather,
business acquisitions or disposals, industrial action, other significant
one-off events and other factors e.g. repossessions of the network for
engineering work in First Rail that distort the period-on-period trends in our
passenger revenue businesses.
Principal risks and uncertainties for the remaining six months of the
financial year
There are a number of risks and uncertainties facing the Group in the
remaining six months of the financial year. These are the same as disclosed in
the 2016 Annual Report. The principal risks and uncertainties, which are set
out in detail on pages 36 to 41 of the Annual Report and Accounts 2016, are:
* Economic conditions
* Political and regulatory
* Contract businesses including rail franchising
* Competition and emerging technologies
* Information technology
* Treasury and credit rating
* Pension scheme funding
* Compliance, litigation and claims, health and safety
* Labour costs, employee relations recruitment and retention
* Disruption to infrastructure/operations
Responsibility statement
Each of the Directors confirms that to the best of his/her knowledge:
* The condensed set of financial statements, which has been prepared in
accordance with the applicable set of accounting standards, gives a true and
fair view of the assets, liabilities, financial position and profit or loss of
the issuer, or the undertakings included in the consolidation as a whole as
required by DTR 4.2.4R;
* The interim management report includes a fair review of the information
required by DTR 4.2.7R; and
* The interim management report includes a fair review of the information
required by DTR 4.2.8R.
The Directors of FirstGroup plc are listed on the Group's website at
www.firstgroupplc.com.
Tim O’Toole
Matthew Gregory
Chief Executive
Chief Financial Officer
15 November
2016
15 November 2016
Condensed consolidated income statement
Notes Unaudited Unaudited 6 months to 30 September 2015 £m Year to 31 March 2016 £m
6 months to
30 September 2016
£m
Revenue 2, 4 2,564.7 2,440.9 5,218.1
Operating costs (2,486.8) (2,382.4) (4,971.8)
Operating profit 77.9 58.5 246.3
Investment income 5 0.7 0.6 1.4
Finance costs 5 (67.5) (66.6) (134.2)
Profit/(loss) before tax 11.1 (7.5) (113.5)
Tax 6 (2.0) 4.4 (17.1)
Profit/(loss) for the period 9.1 (3.1) 96.4
Attributable to:
Equity holders of the parent 9.0 (5.2) 90.3
Non-controlling interests 0.1 2.1 6.1
9.1 (3.1) 96.4
Earnings per share
Basic 7 0.7p (0.4)p 7.5p
Diluted 0.7p (0.4)p 7.5p
Adjusted results1
Adjusted operating profit 3 89.0 88.4 300.7
Adjusted profit before tax 3 21.9 22.4 168.3
Adjusted EPS 7 1.4p 1.2p 10.3p
1 Adjusted for certain items as set out in note 3.
Condensed consolidated statement of comprehensive income
Unaudited Unaudited 6 months to 30 September 2015 £m Year to 31 March 2016 £m
6 months to
30 September 2016
£m
Profit/(loss) for the period 9.1 (3.1) 96.4
Items that will not be reclassified subsequently to profit or loss
Actuarial (losses)/gains on defined benefit pension schemes (232.1) 52.5 (59.2)
Deferred tax on actuarial (losses)/gains on defined benefit pension schemes (1.2) (17.1) 16.1
(233.3) 35.4 (43.1)
Items that may be reclassified subsequently to profit or loss
Derivative hedging instrument movements 51.8 1.6 (13.7)
Deferred tax on derivative hedging instrument movements (14.1) (0.7) 0.6
Exchange differences on translation of foreign operations 244.8 (67.8) 110.5
282.5 (66.9) 97.4
Other comprehensive income/(expense) for the period 49.2 (31.5) 54.3
Total comprehensive income/(expense) for the period 58.3 (34.6) 150.7
Attributable to:
Equity holders of the parent 58.2 (36.7) 144.6
Non-controlling interests 0.1 2.1 6.1
58.3 (34.6) 150.7
Condensed consolidated balance sheet
Note Unaudited Unaudited 30 September 2015 £m 31 March 2016 £m
30 September 2016
£m
Non-current assets
Goodwill 8 1,887.4 1,620.6 1,736.3
Other intangible assets 9 155.8 164.1 162.2
Property, plant and equipment 10 2,246.7 2,003.1 2,142.2
Deferred tax assets 49.5 53.9 62.7
Retirement benefit assets 21 20.0 26.4 31.0
Derivative financial instruments 17 70.3 40.3 41.5
Investments 29.8 23.3 25.4
4,459.5 3,931.7 4,201.3
Current assets
Inventories 62.0
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