REG-FirstGroup PLC: Half-year Report
13/11/2018 07:05
FIRSTGROUP PLC
HALF-YEARLY RESULTS FOR THE SIX MONTHS TO 30 SEPTEMBER 2018
FirstGroup plc, a leading provider of transport services in the UK and North
America, reports growth in revenue, adjusted profit and adjusted EPS in the
first half of the 2018/19 financial year.
Overview
*
Matthew Gregory appointed as Chief Executive with immediate effect
*
First half trading in line with plans outlined at start of the financial year;
full year outlook unchanged
*
Road divisions' constant currency growth +2.0% in revenue and +17.9% in
adjusted(1) operating profit
*
Strong bid season and growth in First Student; First Bus margin improvement
continues
*
Greyhound review complete and plan underway; action taken to address Western
Canada
*
Net cash inflow increased in period; net debt reduced compared to prior year
Adjusted (1) H1 2018 H1 2017 £m Change Change in constant currency (2) SWR-adjusted change, in constant currency (3)
£m
Revenue 3,303.3 2,771.3 +19.2% +21.6% +6.0%
Operating profit 92.4 89.4 +3.4% +9.2% +19.7%
Operating profit margin 2.8% 3.2% (40)bps (30)bps +40bps
Profit before tax 42.0 30.5 +37.7% +63.4%
EPS 2.9p 1.9p +52.6% +81.3%
Net debt (4) 1,047.7 1,179.9 (11.2)% (11.6)%
Statutory H1 2018 H1 2017 £m Change
£m
Revenue 3,303.3 2,771.3 +19.2%
Operating profit 46.3 57.4 (19.3)%
Loss before tax (4.6) (1.9) (142.1)%
EPS (0.6)p 0.2p n/m (5)
Financial summary (percentage changes in constant currency unless otherwise
stated)
*
Group revenue +6.0% excluding SWR rail franchise that started towards end of
comparable period; Group revenue including SWR was +21.6%
*
Adjusted(1) operating profit +9.2%, with Road divisions +17.9% led by First
Student and First Bus partially offset by a decline in Greyhound; the
contribution from the Rail division was 5.8% lower, as expected
*
Adjusted(1) profit before tax +63.4% and adjusted(1) EPS +81.3%, reflecting
higher adjusted(1) operating profit, lower finance costs and reduction in US
tax rates
*
Net cash inflow of £50.6m (H1 2017: £21.9m before working capital inflow
from the start of SWR franchise)
*
Statutory loss before tax of £(4.6)m (H1 2017: £(1.9)m) and statutory EPS of
(0.6)p (H1 2017: 0.2p), reflecting restructuring and reorganisation costs from
withdrawal of Greyhound services in Western Canada
Divisional updates
*
First Student's fleet to grow this year following strong bid season: 92%
contract retention and new customer wins, with pricing remaining in excess of
the cost inflation from driver shortages
*
First Transit continues to add to business portfolio; margin stabilising
reflecting changing contract mix and non-recurrence of prior year costs
*
Greyhound improvement plan underway, targeting at least mid-single digit
margins in the medium term, including recent withdrawal from Western Canada.
Long haul markets in particular remain challenging resulting in
like-for-like(6) revenue (0.7)%
*
First Bus delivered +1.5% like-for-like(6) passenger revenue growth and strong
margin momentum, underpinned by increased commercial passenger volumes from
our focus on making journeys simpler
*
First Rail like-for-like(6) passenger revenue +5.5%, with solid financial
contribution driven by GWR despite infrastructure issues. SWR has experienced
challenging trading with issues relating to infrastructure reliability,
industrial relations and the effects of the revenue protection mechanisms
included in the franchise. We are working with industry partners to resolve
our issues
Outlook unchanged for the full year
Our performance in the first half is encouraging although conditions in our
markets remain challenging. We make no change to our full year outlook, and
continue to expect broadly stable Group operating earnings in constant
currency for the full year, with improvement in the Road divisions and a
smaller Rail contribution. We also expect broadly stable free cash generation
for the full year.
Commenting, Chief Executive Matthew Gregory said:
"We have made good progress in the first half delivering on our plans to
strengthen the Group, generating sustained cash flow to further reduce
leverage and deploy to targeted growth. First Student's bid season success
will see our largest business return to growth as planned, while maintaining
our disciplined approach to pricing. In September, First Bus completed the
rollout of contactless payment across the UK on schedule, becoming the first
of the UK's principal bus operators to do so. Together with other revenue and
cost actions this helped First Bus to achieve strong margin improvement in the
period. Meanwhile our First Rail operations continued to focus on improving
services for our passengers while maintaining overall profitability in a more
challenging industry environment during the period.
"We completed our review of Greyhound and have launched a plan to optimise our
smallest business for the challenges it is facing. Having recently addressed
our loss-making activities in Western Canada, these further actions will
assist in improving Greyhound's performance going forward.
"In summary, we are getting on with delivering our plans to improve
performance in our divisions. Although conditions in our markets remain
challenging, our performance to date underpins the confidence we have in our
unchanged outlook for the full year."
Chairman Wolfhart Hauser said:
"We are implementing clear divisional strategies across our portfolio to
mobilise the considerable value inherent in the Group, and I am encouraged by
the progress made in the period. I am confident that with Matthew Gregory as
Chief Executive, we have the right person to drive forward our plans at pace,
and with the appointment of Steve Gunning as an independent non-executive
director, we are strengthening the Board further. In addition, we are
developing a more agile business, with its emphasis firmly on a divisional
framework. This allows us to make the most of our evolving markets and
customer requirements, while maintaining strong stewardship and creating more
strategic flexibility at the Group level. We are also driving a strong focus
on service throughout the Group, ensuring that we continue to create solutions
for our customers that reduce complexity, making travel smoother and life
easier."
Contacts at FirstGroup:
Faisal Tabbah, Head of Investor Relations
Stuart Butchers, Group Head of Media
Tel: +44 (0) 20 7725 3354
Contacts at Brunswick PR:
Andrew Porter / Alison Lea, Tel: +44 (0) 20 7404 5959
A presentation for investors and analysts will be held at 9:00am today –
attendance is by invitation. A live telephone 'listen in' facility is
available – for joining details please call +44 (0) 20 7725 3354. A playback
facility will be available together with presentation slides and a pdf copy of
this report at www.firstgroupplc.com/investors.
Please see the separate announcement released by the Group for further details
of the FirstGroup Board changes announced today.
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 2017 foreign currency amounts at H1 2018 rates.
(3) Growth excluding SWR franchise revenue (which became part of
First Rail in August 2017), in constant currency.
(4 ) Net debt is stated excluding accrued bond interest, as
explained on page 11.
(5) Not meaningful.
(6) '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. First Rail's like-for-like passenger revenue growth of
5.5% excludes SWR (which was only part of the division for four weeks of the
prior period).
Legal Entity Identifier (LEI): 549300DEJZCPWA4HKM93. Classification as per DTR
6 Annex 1R: 1.2.
About FirstGroup
FirstGroup plc (LSE: FGP.L) is a leading provider of transport services in the
UK and North America. With £6.4 billion in revenue and around 100,000
employees, we transported 2.1 billion passengers last year. Whether for
business, education, health, social or recreation – we get our customers
where they want to be, when they want to be there. We create solutions that
reduce complexity, making travel smoother and life easier.
We provide easy and convenient mobility, improving quality of life by
connecting people and communities.
Each of our five divisions is a leader in its field: In North America, First
Student is the largest provider of home-to-school student transportation with
a fleet of 42,500 yellow school buses, First Transit is one of the largest
providers of outsourced transit management and contracting services, while
Greyhound is the only nationwide operator of scheduled intercity coaches. In
the UK, First Bus is one of Britain's largest bus companies with 1.6 million
passengers a day, and First Rail is one of the country's largest and most
experienced rail operators, carrying more than 260 million passengers last
year.
Visit our website at www.firstgroupplc.com and follow us @firstgroupplc on
Twitter.
Operating and financial review
Group revenue in the first half increased by 19.2%, principally reflecting
First Rail’s SWR franchise which commenced in August 2017. Group revenue
increased by 6.0% in constant currency after adjusting for SWR. In the period
revenue in constant currency from the Road divisions increased by 2.0%,
principally driven by First Student and First Bus; Greyhound revenues were
lower reflecting ongoing challenges in its long haul markets and withdrawal of
services in Western Canada. Rail revenue growth of 80.7% was driven by the
inclusion of SWR, the planned transition of GWR from premium to subsidy in
period, and like-for-like growth.
Group adjusted operating profit in constant currency increased by 9.2% or by
19.7% adjusting for SWR. The Road divisions' contribution to adjusted
operating profit increased by 17.9% in constant currency, reflecting progress
in First Student, First Transit and First Bus, partly offset by the challenges
in Greyhound. The adjusted operating profit contribution from First Rail in
the period was lower, as expected. Group adjusted operating profit margin in
constant currency decreased by 30bps to 2.8%, reflecting a 40bps increase for
the Road divisions and the expected rebasing of the Rail margin. In reported
currency, adjusted operating profit increased by 3.4% to £92.4m (H1 2017:
£89.4m).
6 months to 30 September 2018 6 months to 30 September 2017 Year to 31 March 2018
Revenue Operating profit (1) Operating margin (1) Revenue £m Operating profit (1) £m Operating margin (1) % Revenue £m Operating profit (1) £m Operating margin (1) %
£m £m %
First Student 775.2 24.6 3.2 763.1 14.8 1.9 1,771.1 156.5 8.8
First Transit 519.6 24.4 4.7 536.4 20.9 3.9 1,072.7 58.2 5.4
Greyhound 342.6 10.2 3.0 358.8 23.5 6.5 690.2 25.5 3.7
First Bus 433.9 24.8 5.7 428.2 15.8 3.7 879.4 50.2 5.7
Group items (2) 7.8 (20.9) 7.4 (16.7) 16.2 (31.2)
Road divisions 2,079.1 63.1 3.0 2,093.9 58.3 2.8 4,429.6 259.2 5.9
First Rail 1,224.2 29.3 2.4 677.4 31.1 4.6 1,968.8 57.8 2.9
Total Group 3,303.3 92.4 2.8 2,771.3 89.4 3.2 6,398.4 317.0 5.0
North America in USD $m $m % $m $m % $m $m %
First Student 1,038.5 36.6 3.5 982.8 18.1 1.8 2,350.6 210.4 9.0
First Transit 691.3 32.5 4.7 692.0 26.7 3.9 1,420.4 77.8 5.5
Greyhound 455.4 12.9 2.8 463.0 30.5 6.6 912.7 32.8 3.6
Total North America 2,185.2 82.0 3.8 2,137.8 75.3 3.5 4,683.7 321.0 6.9
(1 ) Adjusted.
(2 ) Tramlink operations, central management and other items.
Net finance costs before adjustments were £50.4m (H1 2017: £58.9m) with the
decrease mainly reflecting the refinancing in March 2018 at lower interest
rates. Adjusted profit before tax increased by 37.7% to £42.0m (H1 2017:
£30.5m). Adjusted profit attributable to ordinary shareholders was £34.9m
(H1 2017: £22.4m) with the increase due to the higher adjusted profit before
tax together with the lower effective tax rate of 22.5% (H1 2017: 30.0%).
Adjusted EPS increased by 52.6% to 2.9p (H1 2017: 1.9p). In constant currency,
adjusted EPS increased by 81.3%. EBITDA decreased by 8.3% to £255.1m (H1
2017: £278.2m), with Road EBITDA increasing by 1.8% in constant currency and
Rail EBITDA decreasing by 25.8%.
Statutory operating profit decreased by 19.3% to £46.3m (H1 2017: £57.4m),
principally reflecting restructuring and reorganisation charges relating to
Greyhound's withdrawal from Western Canada, net of a £0.6m gain on disposal
of surplus property in the region, of £28.5m (H1 2017: £nil). In the period
cash restructuring and reorganisation costs of £3.7m were incurred and £0.8m
in surplus property proceeds were received. The Group expects that disposal
proceeds from surplus properties in Western Canada will largely offset the
cash costs of the restructuring and reorganisation, over time. The statutory
loss attributable to equity shareholders was £6.9m (H1 2017: profit of
£2.1m), and statutory EPS decreased to (0.6)p in the period (H1 2017: 0.2p).
The net cash inflow for the period of £50.6m (H1 2017: inflow £21.9m before
the working capital inflow of £75.1m from the start of the SWR franchise)
represents an improvement of £28.7m compared with the prior period. This
improvement was driven by timing of certain working capital items in First
Rail and lower interest payments as a result of the refinancing in March 2018,
partly offset by lower EBITDA in First Rail. The net cash inflow, combined
with movements in debt of £(26.9)m due to foreign exchange, resulted in a net
debt decrease in the first half of £22.6m relative to the 31 March 2018
position (H1 2017: decrease of £110.0m). As at 30 September 2018, the net
debt: EBITDA ratio was 1.6 times (H1 2017: 1.7 times). Adjusting for cash
ring-fenced in the First Rail division, net debt: EBITDA was 2.2 times (H1
2017: 2.2 times).
Liquidity within the Group has remained strong; as at 30 September 2018 there
was £727.3m (H1 2017: £844.1m) of committed headroom and free cash, being
£587.0m (H1 2017: £800.0m) of committed headroom and £140.3m (H1 2017:
£44.1m) of free cash. Our average debt maturity was 4.0 years (H1 2017: 3.2
years). In November 2018 the Group agreed to amend and extend our main
revolving bank facilities to November 2023.
During the period, gross capital expenditure of £269.6m (H1 2017: £205.9m)
was invested in our business, with the Road divisions’ capital expenditure
being £223.3m (H1 2017: £149.4m) including operating leases with a capital
value of £40.2m (H1 2017: £nil), and the investment in First Rail being
£46.3m (H1 2017: £56.5m). The increase in the Road divisions' gross capital
expenditure was driven principally by the higher retention rates and new
business wins achieved in First Student's recent bid season.
ROCE was 9.2% (H1 2017: 7.2% at constant exchange rates and 7.9% as reported).
First Student
6 months to 30 September $m £m Change in
constant currency (1)
2018 2017 2018 2017
Revenue 1,038.5 982.8 775.2 763.1 +5.5%
Adjusted operating profit 36.6 18.1 24.6 14.8 +113.9%
Adjusted operating margin 3.5% 1.8% 3.2% 1.9% +160bps
(1 ) Based on retranslating H1 2017 foreign currency amounts
at H1 2018 rates.
Following a strong bid season, First Student will be operating a fleet of
approximately 42,500 buses for the balance of the school year, growing our
fleet for the first time in a number of years. We maintained our consistent
bidding discipline, securing average price increases in excess of the employee
cost inflation we face, which is due to persistent driver shortages from the
strong employment market in parts of the US. We achieved a retention rate of
92% on contracts up for renewal, significantly higher than the previous year's
83%, while remaining focused on only retaining or bidding for contracts at
prices that reflect an appropriate return on the capital we invest. Across the
entire portfolio of multi-year contracts, retention was 97%. In addition, we
exceeded our target for net new business wins, securing contracts representing
approximately 1,580 additional buses, mainly from competitors.
First Student's revenue in the first half was $1,038.5m or £775.2m (H1 2017:
$982.8m or £763.1m). Compared with the prior period, revenues principally
reflect the net effect of our pricing strategy noted above, additional
operating days in the half as anticipated, and additional weather recovery
days, reflecting the significant number of school closures due to snowstorms
in the last quarter of our previous financial year. Adjusted operating profit
was $36.6m or £24.6m (H1 2017: $18.1m or £14.8m), resulting in an adjusted
operating margin of 3.5% (H1 2017: 1.8%). In addition to weather recoveries
and additional operating days due to the timing of the school calendar, we
benefitted from cost and efficiency savings in maintenance and other
management actions to offset the cost inflation associated with driver labour
pressures noted previously.
During the period we have continued to build out a pipeline of potential
opportunities to grow through 'bolt-on' acquisitions in the highly fragmented
home-to-school market, and in August we acquired CG Pearson Bus Lines, an
Ontario-based provider of school and charter transportation services. CG
Pearson was founded in 1947 and runs almost 60 routes and 70 buses. The
transaction extends First Student’s operations in Ontario, where we
currently have more than 30 locations. We continue to roll out our FirstView
bus location app, and are developing further offerings to leverage our market
leadership and strong customer service credentials.
Following on from First Student's successful bid season, we were pleased that
this year’s school start-up has gone well, with our improved planning and
processes ensuring that we maintained our strong customer satisfaction scores
from the previous year. First Student's results are always heavily weighted to
the second half because of the overlay of our financial year with the North
American school calendar, so our performance in the second half as ever
remains key. Our strong first half and greater consistency of delivery means
that First Student is well positioned to deliver on our strategy for
profitable growth for the full year.
First Transit
6 months to 30 September $m £m Change in
constant currency (1)
2018 2017 2018 2017
Revenue 691.3 692.0 519.6 536.4 -
Adjusted operating profit 32.5 26.7 24.4 20.9 +23.2%
Adjusted operating margin 4.7% 3.9% 4.7% 3.9% +90bps
(1 ) Based on retranslating H1 2017 foreign currency amounts
at H1 2018 rates.
First Transit’s revenue in the first half was $691.3m or £519.6m (H1 2017:
$692.0m or £536.4m), in line with the prior year in constant currency. Recent
contract awards and organic growth were sufficient to offset the end of a
number of relatively large contracts in revenue terms, including the
previously noted high margin business in the Canadian oil sands region that
was not renewed at the end of the last financial year. Adjusted operating
profit was $32.5m or £24.4m (H1 2017: $26.7m or £20.9m), resulting in an
adjusted operating margin of 4.7% (H1 2017: 3.9%). Our margin in the period
improved in part due to the non-recurrence of impacts such as the hurricane
which devastated Puerto Rico in the prior period.
We won 18 new contracts in the period including new fixed route and
paratransit business for the city of Visalia, Ca., which includes operation of
battery-powered and Compressed Natural Gas (CNG) bus fleets. We also achieved
a 96% retention rate in the period, amongst other contracts retaining a major
paratransit contract for the Washington DC metropolitan region's transit
authority. In the period First Transit also signed five contracts to manage
Shared Autonomous Vehicle pilots, as well as extending a number of
partnerships with ridesharing providers to enhance our efficiency for
customers.
First Transit remains focused on driving growth by responding to new
opportunities and adapting our business model in both our core and adjacent
markets. For the full year we anticipate First Transit will achieve a broadly
similar year-on-year margin performance, with our ongoing productivity and
cost efficiency improvements partially offset by the persistently challenging
cost environment for drivers in the US and the previously noted changes in
contract mix.
Greyhound
6 months to 30 September $m £m Change in
constant currency (1)
2018 2017 2018 2017
Revenue 455.4 463.0 342.6 358.8 (1.6)%
Adjusted operating profit 12.9 30.5 10.2 23.5 (55.8)%
Adjusted operating margin 2.8% 6.6% 3.0% 6.5% (360)bps
(1 ) Based on retranslating H1 2017 foreign currency amounts
at H1 2018 rates.
In the period we completed our review of Greyhound's business and prospects.
The review concluded that there is considerable value in our nationwide
network, and that shrinking the business to focus on certain regions or types
of journey would not sustainably enhance Greyhound's overall profit and cash
contribution to the Group. While the short and long haul businesses use the
same infrastructure, they are subject to different competitive challenges and
opportunities, and the review has identified several revenue and cost
opportunities to improve overall returns from the current position. We have
developed a clear path to turning around Greyhound's financial performance and
are targeting at least mid-single digit margins for the division in the medium
term, with focused revenue improvement and cost reduction initiatives. This
plan is being executed at pace. We are also continuing to invest to enhance
our services for customers, principally in a targeted bus refurbishment and
purchase programme, as well as in driver training and improving our terminal
amenities.
Greyhound’s revenue was $455.4m or £342.6m (H1 2017: $463.0m or £358.8m)
in the first half. Short haul journeys continue to outperform long haul, where
there is more intense competition from the ultra-low cost airlines: our
point-to-point Greyhound Express business delivered a like-for-like revenue
increase of 2.3% in the period, while like-for-like revenue for the division
as a whole decreased by 0.7%. The divisional decline includes some demand
reductions in Western Canada in advance of our announced decision to withdraw
services in October, as well as the earlier closures of routes in British
Columbia effective from 1 June 2018. In the period we reduced mileage modestly
in the Greyhound US business to assist in improving load factors and revenue
per mile, which increased by 0.4%, and towards the end of the period we
commenced further cost saving measures and made management changes as part of
our plans to turn around Greyhound's performance. Adjusted operating profit
was $12.9m or £10.2m (H1 2017: $30.5m or £23.5m), or an adjusted operating
margin of 2.8% (H1 2017: 6.6%). The margin has been affected by higher
maintenance costs as well as fuel price increases, partially offset by a gain
on sale of a property of $6.5m or £5.0m.
As noted elsewhere, the withdrawal of service in Western Canada resulted in a
charge of $37.9m or £29.1m for restructuring and reorganisation. In the
period we booked a £0.6m gain on disposal from the sale of the first surplus
property in the disposal programme. The Group estimates that disposal proceeds
from surplus properties in Western Canada will largely offset the cash costs
of restructuring and reorganisation, over time.
Greyhound's performance in the second half is expected to benefit from the
withdrawal from Western Canada, the investment in our bus fleet and our
turnaround plan following the review. Although we face significant challenges
in the North American coach market, we are confident that Greyhound can
deliver a unique and attractive customer proposition, which we will harness to
optimise its value.
First Bus
6 months to 30 September £m Change in
constant currency (1)
2018 2017
Revenue 433.9 428.2 +1.3%
Adjusted operating profit 24.8 15.8 +57.0%
Adjusted operating margin 5.7% 3.7% +200bps
(1 ) Based on retranslating H1 2017 foreign currency amounts
at H1 2018 rates.
First Bus reported revenue of £433.9m (H1 2017: £428.2m) in the period, with
like-for-like passenger revenue increasing by 1.5%. Commercial passenger
volumes increased by 0.7% in the period and commercial revenue per mile
increased by 5.2%. Although we benefited from an improving overall environment
and the more favourable summer weather than the comparative period, demand
patterns remain variable amongst our local markets across the country. As
previously flagged, retail footfall trends continue to affect passenger
numbers in many of our markets, particularly in the North and Scotland, whilst
traffic congestion in a number of cities contributes very significantly to
operating challenges. Adjusted operating profit was £24.8m (H1 2017: £15.8m)
and adjusted operating margin increased by 200bps to 5.7% (H1 2017: 3.7%),
mainly reflecting cost efficiency actions in the current and prior periods.
These include continuous review at a local level to optimise our timetables
and route provision, standardising our operating procedures and work
practices, the introduction of central shared services and a benefit of lower
fuel costs, partially offset by inflation. During the first half we also
continued to consolidate our depot footprint, closing our Clacton site. After
the period end, we announced the closure of our Rusholme depot and the
redeployment of some of its routes to other depots in our Manchester
operation.
In September, we became the first of the UK's principal bus operators to offer
contactless payment for customers on all our networks. Together with mobile
ticketing, contactless is pivotal as we continue to make bus travel easier and
more convenient for our customers. We have now seen more than ten million
contactless transactions since we began roll out in May 2017, and growth in
mobile tickets continues to exceed our expectations. Both help us to speed up
bus journeys by reducing customer boarding times.
As previously reported, we are focusing our investment in areas where our
local authority stakeholders recognise the importance of the bus and we can
work together with them to improve congestion, meet air quality targets,
support social exclusion agendas, and strengthen local economies. We were
delighted that we worked with seven out of the ten city regions in England
that were recently shortlisted for a share of the latest £840m tranche of
public transport funding from the Transforming Cities Fund. For the current
year we expect to take delivery of approximately 260 new buses (year to March
2018: 180 buses). Additions during the period include 75 low-emission vehicles
for Glasgow, which will all be introduced into service in time for the new
city-wide Low Emissions Zone restrictions coming into effect from December. We
are also investing in a new employee app to assist in communicating with our
driver employees and driver training to improve customer satisfaction.
We are pleased that our focus on delivering a frictionless digital customer
offering is driving patronage growth and sustained margin improvement despite
relatively challenging industry conditions. Although the market uncertainties
are likely to persist, our systematic programme of actions will continue to
improve our margin and restore our ability to drive sustainable value creation
in First Bus.
First Rail
6 months to 30 September £m Change
2018 2017
Revenue 1,224.2 677.4 +80.7%
Adjusted operating profit 29.3 31.1 (5.8)%
Adjusted operating margin 2.4% 4.6% (220)bps
First Rail like-for-like passenger revenue growth was 5.5% for our portfolio
excluding SWR (which was only part of the division for four weeks of the prior
period). Industry conditions remain very challenging with macroeconomic
uncertainty, infrastructure upgrade works across our networks and the
industrial action in SWR all affecting our franchise performance levels.
Like-for-like passenger volumes decreased by 1.9% in the period, reflecting
the transfer of certain of GWR's Thames Valley flows to Transport for London
in May 2018. Recent volume trends also reflect changing work patterns
resulting in a shift away from season tickets towards pay-as-you-go tickets,
an effect which is exaggerated by the way these journeys are recorded in
industry volume statistics. Divisional revenues increased to £1,224.2m (H1
2017: £677.4m), with a full period of operation for our SWR franchise and the
planned transition of GWR from premium to subsidy in period due to the cost of
new rolling stock. Adjusted operating profit was £29.3m (H1 2017: £31.1m),
with the margin reducing as expected, to 2.4% (H1 2017: 4.6%).
Divisional profitability was driven by GWR, where customers are seeing more
capacity and services as a result of the introduction of new trains. Although
electrification works by Network Rail have proved to be slower than originally
planned which has led to issues with training drivers for the new trains, we
are now introducing Hitachi Intercity Express Trains across the network. We
also continue to work with our industry partners to reflect the impact of
these delays in the level of our franchise commitments and model. Our rail
franchises cover a period during which there is significant change (major
infrastructure work, electrification and resignalling, and introduction of new
trains). These changes require careful planning, management and negotiation
with industry partners, in particular where delays can impact the delivery of
franchise assumptions. Failure to manage these risks adequately could result
in financial and reputational impacts to the Group. After the period end we
have also begun the process of transferring the operational aspects of
Heathrow Express to GWR, as previously announced.
SWR performance levels remain challenging, reflecting infrastructure issues
that began before we took over the franchise. An independent review chaired by
Sir Michael Holden has set out a blueprint for Network Rail and SWR to return
service to levels that our customers expect. As part of these plans, we are
investing £5m in performance improvements and next year the first of our
£895m new suburban fleet will arrive. We are also introducing more convenient
ticketing options such as flexible and auto-renewing season tickets. Our SWR
customers have also faced considerable disruption to their journeys due to
RMT’s ongoing industrial action, which we view as completely unnecessary
since no employees will lose their job. In fact we have guaranteed that a
guard with safety critical competencies will be rostered on every train, and,
given our plans envisage running more services, SWR will want more guards in
future not fewer. SWR are focused on delivering a resolution of the industrial
dispute in the interests of our passengers.
TPE delivered growth and financial results in line with our revised
expectations. Our plans to increase capacity on the network by more than 80%
and create a true intercity railway for the North continue with new trains to
be introduced in the next few months. Franchise performance at TPE was
significantly affected by the timetable changes in May, as challenges
experienced by other operators in the region had a knock-on effect on TPE’s
punctuality statistics.
Meanwhile our open access operator Hull Trains is performing in line with our
expectations despite some challenges due to fleet unavailability. New trains
are due to be brought into the fleet next year.
In July, a national rail industry decision was announced to defer this
winter’s timetable changes for several train operators, including GWR, SWR
and TPE. This deferral is a significant and an unforeseen change, which means
we cannot deliver some additional services and other passenger benefits as
originally scheduled. In accordance with current franchise agreements, we are
engaged in discussions with the DfT to work through potential commercial and
contractual amendments, a process that is ongoing. The SWR franchise agreement
includes a mechanism to share the Central London Employment (CLE) revenue risk
with the DFT. There is uncertainty regarding the outcomes of this mechanism
over the remaining franchise term, which has the potential to significantly
impact the profitability of the franchise. We are reviewing the effectiveness
of this mechanism and whether it is functioning as originally intended by both
parties.
As a result of ongoing industry conditions and the tough operational
environment our portfolio is experiencing, we continue to expect a smaller
year-on-year adjusted operating profit contribution from Rail.
Finance costs and investment income
Net finance costs before adjustments were £50.4m (H1 2017: £58.9m) with the
decrease principally reflecting lower bond interest due to the early bond
redemption in March 2018 partly offset by the interest on the new senior
unsecured loan notes.
Profit before tax
Adjusted profit before tax as set out in note 3 to the condensed consolidated
financial statements was £42.0m (H1 2017: £30.5m). An overall charge of
£46.6m (H1 2017: £32.4m) for adjustments, reflecting restructuring and
reorganisation charges relating to Greyhound's withdrawal from Western Canada
of £28.5m (H1 2017: £nil), net of gains on disposal of surplus property in
the region, and other intangible asset amortisation charges of £17.6m (H1
2017: £32.0m), resulted in a statutory loss before tax of £4.6m (H1 2017:
loss before tax of £1.9m).
Tax
The tax charge, on adjusted profit before tax, for the period was £9.4m (H1
2017: £9.2m) representing an effective rate of 22.5% (H1 2017: 30.0%). The
effective rate is lower due to the reduction in the US corporate income tax
rate. There was a tax credit of £4.8m (H1 2017: £12.1m) relating to other
intangible asset amortisation charges and other adjustments. The total tax
charge was £4.6m (H1 2017: credit of £2.9m). The actual tax paid during the
period was £4.3m (H1 2017: £7.1m).
EPS
Adjusted EPS was 2.9p (H1 2017: 1.9p). Basic EPS was (0.6)p (H1 2017: 0.2p).
Shares in issue
As at 30 September 2018 there were 1,205.9m shares in issue (H1 2017:
1,206.4m), excluding treasury shares and own shares held in trust for
employees of 6.0m (H1 2017: 2.8m). 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 1,205.0m (H1 2017: 1,206.2m).
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 £17.6m (H1 2017: £32.0m) with the reduction
due to a number of customer contract intangibles which have now been fully
amortised.
Restructuring and reorganisation costs
There was a charge of £28.5m (H1 2017: £nil) for restructuring and
reorganisation costs relating to Greyhound's withdrawal of services in Western
Canada, net of a £0.6m gain on disposal relating to the initial property
disposals completed in the region.
Notional interest on TPE onerous contract provision
There was a charge of £0.5m (H1 2017: £nil) in the year for notional
interest on the unwinding of the TPE onerous contract provision.
Cash flow
The net cash inflow for the period of £50.6m (H1 2017: inflow £21.9m before
the working capital inflow of £75.1m from the start of the SWR franchise)
represents an improvement of £28.7m compared with the prior period. This
improvement was driven by timing of certain working capital items in First
Rail and lower interest payments as a result of the refinancing in March 2018,
partly offset by lower EBITDA in First Rail. The net cash inflow, combined
with movements in debt of £(26.9)m due to foreign exchange, resulted in a net
debt decrease in the first half of £22.6m relative to the 31 March position
(H1 2017: decrease of £110.0m), as follows:
6 months to 30 September Year to 31 March 2018 £m
2018 2017 £m
£m
EBITDA 255.1 278.2 690.6
Other non-cash income statement charges 0.9 7.7 17.2
Working capital excluding First Rail start of franchise cash flows 96.3 57.7 36.9
Movement in other provisions (38.3) (19.3) (10.5)
Pension payments in excess of income statement charge (30.8) (31.0) (47.9)
Cash generated by operations excluding First Rail start of franchise cash flows 283.2 293.3 686.3
Capital expenditure and acquisitions (191.9) (194.0) (425.6)
Proceeds from disposal of property, plant and equipment 12.3 7.0 11.4
Interest and tax (53.6) (80.0) (137.6)
Acquisition of non-controlling interest - - (13.8)
Dividends paid to non-controlling minority shareholders - - (1.1)
Other 0.6 (4.4) (9.1)
Net cash inflow before First Rail start of franchise cash flows 50.6 21.9 110.5
First Rail start of franchise cash flows - 75.1 88.5
Net cash inflow after First Rail start of franchise cash flows 50.6 97.0 199.0
Foreign exchange movements (26.9) 13.9 23.2
Other non-cash movements (1.1) (0.9) (2.6)
Movement in net debt in the period 22.6 110.0 219.6
Capital expenditure
Cash capital expenditure was £189.6m (H1 2017: £191.1m) and comprised First
Student £101.5m (H1 2017: £69.5m), First Transit £10.8m (H1 2017: £9.2m),
Greyhound £15.7m (H1 2017: £14.4m), First Bus £14.8m (H1 2017: £39.7m),
First Rail £46.8m (H1 2017: £57.1m) and Group items £nil (H1 2017: £1.2m).
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 Student of £7.8m
(H1 2017: £nil), First Transit of £3.4m (H1 2017: £nil), Greyhound of
£10.2m (H1 2017: £nil) and First Bus of £18.8m (H1 2017: £nil).
Gross capital investment (fixed asset and software additions plus the capital
value of new operating leases) was £269.6m (H1 2017: £205.9m) and comprised
First Student £168.3m (H1 2017: £123.8m), First Transit £14.2m (H1 2017:
£9.4m), Greyhound £19.3m (H1 2017: £11.6m), First Bus £21.5m (H1 2017:
£3.4m), First Rail £46.3m (H1 2017: £56.5m) and Group items £nil (H1 2017:
£1.2m).
Net debt
The Group’s net debt at 30 September 2018 was £1,047.7m (H1 2017:
£1,179.9m) and comprised:
Analysis of net debt 30 September 2018 30 September 2017 £m 31 March 2018 £m
£m
Sterling bond (2018) - 299.3 -
Sterling bond (2019) 249.9 249.8 249.9
Sterling bond (2021) 348.3 348.3 348.3
Sterling bond (2022) 321.6 321.1 321.6
Sterling bond (2024) 199.8 199.6 199.8
Sterling bank loans 167.4 - 197.0
US Dollar bank loans 30.7 - -
Canadian Dollar bank loans 14.9 - -
HP contracts and finance leases 90.7 144.2 104.7
Senior unsecured loan notes 210.0 36.9 195.2
Loan notes 9.4 9.5 9.5
Gross debt excluding accrued interest 1,642.7 1,608.7 1,626.0
Cash (140.3) (44.1) (163.4)
First Rail ring-fenced cash and deposits (453.8) (383.8) (391.5)
Other ring-fenced cash and deposits (0.9) (0.9) (0.8)
Net debt excluding accrued interest 1,047.7 1,179.9 1,070.3
Under the terms of the First Rail franchise agreements, cash can only be
distributed by the Train Operating Companies (TOCs) either up to the lower
amount of their retained profits or the amount determined by prescribed
liquidity ratios. The ring-fenced cash represents that which is not available
for distribution or the amount required to satisfy the liquidity ratio at the
balance sheet date. First Rail ring-fenced cash increased by £62.3m in the
period principally due to working capital inflows at GWR and SWR.
Funding and risk management
Liquidity within the Group has remained strong. At 30 September 2018, there
was £727.3m (H1 2017: £844.1m) of committed headroom and free cash, being
£587.0m (H1 2017: £800.0m) of committed headroom and £140.3m (H1 2017:
£44.1m) of free cash. Largely due to the seasonality of First Student,
committed headroom typically reduces during the financial year up to October
and increases thereafter. Treasury policy requires a minimum level of
committed headroom is maintained. Our average debt maturity is 4.0 years (H1
2017: 3.2 years). The Group’s main revolving bank facilities require renewal
in November 2023 following a two and a half year amendment and extension
agreed in November 2018. The Group does not enter into speculative financial
transactions and uses only authorised financial instruments for certain
financial risk management purposes.
Balance sheet
Net assets have increased by £228.2m since the start of the period. The
principal reasons for this are translation reserve movements of £172.4m,
favourable after tax hedging reserve movements of £35.6m and actuarial gains
on defined benefit pension schemes (net of deferred tax) of £24.9m.
Pensions
We have updated certain of our pension assumptions as at 30 September 2018 for
the defined benefit schemes in the UK and North America. The net pension
deficit of £273.7m at the beginning of the period has decreased to £228.8m
at the end of the period principally due to release of irrecoverable surplus,
additional cash contributions and higher real discount rates in North America
partly offset by unfavourable foreign exchange movements. Based on the most
recent actuarial valuations, the combined funding deficit of the First Bus and
Group defined benefit schemes in the UK, taking into account funding
guarantees provided by FirstGroup plc, is approximately £200m higher than the
balance sheet position on an accounting basis. The main factors that influence
the balance sheet position for pensions and the sensitivities to their
movement at 30 September 2018 are set out below:
Movement Impact
Discount rate +0.1% Reduce deficit by £30.6m
Inflation +0.1% Increase deficit by £25.1m
On 26 October 2018 the High Court ruled that guaranteed minimum pensions
should be equalised between men and women. As a result pension scheme trustees
will be obliged to adjust benefit payments in order that benefits received by
male and female members with equivalent age, service and earnings histories
are equal. We are working with the trustees of our UK pension schemes and our
actuarial and legal advisors to fully understand the extent to which this
ruling could crystallise additional liabilities in our UK pension schemes. We
estimate that the impact could be significant and we anticipate that any
adjustment will be recognised in the second half of the current financial
year.
Fuel price risk
We use a progressive forward hedging programme to manage commodity risk. We
have hedged 87% of the 'at risk' crude requirements for the current year in
the UK (1.9m barrels p.a.) at an average rate of $60 per barrel, 65% of our
'at risk' UK crude requirements for the year to 31 March 2020 at $65 per
barrel and 30% of our requirements for the year to 31 March 2021 at $68 per
barrel.
In North America, we have hedged 62% of current year 'at risk' crude oil
volumes (1.4m barrels p.a.) at an average rate of $58 per barrel, 40% of the
volumes for the year to 31 March 2020 at $60 per barrel and 17% of our volumes
for the year to 31 March 2021 at $66 per barrel.
Interest rate risk
We seek to reduce our exposure by using a combination of fixed rate debt and
interest rate derivatives to achieve an overall fixed rate position over the
medium term of at least 50% of net debt.
Foreign currency risk
‘Certain’ and ‘highly probable’ foreign currency transaction exposures
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.
Foreign exchange
The most significant exchange rates to pounds Sterling for the Group are as
follows:
6 months to 30 September 2018 6 months to 30 September 2017 Year to 31 March 2018
Closing rate Effective rate Closing rate Effective rate Closing rate Effective rate
US Dollar 1.30 1.38 1.35 1.27 1.40 1.34
Canadian Dollar 1.68 1.84 1.67 1.96 1.81 1.75
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.
Dividends
The Board recognises that dividends are an important component of total
shareholder return for many investors and remains committed to reinstating a
sustainable dividend at the appropriate time, having regard to the Group’s
financial performance, balance sheet and outlook. The Board is not proposing
to pay a dividend in respect of the six months to 30 September 2018 but will
continue to review the appropriate timing for restarting dividend payments.
Impact of new accounting standards
The new accounting standard, IFRS 16 Leases comes into effect for accounting
periods beginning after 1 January 2019, and will be adopted by the Group from
1 April 2019. It eliminates the operating lease classification and leases will
be required to be recognised as right of use assets and lease liabilities on
the balance sheet.
A project is underway to implement this standard for the year ended 31 March
2020. Until this project is finalised it is not possible to accurately
determine the value of right of use assets and lease liabilities that will be
recognised on adoption of the standard. In note 34 of the Annual Report and
Accounts 2018 the Group disclosed total operating lease commitments of
£3,622.1m as at 31 March 2018, which represented the gross value before the
discounting of lease commitments to their present value required by IFRS 16.
Note 1 provides details on the adoption of IFRS 9 Financial Instruments and
IFRS 15 Revenue from contracts with customers, neither of which has had a
material impact on the Group. Both standards came into effect for accounting
periods beginning after 1 January 2018, and were adopted by the Group from 1
April 2018.
Forward-looking statements
Certain statements included or incorporated by reference within this document
may constitute ‘forward- looking statements’ with respect to the business,
strategy and plans of the Group and our current goals, assumptions and
expectations relating to our future financial condition, performance and
results. By their nature, forward-looking statements involve known and unknown
risks, assumptions, uncertainties and other factors that cause actual results,
performance or achievements of the Group to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Shareholders are cautioned not to place undue
reliance on the forward-looking statements. Except as required by the UK
Listing Rules and applicable law, the Group does not undertake any obligation
to update or change any forward-looking statements to reflect events occurring
after the date of this document.
Definitions
Unless otherwise stated, all financial figures for the six months to 30
September 2018 (the ‘first half’, the 'period' or ‘H1 2018’) include
the results and financial position of the First Rail business for the period
ended 15 September 2018 and the results and financial position of all the
other businesses for the 26 weeks ended 29 September 2018. The figures for the
six months to 30 September 2017 (the ‘prior period’ or ‘H1 2017’)
include the results and financial position of First Rail for the period ended
16 September 2017 and the results and financial position of all the other
businesses for the 26 weeks ended 23 September 2017. Figures for the year to
31 March 2018 include the results and financial position of the First Rail
division for the year ended 31 March 2018 and the results and financial
position of all the other businesses for the 53 weeks ended 31 March 2018.
Full year results for 2019 will include the results and financial position of
First Rail for the year to 31 March 2019 and the results and financial
position of all the other businesses for the 52 weeks ended 30 March 2019.
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.
‘ROCE’ or Return on Capital Employed is a measure of capital efficiency
and is calculated by dividing adjusted operating profit after tax by all
period 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 significant engineering possessions 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. The principal risks and
uncertainties, which are the same as set out in detail on pages 34 to 39 of
the Annual Report and Accounts 2018, are:
*
Economic conditions including Brexit implications
*
Political and regulatory
*
Contract businesses including rail franchising
*
Competition and emerging technologies
*
Information technology (IT)
*
Data security (including cyber security and GDPR)
*
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
Condensed consolidated income statement
Continuing Operations Notes Unaudited Unaudited 6 months to 30 September 2017 £m Year to 31 March 2018 £m
6 months to
30 September 2018
£m
Revenue 2, 4 3,303.3 2,771.3 6,398.4
Operating costs (3,257.0) (2,713.9) (6,594.6)
Operating profit/(loss) 46.3 57.4 (196.2)
Investment income 5 1.1 0.4 1.3
Finance costs 5 (52.0) (59.7) (132.0)
Loss before tax (4.6) (1.9) (326.9)
Tax 6 (4.6) 2.9 36.0
(Loss)/profit for the period (9.2) 1.0 (290.9)
Attributable to:
Equity holders of the parent (6.9) 2.1 (296.0)
Non-controlling interests (2.3) (1.1) 5.1
(9.2) 1.0 (290.9)
Earnings per share
Basic 7 (0.6)p 0.2p (24.6)p
Diluted (0.6)p 0.2p (24.2)p
Adjusted results (1)
Adjusted operating profit 3 92.4 89.4 317.0
Adjusted profit before tax 3 42.0 30.5 197.0
Adjusted EPS 7 2.9p 1.9p 12.3p
(1 ) Adjusted for certain items as set out in note 3.
Condensed consolidated statement of comprehensive income
Unaudited Unaudited 6 months to 30 September 2017 £m Year to 31 March 2018 £m
6 months to
30 September
2018
£m
(Loss)/profit for the period (9.2) 1.0 (290.9)
Items that will not be reclassified subsequently to profit or loss
Actuarial gains on defined benefit pension schemes 29.1 23.6 26.6
Deferred tax on actuarial gains on defined benefit pension schemes (4.2) (4.5) (6.2)
Deferred tax on defined benefit pension schemes due to US tax reform - - (20.4)
24.9 19.1 -
Items that may be reclassified subsequently to profit or loss
Derivative hedging instrument movements 43.7 22.4 45.1
Deferred tax on derivative hedging instrument movements (8.1) (6.1) (9.3)
Deferred tax on derivative hedging instruments due to US tax reform - - (1.4)
Exchange differences on translation of foreign operations 172.4 (210.0) (324.9)
208.0 (193.7) (290.5)
Other comprehensive income/(loss) for the period 232.9 (174.6) (290.5)
Total comprehensive income/(loss) for the period 223.7 (173.6) (581.4)
Attributable to:
Equity holders of the parent 226.0 (172.5) (586.5)
Non-controlling interests (2.3) (1.1) 5.1
223.7 (173.6) (581.4)
Condensed consolidated balance sheet
Note Unaudited Unaudited 30 September 2017 £m 31 March 2018 £m
30 September 2018
£m
Non-current assets
Goodwill 8 1,604.2 1,826.7 1,496.8
Other intangible assets 9 80.6 117.2 89.8
Property, plant and equipment 10 2,196.9 2,166.9 2,090.1
Deferred tax assets 25.1 17.6 37.7
Retirement benefit assets 23 51.5 41.8 32.5
Derivative financial instruments 17 41.4 45.5 25.0
Investments 34.8 31.3 31.0
4,034.5 4,247.0 3,802.9
Current assets
Inventories 61.0 62.2 56.0
Trade and other receivables 12 915.1 780.3 888.0
Current tax assets 5.1 4.1 2.9
Cash and cash equivalents 22 595.0 428.8 555.7
Assets held for sale 11 25.4 3.0 0.9
Derivative financial instruments 17 44.6 4.2 27.3
1,646.2 1,282.6 1,530.8
Total assets 5,680.7 5,529.6 5,333.7
Current liabilities
Trade and other payables 13 1,589.1 1,283.8 1,437.4
Tax liabilities – Current tax liabilities 2.8 2.1 3.8
– Other tax and social security 41.0 34.4 31.7
Borrowings 14 344.5 432.6 351.5
Derivative financial instruments 17 0.1 13.7 6.7
1,977.5 1,766.6 1,831.1
Net current liabilities 331.3 484.0 300.3
Non-current liabilities
Borrowings 14 1,350.8 1,246.3 1,339.6
Derivative financial instruments 17 - 4.7 3.0
Retirement benefit liabilities 23 280.3 338.0 306.2
Deferred tax liabilities 24.6 21.0 22.2
Provisions 18 328.7 253.1 341.0
1,984.4 1,863.1 2,012.0
Total liabilities 3,961.9 3,629.7 3,843.1
Net assets 1,718.8 1,899.9 1,490.6
Equity
Share capital 20 60.6 60.5 60.5
Share premium 682.3 679.9 681.4
Hedging reserve 52.1 (1.6) 16.5
Other reserves 4.6 4.6 4.6
Own shares (5.2) (3.3) (6.3)
Translation reserve 555.9 498.4 383.5
Retained earnings 361.0 642.8 340.6
Equity attributable to equity holders of the parent 1,711.3 1,881.3 1,480.8
Non-controlling interests 7.5 18.6 9.8
Total equity 1,718.8 1,899.9 1,490.6
Condensed consolidated statement of changes in equity
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
Total comprehensive income/(loss) for the period - - 35.6 - - 172.4 18.0 226.0 (2.3) 223.7
Shares issued 0.1 0.9 - - - - - 1.0 - 1.0
Movement in EBT and treasury shares - - - - 1.1 - (2.3) (1.2) - (1.2)
Share-based payments - - - - - - 4.7 4.7 - 4.7
Balance at 30 September 2018 (unaudited) 60.6 682.3 52.1 4.6 (5.2) 555.9 361.0 1,711.3 7.5 1,718.8
Balance at 1 April 2017 60.4 678.9 (17.9) 4.6 (1.2) 708.4 621.9 2,055.1 20.8 2,075.9
Total comprehensive (loss)/income for the period - - 16.3 - - (210.0) 21.2 (172.5) (1.1) (173.6)
Shares issued 0.1 1.0 - - - - - 1.1 - 1.1
Dividends paid/other - - - - - - - - (1.1) (1.1)
Movement in EBT and treasury shares - - - - (2.1) - (4.7) (6.8) - (6.8)
Share-based payments - - - - - - 4.4 4.4 - 4.4
Balance at 30 September 2017 (unaudited) 60.5 679.9 (1.6) 4.6 (3.3) 498.4 642.8 1,881.3 18.6 1,899.9
Balance at 1 April 2017 60.4 678.9 (17.9) 4.6 (1.2) 708.4 621.9 2,055.1 20.8 2,075.9
Total comprehensive (loss)/income for the period - - 34.4 - - (324.9) (296.0) (586.5) 5.1 (581.4)
Acquisition of non-controlling interests - - - - - - 13.8 13.8 (13.8) -
Shares issued 0.1 2.5 - - - - - 2.6 - 2.6
Dividends paid/other - - - - - - - - (2.3) (2.3)
Movement in EBT and treasury shares - - - - (5.1) - (8.0) (13.1) - (13.1)
Share-based payments - - - - - - 8.9 8.9 - 8.9
Balance at 31 March 2018 60.5 681.4 16.5 4.6 (6.3) 383.5 340.6 1,480.8 9.8 1,490.6
Condensed consolidated cash flow statement
Note Unaudited Unaudited 6 months to 30 September 2017 £m Year to 31 March 2018 £m
6 months to 30 September 2018
£m
Net cash from operating activities 21 228.6 288.0 636.9
Investing activities
Interest received 1.0 0.4 1.3
Proceeds from disposal of property and plant and equipment 12.3 7.0 11.4
Purchases of property, plant and equipment (186.0) (183.9) (395.9)
Purchases of software (3.6) (7.2) (26.8)
Acquisition of business 19 (2.3) (2.9) (2.9)
Acquisition of non-controlling interest - - (13.8)
Net cash used in investing activities (178.6) (186.6) (426.7)
Financing activities
Dividends paid to non-controlling shareholders - - (1.1)
Shares purchased by Employee Benefit Trust - (5.2) (11.2)
Shares issued 0.6 0.8 2.1
Proceeds from senior unsecured loans - - 193.3
Repayment of bond - - (300.0)
Repayment of senior unsecured loans - (38.7) (76.5)
Drawdowns from bank facilities 12.5 - 197.0
Repayment of loan notes (0.1) - -
Repayments under HP contracts and finance leases (20.5) (30.1) (62.1)
Fees for bank facility amendments - - (1.0)
Net cash flow used in financing activities (7.5) (73.2) (59.5)
Net increase in cash and cash equivalents before foreign exchange movements 42.5 28.2 150.7
Cash and cash equivalents at beginning of period 555.7 400.9 400.9
Foreign exchange movements (3.2) (0.3) 4.1
Cash and cash equivalents at end of period per consolidated balance sheet 595.0 428.8 555.7
Cash and cash equivalents are included within current assets on the condensed
consolidated balance sheet. Cash and cash equivalents includes ring-fenced
cash of £454.7m (H1 2017: £384.7m; full year 2018: £392.3m).
Note to the condensed consolidated cash flow statement – reconciliation of
net cash flow to movement in net debt
Note Unaudited Unaudited 6 months to 30 September 2017 £m Year to 31 March 2018 £m
6 months to 30 September 2018
£m
Net increase in cash and cash equivalents in period 42.5 28.2 150.7
Decrease in debt and finance leases 8.1 68.8 48.3
Net cash flow 50.6 97.0 199.0
Foreign exchange movements (26.9) 13.9 23.2
Other non-cash movements in relation to financial instruments (1.1) (0.9) (2.6)
Movement in net debt in period 22.6 110.0 219.6
Net debt at beginning of period (1,070.3) (1,289.9) (1,289.9)
Net debt at end of period 22 (1,047.7) (1,179.9) (1,070.3)
Net debt includes the value of derivatives in connection with the bonds
maturing in 2019 and 2021 and excludes all accrued interest. These bonds are
included in current and non-current liabilities in the condensed consolidated
balance sheet.
Notes to the half yearly financial report
1 Basis of preparation
This half-yearly financial report does not constitute statutory accounts as
defined in section 434 of the Companies Act 2006. The statutory accounts for
the year ended 31 March 2018 have been delivered to the Registrar of
Companies. The auditor reported on those accounts; their report was
unqualified, did not draw attention to any matters by way of emphasis and did
not contain a statement under section 498(2) or (3) of the Companies Act 2006.
The figures for the six months to 30 September 2018 include the results and
financial position of the First Rail division for the period ended 15
September 2018 and the results and financial position for the other divisions
for the 26 weeks ended 29 September 2018. The comparative figures for the six
months to 30 September 2017 include the results and financial position of the
First Rail division for the period ended 16 September 2017 and the results and
financial position of the other divisions for the 26 weeks ended 23 September
2017.
The condensed set of financial statements included in this half-yearly
financial report has been prepared in accordance with the DTR of the Financial
Conduct Authority and International Accounting Standard (IAS) 34, ‘Interim
Financial Reporting’, as adopted by the European Union.
The accounting policies used in this half-yearly financial report are
consistent with International Financial Reporting Standards (IFRS) as adopted
by the European Union. The accounting policies applied are consistent with
those described in the Group’s latest annual audited financial statements,
except for the adoption of new accounting standards noted below which became
effective for the financial year beginning on 1 April 2018. There has been no
material change as a result of applying these new accounting standards. We
have also included certain non-GAAP measures in order to reflect
management’s reported view of financial performance excluding other
intangible asset amortisation charges and certain other items.
The Group has applied for the first time IFRS 9 Financial instruments and IFRS
15 Revenue from contracts with customers. As required by IAS 34, the nature
and effect of these changes are disclosed below.
IFRS 9 Financial Instruments
This standard replaces IAS 39 with effect from accounting periods commencing 1
January 2018. The new standard covers three distinct areas: the classification
and measurement of financial assets and liabilities; the impairment of
financial assets; and new hedging requirements designed to give increased
flexibility in relation to hedge effectiveness.
IFRS 9 requires a new impairment model with impairment provisions based on
expected credit losses rather than incurred credit losses under IAS 39. The
simplified approach has been applied to trade and other receivables and we
have determined expected credit losses for significant portfolios of
receivables. The transitional increase/decrease in the impairment allowance as
a result of this change in accounting policy is nil.
In relation to hedge accounting, there has been no impact on the Group’s
financial statements. Our hedging instruments remain effective and the current
hedge relationships qualify as continuing hedges under IFRS 9. There will be
some increased disclosure requirements under IFRS 9 and these will be
reflected in the financial statements for the year ended 31 March 2019.
The Group has applied the new rules prospectively from 1 April 2018. As per
above, there is a transitional increase/decrease in the impairment allowance
of £nil.
IFRS 15 Revenue from contracts with customers
IFRS 15 introduced a new revenue recognition model that recognises revenue
either at a point in time or over time. It is based on the principle that
revenue is recognised when control of a good or service transfers to the
customer and is based on the fulfilment of performance obligations.
The adoption of IFRS 15 has not had a material impact on Group revenue
recognition, and there have been no adjustments required to opening retained
earnings.
The Group has applied the new rules prospectively from 1 April 2018. Note 4
sets out a numerical disaggregation of revenue in accordance with the
disclosure requirements of the new standard, with an explanation of the types
of revenue included in the note set out below:
Passenger revenues
Passenger revenues primarily relate to ticket sales through First Bus, First
Rail and Greyhound. Passenger revenue is recognised at both a point in time
and over time. Ticket sales for journeys of less than one week’s duration
are recognised on the first date of travel. Ticket sales for season tickets
and travel cards are initially deferred then recognised over the period
covered by the relevant ticket. Concessionary amounts are recognised in the
period in which the service is provided.
Contract revenues
Contract revenues mainly relate to First Student school bus contracts and
First Transit contracts in North America. Revenues are recognised as the
services are provided and in accordance with the terms of the contract.
1 Basis of preparation (continued)
Charter/private hire
Charter and private hire predominantly relates to charter work in First
Student for both school districts with extracurricular activities and third
parties with general transportation needs. Revenue is recognised over the
period in which the charter/private hire is provided to the customer.
Rail franchise subsidy receipts
Revenue in First Rail includes franchise subsidy receipts from the Department
for Transport (DfT) and amounts receivable under franchise arrangements,
including certain funded operational projects. Revenue is recognised over
time.
Other revenues
Other revenues mainly relate to Greyhound Package Express, non-rail subsidies,
revenue arising from ancillary services to other rail and road passenger
service providers for maintenance, refuelling and other associated services
and to sundry third parties for the use of space at terminals and on-board
vehicles for other business activities, e.g. retail outlets, taxi ranks,
catering and advertising. Other revenues are recognised at both a point in
time and over time.
New accounting standards not yet applied
The Group has not yet applied IFRS 16 Leases. It becomes effective for
accounting periods beginning after 1 January 2019, and will be adopted by the
Group from 1 April 2019.
The new standard eliminates the operating lease classification and therefore
on the balance sheet the lessees will be required to recognise right of use
assets and lease liabilities for all leases unless they have a lease term of
less than twelve months or are of low value. On the income statement, the
operating lease expense will be replaced by a combination of depreciation and
interest.
A project is underway to implement this standard for the year ended 31 March
2020. Until this project is finalised it is not possible to accurately
determine the value of right of use assets and lease liabilities that will be
recognised on adoption of the standard. At 31 March 2018, the Group held a
significant number of operating leases that are expensed over the lease term.
The total commitment at 31 March 2018 was £3,622.1m, which represents the
gross value and is before the discounting of commitments to their present
value required by IFRS 16.
These results are unaudited but have been reviewed by the auditor. The
comparative figures for the six months to 30 September 2018 are unaudited and
are derived from the half-yearly financial report for that period, which was
also reviewed by the auditor.
The Directors have carried out a review of the Group’s budget for the year
to 31 March 2019 and medium term plans, with due regard for the risks and
uncertainties to which the Group is exposed, the uncertain economic climate
and the impact that this could have on trading performance. Based on this
review, the Directors believe that the Company and the Group have adequate
resources to continue in operational existence for the foreseeable future.
Accordingly, the condensed consolidated financial statements have been
prepared on the going concern basis in preparing this half-yearly report.
The operating and financial review statement contained in this half-yearly
report, including the summarised principal risks and uncertainties, has been
prepared by the Directors in good faith based on the information available to
them up to the time of their approval of this report solely for the
Company’s shareholders as a body, so as to assist them in assessing the
Group's strategies and the potential for those strategies to succeed and
accordingly should not be relied on by any other party or for any other
purpose and the Company hereby disclaims any liability to any such other party
or for reliance on such information for any such other purpose.
The operating and financial review considers the impact of seasonality on the
Group and also the principal risks and uncertainties facing it in the
remaining six months of the financial year.
This half-yearly report has been prepared in respect of the Group as a whole
and accordingly matters identified as being significant or material are so
identified in the context of FirstGroup plc and its subsidiary undertakings
taken as a whole.
This half-yearly financial report was approved by the Board on 13 November
2018.
2 Revenue
6 months to 6 months to 30 September 2017 £m Year to 31 March 2018 £m
30 September 2018
£m
Services rendered (note 4) 3,203.3 2,771.3 6,398.4
First Rail franchise subsidy receipts 100.0 - -
Revenue 3,303.3 2,771.3 6,398.4
Investment income 1.1 0.4 1.3
Total revenue as defined by IFRS 15 3,304.4 2,771.7 6,399.7
3 Reconciliation to non-GAAP measures and performance
In measuring the Group and divisional adjusted operating performance,
additional financial measures derived from the reported results have been used
in order to eliminate factors which distort year-on-year comparisons. The
Group’s adjusted performance is used to explain year-on-year changes when
the effect of certain items are significant, including restructuring and
reorganisation costs, property disposals, aged legal and self-insurance
claims, onerous contract provisions, impairment charges and pension settlement
gains or losses. In addition, management assess divisional performance before
other intangible asset amortisation charges as these are typically a result of
Group decisions and therefore the divisions have little or no control over
these charges. Management consider that this overall basis more appropriately
reflects operating performance and provides a better understanding of the key
performance indicators of the business.
Reconciliation of operating profit/(loss) to adjusted operating profit 6 months to 6 months to 30 September 2017 £m Year to 31 March 2018 £m
30 September 2018
£m
Operating profit/(loss) 46.3 57.4 (196.2)
Adjustments for:
Other intangible asset amortisation charges 17.6 32.0 70.9
Greyhound impairment charges - - 277.3
TPE onerous contract provision - - 106.3
Restructuring and reorganisation costs 28.5 - 26.0
North America insurance reserves - - 32.7
Total operating profit adjustments 46.1 32.0 513.2
Adjusted operating profit 92.4 89.4 317.0
Reconciliation of loss before tax to adjusted profit before tax 6 months to 6 months to 30 September 2017 £m Year to 31 March 2018 £m
30 September 2018
£m
Loss before tax (4.6) (1.9) (326.9)
Operating profit adjustment (see table above) 46.1 32.0 513.2
Notional interest on TPE onerous contract provision 0.5 - -
Bond ‘make whole’ interest cost - - 10.7
Ineffectiveness on financial derivatives - 0.4 -
Adjusted profit before tax 42.0 30.5 197.0
Adjusted tax charge (9.4) (9.2) (44.2)
Non-controlling interests 2.3 1.1 (5.1)
Adjusted earnings 34.9 22.4 147.7
The principal adjusting items are as follows:
Other intangible asset amortisation charges
The charge for the period was £17.6m (H1 2017: £32.0m) with the reduction
due to a number of customer contract intangibles which have now been fully
amortised.
Restructuring and reorganisation costs
There was a charge of £28.5m (H1 2017: £nil) for restructuring and
reorganisation costs relating to Greyhound's withdrawal of services in Western
Canada, net of a £0.6m gain on disposal relating to the initial property
disposals completed in the region.
Notional interest on TPE onerous contract provision
There was a charge of £0.5m (H1 2017: £nil) in the year for notional
interest on the unwinding of the TPE onerous contract provision.
4 Business segments information
The segment results for the six months to 30 September 2018 are as follows:
First Student First Transit Greyhound First Bus First Rail Group items (1) Total
£m £m £m £m £m £m £m
Passenger revenues - - 300.1 395.0 1,050.0 - 1,745.1
Contract revenues 680.6 458.9 - 31.6 - 7.8 1,178.9
Charter/private hire 87.5 2.7 1.8 2.1 - - 94.1
Rail franchise subsidy receipts - - - - 100.0 - 100.0
Other revenues 7.1 58.0 40.7 5.2 74.2 - 185.2
Revenue 775.2 519.6 342.6 433.9 1,224.2 7.8 3,303.3
EBITDA (2) 111.5 34.2 23.7 52.8 52.6 (19.7) 255.1
Depreciation (86.9) (9.8) (13.8) (29.0) (43.9) (1.2) (184.6)
Capital grant amortisation - - 0.3 1.0 20.6 - 21.9
Segment results 24.6 24.4 10.2 24.8 29.3 (20.9) 92.4
Other intangible asset amortisation charges (8.4) (1.1) (5.9) (0.1) (1.8) (0.3) (17.6)
Other adjustments (note 3) - - (28.5) - - - (28.5)
Operating profit/(loss) 16.2 23.3 (24.2) 24.7 27.5 (21.2) 46.3
Balance sheet Total assets Total liabilities Net assets/(liabilities)
£m £m £m
First Student 2,772.6 (444.5) 2,328.1
First Transit 581.3 (139.6) 441.7
Greyhound 373.6 (325.2) 48.4
First Bus 724.8 (287.9) 436.9
First Rail 459.5 (963.6) (504.1)
4,911.8 (2,160.8) 2,751.0
Group items 143.7 (90.0) 53.7
Net debt 595.0 (1,642.7) (1,047.7)
Taxation 30.2 (68.4) (38.2)
Total 5,680.7 (3,961.9) 1,718.8
The segment results for the six months to 30 September 2017 are as follows:
First Student £m First Transit £m Greyhound £m First Bus £m First Rail £m Group items (1) £m Total £m
Passenger revenues - - 309.6 388.2 624.1 - 1,321.9
Contract revenues 666.2 472.3 - 31.7 - 7.4 1,177.6
Charter/private hire 89.3 2.5 3.2 1.8 - - 96.8
Other revenues 7.6 61.6 46.0 6.5 53.3 - 175.0
Revenue 763.1 536.4 358.8 428.2 677.4 7.4 2,771.3
EBITDA (2) 104.1 31.4 40.1 47.4 70.9 (15.7) 278.2
Depreciation (89.3) (10.5) (16.6) (31.6) (43.5) (1.0) (192.5)
Capital grant amortisation - - - - 3.7 - 3.7
Segment results 14.8 20.9 23.5 15.8 31.1 (16.7) 89.4
Other intangible asset amortisation charges (25.3) (0.5) (5.3) - (0.9) - (32.0)
Operating profit/(loss) (10.5) 20.4 18.2 15.8 30.2 (16.7) 57.4
(1) Group items comprise Tram operations, central management and
other items.
(2) EBITDA is adjusted operating profit less capital grant
amortisation plus depreciation.
Balance sheet Total assets £m Total liabilities £m Net assets/(liabilities) £m
First Student 2,641.9 (400.5) 2,241.4
First Transit 580.6 (137.4) 443.2
Greyhound 636.0 (326.9) 309.1
First Bus 753.9 (306.1) 447.8
First Rail 344.6 (670.8) (326.2)
4,957.0 (1,841.7) 3,115.3
Group items 122.1 (121.8) 0.3
Net debt 428.8 (1,608.7) (1,179.9)
Taxation 21.7 (57.5) (35.8)
Total 5,529.6 (3,629.7) 1,899.9
4 Business segments information (continued)
The segment results for the year to 31 March 2018 are as follows:
First Student £m First Transit £m Greyhound £m First Bus £m First Rail £m Group items (1) £m Total £m
Passenger revenues - - 597.2 795.5 1,825.0 - 3,217.7
Contract revenues 1,604.0 943.7 - 67.3 - 16.2 2,631.2
Charter/private hire 154.6 4.5 5.4 3.2 - - 167.7
Other revenues 12.5 124.5 87.6 13.4 143.8 - 381.8
Revenue 1,771.1 1,072.7 690.2 879.4 1,968.8 16.2 6,398.4
EBITDA (2) 335.2 79.8 58.8 116.3 129.4 (28.9) 690.6
Depreciation (178.7) (21.6) (33.3) (66.1) (87.6) (2.3) (389.6)
Capital grant amortisation - - - - 16.0 - 16.0
Segment results 156.5 58.2 25.5 50.2 57.8 (31.2) 317.0
Other intangible asset amortisation charges (54.7) (2.8) (11.0) (0.2) (2.1) (0.1) (70.9)
Other adjustments (note 3) (13.4) (21.1) (280.8) (20.7) (106.3) - (442.3)
Operating profit/(loss) 88.4 34.3 (266.3) 29.3 (50.6) (31.3) (196.2)
(1) Group items comprise Tram operations, central management and
other items.
(2) EBITDA is adjusted operating profit less capital grant
amortisation plus depreciation.
Balance sheet Total assets £m Total liabilities £m Net assets/(liabilities) £m
First Student 2,544.1 (376.2) 2,167.9
First Transit 539.4 (140.1) 399.3
Greyhound 365.9 (328.1) 37.8
First Bus 717.0 (296.8) 420.2
First Rail 454.8 (909.0) (454.2)
4,621.2 (2,050.2) 2,571.0
Group items 116.2 (109.2) 7.0
Net debt 555.7 (1,626.0) (1,070.3)
Taxation 40.6 (57.7) (17.1)
Total 5,333.7 (3,843.1) 1,490.6
5 Investment income and finance costs
6 months to 6 months to 30 September 2017 £m Year to 31 March 2018 £m
30 September 2018
£m
Investment income
Bank interest receivable (1.1) (0.4) (1.3)
Finance costs
Bonds 30.2 41.3 84.3
Bank borrowings 5.4 3.3 8.8
Senior unsecured loan notes 4.4 1.0 1.3
Loan notes 0.5 0.5 1.1
Finance charges payable in respect of HP contracts and finance leases 1.5 2.4 4.6
Notional interest on long term provisions 5.6 5.6 11.0
Notional interest on pensions 3.9 5.2 10.2
Finance costs before adjustments 51.5 59.3 121.3
Notional interest on TPE onerous contract provision 0.5 - -
Bond ‘make whole’ cost - - 10.7
Hedge ineffectiveness on financial derivatives - 0.4 -
Net finance costs 52.0 59.7 132.0
Finance costs before adjustments 51.5 59.3 121.3
Investment income (1.1) (0.4) (1.3)
Net finance costs before adjustments 50.4 58.9 120.0
6 Tax on profit on ordinary activities
6 months to 6 months to 30 September 2017 £m Year to 31 March 2018 £m
30 September 2018
£m
Current tax charge 1.4 0.8 8.9
Deferred tax charge/(credit) 3.2 (3.7) (44.9)
Total tax charge/(credit) 4.6 (2.9) (36.0)
The tax effect of the adjustments disclosed in note 3 was a credit of £4.8m
(H1 2017: credit of £12.1m; full year 2018: credit of £55.6m). In the full
year 2018 there was also the one-off tax credit of £24.6m from the
re-measurement of deferred tax balances as a result of the reduction in the US
corporate tax rate.
7 Earnings per share (EPS)
EPS is calculated by dividing the loss attributable to equity shareholders of
£6.9m (H1 2017: profit £2.1m; full year 2018: loss £296.0m) by the weighted
average number of ordinary shares in issue of 1,205.0m (H1 2017: 1,206.2m;
full year 2018: 1,205.1m). The number of ordinary shares used for the basic
and diluted calculations are shown in the table below.
The difference in the number of shares between the basic calculation and the
diluted calculation represents the weighted average number of potentially
dilutive ordinary share options.
30 September 2018 30 September 2017 number m 31 March 2018 number m
number
m
Weighted average number of shares used in basic calculation 1,205.0 1,206.2 1,205.1
Executive share options 12.4 13.0 17.9
Weighted average number of shares used in the diluted calculation 1,217.4 1,219.2 1,223.0
The adjusted EPS is intended to highlight the recurring results of the Group
before amortisation charges, ineffectiveness on financial derivatives and
certain other adjustments as set out in note 3. A reconciliation is set out
below:
6 months to 6 months to 30 September 2017 Year to 31 March 2018
30 September 2018
£m EPS (p) £m EPS (p) £m EPS (p)
Basic (loss)/profit / EPS (6.9) (0.6) 2.1 0.2 (296.0) (24.6)
Other intangible asset amortisation charges (note 9) 17.6 1.5 32.0 2.7 70.9 5.9
Notional interest on TPE onerous contract provision 0.5 - - - - -
Ineffectiveness on financial derivatives - - 0.4 - - -
Bond ‘make whole’ cost - - - - 10.7 0.9
Other adjustments (note 3) 28.5 2.4 - - 442.3 36.7
Tax effect of above adjustments (4.8) (0.4) (12.1) (1.0) (55.6) (4.6)
Tax effect of change in US tax legislation - - - - (24.6) (2.0)
Adjusted profit / EPS 34.9 2.9 22.4 1.9 147.7 12.3
6 months to 6 months to 30 September 2017 pence Year to 31 March 2018 pence
30 September 2018
pence
Diluted EPS (0.6) 0.2 (24.2)
Adjusted diluted EPS 2.9 1.8 12.1
8 Goodwill and impairment of assets
£m
Cost
At 1 April 2018 1,761.4
Additions (note 19) 0.6
Foreign exchange movements 106.8
At 30 September 2018 1,868.8
Accumulated impairment losses
At 1 April 2018 and 30 September 2018 264.6
Carrying amount
At 30 September 2018 1,604.2
At 31 March 2018 1,496.8
At 30 September 2017 1,826.7
8 Goodwill and impairment of assets (continued)
Disclosures including goodwill by cash generating unit, details of impairment
testing and sensitivities thereon are set out on page 121 of the 2018 Annual
Report. The projections for First Student assume the incremental benefits of
the existing recovery plan, the programme to address contract portfolio
pricing together with an economic recovery.
The sensitivity analysis performed at 31 March 2018 indicated that the First
Student margin or growth rates would need to fall in excess of 212 or 181
basis points respectively compared to medium term double digit margin
expectations for there to be an impairment to the carrying value of net assets
in this business. An increase in the discount rate in excess of 160 basis
points would have led to the value in use of the division being less than its
carrying amount.
In the year to 31 March 2018 there was an impairment charge of £277.3m on the
Greyhound CGU. This was reflected in the financial statements as an impairment
in full of the carrying value of Greyhound goodwill of £260.6m, an impairment
of £12.3m on Greyhound property, plant and equipment, an impairment of £2.5m
on Greyhound brand and trade name and £1.9m on Greyhound software.
The Greyhound business impairment review is sensitive to a change in the
assumptions used, most notably to changes in the discount rate, terminal
growth rate or terminal margin. A summary of the movements in the impairment
charge recorded in the year to 31 March 2018 from a change in these
assumptions is as follows:
*
0.1% movement in the discount rate would have increased or decreased the
impairment charge by £5.6m
*
0.1% movement in the terminal growth rate would have increased or decreased
the impairment charge by £5.3m
*
0.1% movement in terminal margin would have increased or decreased the
impairment charge by £9.8m.
We have revisited the Greyhound CGU impairment testing and concluded that no
adjustment to the carrying value of the CGU is required at 30 September 2018.
Following the strategic review of the business the cash flow forecasts have
been extended from a three year period to a five year period.
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 (note 19) 0.7 - - 0.7
Additions - - 3.6 3.6
Disposals - - (0.1) (0.1)
Foreign exchange movements 33.2 5.0 4.0 42.2
At 30 September 2018 473.6 71.9 70.6 616.1
Accumulated amortisation and impairment
At 1 April 2018 421.7 37.8 20.4 479.9
Charge for the period 7.4 1.6 8.6 17.6
Impairment - - 1.3 1.3
Foreign exchange movements 32.2 2.9 1.6 36.7
At 30 September 2018 461.3 42.3 31.9 535.5
Carrying amount
At 30 September 2018 12.3 29.6 38.7 80.6
At 31 March 2018 18.0 29.1 42.7 89.8
At 30 September 2017 47.4 34.7 35.1 117.2
Intangible assets include customer contracts and the Greyhound brand and trade
name which were acquired through the purchases of businesses and subsidiary
undertakings and software. These are being amortised on a straight-line basis
over their useful lives which are between 3 and 20 years.
10 Property, plant and equipment
Land and buildings £m Passenger carrying vehicle fleet £m Other plant and equipment £m Total £m
Cost
At 1 April 2018 492.8 3,224.6 778.5 4,495.9
Acquisitions (note 19) - 1.5 - 1.5
Additions 6.7 162.6 55.0 224.3
Disposals (11.0) (49.2) (13.6) (73.8)
Reclassified as held for sale (26.7) (63.9) - (90.6)
Foreign exchange movements 21.6 179.5 23.3 224.4
At 30 September 2018 483.4 3,455.1 843.2 4,781.7
Accumulated depreciation and impairment
At 1 April 2018 102.5 1,704.3 599.0 2,405.8
Charge for period 6.0 116.9 61.7 184.6
Disposals (5.9) (48.1) (13.1) (67.1)
Reclassified as held for sale (2.8) (59.4) - (62.2)
Impairment - 0.4 1.0 1.4
Foreign exchange movements 5.4 97.6 19.3 122.3
At 30 September 2018 105.2 1,811.7 667.9 2,584.8
Carrying amount
At 30 September 2018 378.2 1,643.4 175.3 2,196.9
At 31 March 2018 390.3 1,520.3 179.5 2,090.1
At 30 September 2017 403.9 1,593.5 169.5 2,166.9
11 Assets held for sale
30 September 2018 30 September 2017 £m 31 March 2018 £m
£m
Assets held for sale 25.4 3.0 0.9
These principally comprise of certain North American properties and First
Student yellow school buses which are surplus to requirements and are being
actively marketed for sale. Gains or losses arising on the disposal of such
assets are included in arriving at operating profit in the condensed
consolidated income statement.
12 Trade and other receivables
Amounts due within one year 30 September 2018 30 September 2017 £m 31 March 2018 £m
£m
Trade receivables 448.6 420.7 482.2
Provision for doubtful receivables - (7.7) (4.3)
Credit loss allowance (3.9) - -
Other receivables 76.5 70.8 106.8
Other prepayments 140.7 79.3 103.7
Accrued income 253.2 217.2 199.6
915.1 780.3 888.0
13 Trade and other payables
Amounts falling due within one year 30 September 2018 30 September 2017 £m 31 March 2018 £m
£m
Trade payables 257.9 232.8 248.8
Other payables 273.6 230.7 230.2
Accruals 867.2 675.7 785.6
Deferred income 107.0 62.7 83.6
Season ticket deferred income 83.4 81.9 89.2
1,589.1 1,283.8 1,437.4
14 Borrowings
30 September 2018 30 September 2017 £m 31 March 2018 £m
£m
On demand or within 1 year
Finance leases (note 15) 51.1 56.7 47.1
Senior unsecured loan notes - 36.9 -
Bond 8.125% (repayable 2018) - 299.6 -
Bond 6.125% (repayable 2019) 263.7 10.4 261.3
Bond 8.75% (repayable 2021) 14.7 14.5 30.1
Bond 5.25% (repayable 2022) 14.6 14.3 5.8
Bond 6.875% (repayable 2024) 0.4 0.2 7.2
Total current liabilities 344.5 432.6 351.5
Within 1 – 2 years
Finance leases (note 15) 39.1 48.2 39.5
Loan notes (note 16) 9.4 9.5 9.5
Bond 6.125% (repayable 2019) - 264.3 -
48.5 322.0 49.0
Within 2 – 5 years
Syndicated loan facilities 213.0 - 197.0
Finance leases (note 15) 0.4 39.2 18.0
Bond 8.75% (repayable 2021) 357.4 364.3 358.9
Bond 5.25% (repayable 2022) 321.6 - 321.6
892.4 403.5 895.5
More than 5 years
Finance leases (note 15) 0.1 0.1 0.1
Senior unsecured loan notes 210.0 - 195.2
Bond 5.25% (repayable 2022) - 321.1 -
Bond 6.875% (repayable 2024) 199.8 199.6 199.8
409.9 520.8 395.1
Total non-current liabilities at amortised cost 1,350.8 1,246.3 1,339.6
15 Hire Purchase (HP) contracts and finance leases
The Group had the following obligations under HP contracts and finance leases
as at the balance sheet dates:
30 September 2018 30 September 2017 31 March 2018
Minimum payments Present value Minimum payments £m Present value of payments £m Minimum payments £m Present value of payments £m
£m of payments
£m
Due within 1 year 52.4 51.1 58.2 56.7 48.3 47.1
Due within 1 – 2 years 41.1 39.1 50.8 48.2 41.6 39.5
Due within 2 – 5 years 0.5 0.4 42.6 39.2 19.6 18.0
Due in more than 5 years 0.1 0.1 0.1 0.1 0.1 0.1
94.1 90.7 151.7 144.2 109.6 104.7
Less future financing charges (3.4) - (7.5) - (4.9) –
90.7 90.7 144.2 144.2 104.7 104.7
16 Loan notes
The Group had the following loan notes issued as at the balance sheet dates:
30 September 2018 30 September 2017 £m 31 March 2018 £m
£m
Due within 2 – 5 years 9.4 9.5 9.5
17 Derivative financial instruments
30 September 2018 30 September 2017 £m 31 March 2018 £m
£m
Total derivatives
Total non-current assets 41.4 45.5 25.0
Total current assets 44.6 4.2 27.3
Total assets 86.0 49.7 52.3
Total current liabilities 0.1 13.7 6.7
Total non-current liabilities - 4.7 3.0
Total liabilities 0.1 18.4 9.7
Derivatives designated and effective as hedging instruments carried at fair value
Non-current assets
Coupon swaps (fair value hedge) 12.2 42.2 17.6
Currency forwards (cash flow hedge) 2.2 - -
Fuel derivatives (cash flow hedge) 27.0 3.3 7.4
41.4 45.5 25.0
Current assets
Coupon swaps (fair value hedge) 13.8 - 11.4
Fuel derivatives (cash flow hedge) 27.3 4.2 15.9
Currency forwards (cash flow hedge) 3.5 - -
44.6 4.2 27.3
Current liabilities
Fuel derivatives (cash flow hedge) 0.1 9.0 1.4
Currency forwards (cash flow hedge) - 4.5 5.3
0.1 13.5 6.7
Non-current liabilities
Fuel derivatives (cash flow hedge) - 3.5 2.9
Currency forwards (cash flow hedge) - 1.2 0.1
- 4.7 3.0
Derivatives classified as held for trading
Current liabilities
Currency forwards - 0.2 -
The fair value measurements of the financial derivatives held by the Group
have been derived based on observable market inputs (as categorised within
Level 2 of the fair value hierarchy under IFRS 7 (2009)).
17 Derivative financial instruments (continued)
Fair value of the Group’s financial assets and financial liabilities that
are measured at fair value on a recurring basis:
30 September 2018
Fair value Carrying value
Total
£m
Level 1 Level 2 Level 3 Total
£m £m £m £m
Financial assets
Cash and cash equivalents 595.0 - - 595.0 595.0
Trade and other receivables - 521.2 - 521.2 521.2
Derivative financial instruments - 86.0 - 86.0 86.0
Financial liabilities and derivatives
Financial liabilities 213.0 1,561.1 - 1,774.1 1,695.3
Trade and other payables - 1,589.1 - 1,589.1 1,589.1
Derivative financial instruments - 0.1 - 0.1 0.1
30 September 2017
Fair value Carrying value Total £m
Level 1 £m Level 2 £m Level 3 £m Total £m
Financial assets
Cash and cash equivalents 428.8 - - 428.8 428.8
Trade and other receivables - 483.8 - 483.8 483.8
Derivative financial instruments - 49.7 - 49.7 49.7
Financial liabilities and derivatives
Financial liabilities - 1,892.0 - 1,892.0 1,678.9
Trade and other payables - 1,283.8 - 1,283.8 1,283.8
Derivative financial instruments - 18.4 - 18.4 18.4
31 March 2018
Fair value Carrying value Total £m
Level 1 £m Level 2 £m Level 3 £m Total £m
Financial assets
Cash and cash equivalents 555.7 - - 555.7 555.7
Trade and other receivables - 584.7 - 584.7 584.7
Derivative financial instruments - 52.3 - 52.3 52.3
Financial liabilities and derivatives
Financial liabilities 197.0 1,652.1 - 1,849.1 1,691.1
Trade and other payables - 1,437.4 - 1,437.4 1,437.4
Derivative financial instruments - 9.7 - 9.7 9.7
Level 1: Quoted prices in active markets for identical assets and liabilities.
Level 2: Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability either directly or indirectly.
Level 3: Inputs for the asset or liability that are not based on observable
market data.
There were no transfers between level 1 and level 2 during the current or
prior periods.
Financial assets/(liabilities) Fair values (£m) at Fair value hierarchy Valuation technique(s) and key inputs
30 September 2018 30 September 2017 31 March 2018
Derivative contracts
1. Interest rate swaps 26.0 42.2 29.0 Level 2 Discounted cash flow; future cash flows are estimated based on forward interest rates and contract interest rates then discounted at a rate that reflects the credit risk of the various counterparties.
2. Fuel derivatives 54.2 (5.0) 21.8 Level 2 Discounted cash flow; future cash flows are estimated based on forward fuel priced and contract rates and then discounted at a rate that reflects the credit risk of the various counterparties.
3. Currency forwards 5.7 (5.9) (8.2) Level 2 Discounted cash flow; future cash flows are estimated based on forward exchange rates and contract rates and then discounted at a rate that reflects the credit risk of the various counterparties.
4. Trade and other receivables 521.2 483.8 584.7 Level 2 Carried at amortised cost using the effective interest rate method.
5. Trade and other payables 1,589.1 1,283.8 1,437.4 Level 2 Initially measured at fair value, and are subsequently measured at amortised cost using the effective interest rate method.
6. Borrowings 1,774.1 1,892.0 1,849.1 Level 2 Measured either on an amortised cost basis or at fair value. The fair values are calculated by discounting the future cash flows that will arise under the contracts.
18 Provisions
30 September 2018 30 September 2017 £m 31 March 2018 £m
£m
Insurance claims 234.9 215.1 231.7
Legal and other 40.6 35.7 28.1
TPE onerous contract 51.3 - 79.2
Pensions 1.9 2.3 2.0
Non-current liabilities 328.7 253.1 341.0
Insurance claims £m Legal and other £m TPE onerous contract £m Pensions £m Total £m
At 1 April 2018 368.8 67.6 106.3 2.0 544.7
Charged to the income statement 84.3 26.3 - - 110.6
Utilised in the period (100.7) (16.6) (20.7) (0.1) (138.1)
Notional interest 5.6 - 0.5 - 6.1
Foreign exchange movements 22.7 1.7 - - 24.4
At 30 September 2018 380.7 79.0 86.1 1.9 547.7
Current liabilities 145.8 38.4 34.8 - 219.0
Non-current liabilities 234.9 40.6 51.3 1.9 328.7
At 30 September 2018 380.7 79.0 86.1 1.9 547.7
Current liabilities 137.1 39.5 27.1 - 203.7
Non-current liabilities 231.7 28.1 79.2 2.0 341.0
At 31 March 2018 368.8 67.6 106.3 2.0 544.7
Current liabilities 141.5 13.5 - - 155.0
Non-current liabilities 215.1 35.7 - 2.3 253.1
At 30 September 2017 356.6 49.2 - 2.3 408.1
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 six years although certain
liabilities in respect of lifetime obligations of £22.8m (H1 2017: £21.4m)
can extend for up to 30 years. The utilisation of £100.7m (H1 2017: £93.5m)
represents payments made largely against the current liability of the
preceding year.
The insurance claims provisions contain £15.5m (H1 2017: £25.6m) 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 and other
provisions in respect of contractual obligations under rail franchises and
restructuring costs. The dilapidation provisions are expected to be settled at
the end of the respective franchise.
The onerous contract provision in respect of TPE has been calculated based on
financial forecasts for this franchise until the initial end date of 31 March
2023. The forecasts are based on a number of assumptions, most significantly
passenger revenue growth. These are based on economic and other exogenous
factors as well as changes in timetables, capacity and rolling stock. Whilst
the onerous contract provision is based upon management’s current best
estimate, there can be no certainty that actual results will be consistent
with those forecast. The TPE onerous contract provision is sensitive to a
change in the assumptions used, most notably to passenger revenue growth. The
provisions are expected to be fully utilised within four years.
The pension’s provision relates to unfunded obligations that arose on the
acquisition of certain First Bus companies. It is anticipated that this will
be utilised over approximately five years.
19 Acquisition of businesses and subsidiary undertakings
30 September 2018 30 September 2017 £m 31 March 2018 £m
£m
Provisional fair value of net assets acquired:
Property, plant and equipment 1.5 1.6 1.6
Other intangible assets 0.7 0.7 0.7
Other liabilities (0.2) (0.3) (0.3)
2.0 2.0 2.0
Goodwill 0.6 1.2 1.2
Satisfied by cash paid and payable 2.6 3.2 3.2
On 1 August 2018, the Group completed the acquisition of CG Pearson Bus Lines,
an Ontario-based provider of school and charter transportation services. The
£2.6m consideration represent £2.3m cash paid in the period and £0.3m of
deferred consideration.
20 Called up share capital
30 September 2018 30 September 2017 £m 31 March 2018 £m
£m
Allotted, called up and fully paid
1,211.9m ordinary shares of 5p each 60.6 60.5 60.5
The Company has one class of ordinary shares which carries no right to fixed
income. The number of ordinary shares of 5p each in issue, excluding treasury
shares and shares held in trust for employees, at the end of the period was
1,205.9m (H1 2017: 1,206.4m). At the end of the period 6.0m shares (H1 2017:
2.8m shares) were being held as treasury shares and own shares held in trust
for employees.
21 Net cash for operating activities
30 September 2018 30 September 2017 £m 31 March 2018 £m
£m
Operating profit/(loss) 46.3 57.4 (196.2)
Adjustments for:
Depreciation charges 184.6 192.5 389.6
Capital grant amortisation (21.9) (3.7) (16.0)
Amortisation charges 17.6 32.0 70.9
Impairment charges 2.7 - 284.8
Share-based payments 4.7 4.4 8.9
(Profit)/loss on disposal of property, plant and equipment (4.4) 3.3 8.3
Operating cash flows before working capital and pensions 229.6 285.9 550.3
(Increase)/decrease in inventories (2.7) (0.1) 4.6
Decrease/(increase) in receivables 13.8 (24.8) (168.7)
Increase in payables 99.3 157.7 341.7
TPE onerous contract provision (20.1) - 106.3
Decrease in provisions (5.9) (19.3) (10.5)
Defined benefit pension payments in excess of income statement charge (30.8) (31.0) (47.9)
Cash generated by operations 283.2 368.4 775.8
Tax paid (4.3) (7.1) (12.2)
Interest paid (48.8) (70.9) (122.1)
Interest element of HP contracts and finance leases (1.5) (2.4) (4.6)
Net cash from operating activities 228.6 288.0 636.9
22 Analysis of changes in net debt
At 1 April 2018 £m Cash flow £m Foreign Exchange £m Other £m At 30
September
2018
£m
Components of financing activities:
Bank loans (197.0) (12.5) (3.0) (0.5) (213.0)
Bonds (1,138.6) - - 6.7 (1,131.9)
Fair value of interest rate coupon swaps 19.0 - - (6.7) 12.3
Senior unsecured loan notes (195.2) - (14.8) - (210.0)
Finance lease obligations (104.7) 20.5 (7.1) 0.6 (90.7)
Other debt (9.5) 0.1 1.2 (1.2) (9.4)
Total components of financing activities (1,626.0) 8.1 (23.7) (1.1) (1,642.7)
Cash 163.4 (19.9) (3.2) - 140.3
Ring-fenced cash 392.3 62.4 - - 454.7
Cash and cash equivalents 555.7 42.5 (3.2) - 595.0
Net debt (1,070.3) 50.6 (26.9) (1.1) (1,047.7)
At 1 April 2017 £m Cash flow £m Foreign Exchange £m Other £m At 30 September 2017 £m
Components of financing activities:
Bonds (1,458.5) - - 9.9 (1,448.6)
Fair value of interest rate coupon swaps 40.9 - - (10.4) 30.5
Senior unsecured loan notes (80.0) 38.7 4.4 - (36.9)
Finance lease obligations (183.7) 30.1 11.1 (1.7) (144.2)
Other debt (9.5) - (1.3) 1.3 (9.5)
Total components of financing activities (1,690.8) 68.8 14.2 (0.9) (1,608.7)
Cash 141.1 (96.7) (0.3) - 44.1
Ring-fenced cash 259.8 124.9 - - 384.7
Cash and Cash equivalents 400.9 28.2 (0.3) - 428.8
Net debt (1,289.9) 97.0 13.9 (0.9) (1,179.9)
At 1 April 2017 £m Cash flow £m Foreign Exchange £m Other £m At 31 March 2018 £m
Components of financing activities:
Bank loans - (197.0) - - (197.0)
Bonds (1,458.5) 300.0 - 19.9 (1,138.6)
Fair value of interest rate coupon swaps 40.9 - - (21.9) 19.0
Senior unsecured loan notes (80.0) (116.8) 0.6 1.0 (195.2)
Finance lease obligations (183.7) 62.1 15.5 1.4 (104.7)
Other debt (9.5) - 3.0 (3.0) (9.5)
Total components of financing activities (1,690.8) 48.3 19.1 (2.6) (1,626.0)
Cash 141.1 18.2 4.1 - 163.4
Ring-fenced cash 259.8 132.5 - - 392.3
Cash and Cash equivalents 400.9 150.7 4.1 - 555.7
Net debt (1,289.9) 199.0 23.2 (2.6) (1,070.3)
All values above exclude accrued interest.
23 Retirement benefit schemes
The Group operates or participates in a number of defined benefit pension
schemes which cover the majority of UK employees and certain North American
employees. The scheme details are described on pages 143 to 144 of the Annual
Report and Accounts for the year ended 31 March 2018.
The Group currently sponsors six sections of the RPS, relating to its
franchising obligations for its TOCs, and for Hull Trains, its Open
Access operator. The RPS is governed by the Railways Pension Trustee Company
Limited, and is subject to regulation from the Pensions Regulator and relevant
UK legislation. The RPS is a shared cost arrangement. All costs, and any
deficit or surplus, are shared 60% by the employer and 40% by the members. For
the TOC sections, under the franchising obligations, the employer’s
responsibility is to pay the contributions requested by the Trustee, whilst
it operates the franchise. There is no residual liability or asset for any
deficit, or surplus, which remains at the end of the franchise period.
Since the contributions being paid to each TOC section are lower than the
share of the service cost that would normally be calculated under IAS19, the
Group does not make any contribution towards the sections’ deficits.
Therefore, the Group does not need to reflect any deficit on its balance
sheet. A franchise adjustment (asset) exists that exactly offsets any section
deficit that would otherwise remain after reflecting the cost sharing with the
members.
The market value of the assets at 30 September 2018 for all defined benefit
schemes totalled £5,275m (H1 2017: £4,994m; full year 2018: £4,943m).
Contributions are paid to all defined benefit pension schemes in accordance
with rates recommended by the schemes’ actuaries. The valuations are made
using the Projected Unit Credit Method.
On 26 October 2018 the High Court ruled that guaranteed minimum pensions
should be equalised between men and women. As a result pension scheme trustees
will be obliged to adjust benefit payments in order that benefits received by
male and female members with equivalent age, service and earnings histories
are equal. We are working with the trustees of our UK pension schemes and our
actuarial and legal advisors to fully understand the extent to which this
ruling could crystallise additional liabilities in our UK pension schemes. We
estimate that the impact could be significant and we anticipate that any
adjustment will be recognised in the second half of the current financial
year.
The key assumptions were as follows:
30 September 2018 30 September 2017 31 March 2018
First Bus First Rail North America First Bus % First Rail % North America % First Bus % First Rail % North America %
% % %
Key assumptions used:
Discount rate 2.85 2.85 4.10 2.85 2.85 3.45 2.70 2.70 3.80
Expected rate of salary increases 2.20 3.45 2.50 3.55 3.55 2.50 2.05 3.30 2.50
Inflation – CPI 2.20 2.20 2.00 1.95 1.95 2.00 2.05 2.05 2.00
Future pension increases 2.20 2.20 - 1.95 1.95 - 2.05 2.05 -
Amounts (charged)/credited to the condensed consolidated income statement in
respect of these defined benefit schemes are as follows:
6 months to 30 September 2018 First North America Total First Total
Bus £m non-rail Rail £m
£m £m £m
Current service cost (5.3) (4.4) (9.7) (42.9) (52.6)
Impact of franchise adjustment on operating cost - - - 25.5 25.5
Net interest cost (0.8) (3.1) (3.9) (8.5) (12.4)
Impact of franchise adjustment on net interest cost - - - 8.5 8.5
(6.1) (7.5) (13.6) (17.4) (31.0)
6 months to 30 September 2017 First Bus £m North America £m Total non-rail £m First Rail £m Total £m
Current service cost (10.2) (5.3) (15.5) (29.1) (44.6)
Impact of franchise adjustment on operating cost - - - 17.9 17.9
Net interest cost (1.6) (3.6) (5.2) (4.7) (9.9)
Impact of franchise adjustment on net interest cost - - - 4.7 4.7
(11.8) (8.9) (20.7) (11.2) (31.9)
Year to 31 March 2018 First Bus £m North America £m Total non-rail £m First Rail £m Total £m
Current service cost (21.5) (10.0) (31.5) (72.5) (104.0)
Impact of franchise adjustment on operating cost – – – 40.7 40.7
Past service gain on TOC schemes – (0.3) (0.3) – (0.3)
Net interest cost (3.0) (7.1) (10.1) (11.4) (21.5)
Impact of franchise adjustment on net interest cost – – – 11.4 11.4
(24.5) (17.4) (41.9) (31.8) (73.7)
23 Retirement benefit schemes (continued)
Actuarial gains and losses have been reported in the condensed consolidated
statement of comprehensive income.
The amounts included in the condensed consolidated balance sheet arising from
the Group’s obligations in respect of its defined benefit pension schemes
are as follows:
As at 30 September 2018 First Bus North America Total non-rail First Rail Total
£m £m £m £m £m
Fair value of schemes' assets 2,645.8 486.0 3,131.8 2,143.2 5,275.0
Present value of defined benefit obligations (2,548.0) (626.2) (3,174.2) (3,027.5) (6,201.7)
Surplus/(deficit) before adjustments 97.8 (140.2) (42.4) (884.3) (926.7)
Adjustment for irrecoverable surplus (1) (184.0) - (184.0) - (184.0)
First Rail franchise adjustment (60%) - - - 528.2 528.2
Adjustment for employee share of RPS deficits (40%) - - - 353.7 353.7
Liability recognised in the condensed consolidated balance sheet (86.2) (140.2) (226.4) (2.4) (228.8)
The amount is presented in the condensed consolidated balance sheet as follows:
Non-current assets 51.5 - 51.5 - 51.5
Non-current liabilities (137.7) (140.2) (277.9) (2.4) (280.3)
(86.2) (140.2) (226.4) (2.4) (228.8)
As at 30 September 2017 First Bus £m North America £m Total non-rail £m First Rail £m Total £m
Fair value of schemes' assets 2,595.4 489.8 3,085.2 1,909.2 4,994.4
Present value of defined benefit obligations (2,525.5) (675.4) (3,200.9) (2,721.8) (5,922.7)
Deficit before adjustments 69.9 (185.6) (115.7) (812.6) (928.3)
Adjustment for irrecoverable surplus (1) (178.5) - (178.5) - (178.5)
First Rail franchise adjustment (60%) - - - 485.6 485.6
Adjustment for employee share of RPS deficits (40%) - - - 325.0 325.0
Liability recognised in the condensed consolidated balance sheet (108.6) (185.6) (294.2) (2.0) (296.2)
The amount is presented in the condensed consolidated balance sheet as follows:
Non-current assets 41.8 - 41.8 - 41.8
Non-current liabilities (150.4) (185.6) (336.0) (2.0) (338.0)
(108.6) (185.6) (294.2) (2.0) (296.2)
As at 31 March 2018 First Bus £m North America £m Total non-rail £m First Rail £m Total £m
Fair value of schemes' assets 2,622.6 454.8 3,077.4 1,866.0 4,943.4
Present value of defined benefit obligations (2,570.6) (617.5) (3,188.1) (2,951.1) (6,139.2)
Surplus/(deficit) before adjustments 52.0 (162.7) (110.7) (1,085.1) (1,195.8)
Adjustment for irrecoverable surplus (1) (160.4) – (160.4) – (160.4)
First Rail franchise adjustment (60%) – – – 648.4 648.4
Adjustment for employee share of RPS deficits (40%) – – – 434.1 434.1
Liability recognised in the condensed consolidated balance sheet (108.4) (162.7) (271.1) (2.6) (273.7)
The amount is presented in the condensed consolidated balance sheet as follows:
Non-current assets 32.5 – 32.5 – 32.5
Non-current liabilities (140.9) (162.7) (303.6) (2.6) (306.2)
(108.4) (162.7) (271.1) (2.6) (273.7)
(1)The irrecoverable surplus represents the amount of the surplus that the
Group could not recover through reducing future company contributions to Local
LGPS.
24 Contingent liabilities
Investigations into the Croydon tram incident are ongoing and it is uncertain
when they will be concluded. The tram was operated by Tram Operations Limited
(TOL), a subsidiary of the Company, under a contract with a TfL subsidiary.
TOL provides the drivers and management to operate the tram services, whereas
the infrastructure and trams are owned and maintained by a TfL subsidiary. No
proceedings have been commenced and, as such, it is not possible to assess
whether any financial penalties or related costs could be incurred.
To support subsidiary undertakings in their normal course of business, the
Company and certain subsidiaries have indemnified certain banks and insurance
companies who have issued performance bonds for £796.3m (September 2017:
£759.6m, March 2018: £783.1m) and letters of credit for £352.3m (September
2017: £343.5m, March 2018: £327.7m). The performance bonds relate to the
North American businesses of £557.8m (September 2017: £524.4m, March 2018:
£544.6m) and the First Rail franchise operations of £238.5m (September 2017:
£235.2m, March 2018: £238.5m). The letters of credit relate substantially to
insurance arrangements in the UK and North America. The parent company has
committed further support facilities of up to £145.2m to First Rail Train
Operating Companies.
24 Contingent liabilities (continued)
The Company is party to certain unsecured guarantees granted to banks for
overdraft and cash management facilities provided to itself and subsidiary
undertakings. The Company has given certain unsecured guarantees for the
liabilities of its subsidiary undertakings arising under certain loan notes,
HP contracts, finance leases, operating leases and certain pension scheme
arrangements. It also provides unsecured cross guarantees to certain
subsidiary undertakings as required by VAT legislation. First Bus subsidiaries
have provided unsecured guarantees on a joint and several basis to the
Trustees of the First Bus Pension Scheme.
The Group is party to legal proceedings and claims which arise in the normal
course of business, including but not limited to employment and safety claims.
The Group takes legal advice as to the likelihood of success of claims and
counterclaims. No provision is made where due to inherent uncertainties, no
accurate quantification of any cost, or timing of such cost, which may arise
from any of the legal proceedings can be determined.
In its normal course of business First Rail has ongoing contractual
negotiations with government and other organisations.
On 14 November 2017, Reading Borough Council served First Greater Western
Limited (GWR), a subsidiary of the Group, and Network Rail Infrastructure
Limited (a third party) with a noise abatement notice in respect of the
operations at the Reading railway depot. The serving of the notice has been
appealed and the related court hearing is currently scheduled to take place in
late 2019 (unless the matter is settled between the parties before that date).
It is not possible at this stage to quantify the implications for the GWR
operations, if any, if they are not ultimately successful with respect to this
appeal.
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 IAS 34 “Interim Financial Reporting” as adopted by the
European Union, 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.
Wolfhart Hauser
Matthew Gregory
Director
Director
13 November
2018
13 November 2018
Independent review report to FirstGroup plc
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
September 2018 which comprises the condensed consolidated income statement,
the condensed consolidated statement of comprehensive income, the condensed
consolidated balance sheet, the condensed consolidated statement of changes in
equity, the condensed consolidated cash flow statement and related notes 1 to
24. We have read the other information contained in the half-yearly financial
report and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set of
financial statements.
This report is made solely to the company in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 “Review of Interim
Financial Information Performed by the Independent Auditor of the Entity”
issued by the Financial Reporting Council. Our work has been undertaken so
that we might state to the company those matters we are required to state to
it in an independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone
other than the company, for our review work, for this report, or for the
conclusions we have formed.
Directors’ responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom’s Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with IFRSs as adopted by the European Union. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with International Accounting Standard
34 “Interim Financial Reporting” as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 “Review of Interim Financial Information
Performed by the Independent Auditor of the Entity” issued by the Financial
Reporting Council for use in the United Kingdom. A review of interim financial
information consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and consequently does
not enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 September 2018 is not prepared,
in all material respects, in accordance with International Accounting Standard
34 as adopted by the European Union and the Disclosure Guidance and
Transparency Rules of the United Kingdom’s Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
London, United Kingdom
13 November 2018
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