REG-FirstGroup PLC: Half-year Report
14/11/2019 07:05
FIRSTGROUP PLC
HALF-YEARLY RESULTS FOR THE SIX MONTHS TO 30 SEPTEMBER 2019
FirstGroup plc, a leading provider of transport services in North America and
the UK,
today reports first half adjusted trading in line with expectations,
underpinning outlook for full year
Overview
* Overall first half adjusted trading in line with expectations outlined at
start of the financial year, with growth in Group revenue and Adjusted(2)
operating profit in the period
* Statutory loss before tax and reported EPS in the first half includes
charges for Greyhound impairment and North American self-insurance
* Reduction in adjusted(2) PBT and adjusted(2) EPS and increase in net debt
mainly reflect first time adoption of IFRS 16 lease accounting
* Outlook unchanged (before the effects of IFRS 16)
* Focused on value creation by all appropriate means; progressing portfolio
rationalisation with a number of important steps undertaken in the period
Commenting, Chief Executive Matthew Gregory said:
“In the first half we continued to execute the clear commercial strategies
in each of our divisions to ensure they deliver future progress and growth. In
particular, we were pleased to have delivered another strong bid season and
two complementary acquisitions in our largest business First Student, as well
as the award of the West Coast Partnership to our rail venture with
Trenitalia. We are, however, disappointed with the further deterioration in
the US motor claims environment which has required an increase in insurance
costs for our North American businesses. As ever, first half trading mainly
reflects the highly seasonal nature of the Group’s operations, given the
timing of the North American school holidays in our First Student business.
Based on current trends and underpinned by our activities to reduce the cost
base further, we are confident in delivering our trading expectations for the
full year.
“We are focused on rationalising our portfolio and are progressing through
the detailed work to prepare for separation. We have taken a number of
important steps since our announcement in May including the sale process for
Greyhound, future UK Bus pension scheme funding and the strengthening of our
Rail portfolio. We are intent on realising value for shareholders and will
actively manage our entire portfolio by all appropriate means. We look forward
to reporting on further progress in the second half.”
Statutory H1 2019 H1 2018 £m
£m
Revenue 3,531.9 3,303.3
Operating (loss)/profit (118.1) 46.3
Loss before tax (187.1) (4.6)
EPS (14.3)p (0.6)p
H1 2019 H1 2018 £m Change Change in constant currency (1)
£m
Revenue 3,531.9 3,303.3 +6.9% +4.1%
Adjusted (2)operating profit 97.7 92.4 +5.7% +2.1%
Adjusted (2)operating profit margin 2.8% 2.8% - -
Adjusted (2)profit before tax 28.7 42.0 (31.7)% (35.9)%
Adjusted (2)EPS 2.0p 2.9p (31.0)% (35.5)%
Net debt (4) 2,084.1 1,047.7 +98.9% +95.5%
Financial summary (percentage changes in constant currency(1) unless otherwise
stated)
* Group revenue +4.1%; all divisions delivered growth after excluding
disposals and withdrawals from loss-making routes. Reported Group revenue was
+6.9% reflecting the strengthening of the dollar on translation
* Statutory operating loss of £118.1m (H1 2018: profit of £46.3m) and
statutory EPS of (14.3)p (H1 2018: (0.6)p) including the Greyhound impairment
charge of £124.4m, North American self-insurance reserve charge of £59.3m
and restructuring and reorganisation costs of £15.4m
* Adjusted(2) operating profit +2.1% to £97.7m (H1 2018: £92.4m). Excluding
the effect of transitioning to IFRS 16 as set out on page 5, Adjusted(2)
operating profit decreased by 7.3%, largely reflecting fewer First Student
operating days and poorer UK summer weather in First Bus compared with prior
period
* Adjusted(2) profit before tax and adjusted(2) EPS decreased by 35.9% and
35.5% respectively, principally due to the first time adoption of IFRS 16 and
dollar-denominated financing costs
* Adjusted cash outflow(5) of £78.0m (H1 2018: inflow of £50.6m) reflects
the partial unwind of First Rail working capital and capital grant inflows
described in the May results
* First time recognition under IFRS 16 of leased assets, mainly Rail rolling
stock, increases reported net debt to £2,084.1m. Net debt: EBITDA on the
‘frozen accounting standards basis’ relevant to the Group’s banking
covenants was flat at 1.6 times (H1 2018: 1.6 times) and Rail ring-fenced cash
adjusted net debt: EBITDA on the same basis was 2.3 times (H1 2018: 2.2
times)(6)
Divisional performance
* First Student's fleet and market share set to grow again following another
strong bid season and two complementary acquisitions of 300 buses in the
period; delivered pricing in excess of cost inflation and a strong school
start-up this autumn
* First Transit continues to grow contract portfolio in current and new
mobility services segments. H1 Adjusted(2) margin was affected by two adverse
legal judgements and higher self-insurance costs but expecting improvement in
H2 relative to the prior year, reflecting ongoing cost efficiency programme
* Greyhound like-for-like(3) revenue +0.7% benefitted from higher immigration
flows during Q1 which slowed to a five year low in Q2; adjusted(2) margin
increase reflects pricing and yield management activities and the action taken
to address Canadian losses last year
* First Bus like-for-like(3) passenger revenue +1.6% despite poor summer
weather; on track to deliver network optimisation and other efficiencies in H2
which will result in further Adjusted(2) margin progress for the year
* First Rail like-for-like(3) passenger revenue +4.9%, with strong financial
contribution driven by GWR.
West Coast Partnership mobilisation is on track for start-up in December. We
continue to negotiate with DfT to resolve issues in SWR and TPE
Group outlook for the 2019/20 financial year
* Group outlook (before the effects of the introduction of IFRS 16) is in line
with our expectations and has increased since our last results to reflect a
part-year contribution from our successful bid for the West Coast Partnership
and favourable currency translation rates
* At the adjusted(2) profit before tax and adjusted(2) EPS level we expect
adoption of IFRS 16 to partially offset these upgrades
* No change to adjusted cash flow(5) expectations
Contacts at FirstGroup:
Faisal Tabbah, Head of Investor Relations
Stuart Butchers, Group Head of Media
Tel: +44 (0) 20 7725 3354
Contacts at Brunswick PR:
Andrew Porter / Simone Selzer, Tel: +44 (0) 20 7404 5959
A presentation for investors and analysts will be held at 9:00am today –
attendance is by invitation. A live telephone 'listen in' facility is
available – for joining details please call +44 (0) 20 7725 3354. A playback
facility will be available together with presentation slides and a pdf copy of
this report at www.firstgroupplc.com/investors.
Notes
(1 ) Changes 'in constant currency' throughout this document are
based on retranslating H1 2018 foreign currency amounts at H1 2019 rates.
(2 ) ‘Adjusted’ figures throughout this document reflect the
adoption of IFRS 16 in the period and are before the Greyhound impairment,
North American self-insurance charge, restructuring and reorganisation costs,
other intangible asset amortisation charges and certain other items as set out
in note 3 to the financial statements.
(3 ) 'Like-for-like' revenue adjust for certain factors which
distort the period-on-period trends in our passenger revenue businesses,
described on page 16.
(4 ) Net debt is stated excluding accrued bond interest, as
explained on page 15.
(5 ) ‘Adjusted cash flow’ is described in the table shown on
page 13.
(6 ) Following adoption of IFRS 16 at the start of April 2019,
rolling twelve month adjusted earnings and EBITDA data incorporating IFRS 16
is not available.
Legal Entity Identifier (LEI): 549300DEJZCPWA4HKM93. Classification as per DTR
6 Annex 1R: 1.2.
FirstGroup plc (LSE: FGP.L) is a leading provider of transport services in the
UK and North America. With £7.1 billion in revenue and around 100,000
employees, we transported 2.2 billion passengers last year. Whether for
business, education, health, social or recreation – we get our customers
where they want to be, when they want to be there. We create solutions that
reduce complexity, making travel smoother and life easier.
We provide easy and convenient mobility, improving quality of life by
connecting people and communities.
Each of our five divisions is a leader in its field: In North America, First
Student is the largest provider of home-to-school student transportation with
a fleet of 43,000 yellow school buses, First Transit is one of the largest
providers of outsourced transit management and contracting services, while
Greyhound is the only nationwide operator of scheduled intercity coaches. In
the UK, First Bus is one of Britain's largest bus companies with 1.6 million
passengers a day, and First Rail is one of the country's largest and most
experienced rail operators, carrying 345 million passengers last year.
Visit our website at www.firstgroupplc.com and follow us @firstgroupplc on
Twitter.
Chairman’s Statement
I am pleased to have joined as Chairman at a pivotal stage for the company.
Since my appointment in mid-August, I have been actively engaged across the
portfolio and have had the opportunity to assess the various options available
to each division. As a result I have confidence that there is significant
value to be unlocked across the Group’s portfolio of leading public
transportation businesses, albeit I agree with the Board’s assessment that
there are limited synergies between the divisions, particularly between the UK
and North America. I have also met with our major stakeholders and have a
clear understanding of their views and perspectives.
There is broad alignment in the view that the task of extracting greater value
from the Group is the clear priority. I agree that this is best achieved
through a rationalisation of the current portfolio, and the company committed
earlier this year to work towards simplifying the structure at pace, starting
with a formal sale process for Greyhound which is now well advanced.
The Board and I are clear that the imperative is to get on and deliver
shareholder value without further delay. Since the full year results
announcement in May, a number of important steps in this process have been
taken, and I look to forward to working with management to ensure further
progress.
We will continue to actively evaluate all options across our entire portfolio
to ensure we remain focused on the most appropriate and deliverable means to
realise shareholder value. I look forward to bringing to bear my experience,
together with the management team’s resolute focus on our objective, to
deliver value for all our stakeholders.
David Martin
Chairman
14 November 2019
Chief Executive’s overview
In the first half we continued to execute the clear commercial strategies in
each of our divisions to ensure they deliver future progress and growth. In
particular, we were pleased to have delivered another strong bid season and
two complementary acquisitions in our largest business First Student, as well
as the award of the West Coast Partnership to our 70:30 rail venture with
Trenitalia. We are, however, disappointed with the further deterioration in
the US motor claims environment which has required an increase in the
insurance costs and reserves provided for our North American businesses. Based
on Greyhound’s financial performance relative to budget in recent months, we
have also recognised a non-cash impairment charge of £124.4m on the value at
which we carry the business in our accounts.
As ever, first half trading mainly reflects the highly seasonal nature of the
Group’s operations, given the timing of the North American school holidays
in our First Student business. Based on current trends and underpinned by our
activities to reduce the cost base further, we are confident in delivering our
trading expectations for the full year.
The announcement in May of our portfolio rationalisation plans enabled us to
undertake more detailed engagement in the development of a framework for
funding the First Bus pension scheme towards self-sufficiency. Importantly, it
is anticipated that this framework will be deliverable in a range of
transaction scenarios. The recent award of the West Coast Partnership has
significantly strengthened the company’s rail portfolio in the UK. In
addition, discussions continue with the DfT to extend GWR, and we continue to
pursue commercial and contractual remedies for SWR and TPE. We have undertaken
a significant amount of work to develop structural alternatives for separating
First Bus which, as previously noted, involves a number of regulatory,
pension, operational and stakeholder considerations. In parallel, we continue
to actively address the cost base of First Bus through a comprehensive
efficiency programme. The benefits of this programme will be more evident in
the second half. Recent political commitments to increase funding for local
bus services and innovation are also encouraging. As a result, we have greater
visibility of the further improvements in the financial performance of First
Bus that we intend to deliver prior to any launch of a formal sale process in
2020.
Our North American contracting divisions First Student and First Transit
continue to demonstrate that they are valuable assets and well positioned in
markets with profitable growth potential. Accordingly, we will ensure that we
take advantage of all opportunities to maximise further value creation. In
summary, we are intent on realising value for shareholders and will actively
manage our entire portfolio by all appropriate means. We look forward to
reporting on further progress in the second half.
Matthew Gregory
Chief Executive
14 November 2019
Operating and financial review
Group revenue in the first half increased by 6.9%, principally reflecting
growth in First Student, First Transit and First Rail; like-for-like passenger
revenue growth in Greyhound and First Bus was offset by disposals and
withdrawals from loss-making routes compared with the prior period. Group
revenue increased by 4.1% in constant currency, with the Road divisions
increasing by 1.8%, principally driven by First Student and First Transit;
Greyhound and First Bus revenues were lower as noted above. Rail revenue
growth was 8.1% driven by passenger growth, higher subsidy receipts and
certain GWR contractual amendments.
Adjusted operating profit increased by 2.1% in constant currency. The Road
divisions' contribution to adjusted operating profit decreased by £17.6m in
constant currency, reflecting fewer operating days in First Student compared
with the prior period, two adverse legal judgements in First Transit, and
poorer UK summer weather in First Bus compared with prior period. The adjusted
operating profit contribution from First Rail in the period was higher due to
the factors noted above and the first time adoption of IFRS 16. Group adjusted
operating profit margin in constant currency was flat at 2.8%, reflecting a
130bps increase in the Rail margin partly offset by a 90bps decrease for the
Road divisions. In reported currency, adjusted operating profit increased by
5.7% to £97.7m (H1 2018: £92.4m).
Six months to 30 September 2019 Six months to 30 September 2018 Year to 31 March 2019
Revenue Adjusted operating Adjusted operating margin (1) Revenue £m Adjusted operating profit (1) £m Adjusted operating margin (1) % Revenue £m Adjusted operating profit (1) £m Adjusted operating margin (1) %
£m profit (1) %
£m
First Student 851.6 18.3 2.1 775.2 24.6 3.2 1,845.9 173.5 9.4
First Transit 588.7 13.8 2.3 519.6 24.4 4.7 1,075.8 51.5 4.8
Greyhound 335.4 13.3 4.0 342.6 10.2 3.0 645.1 11.4 1.8
First Bus 424.5 21.5 5.1 433.9 24.8 5.7 876.1 65.8 7.5
Group items (2) 8.2 (18.1) 7.8 (20.9) 17.3 (41.6)
Road divisions 2,208.4 48.8 2.2 2,079.1 63.1 3.0 4,460.2 260.6 5.8
First Rail 1,323.5 48.9 3.7 1,224.2 29.3 2.4 2,666.7 72.3 2.7
Total Group 3,531.9 97.7 2.8 3,303.3 92.4 2.8 7,126.9 332.9 4.7
North America in USD $m $m % $m $m % $m $m %
First Student 1,078.3 26.7 2.5 1,038.5 36.6 3.5 2,424.9 230.0 9.5
First Transit 740.6 17.6 2.4 691.3 32.5 4.7 1,411.4 67.7 4.8
Greyhound 422.0 16.5 3.9 455.4 12.9 2.8 846.7 14.2 1.7
Total North America 2,240.9 60.8 2.7 2,185.2 82.0 3.8 4,683.0 311.9 6.7
(1 ‘)Adjusted’ figures throughout this document are before
the Greyhound impairment, North American self-insurance charge, restructuring
and reorganisation costs, other intangible asset amortisation charges and
certain other items as set out in note 3 to the financial statements. The
statutory operating loss for the period was £118.1m (H1 2018: profit of
£46.3m) as set out in note 3.
(2 ) Tramlink operations, central management and other items.
Net finance costs before adjustments were £69.0m (H1 2018: £50.4m) with the
increase mainly reflecting the transition to IFRS 16, resulting in adjusted
profit before tax of £28.7m (H1 2018: £42.0m). Adjusted earnings were
£24.5m (H1 2018: £34.9m) with the decrease due to the lower adjusted profit
before tax together with lower non-controlling interest and the lower
effective tax rate of 14.6% (H1 2018: 22.5%). Adjusted EPS was 2.0p (H1 2018:
2.9p). In constant currency, adjusted EPS decreased by 35.5%, or by 19.4%
excluding the net effect of implementing IFRS 16, which has a disproportionate
effect on the first half due to the greater weighting of Group earnings to the
second half relative to the financing costs. EBITDA was £434.2m (H1 2018:
£255.1m). Excluding the effect of adopting IFRS 16, EBITDA was £252.9m a
decrease of 0.9% over the prior period, with Road EBITDA decreasing by 10.4%
in constant currency and Rail EBITDA increasing by 18.3%.
The statutory operating loss for the period was £118.1m (H1 2018: profit of
£46.3m), principally reflecting the Greyhound impairment charges of £124.4m
(H1 2018: nil), a charge in relation to North America self-insurance of
£59.3m (H1 2018: nil), restructuring and reorganisation charges of £15.4m
(H1 2018: £28.5m) and a legacy pension settlement of £4.9m (H1 2018: nil),
partly offset by higher adjusted operating profit and lower other intangible
asset amortisation charges. The statutory loss attributable to equity
shareholders was £172.9m (H1 2018: £6.9m), and statutory EPS decreased to
(14.3)p in the period (H1 2018: (0.6)p).
The half year typically represents a low point in the cash flow due to the
seasonality of our business, in particular First Student. The pre IFRS 16
adjusted cash outflow of £78.0m (H1 2018: inflow of £50.6m) includes a Rail
net cash outflow of £31.5m (H1 2018: inflow of £89.1m). This includes a net
£37m of capital expenditure for which funding was received in prior periods
and a £60m outflow for the utilisation of onerous contract provisions at SWR
and TPE. Rail ring fenced cash reduced by £27.9m. The Road divisions’ cash
inflow was £62.0m, with capital expenditure broadly in line with the
corresponding period last year.
Net debt increased in the period to £2,084.1m (H1 2018: £1,047.7m), with the
majority of the increase relating to the recognition of lease liabilities on
adoption of IFRS 16 and working capital movements. Net debt: EBITDA on the
‘frozen accounting standards basis’ relevant to the Group’s banking
covenants was flat at 1.6 times (H1 2018: 1.6 times) and Rail ring-fenced cash
adjusted net debt: EBITDA on the same basis was 2.3 times (H1 2018: 2.2
times). Liquidity within the Group has remained strong; as at 30 September
2019 there was £496.6m (H1 2018: £727.3m) of committed headroom and free
cash, being £394.4m (H1 2018: £587.0m) of committed headroom and £102.2m
(H1 2018: £140.3m) of free cash. The reduction in committed headroom
principally reflects the repayment of the £250m 2019 bond from our revolving
bank facilities in January 2019. Average maturity of our bond debt, senior
unsecured loan notes and bank facilities was 3.8 years (H1 2018: 4.0 years).
During the period, gross capital expenditure of £371.6m (H1 2018: £269.6m)
was invested in our business, with the Road divisions’ capital expenditure
being £251.3m (H1 2018: £223.3m) including new leases with a capital value
of £60.4m (H1 2018: £40.2m). 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 and investment
in fleet.
ROCE before the impact of IFRS 16 was 10.1% (H1 2018: 8.8% at constant
exchange rates and 9.2% as reported).
Impact of new accounting standards (IFRS 16)
The new accounting standard, IFRS 16 (Leases) came into effect on 1 January
2019, and was adopted by the Group from 1 April 2019. The new standard
eliminates the operating lease classification and therefore on the balance
sheet the lessees will be required to recognise an asset (the right to use the
leased item) and lease liabilities for all leases unless they have a remaining
term of less than 12 months or are of low value. On the income statement, the
operating lease expense will be replaced by a combination of depreciation and
interest.
IFRS 16 has been adopted in the period using the modified retrospective
method. This resulted in a right of use asset of £1,140.4m and a lease
liability of £1,168.2m recognised on 1 April 2019. The transition method has
not required the balance sheet comparatives to be restated. All statutory and
adjusted figures for H1 2019 throughout this document are reported under IFRS
16 unless otherwise stated.
The impact of IFRS 16 is detailed further in note 1, and is summarised below:
Six months to 30 September 2019 Six months to 30 September 2018
Per IAS 17 accounting treatment £m Impact of IFRS 16 (6 months) £m Per IFRS 16 accounting treatment Per IAS 17 accounting treatment £m
£m
EBITDA 252.9 181.3 434.2 255.1
Adjusted operating profit 88.7 9.0 97.7 92.4
Net finance costs (52.7) (16.3) (69.0) (50.4)
Adjusted profit before tax 36.0 (7.3) 28.7 42.0
Adjusted EPS 2.5p (0.5)p 2.0p 2.9p
Net debt 1,062.0 1,022.1 2,084.1 1,047.7
In accordance with IAS 36 (impairment of assets) the opening onerous contract
provision for SWR of £145.9m was reclassified as an impairment on right of
use assets (ROUA) on adoption of IFRS 16. Similarly, £62.7m of the opening
TPE onerous contract provision was reclassified as an opening impairment on
ROUA with the remaining balance of £44.2m being reclassified as impairment on
ROUA additions in the period.
The adoption of IFRS 16 has impacted the Rail division’s results more
significantly than the Road divisions. The difference reflects the high value
of rolling stock leases as well as the change in accounting for onerous
contract provisions. To aid understanding, set out overleaf are the impacts by
division on adjusted operating profit and EBITDA:
Pre IFRS 16 basis
Six months to 30 September 2019 Revenue £m Adjusted op. profit £m Adjusted margin % EBITDA £m EBITDA margin %
First Student 851.6 18.6 2.2 111.6 13.1
First Transit 588.7 14.2 2.4 24.7 4.2
Greyhound 335.4 12.0 3.6 25.6 7.6
First Bus 424.5 20.6 4.9 45.6 10.7
Group items 8.2 (18.1) (16.8)
Road divisions 2,208.4 47.3 2.1 190.7 8.6
First Rail 1,323.5 41.4 3.1 62.2 4.7
Total Group 3,531.9 88.7 2.5 252.9 7.2
North America in USD $m $m % $m %
First Student 1,078.3 27.1 2.5 144.2 13.4
First Transit 740.6 18.1 2.4 31.4 4.2
Greyhound 422.0 14.9 3.5 31.9 7.6
Total North America 2,240.9 60.1 2.7 207.5 9.3
IFRS 16 impact
Six months to 30 September 2019 Adjusted op. profit £m EBITDA £m
First Student (0.3) 16.1
First Transit (0.4) 4.3
Greyhound 1.3 9.6
First Bus 0.9 8.7
Group items - 0.8
Road divisions 1.5 39.5
First Rail 7.5 141.8
Total Group 9.0 181.3
North America in USD $m $m
First Student (0.4) 20.1
First Transit (0.5) 5.4
Greyhound 1.6 12.1
Total North America 0.7 37.6
Post IFRS 16 basis
Six months to Revenue Adjusted op. profit Adjusted margin EBITDA EBITDA margin
30 September 2019 £m £m % £m %
First Student 851.6 18.3 2.1 127.7 15.0
First Transit 588.7 13.8 2.3 29.0 4.9
Greyhound 335.4 13.3 4.0 35.2 10.5
First Bus 424.5 21.5 5.1 54.3 12.8
Group items 8.2 (18.1) (16.0)
Road divisions 2,208.4 48.8 2.2 230.2 10.4
First Rail 1,323.5 48.9 3.7 204.0 15.4
Total Group 3,531.9 97.7 2.8 434.2 12.3
North America in USD $m $m % $m %
First Student 1,078.3 26.7 2.5 164.3 15.2
First Transit 740.6 17.6 2.4 36.8 5.0
Greyhound 422.0 16.5 3.9 44.0 10.4
Total North America 2,240.9 60.8 2.7 245.1 10.9
First Student
Six months to 30 September $m £m Change in
constant currency (1)
2019 2018 2019 2018
Revenue 1,078.3 1,038.5 851.6 775.2 +4.2%
Adjusted operating profit 26.7 36.6 18.3 24.6 (29.3)%
Adjusted operating margin 2.5% 3.5% 2.1% 3.2% (110)bps
(1 ) Based on retranslating H1 2018 foreign currency amounts at
H1 2019 rates.
As ever, First Student’s financial results are heavily weighted to the
second half because of the overlay of our financial year with the North
American school calendar, so performance in the second half is key. However,
in the period First Student revenue increased to $1,078.3m (H1 2018:
$1,038.5m), representing growth in constant currency of 4.2%, despite fewer
operating days in the period compared with the same period in 2018. Reported
revenue was £851.6m (H1 2018: £775.2m). Adjusted operating pro?t was $26.7m
(H1 2018: $36.6m), resulting in an adjusted operating margin of 2.5% (H1 2018:
3.5%), with revenue growth and cost ef?ciencies exceeding inflation but offset
by the fewer operating days and higher self-insurance costs in the period. The
division reported a statutory loss of £18.7m (H1 2018: profit of £16.2m)
after amortisation of intangibles and First Student’s portion of the North
American self-insurance charge.
Following another strong bid season over the summer of 2019, First Student has
grown our already market-leading school bus fleet and market share for the
second year in a row; we expect to be operating approximately 43,000 buses for
the remainder of the school year (H1 2018: 42,500) as a result of our balanced
growth approach.
Our consistent bid discipline, supported by our excellent safety track record
and consistently high customer satisfaction scores, allowed us to secure
average price increases in excess of the employee and other cost inflation we
continue to experience. Notwithstanding the pricing requirements we have had
to seek from our customers due to the tight US employment market and resulting
persistent driver shortages, our customer retention rate of 88% on contracts
up for renewal was ahead of our expectations. Across our entire portfolio of
multi-year relationships, retention stands at 96%.
In addition to retaining existing business, we have made good progress in the
other growth areas we target, with good net market share gains from our larger
competitors, some organic growth, and a continuing modest rate of conversions
from in-house to private provision.
We also continue to build out our ability to supplement growth and expand our
addressable market via acquisitions in this fragmented segment of the mobility
services industry. Since the start of the financial year we have closed two
transactions adding a total of 300 buses. The most recent was Hopewell
Transportation in Chicago, which is a leader in services for special needs
children and their families, a faster growing part of the overall student
transportation market. Earlier in the year we acquired a 70-bus business in
New York state to complement our other operations in the area. Our capital
allocation approach is to assess all of our transaction opportunities on the
same returns criteria as any other avenue for growth. Our capital efficiency
and returns continue to be supplemented by our charter services offering,
which now accounts for 9% of divisional revenues.
School start-up this autumn has gone well, and we continue to improve the
efficiency of our procurement, maintenance and operational practices as well
as investing in innovations to enhance the quality of our services for our
school board customers, student passengers and their parents. Overall our
first half performance means we are confident that for the full year, First
Student will deliver further revenue growth, robust cash flow and returns on
its market leading multi-year contract portfolio.
As previously announced, we were also delighted to announce the appointment of
Paul Osland as President of First Student in September. Paul has already
contributed extensively to the improvement of the division through his
operational leadership and delivery of several business improvement
initiatives since joining First Student as Chief Operating Officer in 2016.
Prior to joining First Student, Paul worked for Chicago Public Schools as both
Chief Facility Officer and Executive Director, Transportation.
First Transit
Six months to 30 September $m £m Change in
constant currency (1)
2019 2018 2019 2018
Revenue 740.6 691.3 588.7 519.6 +7.3%
Adjusted operating profit 17.6 32.5 13.8 24.4 (46.5)%
Adjusted operating margin 2.4% 4.7% 2.3% 4.7% (240)bps
(1 ) Based on retranslating H1 2018 foreign currency amounts at
H1 2019 rates.
First Transit’s revenue in the first half was $740.6m or £588.7m (H1 2018:
$691.3m or £519.6m), an increase of 7.3% in constant currency. Recent
contract awards and organic growth more than offset the end of a number of
relatively large contracts in revenue terms. Adjusted operating profit was
$17.6m or £13.8m (H1 2018: $32.5m or £24.4m), resulting in an adjusted
operating margin of 2.4% (H1 2018: 4.7%), which reflects higher self-insurance
costs of $11.5m, the current challenging environment for driver recruitment,
business mix, and two adverse legal judgements. We continue to drive through
further cost efficiencies from lean maintenance, procurement, systematic
employee engagement/retention programmes and further back office alignment
with First Student in order to retain our position as a best value operator.
The division reported a statutory loss of £11.4m (H1 2018: profit of £23.3m)
principally adjusting for a legacy pension settlement and First Transit’s
portion of the North American self-insurance charge.
First Transit continues to focus on profitable growth through winning and
retaining business in both existing and emerging mobility services markets.
Our contract retention rate decreased slightly in the period from 96% to 93%,
reflecting the loss of two contracts which required significant price
increases to properly address cost challenges in their respective local
markets. Awards in the period ranged from wins in traditional transit markets,
such as a fixed route contract in Arlington, VA and paratransit contracts in
Spokane, WA and Alhambra, CA, to shuttle wins for private companies, including
in the British Columbia gas mining region. Additionally, we were awarded a
contract to provide transportation services between airport terminals and the
new taxi/Transportation Network Company (TNC) passenger waiting lots at Los
Angeles airport, while also expanding our technology offerings with the launch
of an autonomous vehicle (AV) pilot with Houston Metro. We continue to
position ourselves as the leader in both the maintenance and operations of
electric vehicle (EV) technology with the addition of a 50-bus electric fleet
in the university shuttle market. In the period we are excited to have started
a partnership with Lyft to provide wheelchair accessible and other paratransit
services in several US cities via the existing Lyft platform.
As the market for mobility services in North America continues its evolution,
we are embracing the disruption and staying at the forefront of the changes,
providing simplified mobility solutions that enhance our customers’ lives.
Our services remain a compelling option for both local authorities and private
customers to outsource their transit management needs. Our ongoing cost
efficiency programme will ensure we deliver improvements in our second half
margin relative to the prior year and with our significant sector expertise,
longstanding customer relationships and profitable platform of business, we
are already delivering returns and cash generation with relatively modest
capital requirements from this rapidly changing marketplace.
Greyhound
Six months to 30 September $m £m Change in
constant currency (1)
2019 2018 2019 2018
Revenue 422.0 455.4 335.4 342.6 (7.1)%
Adjusted operating profit 16.5 12.9 13.3 10.2 +23.1%
Adjusted operating margin 3.9% 2.8% 4.0% 3.0% +100bps
(1 ) Based on retranslating H1 2018 foreign currency amounts at
H1 2019 rates.
Greyhound’s revenue was $422.0m or £335.4m (H1 2018: $455.4m or £342.6m)
in the first half, with US revenues slightly ahead in local currency terms and
Canadian revenues substantially lower, reflecting our decision to withdraw
from significant parts of that business since the prior period. In the US,
long haul journeys outperformed short haul in the period with increased
competition in the North East during the second quarter; point-to-point
Greyhound Express like-for-like revenue decreased by 1.3% in the period, while
like-for-like revenue for the division as a whole was +0.7%. First quarter
like-for-like revenue growth was higher, as the US experienced substantial
growth in immigration at the Southern US border. In the second quarter,
immigration related demand in the southern states slowed to a five year low.
Recent reductions in the price of fuel have also had an impact on passenger
demand for our coach services.
As a result, adjusted operating profit was $16.5m or £13.3m (H1 2018: $12.9m
or £10.2m), or an adjusted operating margin of 3.9% (H1 2018: 2.8%) in the
period. While Greyhound’s adjusted margin improved by 100bps in the period,
this principally reflects our cost actions and the withdrawal from Western
Canada and is despite a lower gain on sale of properties of $4.2m (H1 2018:
$6.5m) in the period. In light of the profitability of Greyhound relative to
our internal budget in recent periods, we have revised our short term and
medium term financial forecasts for the division. The revised forecasts have
led to an impairment of £124.4m to the carrying value of the net assets of
Greyhound.
As announced in May, we are running a formal sale process for Greyhound which
is now well advanced and we are engaged in ongoing discussions with bidders.
Greyhound has generated £40.5m ($50.8m) in EBITDA over the past twelve months
and following the impairment it is carried at a cash generating unit value of
£179.2m ($220.2m). The net book value of £0.9m ($1.1m) is stated after
£129.2m ($158.8m) for pensions deficits under IAS19 and £95.6m ($117.5m)
relating to the self-insurance reserve provision. The impairment has been
recognised in the H1 2019 results on a pro-rata basis against the assets of
the division excluding property. Recent valuations in excess of book value
suggest no impairment to the carrying value of Greyhound’s property. In the
period the division reported a statutory loss of £127.7m (H1 2018: loss of
£24.2m) including the impairment charge as well as amortisation of
intangibles, Greyhound’s share of the North American self-insurance charge
and restructuring costs.
In response to the changes in demand noted above, we have stepped up our
tactical commercial initiatives to deliver overall revenue per mile growth by
optimising pricing and capacity allocation across our different markets. In
addition to reducing planned mileage in the second half by approximately 5%,
we have also undertaken a number of maintenance, procurement and operational
initiatives in the period which are expected to deliver recurring savings in
the second half and beyond. Meanwhile our disciplined fleet investment plan
continues to improve customer perceptions, raise punctuality and reduce our
maintenance costs.
First Bus
Six months to 30 September £m Change in
constant currency (1)
2019 2018
Revenue 424.5 433.9 (2.2)%
Adjusted operating profit 21.5 24.8 (13.3)%
Adjusted operating margin 5.1% 5.7% (60)bps
(1 ) Based on retranslating H1 2018 foreign currency amounts at
H1 2019 rates.
First Bus reported revenue of £424.5m (H1 2018: £433.9m) in the period, with
like-for-like passenger revenue increasing by +1.6%. Commercial passenger
volumes decreased by (1.7)% in the period and commercial revenue per mile
increased by +1.6%. The environment overall for the bus market is improving,
however, patterns of demand remain variable amongst our local markets
particularly due to changing retail footfall trends and challenging traffic
congestion in a number of cities. Across the country we also saw less
favourable weather in the period than the record-breaking summer of 2018,
which meant that comparative demand reduced in the summer months but has
recovered strongly in the final weeks of the period and into the second half
of the financial year. Adjusted operating profit was £21.5m (H1 2018:
£24.8m) and adjusted operating margin decreased by 60bps to 5.1% (H1 2018:
5.7%), mainly reflecting this reduced summer demand and higher hedged fuel
prices, partially offset by continued cost efficiencies and innovative actions
taken to improve the passenger experience. The division reported a statutory
operating profit of £15.7m (H1 2018: £24.7m) after restructuring and
reorganisation costs and losses to date on disposal in respect of the
Manchester depot sales.
We continue to drive forward our plans as set out over the last two years,
including further cost efficiencies. These include additional steps to
optimise our networks and mileage to ensure we maximise demand and improve
route performance for passengers informed by the rich GPS and passenger flow
data we now have on all our networks. We are also implementing improvements to
our work practices, for example, through redesigning engineering procedures.
Our shared service centre in Leeds has allowed us to centralise a variety of
customer service functions, offering a consistent experience for passengers,
and a series of back office roles. Following a review of our Manchester
operations in light of changes proposed to the structure of that market we
completed the sales of our Queen’s Road and Bolton depots during the first
half.
We have offered contactless payment for all our customers since last year,
which simplifies payment, enhances convenience and supports our objective to
speed up journeys by reducing boarding time. We have further enhanced our
cashless offering in the period through continued upgrades to our passenger
app, which is now the highest ranked bus app in the iOS App Store with almost
one million regular users. In the period contactless and mobile app became our
most significant payment mechanisms, overtaking on-bus cash transactions for
the first time. We have launched two ticketing trials offering customers
capped fares via their contactless devices in Aberdeen and Doncaster. Further
roll outs will take place in the coming months as we respond to the increasing
demand for this option from our customers, which we expect to be a meaningful
driver of further growth. During the period we had a successful start-up for
our Bright Bus tour services in Edinburgh, competing well against the market
leader. We have taken commercial responsibility for services to Swansea’s
Park & Ride site, expanding the range of destinations served by integrating
the routes into our network. We have also upgraded our services to Glasgow and
Stansted airports through investments in both vehicles and service.
We support the Confederation of Passenger Transport’s new strategy for the
industry – Moving Forward Together – which commits us to working closely
with local authority stakeholders in order to meet air quality targets,
improve congestion and strengthen local connectivity. We applaud the renewed
focus which UK governments, including the devolved assemblies, are
increasingly giving to bus services, including the development of a national
bus strategy. At the end of the period the Government announced a further
£220m in additional funding to increase local bus patronage. One of the first
outputs is a Government-funded four-year pilot in Cornwall to subsidise fares
and create an enhanced network, to be introduced from May 2020. Separately the
Scottish Government has announced a landmark investment of more than £500m to
improve bus infrastructure through new priority routes and other schemes to
reduce congestion across the country and encourage more people to use public
transport.
Through our early commitment to the Euro VI-compliant generation of diesel
buses and our adoption of self-funded and government-assisted zero emission
buses, we are a leader in the industry for low emission buses, with 30% of our
fleet either Euro VI-compliant diesels or gas, electric or fuel cell vehicles.
For the current year we expect to take delivery of approximately 235 new Euro
VI buses (year to March 2019: 328 buses), including 77 gas powered vehicles
for Bristol and 30 electric vehicles including 21 double decker buses for the
York Park & Ride services, partly funded by OLEV (Office for Low Emission
Vehicles) grants.
Our programme of investment and efficiencies will continue to drive patronage
growth and margin progress despite challenging conditions in certain markets,
and we are pleased that there is a growing realisation at all levels of
government that the bus has a huge role to play in social and environmental
ambitions. Having set the business on this path, we continue to explore
structural alternatives for the future of the division, ensuring continued
progression and the best future for our employees and customers.
First Rail
Six months to 30 September £m Change
2019 2018
Revenue 1,323.5 1,224.2 +8.1%
Adjusted operating profit 48.9 29.3 +66.9%
Adjusted operating margin 3.7% 2.4% +130bps
First Rail like-for-like passenger revenue growth was +4.9% across our
portfolio. 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 increased by +4.1% in the period, continuing
to reflect changing work patterns and lifestyles resulting in a shift away
from season tickets towards pay-as-you-go offerings. Divisional revenues
increased to £1,323.5m (H1 2018: £1,224.2m), reflecting passenger revenue
growth, higher subsidy receipts and final settlement of certain GWR
contractual amendments. Adjusted operating profit was £48.9m (H1 2018:
£29.3m), with the margin increasing to 3.7% (H1 2018: 2.4%). Divisional
profitability was driven by GWR, where customers are seeing more capacity and
services as a result of the introduction of new trains, and also reflects the
first time adoption of IFRS 16 which affects First Rail’s results more
significantly than the other divisions. The division reported a statutory
operating profit of £48.4m (H1 2018: £27.5m) including intangible asset
amortisation.
GWR have brought into service new commuter Electrostar trains and all 93
bi-mode InterCity Express Trains (IETs), delivering more seats and increased
levels of punctuality. Our diesel HST trains stopped serving London in the
period and have been reconfigured and redeployed to enhance capacity on routes
in the South West. These changes, in turn, have led to the highest levels of
customer satisfaction GWR has recorded and a 9% improvement in the independent
National Rail Passenger Survey scores. The GWR team are preparing for the
largest timetable change in decades to be introduced in December, which will
take advantage of the new train fleets to offer faster journey times and more
frequent services to key locations, and a major passenger information campaign
is underway to advise of these changes.
SWR performance was at a more stable level in the early part of the period
than in 2018. Towards the end of the period systemic issues outside of our
control including the impact of infrastructure reliability issues, delays to
timetable changes and continued industrial action once again led to a
deterioration in performance, and we will continue to work with our partners
to mitigate this. We remain focused on delivering a resolution to the
unnecessary industrial action by the RMT trade union, which continues despite
our offer of a framework agreement that keeps the guard on every train. This
industrial action needlessly disrupts travel for our customers although we do
everything we can to keep people moving during strikes. We are committed to
finding a solution that will help us build a better railway for everyone. As
previously reported, there is considerable uncertainty about the level of
future passenger revenue growth and the revenue protection mechanisms in
place, and we remain in discussions with the DfT concerning commercial and
contractual remedies. Meanwhile we continue to focus on delivering
improvements to the passenger experience in accordance with our commitments,
with new and refurbished trains to be introduced into service in the coming
months. The May 2019 timetable change resulted in more than 300 more services
a week across the network and the December timetable change will add 60 more.
During the period we also announced a major investment into the Isle of
Wight’s railway, one of our franchise commitments for passengers.
Although TPE delivered growth and traded ahead of expectations during the
period, the key to the long term success of the franchise remains the delivery
of the significant fleet and network changes to increase the frequency and
level of service required under the franchise agreement. Industry wide delays
to the timetables assumed when the TPE franchise was bid have delayed the
implementation of a number of the key changes which were included in the
original franchise bid model. The industry delays cover the timetable changes
that were not implemented as planned in December 2017, May 2018 and May 2019
and will not be implemented as planned for December 2019. Our forecast revenue
and costs assumptions have been adjusted accordingly.
Under schedule 9 of the franchise agreement we have contractual entitlement to
recover the financial impact of these changes and accordingly we have
submitted a significant franchise change request to the Department for
Transport (“DfT”) and the Rail North Partnership (”RNP”) for our
estimate of the amounts that are owed in respect of the May 2018 timetable
change. We will submit further requests in respect of May 2019 and December
2019 in due course. The DfT and RNP are considering our May 2018 timetable
change submission and we are at an early stage in our discussions with them.
In determining the value of the May 2018, May 2019 and December 2019 franchise
change amounts we have estimated that the significant majority of the
requested change will be agreed with, and recovered from, the DfT and RNP. We
have considered a number of factors in deriving our estimate of the amounts
that will be recovered including the settlement we have achieved with the DfT
and RNP in connection with the December 2017 timetable change. Until concluded
there is uncertainty as to the value at which these negotiations will be
settled.
The forecast loss over the franchise term of £106m recognised as a provision
in the year to 31 March 2018 remains our estimate of the financial outlook for
the franchise including our expectation of the outcome of the May 2018, May
2019 and December 2019 franchise change requests. It should be noted that on
adoption of IFRS16 Leases, £106m previously recognised as an onerous contract
provision is now recognised as an impairment of the right of use asset.
If the settlement we achieve with the DfT and RNP is below our estimate and we
do not recover the significant majority of the amounts included in our
franchise change requests there would be a material impact on the reported
financial results, including increases in the loss for the relevant period,
the value of the impairment to the right of use assets, and the recoverability
of amounts recognised as amounts recoverable on contracts. If our estimate of
the settlement is not achieved the maximum additional unavoidable loss under
the TPE franchise contract would be £83m, £5m lower than at the start of the
year due to the repayment of Additional Funding Commitment in the first half
of the year.
In addition, there is also uncertainty regarding the timing and scope of the
TransPennine Route Upgrade and accordingly the potential impact of any upgrade
on our original bid submission. The matter continues to be closely monitored
as it will have implications for our recoverable amounts under the franchise
agreement.
Meanwhile our open access operator Hull Trains is performing in line with our
expectations and is also due to begin operating a new leased fleet worth £60m
from December.
In August we were pleased our 70:30 rail venture with Trenitalia was awarded
the West Coast Partnership contract to operate existing InterCity services on
the West Coast Mainline, and to help deliver High Speed 2. First Trenitalia
takes over from the current operator on 8 December 2019 and mobilisation is
proceeding well. As anticipated, the Competition and Markets Authority have
conducted a review and the proposed remedies are in line with our expectations
at the time of the bidding process.
Our rail portfolio generates good returns overall despite challenging industry
conditions and a difficult operating environment. The UK’s rail franchising
system is currently undergoing a major review and there is uncertainty as to
the balance of risks and rewards for franchising going forwards. We are
interested in the outcome of this review; however our focus is on delivering
sustainable benefits for all our stakeholders from our current rail portfolio,
which we will actively manage accordingly.
Reconciliation to non-GAAP measures and performance
Note 3 to the financial statements sets out the reconciliations of operating
profit/(loss) and loss before tax to their adjusted equivalents. The adjusting
items are as follows:
Other intangible asset amortisation charges
The charge for the period was £11.8m (H1 2018: £17.6m) with the reduction
due to a number of customer contract intangibles which have now been fully
amortised.
Greyhound impairment charges
Operating profit has been below budget in recent months. This principally
reflects the decline in immigration-related flows on the Southern US border
states in the second quarter and increased competition on some routes. In
light of this, we have revised our short term and medium term financial
forecasts for the Greyhound division. The revised value in use forecasts
indicate an impairment to the carrying value of Greyhound of £124.4m. The
impairment has been recognised in the H1 2019 results on a pro-rata basis
against the assets of the division excluding property. Valuations in excess of
book value suggest no impairment to the carrying value of property. Whilst we
are engaged in ongoing discussions regarding a possible sale of all or part of
the business, we remain focused on balancing commercial initiatives to
optimise pricing and capacity allocation with mileage reduction.
North America insurance provisions
First Group North American insurance arrangements involve retaining the
working loss layers in a captive and insuring against the higher losses. Based
on our actuaries’ recommendation and a second additional, independent
actuarial review, last year we increased our reserve to $533m. During the
first six months of this financial year we have continued to see a
deteriorating claims environment with legal judgements increasingly in favour
of plaintiffs and punitive in certain regions. In this hardening motor claims
environment, we have seen further significant new adverse settlements and
developments on a number of aged insurance claims, and as a result our
actuaries have increased their expectation of the reserve required on prior
year claims.
In addition, there has been a significant change in the market based discount
rate used in the actuarial calculation from 2.7% to 1.6%, creating the
requirement to increase the provision.
In light of the continued change in claims environment we have increased the
provision further by $34m to provide more protection for prior year claims,
and the resulting self-insurance reserve level is above the midpoint of the
actuarial range. These changes in accounting estimates combined with the
discount rate movement has resulted in the Group recording an additional
charge of $83.2m or £67.5m; $73.1m or £59.3m relating to the prior year
settlements is disclosed as an adjusting item, and $10.1m or £8.2m relating
to the change in the discount rate movement has been included in operating
profit and treated as non-adjusting. It is expected that the majority of these
claims will be settled over the next five years. The charge to the operating
profit for the current period reflects this revised environment. Following the
half year charges, the provision at 30 September 2019 stands at $588m compared
with the actuarial range of $490m to $610m.
The Group has a strong focus on safety and risk management in this area and
this will continue to be a key area of focus for the Group.
Restructuring and reorganisation costs
There was a charge of £15.4m for restructuring and reorganisation costs
relating to a Group-wide initiative to achieve systematic and structured cost
savings across the businesses with the assistance of a market leading
organisation in this field. In addition, trading losses in the two Manchester
depots to the date of disposal have been included. The H1 2018 charge of
£28.5m related to restructuring and reorganisation costs from Greyhound's
withdrawal of services in Western Canada.
Legacy pension settlement
This relates to a legacy pension liability from a business disposal which
First Transit made in 2013.
Finance costs and investment income
Net finance costs were £69.0m (H1 2018: £50.4m) with the increase
principally reflecting the additional interest charges under IFRS 16.
Profit before tax
Adjusted profit before tax as set out in note 3 to the condensed consolidated
financial statements was £28.7m (H1 2018: £42.0m). An overall charge of
£215.8m (H1 2018: £46.6m) for adjustments principally reflecting the
Greyhound impairment of £124.4m (H1 2018: nil), North America self-insurance
reserve charge of £59.3m (H1 2018: £nil), restructuring and reorganisation
charges of £15.4m (H1 2018: £28.5m), a legacy pension settlement of £4.9m
(H1 2018: £nil) and other intangible asset amortisation charges of £11.8m
(H1 2018: £17.6m), resulted in a statutory loss before tax of £187.1m (H1
2018: loss before tax of £4.6m).
Tax
The tax charge, on adjusted profit before tax, for the period was £4.2m (H1
2018: £9.4m). There was a tax credit of £18.4m (H1 2018: £4.8m) relating to
other intangible asset amortisation charges and other adjustments. The total
statutory tax credit was £14.2m (H1 2018: charge of £4.6m). The actual tax
paid during the period was £2.0m (H1 2018: £4.3m).
EPS
Adjusted EPS was 2.0p (H1 2018: 2.9p). Basic EPS was (14.3)p (H1 2018:
(0.6)p).
Shares in issue
As at 30 September 2019 there were 1,214.0m shares in issue (H1 2018:
1,205.9m), excluding treasury shares and own shares held in trust for
employees of 1.4m (H1 2018: 6.0m). 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 1,211.3m (H1 2018: 1,205.0m).
Cash flow
The half year typically represents a low point in the cash flow due to the
seasonality of our business, in particular First Student. The pre IFRS 16
adjusted outflow of £78.0m (H1 2018: inflow of £50.6m) includes a Rail net
cash outflow of £31.5m (H1 2018: inflow of £89.1m). This includes a net
£37m of capital expenditure for which funding was received in prior periods
and a £60m outflow for the utilisation of onerous contract provisions at SWR
and TPE. Rail ring fenced cash reduced by £27.9m. The Road divisions’ cash
inflow of £62.0m includes capital expenditure at a broadly similar level to
the corresponding period in the prior year.
Net debt increased in the period to £2,084.1m (H1 2018: £1,047.7m). The
increase is principally due to a £1,168.2m adjustment on transition to IFRS
16. The cash flow on a pre- and post- IFRS 16 basis is set out below:
Six months to 30 September 2019 Six months to 30 Sep 2018 £m Year to 31 Mar 2019 £m
Pre IFRS 16 £m IFRS 16 impact £m Post
IFRS 16
£m
EBITDA 252.9 181.3 434.2 255.1 670.3
Other non-cash income statement charges 5.1 - 5.1 0.9 3.7
Working capital (24.3) 11.3 (13.0) 96.3 53.8
Movement in other provisions (52.4) 60.3 7.9 (38.3) (24.8)
Pension payments in excess of income statement charge (33.3) - (33.3) (30.8) (47.8)
Cash generated by operations 148.0 252.9 400.9 283.2 655.2
Capital expenditure and acquisitions (196.5) - (196.5) (191.9) (432.5)
Proceeds from disposal of property, plant and equipment 21.2 - 21.2 12.3 63.5
Interest and tax (51.8) (16.3) (68.1) (53.6) (88.8)
Operating leased payments now in debt/other 1.1 (236.6) (235.5) 0.6 (0.1)
Adjusted cash flow (78.0) - (78.0) 50.6 197.3
Foreign exchange movements (27.9) (11.3) (39.2) (26.9) (28.3)
Inception of new leases (51.7) (79.2) (130.9) - -
Operating lease payments now in debt - 236.6 236.6 - -
Other non-cash movements (1.0) - (1.0) (1.1) (2.1)
Adjustment on transition to IFRS 16 - (1,168.2) (1,168.2) - -
Movement in net debt in the period (158.6) (1,022.1) (1,180.7) 22.6 166.9
Capital expenditure
Road cash capital expenditure was £141.6m (H1 2018: £142.8m) and comprised
First Student £81.1m (H1 2018: £101.5m), First Transit £16.4m (H1 2018:
£10.8m), Greyhound £28.2m (H1 2018: £15.7m), First Bus £13.9m (H1 2018:
£14.8m) and Group items £2.0m (H1 2018: nil). First Rail capital expenditure
was £51.9m (H1 2018: £46.8m) and is typically matched by franchise receipts
or other funding. In addition, during the period we entered into leases in the
Road divisions with capital values in First Student of £48.9m (H1 2018:
£7.8m), First Transit of £0.1m (H1 2018: £3.4m), Greyhound of £6.2m (H1
2018: £10.2m) and First Bus of £5.2m (H1 2018: £18.8m) and Group items
£0.1m (H1 2018: nil). During the period First Rail entered into leases with a
capital value of £70.5m.
Gross capital investment (fixed asset and software additions plus the capital
value of new operating leases) was £371.6m (H1 2018: £269.6m) and comprised
First Student £189.4m (H1 2018: £168.3m), First Transit £15.0m (H1 2018:
£14.2m), Greyhound £32.8m (H1 2018: £19.3m), First Bus £12.0m (H1 2018:
£21.5m), First Rail £120.3m (H1 2018: £46.3m) and Group items £2.1m (H1
2018: nil). The balance between cash capital expenditure and gross capital
investment represents new leases and creditor movements in the year.
Balance sheet
Net assets have decreased by £84.9m since the start of the period. The
principal reasons for this are the retained loss for the period of £172.9m,
unfavourable after tax hedging reserve movements of £10.5m, actuarial losses
on defined benefit pension schemes (net of deferred tax) of £34.8m and the
adjustment on transition to IFRS 16 of £15.6m partly offset by favourable
translation reserve movements of £142.4m.
Fuel price risk
We use a progressive forward hedging programme to manage commodity risk. As at
30 September 2019, 87% of our ‘at risk’ UK crude requirements for the
current year in the UK (1.7m barrels p.a.) were hedged at an average rate of
$65 per barrel, 53% of our requirements for the year to 31 March 2021 at $66
per barrel, and 30% of our requirements for the year to 31 March 2022 at $69
per barrel.
In North America 57% of 2019/20 ‘at risk’ crude oil volumes (1.3m barrels
p.a.) were hedged at an average rate of $62 per barrel, 28% of our
requirements for the year to 31 March 2021 at $65 per barrel, and 13% of our
requirements for the year to 31 March 2022 at $69 per barrel, predominantly in
relation to First Student and First Transit. Greyhound’s fuel exposure is
largely unhedged because its competitors – passenger cars and the airlines
– have no hedging on their exposures, so Greyhound’s pricing is responsive
to fuel price changes.
Funding and risk management
Liquidity within the Group has remained strong. At 30 September 2019, there
was £496.6m (H1 2018: £727.3m) of committed headroom and free cash, being
£394.4m (H1 2018: £587.0m) of committed headroom and £102.2m (H1 2018:
£140.3m) of free cash. The reduction in committed headroom principally
reflects the repayment of the £250m 2019 bond from our revolving bank
facilities in January 2019. 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. Average maturity of our bond debt, senior
unsecured loan notes and bank facilities is 3.8 years (H1 2018: 4.0 years).
The Group’s main revolving bank facilities require renewal in November 2023.
The Group does not enter into speculative financial transactions and uses only
authorised financial instruments for certain financial risk management
purposes.
Interest rate risk
We seek to reduce our exposure by using a combination of fixed rate debt and
interest rate derivatives to achieve an overall fixed rate position over the
medium term of at least 50% of net debt.
Foreign currency risk
‘Certain’ and ‘highly probable’ foreign currency transaction exposures
including fuel purchases for the UK divisions may be hedged at the time the
exposure arises for up to two years at specified levels, or longer if there is
a very high degree of certainty. The Group does not hedge the translation of
earnings into the Group reporting currency (pounds Sterling) but accepts that
reported Group earnings will fluctuate as exchange rates against pounds
Sterling fluctuate for the currencies in which the Group does business. During
the year, the net cash generated in each currency may be converted by Group
Treasury into pounds Sterling by way of spot transactions in order to keep the
currency composition of net debt broadly constant.
Foreign exchange
The most significant exchange rates to pounds Sterling for the Group are as
follows:
6 months to 30 September 2019 6 months to 30 September 2018 Year to 31 March 2019
Closing rate Effective rate Closing rate Effective rate Closing rate Effective rate
US Dollar 1.23 1.34 1.30 1.38 1.30 1.32
Canadian Dollar 1.63 1.84 1.68 1.84 1.74 1.74
Net debt
The Group’s net debt at 30 September 2019 was £2,084.1m (H1 2018:
£1,047.7m) and comprised:
Analysis of net debt 30 September 2019 30 September 2018 £m 30 March 2019 £m
£m
Sterling bond (2019) - 249.9 -
Sterling bond (2021) 348.7 348.3 348.4
Sterling bond (2022) 322.1 321.6 322.1
Sterling bond (2024) 199.8 199.8 199.8
Bank loans 465.6 213.0 446.7
Lease liabilities 1,115.6 90.7 59.9
Senior unsecured loan notes 222.8 210.0 210.0
Loan notes 9.4 9.4 9.4
Gross debt excluding accrued interest 2,684.0 1,642.7 1,596.3
Cash (102.2) (140.3) (167.3)
First Rail ring-fenced cash and deposits (496.8) (453.8) (524.7)
Other ring-fenced cash and deposits (0.9) (0.9) (0.9)
Net debt excluding accrued interest 2,084.1 1,047.7 903.4
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 decreased by £27.9m in the
period principally due to working capital movements. Net debt excluding Rail
ring-fenced cash and deposits increased to £2,580.9m (H1 2018: £1,501.5m).
Pensions
We have updated our pension assumptions as at 30 September 2019 for the
defined benefit schemes in the UK and North America. The net pension deficit
of £307.2m at the beginning of the period has increased to £331.1m at the
end of the period principally due to declining yields, partially offset by
higher investment returns than expected. The main factors that influence the
balance sheet position for pensions and the principal sensitivities to their
movement at 30 September 2019 are set out below:
Movement Impact
Discount rate +0.1% Reduce deficit by £31.4m
Inflation +0.1% Increase deficit by £25.6m
The Trustee and Company have made good progress with the 2019 funding
valuation for the First UK Bus Pension Scheme. Based on the initial valuation
results as at April 2019 and taking into account the parent company guarantee
provided by FirstGroup plc, the draft funding deficit is below that of the
previous triennial valuation (£302m as at April 2016), however it is
approximately £80m higher than the balance sheet position on an accounting
basis at the equivalent date.
Recognising that the Scheme is a key stakeholder, the Trustee has been engaged
with the First Bus separation process from the outset. As that engagement
continues, we expect that the focus will move on from the funding valuation to
agreement on continued funding level improvement, liability management
options, covenant, de-risking the investment strategy and securing member
benefits.
Low dependency (often referred to as self-sufficiency) is not a precisely
defined term, but if it is achieved by setting a funding target in line with a
discount rate for liabilities in the range of Gilts to Gilts +50bps, then in
our opinion funding the Scheme to such a level whilst continuing to reduce
exposure to investment risk within a reasonably short time horizon in the
context of a material change to the Group’s portfolio through executing the
strategy, is both realistic and achievable, especially given the rate at which
the Scheme is now maturing following closure first to new entrants and then
subsequently to ongoing accrual.
Whilst a range of outcomes are possible, we have devised a framework for
benchmarking the possible impact of pensions on the First Bus separation. We
are confident that this framework can be accommodated in any transaction, and
noting that the impact of addressing the First Bus Pension Scheme deficit to a
level of low dependency will be sensitive to market conditions at the time, we
believe that our framework, as part of the separation, could be in the region
of £360-400m.
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.
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 2019 (the ‘first half’, the 'period' or ‘H1 2019’) include
the results and financial position of the First Rail business for the period
ended 14 September 2019 and the results and financial position of all the
other businesses for the 26 weeks ended 28 September 2019. The figures for the
six months to 30 September 2018 (the ‘prior period’ or ‘H1 2018’)
include the results and financial position of First Rail 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. Figures for the year to
31 March 2019 include the results and financial position of the First Rail
division for the year ended 31 March 2019 and the results and financial
position of all the other businesses for the 52 weeks ended 30 March 2018.
Full year results for 2020 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 29 March 2019.
References to the 'Road' divisions combine First Student, First Transit,
Greyhound, First Bus and Group items.
All references to 'adjusted' figures throughout this document reflect the
adoption of IFRS 16 in the period and are before the Greyhound impairment,
North American self-insurance charge, restructuring and reorganisation costs,
other intangible asset amortisation charges and certain other items as set out
in note 3 to the financial statements.
‘ROCE’ or Return on Capital Employed is a measure of capital efficiency
and is calculated by dividing adjusted operating profit after tax by all year
end assets and liabilities excluding debt items.
'EBITDA’ is adjusted operating profit less capital grant amortisation plus
depreciation.
'Net debt' is the value of Group external borrowings excluding the fair value
adjustment for coupon swaps designated against certain bonds, excluding
accrued interest, less cash balances.
References to ‘like-for-like’ revenue adjust for changes in the
composition of the divisional portfolio, holiday timing, severe weather and
other factors, for example engineering possessions in First Rail, that distort
the period-on-period trends in our passenger revenue businesses.
Principal risks and uncertainties 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 in addition to those mentioned in
the Operating and Financial Review. The underlying principal risks and
uncertainties in our operating businesses remain as set out in detail on pages
44 to 48 of the Annual Report and Accounts 2019, namely:
* Economic conditions including Brexit
* Political and regulatory
* Contracted 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, claims, health and safety
* Labour costs, employee relations, recruitment and retention
* Disruption to infrastructure/operations
A change of Government in the UK could lead to the renationalisation of our
First Rail operations as the expiry dates of our various agreements with the
DfT are reached.
The implications regarding Brexit for the Group have continued to be
monitored. The principal risk of the UK leaving the European Union remains the
potential adverse impact on the economy, which if it materialised could affect
the performance of our First Rail and First Bus businesses.
In addition, there are a number of risks and uncertainties in the Group’s
ability to deliver the rationalisation of the Group’s business portfolio,
including (but not limited to) satisfactory resolution of the necessary
stakeholder consultations, including pensions, that will be required, and the
receipt of relevant third party and/or regulatory approvals and the timing of
any future divestments.
Condensed consolidated income statement
Continuing Operations Notes Unaudited Unaudited 6 months to 30 September 2018 £m Year to 31 March 2019 £m
6 months to
30 September 2019
£m
Revenue 2, 4 3,531.9 3,303.3 7,126.9
Operating costs (3,650.0) (3,257.0) (7,117.1)
Operating (loss)/profit (118.1) 46.3 9.8
Investment income 5 1.2 1.1 2.7
Finance costs 5 (70.2) (52.0) (110.4)
Loss before tax (187.1) (4.6) (97.9)
Tax 6 14.2 (4.6) (10.1)
Loss for the period (172.9) (9.2) (108.0)
Attributable to:
Equity holders of the parent (172.9) (6.9) (66.9)
Non-controlling interests - (2.3) (41.1)
(172.9) (9.2) (108.0)
Earnings per share
Basic 7 (14.3)p (0.6)p (5.5)p
Diluted (14.3)p (0.6)p (5.5)p
Adjusted results (1)
Adjusted operating profit 3 97.7 92.4 332.9
Adjusted profit before tax 3 28.7 42.0 226.3
Adjusted EPS 7 2.0p 2.9p 14.4p
Adjusted diluted EPS 2.0p 2.9p 14.3p
(1 ) Adjusted for certain items as set out in note 3.
Condensed consolidated statement of comprehensive income
Unaudited Unaudited 6 months to 30 September 2018 £m Year to 31 March 2019 £m
6 months to
30 September
2019
£m
Loss for the period (172.9) (9.2) (108.0)
Items that will not be reclassified subsequently to profit or loss
Actuarial (losses)/gains on defined benefit pension schemes (42.2) 29.1 (38.7)
Deferred tax on actuarial (losses)/gains on defined benefit pension schemes 7.4 (4.2) 7.1
(34.8) 24.9 (31.6)
Items that may be reclassified subsequently to profit or loss
Derivative hedging instrument movements (13.4) 43.7 23.5
Deferred tax on derivative hedging instrument movements 2.9 (8.1) (4.1)
Exchange differences on translation of foreign operations 142.4 172.4 160.8
131.9 208.0 180.2
Other comprehensive income for the period 97.1 232.9 148.6
Total comprehensive (loss)/income for the period (75.8) 223.7 40.6
Attributable to:
Equity holders of the parent (75.8) 226.0 81.7
Non-controlling interests - (2.3) (41.1)
(75.8) 223.7 40.6
Condensed consolidated balance sheet
Note Unaudited Unaudited 30 September 2018 £m 31 March 2019 £m
30 September 2019
£m
Non-current assets
Goodwill 8 1,691.3 1,604.2 1,598.1
Other intangible assets 9 55.0 80.6 75.1
Property, plant and equipment 10 3,050.9 2,196.9 2,165.9
Deferred tax assets 65.7 25.1 40.6
Retirement benefit assets 22 78.0 51.5 69.2
Derivative financial instruments 16 15.0 41.4 20.5
Investments 36.9 34.8 34.1
4,992.8 4,034.5 4,003.5
Current assets
Inventories 63.3 61.0 60.2
Trade and other receivables 12 1,211.4 915.1 1,141.4
Current tax assets 5.0 5.1 3.4
Cash and cash equivalents 21 599.9 595.0 692.9
Assets held for sale 11 24.8 25.4 31.7
Derivative financial instruments 16 10.2 44.6 15.5
1,914.6 1,646.2 1,945.1
Total assets 6,907.4 5,680.7 5,948.6
Current liabilities
Trade and other payables 13 1,651.1 1,370.1 1,547.3
Tax liabilities – Current tax liabilities 3.7 2.8 3.9
– Other tax and social security 46.7 41.0 29.0
Borrowings 14 481.0 344.5 84.9
Derivative financial instruments 16 4.3 0.1 3.4
Provisions 17 215.7 219.0 265.9
2,402.5 1,977.5 1,934.4
Net current (liabilities)/assets (487.9) (331.3) 10.7
Non-current liabilities
Borrowings 14 2,241.0 1,350.8 1,564.1
Derivative financial instruments 16 8.5 - 1.9
Retirement benefit liabilities 22 409.1 280.3 376.4
Deferred tax liabilities 10.9 24.6 16.5
Provisions 17 397.0 328.7 532.0
3,066.5 1,984.4 2,490.9
Total liabilities 5,469.0 3,961.9 4,425.3
Net assets 1,438.4 1,718.8 1,523.3
Equity
Share capital 19 60.8 60.6 60.7
Share premium 685.2 682.3 684.0
Hedging reserve 7.0 52.1 17.5
Other reserves 4.6 4.6 4.6
Own shares (1.3) (5.2) (4.7)
Translation reserve 686.7 555.9 544.3
Retained earnings 26.6 361.0 248.1
Equity attributable to equity holders of the parent 1,469.6 1,711.3 1,554.5
Non-controlling interests (31.2) 7.5 (31.2)
Total equity 1,438.4 1,718.8 1,523.3
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 31 March 2019 60.7 684.0 17.5 4.6 (4.7) 544.3 248.1 1,554.5 (31.2) 1,523.3
Adjustment on transition to IFRS 16 - - - - - - (15.6) (15.6) - (15.6)
Balance at 1 April 2019 60.7 684.0 17.5 4.6 (4.7) 544.3 232.5 1,538.9 (31.2) 1,507.7
Loss for the period - - - - - - (172.9) (172.9) - (172.9)
Other comprehensive income/(loss) for the period - - (10.5) - - 142.4 (34.8) 97.1 - 97.1
Total comprehensive (loss)/income for the period - - (10.5) - - 142.4 (207.7) (75.8) - (75.8)
Shares issued 0.1 1.2 - - - - - 1.3 - 1.3
Movement in EBT and treasury shares - - - - 3.4 - (3.4) - - -
Share-based payments - - - - - - 4.6 4.6 - 4.6
Deferred tax on share-based payments - - - - - - 0.6 0.6 - 0.6
Balance at 30 September 2019 (unaudited) 60.8 685.2 7.0 4.6 (1.3) 686.7 26.6 1,469.6 (31.2) 1,438.4
Balance at 1 April 2018 60.5 681.4 16.5 4.6 (6.3) 383.5 340.6 1,480.8 9.8 1,490.6
Loss for the period - - - - - - (6.9) (6.9) (2.3) (9.2)
Other comprehensive income for the period - - 35.6 - - 172.4 24.9 232.9 - 232.9
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 2018 60.5 681.4 16.5 4.6 (6.3) 383.5 340.6 1,480.8 9.8 1,490.6
Loss for the year - - - - - - (66.9) (66.9) (41.1) (108.0)
Other comprehensive income/(loss) for the year - - 19.4 - - 160.8 (31.6) 148.6 - 148.6
Total comprehensive income/(loss) for the year - - 19.4 - - 160.8 (98.5) 81.7 (41.1) 40.6
Shares issued 0.2 2.6 - - - - - 2.8 - 2.8
Derivative hedging instrument movements transferred to balance sheet (net of tax) - - (18.4) - - - - (18.4) - (18.4)
Dividends paid/other - - - - - - - - 0.1 0.1
Movement in EBT and treasury shares - - - - 1.6 - (3.1) (1.5) - (1.5)
Share-based payments - - - - - - 9.1 9.1 - 9.1
Balance at 31 March 2019 60.7 684.0 17.5 4.6 (4.7) 544.3 248.1 1,554.5 (31.2) 1,523.3
Condensed consolidated cash flow statement
Note Unaudited Unaudited 6 months to 30 September 2018 £m Year to 31 March 2019 £m
6 months to 30 September 2019
£m
Net cash from operating activities 20 331.6 228.6 563.7
Investing activities
Interest received 1.2 1.0 2.7
Proceeds from disposal of property and plant and equipment 21.2 12.3 63.5
Purchases of property, plant and equipment (189.5) (186.0) (421.3)
Purchases of software (4.0) (3.6) (8.9)
Acquisition of business 18 (3.0) (2.3) (2.3)
Net cash used in investing activities (174.1) (178.6) (366.3)
Financing activities
Shares issued 1.1 0.6 2.1
Repayment of bond - - (250.0)
Drawdowns from bank loan facilities 60.0 12.5 255.0
Repayments of bank loan facilities (53.0) - -
Repayment of loan notes - (0.1) (0.1)
Repayments of lease liabilities (256.8) (20.5) (53.1)
Fees for bank facility amendments - - (2.2)
Net cash flow used in financing activities (248.7) (7.5) (48.3)
Net (decrease)/increase in cash and cash equivalents before foreign exchange movements (91.2) 42.5 149.1
Cash and cash equivalents at beginning of period 692.9 555.7 555.7
Foreign exchange movements (1.8) (3.2) (11.9)
Cash and cash equivalents at end of period per consolidated balance sheet 599.9 595.0 692.9
Cash and cash equivalents are included within current assets on the condensed
consolidated balance sheet. Cash and cash equivalents includes ring-fenced
cash of £497.7m in H1 2019 (H1 2018: £454.7m; full year 2019: £525.6m).
Note to the condensed consolidated cash flow statement – reconciliation of
adjusted cash flow to movement in net debt
Note Unaudited Unaudited 6 months to 30 September 2018 £m Year to 31 March 2019 £m
6 months to 30 September 2019
£m
Net (decrease)/increase in cash and cash equivalents in period (91.2) 42.5 149.1
Decrease in debt and leases excluding leases formerly classified as operating leases 13.2 8.1 48.2
Adjusted cash flow (78.0) 50.6 197.3
Decrease in leases formerly classified as operating leases 236.6 - -
Inception of new leases (130.9) - -
Foreign exchange movements (39.2) (26.9) (28.3)
Other non-cash movements (1.0) (1.1) (2.1)
Movement in net debt in period (12.5) 22.6 166.9
Adjustment for transition to IFRS 16 (1,168.2) - -
Net debt at beginning of period (903.4) (1,070.3) (1,070.3)
Net debt at end of period 21 (2,084.1) (1,047.7) (903.4)
Net debt includes the value of derivatives in connection with the bond
maturing 2021 and excludes all accrued interest. These bonds are included in
current and non-current liabilities in the condensed consolidated balance
sheet.
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 2019 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 2019 include the results and
financial position of the First Rail division for the period ended 14
September 2019 and the results and financial position for the other divisions
for the 26 weeks ended 28 September 2019. The comparative 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 of the other divisions for the 26 weeks ended 29 September
2018.
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 2019. 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.
Adoption of new and revised standards
The Group has applied for the first time IFRS 16 Leases. As required by IAS
34, the nature and effect of these changes are disclosed below.
IFRS 16 Leases replaces IAS 17 Leases and three interpretations (IFRIC 4
Determining whether an Arrangement contains a lease, SIC 15 Operating Leases
– Incentives and SIC 27 Evaluating the Substance of Transactions Involving
the Legal Form of a Lease). On transition the Group has applied IFRS 16 using
the modified retrospective approach, with the cumulative effect on adoption
being recognised as an adjustment to opening retained earnings. Prior periods
have not been restated.
Prior to the adoption of IFRS 16, leases were either classified as operating
or finance leases. Payments made in respect of operating leases were charged
to the income statement on a straight line basis over the duration of the
lease. Finance leases were recognised on the balance sheet with depreciation
and interest being charged to the income statement.
For leases previously classified as finance leases, the Group has recognised
the carrying amount of the finance lease asset and liability under IAS 17 as
at 31 March 2019 as the carrying amount of the right of use asset and the
lease liability under IFRS 16 at 1 April 2019.
The Group has elected not to include initial direct costs in the measurement
of the right of use asset for operating leases in existence at the date of
transition. At this date, the Group has also elected to measure the right of
use assets at an amount equal to the lease liability adjusted for any prepaid
or accrued lease payments that existed at the date of transition.
On transition, for leases previously accounted for as operating leases with a
remaining lease term of less than 12 months and for leases of low value assets
the Group has applied the available practical expedients, therefore these have
not been recognised as right of use assets but have been accounted for as a
lease expense on a straight line basis over the remaining lease term.
1 Basis of preparation (continued)
On transition to IFRS 16 the weighted average incremental borrowing rate
applied to lease liabilities recognised under IFRS 16 was 3.21%.
As previously reported at 31 March 2019 £m Impact of IFRS 16 £m Restated at 1 April 2019 £m
Assets
Property, plant and equipment cost 2,165.9 1,140.4 3,306.3
Property, plant and equipment impairment - (208.6) (208.6)
Trade and other receivables 1,141.4 (3.8) 1,137.6
Deferred tax assets 40.6 1.4 42.0
Other assets not impacted by IFRS 16 2,600.7 - 2,600.7
Total assets / impact on assets 5,948.6 929.4 6,878.0
Liabilities
Trade and other payables 1,547.3 (11.3) 1,536.0
Borrowings 1,649.0 (59.9) 1,589.1
Lease liabilities (1, 2) - 1,228.1 1,228.1
Deferred tax liabilities 16.5 (3.3) 13.2
Provisions 797.9 (208.6) 589.3
Other liabilities not impacted by IFRS 16 414.6 - 414.6
Total liabilities / impact on liabilities 4,425.3 945.0 5,370.3
Net assets / impact on net assets 1,523.3 (15.6) 1,507.7
Equity
Retained earnings 248.1 (15.6) 232.5
Other equity not impacted by IFRS 16 1,275.2 - 1,275.2
Total equity / impact on equity 1,523.3 (15.6) 1,507.7
(1 ) Lease liabilities are included within borrowings on the
condensed consolidated balance sheet.
(2 ) As at 1 April 2019, lease liabilities due within one year
were £549.7m. Lease liabilities due after one year were £678.4m.
Right of use assets of £1,140.4m were recognised at 1 April 2019, £829.4m
related to rolling stock, £217.2m related to leases of land and property,
£89.5m related to PCV’s and £4.3m related to the lease of other assets.
The lease liabilities as at 1 April 2019 can be reconciled to the opening
lease commitments as at 31 March 2019 as follows:
£m
Operating lease commitments at 31 March 2019 2,952.8
Short term and low value lease commitments straight line expensed under IFRS 16 (36.5)
First Rail charges for track, station and depot access3 (997.0)
Leases entered into where the commencement date falls after 31 March 2019 (496.6)
IAS 17 lease commitments which do not meet the definition of a lease under IFRS 164 (183.1)
Other 30.0
Effect of discounting using incremental borrowing rates (101.4)
Finance lease liabilities recognised under IAS 17 at 31 March 2019 59.9
Lease liabilities recognised at 1 April 2019 1,228.1
(3) Within First Rail, £1.0bn relates to track, station and depot
access charges which do not meet the definition of a lease under IFRS 16. This
reflects the fact that either no identified asset exists or that the Group
does not have the right to obtain substantially all of the economic benefits
from the use of the assets throughout the period of use, or that Network Rail,
not the Group, directs how and for what purpose the assets are used.
(4 ) IAS 17 lease commitments for ongoing rolling stock
maintenance costs which comprise of non-lease components and do not meet the
definition of a lease under IFRS 16.
In respect of the income statement impact, the application of IFRS 16 resulted
in a decrease in other operating expenses and an increase in depreciation and
interest expense compared to IAS 17. During the six months ended 30 September
2019, in relation to leases under IFRS 16 the Group recognised the following
amounts in the consolidated income statement:
£m
Depreciation 172.3
Interest expense 16.3
Short term and low value lease expense 23.6
1 Basis of preparation (continued)
The Group’s ongoing accounting treatment per IFRS 16
Lease identification
At inception of a contract, the Group shall assess whether a contract is, or
contains, a lease. A contract is, or contains, a lease if the contract conveys
the right to control the use of an identified asset for a period of time in
exchange for consideration.
Right of use asset (ROUA)
At the commencement date, the right of use asset is initially measured at
cost, which comprises the initial amount of the lease liability adjusted for
any lease payments made at or before the commencement date, less any
incentives received, plus any initial direct costs incurred and an estimate of
costs to be incurred by the Group to dismantle and remove the underlying asset
or restore the underlying asset or the site on which it is located.
The right of use asset is depreciated on a straight line basis over the
shorter of the estimated useful life of the asset or the lease term. In
addition, the right of use asset is periodically reduced by impairment losses,
if applicable, and adjusted for certain remeasurements of the lease liability.
Lease liability
At the commencement date of the lease, the lease liability is initially
measured at the present value of lease payments to be made over the lease
term. The lease payments include fixed payments (including in-substance fixed
payments) less any lease incentives receivable, variable lease payments that
depend on an index or a rate, and amounts expected to be paid by the Group
under residual value guarantees. The lease payments also include the exercise
price of a purchase option if the Group is reasonably certain to exercise that
option. Payments of penalties for terminating a lease, if the lease term
reflects the Group exercising the option to terminate the lease, are also
included.
The lease liability is measured by increasing the carrying amount to reflect
the interest on the lease liability and reducing the carrying amount to
reflect the lease payments made. The carrying value is re-measured when there
is a change in future lease payments arising from the effective date of a
change in an index or rate, if there is a change in the Group’s estimate of
the amount expected to be payable under a residual value guarantee, or if the
Group changes its assessment of whether it will exercise a purchase, extension
or termination option.
In accordance with IAS 36 Impairment of assets the opening onerous contract
provision for SWR of £145.9m was reclassified as an impairment on ROUA on
adoption of IFRS 16. Similarly, £62.7m of the opening TPE onerous contract
provision was reclassified as an opening impairment on ROUA with the remaining
balance of £44.2m being reclassified as impairment on ROUA additions in the
period. Uncertainties relating to the TPE franchise are set out on page 11.
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to selected
leases that have a lease term of 12 months or less from the commencement date
and do not contain a purchase option and where it is not reasonably certain
that the lease term will be extended. It also applies the low-value assets
recognition exemption to leases of assets of low value based on the value of
the asset when it is new, regardless of the age of the asset being leased.
Lease payments on short-term leases and leases of low-value assets are
recognised as an expense on a straight-line basis over the lease term.
On the balance sheet, right of use assets have been included in property,
plant and equipment and lease liabilities have been included in borrowings
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 2020 and medium term plans, with due regard for the risks and
uncertainties to which the Group is exposed, the uncertain economic climate
and the impact that this could have on trading performance. Based on this
review, the Directors believe that the Company and the Group have adequate
resources to continue in operational existence for the foreseeable future.
Accordingly, the 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
2019.
2 Revenue
6 months to 6 months to 30 September 2018 £m Year to 31 March 2019 £m
30 September 2019
£m
Services rendered 3,408.4 3,203.3 6,933.1
First Rail franchise subsidy receipts 123.5 100.0 193.8
Revenue 3,531.9 3,303.3 7,126.9
Disaggregated revenue by operating segment is set out in note 4.
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, material property gains or losses, aged legal and
self-insurance claims, significant adverse development factors on insurance
provisions, onerous contract provisions, impairment charges and pension
settlement gains or losses including GMP equalisation. In addition, management
assess divisional performance before other intangible asset amortisation
charges as these are typically a result of Group decisions and therefore the
divisions have little or no control over these charges. Management consider
that this overall basis more appropriately reflects operating performance and
provides a better understanding of the key performance indicators of the
business.
Reconciliation of operating (loss)/profit to adjusted operating profit 6 months to 6 months to 30 September 2018 £m Year to 31 March 2019 £m
30 September 2019
£m
Operating (loss)/profit (118.1) 46.3 9.8
Adjustments for:
Other intangible asset amortisation charges 11.8 17.6 29.9
Greyhound impairment charges 124.4 - -
North America insurance provisions 59.3 - 94.8
Legacy pension settlement 4.9 - -
SWR onerous contract provision - - 145.9
Gain on disposal of property - - (9.3)
Guaranteed minimum pensions charges - - 21.5
Restructuring and reorganisation costs 15.4 28.5 24.1
Loss on disposal/impairment charges - - 16.2
Total operating profit adjustments 215.8 46.1 323.1
Adjusted operating profit 97.7 92.4 332.9
Reconciliation of loss before tax to adjusted profit before tax 6 months to 6 months to 30 September 2018 £m Year to 31 March 2019 £m
30 September 2019
£m
Loss before tax (187.1) (4.6) (97.9)
Operating profit adjustment (see table above) 215.8 46.1 323.1
Notional interest on TPE onerous contract provision - 0.5 1.1
Adjusted profit before tax 28.7 42.0 226.3
Adjusted tax charge (4.2) (9.4) (50.9)
Non-controlling interests - 2.3 (1.8)
Adjusted earnings 24.5 34.9 173.6
The principal adjusting items are as follows:
Other intangible asset amortisation charges
The charge for the period was £11.8m (H1 2018: £17.6m) with the reduction
due to a number of customer contract intangibles which have now been fully
amortised.
Greyhound impairment charges
Greyhound profit has been below budget in recent months. This principally
reflects the decline in immigration related flows on the Southern US border
states in the second quarter and increased competition on some routes. In
light of this, we have revised our short term and medium term financial
forecasts for the Greyhound division. The revised value in use forecasts have
led to an impairment to the carrying value of Greyhound of £124.4m. The
impairment has been recognised in the H1 2019 results on a pro-rata basis
against the assets of the division excluding property. Valuations in excess of
book value suggest no impairment to the carrying value of property. Whilst we
are engaged in ongoing discussions regarding a possible sale of all or part of
the business, we remain focused on balancing commercial initiatives to
optimise pricing and capacity allocation with mileage reduction.
3 Reconciliation to non-GAAP measures and performance (continued)
North America insurance provisions
First Group North American insurance arrangements involve retaining the
working loss layers in a captive and insuring against the higher losses. Based
on our actuaries’ recommendation and a second additional, independent
actuarial review, last year we increased our reserve to $533m. During the
first six months of this financial year we have continued to see a
deteriorating claims environment with legal judgements increasingly in favour
of plaintiffs and punitive in certain regions. In this hardening motor claims
environment, we have seen further significant new adverse settlements and
developments on a number of aged insurance claims, and as a result our
actuaries have increased their expectation of the reserve required on prior
year claims.
In addition, there has been a significant change in the market based discount
rate used in the actuarial calculation from 2.7% to 1.6%, creating the
requirement to increase the provision.
In light of the continued change in claims environment we have increased the
provision further by $34m to provide more protection for prior year claims,
and the resulting self-insurance reserve level is above the midpoint of the
actuarial range. These changes in accounting estimates combined with the
discount rate movement has resulted in the Group recording an additional
charge of $83.2m or £67.5m; $73.1m or £59.3m relating to the prior year
settlements is disclosed as an adjusting item, and $10.1m or £8.2m relating
to the change in the discount rate movement has been included in operating
profit and treated as non-adjusting. It is expected that the majority of these
claims will be settled over the next five years. The charge to the operating
profit for the current period reflects this revised environment. Following the
half year charges, the provision at 30 September 2019 stands at $588m compared
with the actuarial range of $490m to $610m.
The Group has a strong focus on safety and risk management in this area and
this will continue to be a key area of focus for the Group.
Restructuring and reorganisation costs
There was a charge of £15.4m for restructuring and reorganisation costs
relating to a Group wide initiative to achieve systematic and structured cost
savings across the businesses with the assistance of a market leading
organisation in this field. In addition, trading losses in the two Manchester
depots to the date of disposal have been included. The H1 2018 charge of
£28.5m related to restructuring and reorganisation costs on Greyhound’s
withdrawal of services in Western Canada.
Legacy pension settlement
This relates to a legacy pension liability from a business disposal which
First Transit made in 2013.
Reconciliation of constant currency(1)
6 months to
30 September 2018
6 months to Reported £m Effect of foreign exchange £m Constant Currency £m % change
30 September 2019 £m
Revenue 3,531.9 3,303.3 90.1 3,393.4 +4.1%
Operating profit 97.7 92.4 3.3 95.7 +2.1%
Adjusted profit before tax 28.7 42.0 2.8 44.8 (35.9)%
Adjusted EPS 2.0p 2.9p 0.2p 3.1p (35.5)%
Net debt 2,084.1 1,047.7 18.4 1,066.1 +95.5%
(1) Changes ‘in constant currency’ throughout this document are based
on retranslating H1 2018 foreign currency amounts at H1 2019 rates.
4 Business segments information
The segment results for the six months to 30 September 2019 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 - - 301.7 388.6 1,095.8 - 1,786.1
Contract revenues 748.2 520.2 - 28.8 - 8.2 1,305.4
Charter/private hire 95.6 2.7 1.7 2.2 - - 102.2
Rail franchise subsidy receipts - - - - 123.5 - 123.5
Other revenues 7.8 65.8 32.0 4.9 104.2 - 214.7
Revenue 851.6 588.7 335.4 424.5 1,323.5 8.2 3,531.9
EBITDA (2) 127.7 29.0 35.2 54.3 204.0 (16.0) 434.2
Depreciation (109.4) (15.2) (22.3) (33.9) (169.4) (2.1) (352.3)
Capital grant amortisation - - 0.4 1.1 14.3 - 15.8
Segment results 18.3 13.8 13.3 21.5 48.9 (18.1) 97.7
Other intangible asset amortisation charges (2.7) (1.1) (6.8) (0.4) (0.5) (0.3) (11.8)
Other adjustments (note 3) (34.3) (24.1) (134.2) (5.4) - (6.0) (204.0)
Operating profit/(loss) (18.7) (11.4) (127.7) 15.7 48.4 (24.4) (118.1)
Pre IFRS 16:
Segment results 18.6 14.2 12.0 20.6 41.4 (18.1) 88.7
EBITDA (2) 111.6 24.7 25.6 45.6 62.2 (16.8) 252.9
Balance sheet Total assets Total liabilities Net assets/(liabilities)
£m £m £m
First Student 3,132.1 (574.6) 2,557.5
First Transit 685.6 (220.7) 464.9
Greyhound 339.7 (338.8) 0.9
First Bus 740.0 (385.8) 354.2
First Rail 1,223.4 (1,119.5) 103.9
6,120.8 (2,639.4) 3,481.4
Group items 116.0 (84.3) 31.7
Net debt (3) 599.9 (2,684.0) (2,084.1)
Taxation 70.7 (61.3) 9.4
Total 6,907.4 (5,469.0) 1,438.4
(1) Group items comprise Tram operations, central management and other
items.
(2) EBITDA is adjusted operating profit less capital grant
amortisation plus depreciation.
(3) Net debt includes lease liabilities recognised under IFRS 16 of
£1,115.6m and comprises First Student £181.7m, First Transit £29.5m,
Greyhound £97.7m, First Bus £71.3m, First Rail £726.1m and Group items
£9.3m.
4 Business segments information (continued)
The segment results for the six months to 30 September 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 - - 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
(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 2,772.6 (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
4 Business segments information (continued)
The segment results for the year to 31 March 2019 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 - - 571.3 796.3 2,300.0 - 3,667.6
Contract revenues 1,680.0 947.7 - 68.3 - 17.1 2,713.1
Charter/private hire 153.2 4.9 3.3 - - - 161.4
Rail franchise subsidy receipts - - - - 193.8 - 193.8
Other revenues 12.7 123.2 70.5 11.5 172.9 0.2 391.0
Revenue 1,845.9 1,075.8 645.1 876.1 2,666.7 17.3 7,126.9
EBITDA (2) 352.3 71.4 38.6 119.7 127.4 (39.1) 670.3
Depreciation (178.8) (19.9) (27.7) (56.1) (81.0) (2.5) (366.0)
Capital grant amortisation - - 0.5 2.2 25.9 - 28.6
Segment results 173.5 51.5 11.4 65.8 72.3 (41.6) 332.9
Other intangible asset amortisation charges (10.9) (2.2) (12.0) (0.7) (3.5) (0.6) (29.9)
Other adjustments (note 3) (47.3) (26.2) (33.2) (37.7) (145.9) (2.9) (293.2)
Operating profit/(loss) 115.3 23.1 (33.8) 27.4 (77.1) (45.1) 9.8
(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 2,837.7 (461.5) 2,376.2
First Transit 596.8 (192.7) 404.1
Greyhound 337.1 (319.3) 17.8
First Bus 678.0 (354.6) 323.4
First Rail 625.4 (1,331.4) (706.0)
5,075.0 (2,659.5) 2,415.5
Group items 136.7 (120.1) 16.6
Net debt 692.9 (1,596.3) (903.4)
Taxation 44.0 (49.4) (5.4)
Total 5,948.6 (4,425.3) 1,523.3
5 Investment income and finance costs
6 months to 6 months to 30 September 2018 £m Year to 31 March 2019 £m
30 September 2019
£m
Investment income
Bank interest receivable (1.2) (1.1) (2.7)
Finance costs
Bonds 28.2 30.2 59.9
Bank borrowings 8.7 5.4 14.0
Senior unsecured loan notes 4.7 4.4 8.9
Loan notes 0.6 0.5 1.1
Finance charges payables in respect of leases 17.4 1.5 2.7
Notional interest on long term provisions 5.9 5.6 14.6
Notional interest on pensions 4.7 3.9 8.1
Finance costs before adjustments 70.2 51.5 109.3
Notional interest on TPE onerous contract provision - 0.5 1.1
Net finance costs 70.2 52.0 110.4
Finance costs before adjustments 70.2 51.5 109.3
Investment income (1.2) (1.1) (2.7)
Net finance costs before adjustments 69.0 50.4 106.6
6 Tax on profit on ordinary activities
6 months to 6 months to 30 September 2018 £m Year to 31 March 2019 £m
30 September 2019
£m
Current tax charge 0.5 1.4 8.2
Deferred tax (credit)/charge (14.7) 3.2 1.9
Total tax (credit)/charge (14.2) 4.6 10.1
The tax effect of the adjustments disclosed in note 3 was a credit of £18.4m
in H1 2019 (H1 2018: credit of £4.8m; full year 2019: credit of £40.8m).
7 Earnings per share (EPS)
EPS is calculated by dividing the loss attributable to equity shareholders of
£172.9m in H1 2019 (H1 2018: loss £6.9m; full year 2019: loss £66.9m) by
the weighted average number of ordinary shares in issue of 1,211.3m (H1 2018:
1,205.0m; full year 2019: 1,205.9m). The number of ordinary shares used for
the basic and diluted calculations are shown in the table below.
The difference in the number of shares between the basic calculation and the
diluted calculation represents the weighted average number of potentially
dilutive ordinary share options.
30 September 2019 30 September 2018 number m 31 March 2019 number m
number
m
Weighted average number of shares used in basic calculation 1,211.3 1,205.0 1,205.9
Executive share options 13.6 12.4 8.1
Weighted average number of shares used in the diluted calculation 1,224.9 1,217.4 1,214.0
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 2018 Year to 31 March 2019
30 September 2019
£m EPS (p) £m EPS (p) £m EPS (p)
Basic loss / EPS (172.9) (14.3) (6.9) (0.6) (66.9) (5.5)
Other intangible asset amortisation charges (note 9) 11.8 1.0 17.6 1.5 29.9 2.5
Notional interest on onerous contract provision - - 0.5 - 1.1 0.1
Other adjustments (note 3) 204.0 16.8 28.5 2.4 293.2 24.3
Non-controlling interest share of the SWR onerous contract provisions - - - - (42.9) (3.6)
Tax effect of above adjustments (18.4) (1.5) (4.8) (0.4) (40.8) (3.4)
Adjusted profit / EPS 24.5 2.0 34.9 2.9 173.6 14.4
6 months to 6 months to 30 September 2018 pence Year to 31 March 2019 pence
30 September 2019
pence
Diluted EPS (14.3) (0.6) (5.5)
Adjusted diluted EPS 2.0 2.9 14.3
8 Goodwill and impairment of assets
£m
Cost
At 1 April 2019 1,862.7
Foreign exchange movements 93.2
At 30 September 2019 1,955.9
Accumulated impairment losses
At 1 April 2019 and 30 September 2019 264.6
Carrying amount
At 30 September 2019 1,691.3
At 31 March 2019 1,598.1
At 30 September 2018 1,604.2
8 Goodwill and impairment of assets (continued)
Disclosures including goodwill by cash generating unit (CGU), details of
impairment testing and sensitivities thereon are set out on page 129 of the
2019 Annual Report.
The sensitivity analysis performed at 31 March 2019 indicated that no
reasonably possible changes in the assumptions would cause the carrying amount
of the CGUs to exceed their recoverable amount in respect of the First
Student, First Transit, First Bus and First Rail divisions.
At 31 March 2019 the carrying value of the Greyhound CGU was reviewed for
impairment in accordance with IAS 36 Impairment of Assets. For the purposes of
this impairment the carrying value was tested for impairment on the basis of
discounted future cash flows arising. As at 31 March 2019 the calculated value
in use of the Greyhound division exceeded its carrying amount of £295.4m by
£85.2m. Following their review at 31 March 2019, the Directors concluded that
there should be no impairment in Greyhound.
Following a marked decline in immigration related cash flows, we have revised
our short term and medium term value in use forecasts for the Greyhound
division. The revised forecasts indicate an impairment of £124.4m.
For the purposes of the impairment review a risk adjusted view of the
discounted future cash flows for the next three years was prepared to
determine the value in use for the Greyhound CGU. Short and medium term cash
flows have been adjusted for recent immigration trends and increased
competition in certain routes. A long term revenue growth rate of 2.8% (March
2019: 2.8%) has been assumed. Cash flows are discounted using a pre-tax
discount rate of 7.8% (March 2019: 8.3%). The pre-tax discount rates applied
are derived from a market participant’s weighted average cost of capital.
The assumptions used in the calculation of the Group’s weighted average cost
of capital are benchmarked to externally available data.
This indicated an impairment of £124.4m which has been recognised in the H1
2019 results on a pro-rata basis against the assets of the division excluding
property. Valuations of property suggest no impairment to the carrying value
of property. The carrying value of the CGU after recognising an impairment of
£124.4m is £179.2m ($220.2m).
The Greyhound impairment is sensitive to a change in the assumptions used,
most notably to changes in the discount rate, terminal growth rate or terminal
margin. A summary of the movements in the impairment charge recorded at 30
September 2019 from a 1% change in these assumptions is as follows:
* 1% increase in discount rate would have increased the impairment charge by
£47.3m
* 1% reduction in terminal growth rate would have increased the impairment
charge by £40.7m
* 1% reduction in terminal margin would have increased the impairment charge
by £108.7m.
9 Other intangible assets
Customer contracts £m Greyhound brand and trade name £m Software £m Total £m
Cost
At 1 April 2019 471.4 71.5 76.2 619.1
Acquisitions (note 18) 1.2 - - 1.2
Additions - - 4.0 4.0
Transfers - - 1.0 1.0
Foreign exchange movements 29.0 4.4 3.6 37.0
At 30 September 2019 501.6 75.9 84.8 662.3
Accumulated amortisation and impairment
At 1 April 2019 460.3 43.7 40.0 544.0
Charge for the period 1.2 1.7 8.9 11.8
Transfers - - 0.9 0.9
Impairment - 11.7 5.0 16.7
Foreign exchange movements 28.4 2.8 2.7 33.9
At 30 September 2019 489.9 59.9 57.5 607.3
Carrying amount
At 30 September 2019 11.7 16.0 27.3 55.0
At 31 March 2019 11.1 27.8 36.2 75.1
At 30 September 2018 12.3 29.6 38.7 80.6
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.
The impairment charges of £16.7m in H1 2019 relates to assets associated with
Greyhound (£11.7m of brand and trade name and £5.0m of software).
10 Property, plant and equipment
Owned assets
Land and buildings £m Passenger carrying vehicle fleet £m Other plant and equipment £m Total £m
Cost
At 31 March 2019 463.9 3,384.6 866.9 4,715.4
Adjustments on transition to IFRS 16 - (167.6) - (167.6)
At 1 April 2019 463.9 3,217.0 866.9 4,547.8
Acquisitions (note 18) - 2.3 - 2.3
Additions 6.6 166.7 61.1 234.4
Transfers from right of use assets - 22.3 - 22.3
Disposals (3.3) (55.7) (45.2) (104.2)
Reclassified as held for sale (21.0) (44.0) 6.6 (58.4)
Foreign exchange movements 17.2 154.8 19.9 191.9
At 30 September 2019 463.4 3,463.4 909.3 4,836.1
Accumulated depreciation and impairment
At 31 March 2019 101.0 1,780.0 668.5 2,549.5
Adjustments on transition to IFRS 16 - (93.2) - (93.2)
At 1 April 2019 101.0 1,686.8 668.5 2,456.3
Transfers from right of use assets - 7.7 - 7.7
Charge for period 6.0 119.8 51.0 176.8
Disposals (1.2) (54.1) (45.0) (100.3)
Impairment - 70.2 4.9 75.1
Reclassified as held for sale (2.6) (50.6) 6.0 (47.2)
Foreign exchange movements 4.9 81.2 17.1 103.2
At 30 September 2019 108.1 1,861.0 702.5 2,671.6
Carrying amount
At 30 September 2019 355.3 1,602.4 206.8 2,164.5
At 31 March 2019 362.9 1,604.6 198.4 2,165.9
At 30 September 2018 378.2 1,643.4 175.3 2,196.9
The impairment charge of £75.1m relates to Greyhound.
Right of use assets
Rolling stock £m Land and buildings £m Passenger carrying vehicle fleet £m Other plant and equipment £m Total £m
Cost
At 31 March 2019 - - - - -
Adjustment on transition to IFRS 16 829.4 217.2 257.1 4.3 1,308.0
At 1 April 2019 829.4 217.2 257.1 4.3 1,308.0
Additions 70.5 6.8 53.5 0.2 131.0
Transfer to owned assets - - (22.3) - (22.3)
Foreign exchange movements - 10.6 12.8 - 23.4
At 30 September 2019 899.9 234.6 301.1 4.5 1,440.1
Accumulated depreciation and impairment
At 31 March 2019 - - - - -
Adjustment on transition to IFRS 16 208.6 - 93.2 - 301.8
At 1 April 2019 208.6 - 93.2 - 301.8
Transfer from onerous contract provision 44.2 - - - 44.2
Transfer to owned assets - - (7.7) - (7.7)
Charge for period 132.8 27.2 14.4 1.1 175.5
Impairment - 23.6 9.0 - 32.6
Foreign exchange movements - 0.6 6.7 - 7.3
At 30 September 2019 385.6 51.4 115.6 1.1 553.7
Carrying amount
At 30 September 2019 514.3 183.2 185.5 3.4 886.4
At 31 March 2019 - - - - -
At 30 September 2018 - - - - -
The impairment charge of £32.6m relates to Greyhound.
10 Property, plant and equipment (continued)
Owned assets and right of use assets
Rolling stock £m Land and buildings £m Passenger carrying vehicle fleet £m Other plant and equipment £m Total £m
Carrying amount
At 30 September 2019 514.3 538.5 1,787.9 210.2 3,050.9
At 31 March 2019 - 362.9 1,604.6 198.4 2,165.9
At 30 September 2018 - 378.2 1,643.4 175.3 2,196.9
11 Assets held for sale
30 September 2019 30 September 2018 £m 31 March 2019 £m
£m
Assets held for sale 24.8 25.4 31.7
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 2019 30 September 2018 £m 31 March 2019 £m
£m
Trade receivables 501.3 441.4 617.9
Loss allowance (3.3) (3.9) (3.6)
Trade receivables net 498.0 437.5 614.3
Other receivables 150.2 76.5 84.9
Amounts recoverable on contracts 78.3 7.2 43.3
Other prepayments 156.2 140.7 164.0
Accrued income 328.7 253.2 234.9
1,211.4 915.1 1,141.4
13 Trade and other payables
Amounts falling due within one year 30 September 2019 30 September 2018 £m 31 March 2019 £m
£m
Trade payables 330.4 257.9 278.7
Other payables 339.1 273.6 299.8
Accruals 740.3 648.2 710.3
Deferred income 157.9 107.0 167.8
Season ticket deferred income 83.4 83.4 90.7
1,651.1 1,370.1 1,547.3
14 Borrowings
30 September 2019 30 September 2018 £m 31 March 2019 £m
£m
On demand or within 1 year
Leases 442.7 51.1 41.5
Loan notes (note 15) 8.7 - -
Bond 6.125% (repayable 2019) - 263.7 -
Bond 8.75% (repayable 2021) 14.6 14.7 30.4
Bond 5.25% (repayable 2022) 14.6 14.6 5.8
Bond 6.875% (repayable 2024) 0.4 0.4 7.2
Total current liabilities – borrowings 481.0 344.5 84.9
Within 1 – 2 years
Leases 180.6 39.1 18.1
Loan notes (note 15) 0.7 9.4 9.4
Bond 8.75% (repayable 2021) 357.1 - -
538.4 48.5 27.5
Within 2 – 5 years
Bank loan facilities 465.6 213.0 446.7
Leases 423.7 0.4 0.2
Bond 8.75% (repayable 2021) - 357.4 357.7
Bond 5.25% (repayable 2022) 322.1 321.6 322.1
Bond 6.875% (repayable 2024) 199.8 - -
1,411.2 892.4 1,126.7
More than 5 years
Leases 68.6 0.1 0.1
Senior unsecured loan notes 222.8 210.0 210.0
Bond 6.875% (repayable 2024) - 199.8 199.8
291.4 409.9 409.9
Total non-current liabilities at amortised cost – borrowings 2,241.0 1,350.8 1,564.1
15 Loan notes
The Group had the following loan notes issued as at the balance sheet dates:
30 September 2019 30 September 2018 £m 31 March 2019 £m
£m
Due within 12 months 8.7 - -
Due within 1 – 2 years 0.7 9.4 9.4
16 Derivative financial instruments
30 September 2019 30 September 2018 £m 31 March 2019 £m
£m
Total derivatives
Total non-current assets 15.0 41.4 20.5
Total current assets 10.2 44.6 15.5
Total assets 25.2 86.0 36.0
Total current liabilities 4.3 0.1 3.4
Total non-current liabilities 8.5 - 1.9
Total liabilities 12.8 0.1 5.3
Derivatives designated and effective as hedging instruments carried at fair value
Non-current assets
Coupon swaps (fair value hedge) 11.4 12.2 16.2
Currency forwards (cash flow hedge) 3.2 2.2 1.6
Fuel derivatives (cash flow hedge) 0.4 27.0 2.7
15.0 41.4 20.5
Current assets
Coupon swaps (fair value hedge) - 13.8 -
Fuel derivatives (cash flow hedge) 2.3 27.3 11.3
Currency forwards (cash flow hedge) 7.8 3.5 4.2
10.1 44.6 15.5
Current liabilities
Fuel derivatives (cash flow hedge) 4.3 0.1 3.4
4.3 0.1 3.4
Non-current liabilities
Fuel derivatives (cash flow hedge) 8.5 - -
Currency forwards (cash flow hedge) - - 1.9
8.5 - 1.9
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)).
Derivatives classified as held for trading
Current assets
Currency forwards 0.1 - -
16 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 2019
Fair value Carrying value
Total
£m
Level 1 Level 2 Level 3 Total
£m £m £m £m
Financial assets
Cash and cash equivalents 599.9 - - 599.9 599.9
Trade and other receivables - 955.1 - 955.1 955.1
Derivative financial instruments - 25.2 - 25.2 25.2
Financial liabilities and derivatives
Financial liabilities 465.6 2,369.3 - 2,834.9 2,722.0
Trade and other payables - 1,535.6 - 1,535.6 1,535.6
Derivative financial instruments - 12.8 - 12.8 12.8
30 September 2018
Fair value Carrying value Total £m
Level 1 £m Level 2 £m Level 3 £m Total £m
Financial assets
Cash and cash equivalents 595.0 - - 595.0 595.0
Trade and other receivables - 715.1 - 715.1 715.1
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
31 March 2019
Fair value Carrying value Total £m
Level 1 £m Level 2 £m Level 3 £m Total £m
Financial assets
Cash and cash equivalents 692.9 - - 692.9 692.9
Trade and other receivables - 894.1 - 894.1 894.1
Derivative financial instruments - 36.0 - 36.0 36.0
Financial liabilities and derivatives
Financial liabilities 446.7 1,294.9 - 1,741.6 1,649.0
Trade and other payables - 1,430.9 - 1,430.9 1,430.9
Derivative financial instruments - 5.3 - 5.3 5.3
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 2019 30 September 2018 31 March 2019
Derivative contracts
1. Interest rate swaps 11.4 26.0 16.2 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 (10.1) 54.2 8.7 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 11.1 5.7 5.8 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 955.1 715.1 894.1 Level 2 Carried at amortised cost using the effective interest rate method.
5. Trade and other payables 1,535.6 1,589.1 1,430.9 Level 2 Initially measured at fair value and are subsequently measured at amortised cost using the effective interest rate method.
6. Borrowings 2,834.9 1,774.1 1,741.6 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.
17 Provisions
30 September 2019 30 September 2018 £m 31 March 2019 £m
£m
Insurance claims 354.5 234.9 292.7
Legal and other 40.8 40.6 35.5
TPE onerous contract - 51.3 76.6
SWR onerous contract - - 125.5
Pensions 1.7 1.9 1.7
Non-current liabilities 397.0 328.7 532.0
Insurance claims £m Legal and other £m TPE onerous contract £m SWR onerous contract £m Pensions £m Total £m
At 1 April 2019 471.8 71.6 106.9 145.9 1.7 797.9
Adjustment on transition to IFRS 16 - - (62.7) (145.9) - (208.6)
Charged to the income statement 157.9 13.6 - - - 171.5
Impairment of right of use asset additions - - (44.2) - - (44.2)
Utilised in the period (119.0) (16.8) - - - (135.8)
Notional interest 5.9 - - - - 5.9
Foreign exchange movements 24.2 1.8 - - - 26.0
At 30 September 2019 540.8 70.2 - - 1.7 612.7
Current liabilities 186.3 29.4 - - - 215.7
Non-current liabilities 354.5 40.8 - - 1.7 397.0
At 30 September 2019 540.8 70.2 - - 1.7 612.7
Current liabilities 179.1 36.1 30.3 20.4 - 265.9
Non-current liabilities 292.7 35.5 76.6 125.5 1.7 532.0
At 31 March 2019 471.8 71.6 106.9 145.9 1.7 797.9
Current liabilities 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
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 £32.4m in H1 2019 (H1 2018:
£22.8m) can extend for up to 30 years. The utilisation of £119.0m in H1 2019
(H1 2018: £100.7m) represents payments made largely against the current
liability of the preceding year.
The insurance claims provision at H1 2019 by division is as follows:
30 September 2019
£m
Student 251.1
Transit 150.7
Greyhound 100.5
Total North America 502.3
First Bus 33.2
First Rail 5.3
Total insurance claims provision 540.8
The insurance claims provisions contain £22.8m in H1 2019 (H1 2018: £15.5m)
which is recoverable from insurance companies and is included within other
receivables in note 12.
Legal and other provisions relate to estimated exposures for cases filed or
thought highly likely to be filed for incidents that occurred prior to the
balance sheet date. It is anticipated that most of these items will be settled
within 10 years. Also included are provisions in respect of costs anticipated
on the exit of surplus properties which are expected to be settled over the
remaining terms of the respective leases and dilapidation 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.
In accordance with IAS 36 Impairment of assets the opening onerous contract
provision for SWR of £145.9m was reclassified as an impairment on ROUA on
adoption of IFRS 16. Similarly, £62.7m of the opening TPE onerous contract
provision was reclassified as an opening impairment on ROUA with the remaining
balance of £44.2m being reclassified as impairment on ROUA additions in the
period.
The 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.
18 Acquisition of businesses and subsidiary undertakings
30 September 2019 30 September 2018 £m 31 March 2019 £m
£m
Provisional fair value of net assets acquired:
Property, plant and equipment 2.3 1.5 1.5
Other intangible assets 1.2 0.7 0.7
Other liabilities (0.5) (0.2) (0.2)
3.0 2.0 2.0
Goodwill - 0.6 0.6
Satisfied by cash paid and payable 3.0 2.6 2.6
On 19 August 2019, the Group completed the acquisition of the contracts for
Longwood School District from East End Bus Lines, Inc. a provider of school
and charter transportation services. The £3.0m consideration represents
£3.0m cash paid in the period.
19 Called up share capital
30 September 2019 30 September 2018 £m 31 March 2019 £m
£m
Allotted, called up and fully paid
1,215.4m ordinary shares of 5p each 60.8 60.6 60.7
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 in H1
2019 was 1,214.0m (H1 2018: 1,205.9m). At the end of the period in H1 2019
1.4m shares (H1 2018: 6.0m shares) were being held as treasury shares and own
shares held in trust for employees.
20 Net cash for operating activities
30 September 2019 30 September 2018 £m 31 March 2019 £m
£m
Operating (loss)/profit (118.1) 46.3 9.8
Adjustments for:
Depreciation charges 352.3 184.6 366.0
Capital grant amortisation (15.8) (21.9) (28.6)
Amortisation charges 11.8 17.6 29.9
Impairment charges 124.4 2.7 13.0
Share-based payments 4.6 4.7 9.1
Loss/(profit) on disposal of property, plant and equipment 0.9 (4.4) (23.5)
Operating cash flows before working capital and pensions 360.1 229.6 375.7
Increase in inventories (1.1) (2.7) (2.0)
(Increase)/decrease in receivables (33.8) 13.8 (209.4)
Increase in payables and provisions due within one year 65.4 99.3 332.5
SWR onerous contract provision - - 145.9
TPE onerous contract provision - (20.1) (0.5)
Increase/(decrease) in provisions 43.6 (5.9) 37.3
Defined benefit pension payments in excess of income statement charge (33.3) (30.8) (24.3)
Cash generated by operations 400.9 283.2 655.2
Tax paid (2.0) (4.3) (7.5)
Interest paid (49.9) (48.8) (81.3)
Interest element of leases (17.4) (1.5) (2.7)
Net cash from operating activities 331.6 228.6 563.7
21 Analysis of changes in net debt
At 1 April 2019 £m IFRS 16 Transitional Adjustment £m Adjusted cash flow £m Foreign Exchange £m Other £m At 30
September
2019
£m
Components of financing activities:
Bank loans (446.7) - (7.0) (11.5) (0.4) (465.6)
Bonds (879.7) - - - 0.8 (878.9)
Fair value of interest rate coupon swaps 9.4 - - - (1.1) 8.3
Senior unsecured loan notes (210.0) - (12.7) (0.1) (222.8)
Lease liabilities (1) (59.9) (1,168.2) 20.2 (13.2) 105.5 (1,115.6)
Other debt (9.4) - - - - (9.4)
Total components of financing activities (1,596.3) (1,168.2) 13.2 (37.4) 104.7 (2,684.0)
Cash 167.3 - (63.3) (1.8) - 102.2
Ring-fenced cash 525.6 - (27.9) - - 497.7
Cash and cash equivalents 692.9 - (91.2) (1.8) - 599.9
Net debt (903.4) (1,168.2) (78.0) (39.2) 104.7 (2,084.1)
(1) Lease liabilities ‘other’ includes £237m decrease in leases
formerly classified as operating leases net of the £131m inception of new
leases.
At 1 April 2018 £m Adjusted 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 2018 £m Adjusted cash flow £m Foreign Exchange £m Other £m At 31 March 2019 £m
Components of financing activities:
Bank loans (197.0) (255.0) 5.4 (0.1) (446.7)
Bonds (1,138.6) 250.0 - 8.9 (879.7)
Fair value of interest rate coupon swaps 19.0 - - (9.6) 9.4
Senior unsecured loan notes (195.2) - (14.8) - (210.0)
Finance lease obligations (104.7) 53.1 (7.0) (1.3) (59.9)
Other debt (9.5) 0.1 - - (9.4)
Total components of financing activities (1,626.0) 48.2 (16.4) (2.1) (1,596.3)
Cash 163.4 15.8 (11.9) - 167.3
Ring-fenced cash 392.3 133.3 - - 525.6
Cash and Cash equivalents 555.7 149.1 (11.9) - 692.9
Net debt (1,070.3) 197.3 (28.3) (2.1) (903.4)
All values above exclude accrued interest.
22 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 154 to 155 of the Annual
Report and Accounts for the year ended 31 March 2019.
The Group currently sponsors six sections of the Railways Pension Scheme
(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 2019 for all defined benefit
schemes totalled £5,601m (H1 2018: £5,275m; full year 2019: £5,239m).
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.
The key assumptions were as follows:
30 September 2019 30 September 2018 31 March 2019
First Bus First Rail North America First Bus % First Rail % North America % First Bus % First Rail % North America %
% % %
Key assumptions used:
Discount rate 1.80 1.80 2.95 2.85 2.85 4.10 2.40 2.40 3.50
Expected rate of salary increases 2.05 3.45 2.50 2.20 3.45 2.50 2.15 3.40 2.50
Inflation – CPI 2.05 2.05 2.00 2.20 2.20 2.00 2.15 2.15 2.00
Future pension increases 2.05 2.05 - 2.20 2.20 - 2.15 2.15 -
Amounts (charged)/credited to the condensed consolidated income statement in
respect of these defined benefit schemes are as follows:
6 months to 30 September 2019 First North America Total First Total
Bus £m non-rail Rail £m
£m £m £m
Current service cost (6.4) (4.5) (10.9) (45.6) (56.5)
Impact of franchise adjustment on operating cost - - - 27.2 27.2
Net interest cost (1.7) (2.9) (4.6) (8.7) (13.3)
Impact of franchise adjustment on net interest cost - - - 8.7 8.7
(8.1) (7.4) (15.5) (18.4) (33.9)
6 months to 30 September 2018 First Bus £m North America £m Total non-rail £m First Rail £m Total £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)
Year to 31 March 2019 First Bus £m North America £m Total non-rail £m First Rail £m Total £m
Current service cost (12.5) (9.1) (21.6) (87.7) (109.3)
Impact of franchise adjustment on operating cost – – – 50.8 50.8
Past service gain on TOC schemes (22.3) (2.0) (24.3) (1.8) (26.1)
Net interest cost (2.4) (5.6) (8.0) (16.8) (24.8)
Impact of franchise adjustment on net interest cost – – – 16.7 16.7
(37.2) (16.7) (53.9) (38.8) (92.7)
22 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 2019 First Bus North America Total non-rail First Rail Total
£m £m £m £m £m
Fair value of schemes' assets 2,854.4 497.0 3,351.4 2,249.1 5,600.5
Present value of defined benefit obligations (2,813.5) (669.5) (3,483.0) (3,898.9) (7,381.9)
Surplus/(deficit) before adjustments 40.9 (172.5) (131.6) (1,649.8) (1,781.4)
Adjustment for irrecoverable surplus (1) (195.7) - (195.7) - (195.7)
First Rail franchise adjustment (60%) - - - 986.1 986.1
Adjustment for employee share of RPS deficits (40%) - - - 659.9 659.9
Liability recognised in the condensed consolidated balance sheet (154.8) (172.5) (327.3) (3.8) (331.1)
The amount is presented in the condensed consolidated balance sheet as follows:
Non-current assets 78.0 - 78.0 - 78.0
Non-current liabilities (232.8) (172.5) (405.3) (3.8) (409.1)
(154.8) (172.5) (327.3) (3.8) (331.1)
As at 30 September 2018 First Bus £m North America £m Total non-rail £m First Rail £m Total £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 31 March 2019 First Bus £m North America £m Total non-rail £m First Rail £m Total £m
Fair value of schemes' assets 2,693.4 468.0 3,161.4 2,077.9 5,239.3
Present value of defined benefit obligations (2,644.9) (632.4) (3,277.3) (3,451.2) (6,728.5)
Surplus/(deficit) before adjustments 48.5 (164.4) (115.9) (1,373.3) (1,489.2)
Adjustment for irrecoverable surplus (1) (188.2) – (188.2) – (188.2)
First Rail franchise adjustment (60%) – – – 820.9 820.9
Adjustment for employee share of RPS deficits (40%) – – – 549.3 549.3
Liability recognised in the condensed consolidated balance sheet (139.7) (164.4) (304.1) (3.1) (307.2)
The amount is presented in the condensed consolidated balance sheet as follows:
Non-current assets 69.2 – 69.2 – 69.2
Non-current liabilities (208.9) (164.4) (373.3) (3.1) (376.4)
(139.7) (164.4) (304.1) (3.1) (307.2)
(1)The irrecoverable surplus represents the amount of the surplus that the
Group could not recover through reducing future company contributions to Local
LGPS.
23 Contingent liabilities
To support subsidiary undertakings in their normal course of business, the
FirstGroup plc and certain subsidiaries have indemnified certain banks and
insurance companies who have issued performance bonds for £937.6m (H1 2018:
£796.3m, March 2019: £806.5m) and letters of credit for £393.3m (H1 2018:
£352.3m, March 2019: £369.2m). The performance bonds relate to the North
American businesses of £652.4m (H1 2018: £557.8m, March 2019: £570.8m) and
the First Rail franchise operations of £285.2m (H1 2018: £238.5m, March
2019: £235.7m). 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 of which £74.7m remains undrawn.
The Group 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 Company’s North American
subsidiaries participate in a number of multi-employer pension schemes in
which their contributions are pooled with the contributions of other
contributing employers. The funding of these schemes are therefore reliant on
the ongoing participation by third parties.
In its normal course of business First Rail has ongoing contractual
negotiations with government and other organisations.
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.
The Group’s operations are required to comply with a wide range of
regulations, including environmental and emissions regulations. Failure to
comply with a particular regulation could result in a fine or penalty being
imposed on that business, as well as potential ancillary claims rooted in
non-compliance.
While the British Transport Police have now concluded their investigations
into the Croydon tram incident in November 2016 without bringing any charges,
the Office of Rail & Road (ORR) investigations are ongoing and it is uncertain
when they will be concluded. The tram was operated by Tram Operations Limited
(TOL), a subsidiary of the Group, under a contract with a TfL subsidiary. TOL
provides the drivers and management to operate the tram services, whereas the
infrastructure and trams are owned and maintained by a TfL subsidiary.
Management continue to monitor developments. To date, no ORR proceedings have
been commenced and, as such, it is not possible to assess whether any
financial penalties or related costs could be incurred.
On 14 November 2017, Reading Borough Council served First Greater Western
Limited (GWR), a subsidiary of the Group, and Network Rail Infrastructure
Limited (a third party) with a noise abatement notice in respect of the
operations at the Reading railway depot. The serving of the notice has been
appealed and the related court hearing is currently anticipated to take place
in summer 2020 at the earliest (unless the matter is settled between the
parties before that date). It is not possible at this stage to quantify the
implications for the GWR operations, if any, if they are not ultimately
successful with respect to this appeal.
On 26 February 2019, class action proceedings were commenced in the UK
Competition Appeal Tribunal (CAT) against First MTR South Western Trains
Limited (SWR). Equivalent claims have been brought against Stagecoach South
Western Trains Limited and London & South Eastern Railway. It is alleged that
SWR and the other defendants breached their obligations under competition law,
by (i) failing to make available, or (ii) restricting the practical
availability of, boundary fares for TfL Travelcard holders wishing to travel
outside TfL fare zones. The first substantive hearing, at which the CAT will
decide whether or not to certify the class action, has been postponed pending
the outcome of an appeal to the Supreme Court in a different class action and
is therefore unlikely to occur until late 2020 at the earliest. It is not
possible at this stage to determine accurately the likelihood or quantum of
any damages and costs, or the timing of any such damages or costs, which may
arise from the proceedings.
The Pensions Regulator (TPR) has been in discussion with the Railways Pension
Scheme (the Scheme) regarding the long term funding strategy of the Scheme.
The Scheme is an industry-wide arrangement, and the Group, together with other
owning groups, has been participating in a review of scheme funding led by the
Rail Delivery Group. Whilst the review is still ongoing, changes to the
current funding strategy are not expected in the short term. Whilst TPR
believes that a higher level of funding is required in the long term, it is
not possible at this stage to determine the impact to ongoing contribution
requirements.
24 Related party transactions
There are no related party transactions or changes since the Group’s 2019
Annual Report which could have a material effect on the Group’s financial
position or performance of the Group in the six months to 30 September 2019.
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.
Matthew
Gregory
Ryan Mangold
Director
Director
14 November
2019
14 November 2019
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 2019 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 2019 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
14 November 2019
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