REG-FirstGroup PLC: Half-year Report
10/12/2020 07:05
FIRSTGROUP PLC
HALF-YEARLY RESULTS FOR THE SIX MONTHS TO 30 SEPTEMBER 2020
* Resilient H1 performance; positive EBITDA and adjusted(1) op. profit, ahead
of expectations earlier in year
* Balance sheet reinforced and increased financial flexibility, robust cash
flow
* Improving visibility for our businesses
* Progress in portfolio rationalisation strategy
* Confident in our long-term fundamentals
H1 2020 H1 2019 £m Change £m Change excl. Avanti and in constant currency (4) £m
£m
Revenue 3,101.6 3,531.9 (430.3) (838.2)
Adjusted (1)operating profit 10.4 88.9 (78.5) (99.1)
Adjusted (1)operating profit margin 0.3% 2.5% (220)bps (280)bps
Adjusted (1)EPS (5.3)p 1.4p (6.7)p (7.3)p
Adjusted cash flow (2) 231.7 (78.0) +309.7
Net debt: EBITDA (bank covenant basis) (3) 1.5x 1.5x -
Statutory H1 2020 H1 2019 £m
£m
Revenue 3,101.6 3,531.9
Operating loss (16.4) (118.1)
EPS (8.3)p (14.3)p
Net cash from operating activities 688.2 331.6
Overview(5)
* Resilient performance in seasonally weaker H1 – adjusted operating profit
ahead of our expectations earlier in the year driven by proactive revenue
recovery and strong cost control:
* Substantial reduction in passenger volumes reflecting travel restrictions
and other pandemic effects
* Revenue of £3,101.6m fell by £838.2m or 23.8%, with reduced passenger
activity offset by government procurement of services to enable socially
distanced travel, and strong revenue recoveries from North American contract
customers
* Adjusted operating profit of £10.4m – despite significant fall in
revenue, profit reduction held to £99.1m vs prior period through variable
cost savings, c.£34m in fixed cost reductions and other management action,
including appropriate use of job retention measures
* Statutory operating loss of £16.4m (H1 2019: loss of £118.1m) and
statutory EPS of (8.3)p (H1 2019: (14.3)p) reflect £(26.8)m of net adjusting
items compared with £(207.0)m in H1 2019
* Balance sheet reinforced through prudent actions taken at the appropriate
times:
* Robust adjusted cash flow in period, stronger than expected. Capex
reprofiling and timing of working capital in First Student and First Rail also
enhanced cash in the period
* Comfortably met covenant tests for September 2020, as expected
* Enhanced headroom secured as a matter of prudence for 2021 covenant tests
* Current liquidity of £805m in free cash and committed undrawn facilities,
consistent with average levels since April
* Worked with our customers, governments and other stakeholders to ensure
continuation of safe public transport, which are critical services for
passengers and communities
* As announced separately, SWR and Avanti today agreed franchise termination
sums of £33.2m and nil respectively with Government; clearer path ahead with
National Rail Contracts now being discussed
* Progress in strategy to deliver improved shareholder value from all parts of
the portfolio:
* North American contract businesses: discussions with credible potential
buyers who have a long term perspective, which the company and its advisers
are exploring and evaluating
* First Bus well-placed to play a key role in delivering economic, social and
environmental agendas including the transition to a zero-carbon economy
* In First Rail the industry’s transition to a simpler, management
contract-style model will result in greater focus on passengers and more
appropriate balance of risk and reward
* Whilst the outlook remains uncertain due to the pandemic, visibility for our
businesses is improving based on current government and customer arrangements
and the expected trajectory of service restoration, and we are confident in
the long-term fundamentals of our businesses
Divisional summary
* First Student: 59% of buses currently operating following recent increases
in coronavirus cases; currently recovering c.75% of home-to-school revenue
pre-pandemic including recoveries from customers not yet operating full
service; 87% retention in bid season with major awards in Indianapolis and
Charleston, and new contracts including Pennsylvania; strong bolt-on M&A
pipeline with acquisition in Canada in the period and another signed this
month
* First Transit: delivering c.86% of expected revenue pre-pandemic; 91%
contract retention year to date including $225m Houston fixed route contract,
and new business wins including $88m Atlanta paratransit contract and
innovative eBike partnership with Nike and Lyft
* Greyhound: operating c.45% of pre-pandemic mileage through rigorous
management of service levels to match demand and underpinned by rural
intercity bus service grants, currently delivering c.41% of pre-pandemic
revenues in US
* First Bus: operating near-full service levels to meet passenger demand
within social distancing rules under government agreement in place until such
time as no longer needed; making plans for transitional period that would
follow, including proposal for recovery partnerships between local
authorities, DfT and operators. Passenger volumes recovered to c.60% of
pre-pandemic levels in some areas prior to second UK lockdown
* First Rail: 86% of pre-pandemic services operating currently, under fixed
fee emergency arrangements with UK Government; encouraged by today’s steps
to conclude termination sum processes with DfT
Commenting, Chief Executive Matthew Gregory said:
“The health and safety of our passengers and employees is our priority and
they can be confident that our trains and buses are safe. We have implemented
social distancing measures, enhanced cleaning protocols and innovative
technology to improve the customer experience. I am very proud of the
extraordinary efforts and commitment from all our employees during these
challenging times.
“Our services are crucial to local communities on both sides of the
Atlantic, and we have worked in partnership with our customers and governments
to ensure that they are maintained throughout the pandemic. As society seeks
to recover from the present crisis and build back better, we will play a vital
role in providing more environmentally sustainable, value for money transport
connections.
“Whilst the outlook remains uncertain due to the pandemic, we performed
ahead of our expectations in the first half, have taken prudent action to
reinforce the balance sheet and are confident in the resilience of the Group.
Looking ahead, we will continue to work with our customers and communities to
deliver safe, reliable and increasingly sustainable transportation as
societies begin to look beyond the crisis and passengers return.
“We continue to progress our plans to rationalise the portfolio as the best
means to unlock material value for all shareholders. With respect to the
divestment of our North American contract businesses, we are in discussions
with a number of credible potential buyers who have a long term perspective,
which the company and our advisers are exploring and evaluating.”
Contacts at FirstGroup:
Faisal Tabbah, Head of Investor Relations
Stuart Butchers, Group Head of Communications
corporate.comms@firstgroup.com
+44 (0) 20 7725 3354
Contacts at Brunswick PR:
Andrew Porter / Simone Selzer, Tel: +44 (0) 20 7404 5959
A conference call for investors and analysts will be held at 9:00am today –
attendance is by invitation. Please email corporate.comms@firstgroup.com in
advance of the call to receive joining details. To access the presentation to
be discussed on the conference call, together with a pdf copy of this
announcement, go to www.firstgroupplc.com/investors. A playback facility will
also be available there in due course.
Notes
(1 ) ‘Adjusted’ figures throughout this document are before
strategy costs, Rail Termination Sums, other intangible asset amortisation
charges and certain other items as set out in note 3 in the interim results
section.
(2 ) ‘Adjusted cash flow’ is described in the table shown on
page 17.
(3) Net debt: EBITDA on the ‘bank covenant’ basis refers to the
methodology relevant for calculating the Group’s compliance with the
covenants on its banking facilities.
(4) Changes 'in constant currency' throughout this document are based
on retranslating H1 2019 foreign currency amounts at H1 2020 rates.
(5 ) Changes compared with prior period in the overview and
divisional summary are shown in constant currency(4) and exclude the new West
Coast Partnership rail contract, comprising Avanti West Coast services and HS2
Shadow Operator (‘Avanti’) which commenced operations in December 2019.
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 £7.8 billion in revenue in the year to 31 March
2020 and around 100,000 employees, we transported 2.1 billion passengers.
Whether for business, education, health, social or recreation – we get our
customers where they want to be, when they want to be there. We create
solutions that reduce complexity, making travel smoother and life easier. We
provide easy and convenient mobility, improving quality of life by connecting
people and communities. Each of our five divisions is a leader in its field:
In North America, First Student is the largest provider of home-to-school
student transportation with a fleet of 43,000 yellow school buses, First
Transit is one of the largest providers of outsourced transit management and
contracting services, while Greyhound is the only nationwide operator of
scheduled intercity coaches. In the UK, First Bus is one of Britain's largest
bus companies with 1.4 million passengers a day in 2020, and First Rail is one
of the country's most experienced rail operators, carrying 340 million
passengers in the year. Visit our website at www.firstgroupplc.com and follow
us @firstgroupplc on Twitter.
Results overview
Protecting our passengers and employees
Since the coronavirus outbreak emerged in the weeks prior to the start of our
current financial year, our priority has been the health and safety of the
Group’s passengers, employees and communities. We continue to follow all
appropriate public health authority guidance, and ensure we have adequate
safety and protective equipment in place. We have adopted and also developed
best practice in areas such as enhanced cleaning and decontamination of
vehicles, depots and terminals. The wellbeing of our colleagues during these
difficult times is of paramount importance and we are working hard to support
them. Very sadly, we have lost employees as a result of the pandemic and we
offer our deepest condolences to their loved ones and colleagues.
We are very proud of all our employees and how they have risen to the
challenges of this year. As detailed in our 2020 Annual Report there are
countless examples of our colleagues and teams across the Group providing
direct assistance and support to those most in need, right at the heart of our
communities. Most recently three of our First Bus employees, Aaron Sparks,
Chris Koksal and Simon Taylor, were recognised in the Queen’s Birthday
Honours for their services to the community during the early months of
lockdown.
Adapted services to support our passengers and local economies since the start
of the pandemic
As previously noted, by the start of the period the Group had experienced an
average passenger volume reduction of c.90%, with international lockdowns in
place and all North American schools we serve closed. Since then, passenger
activity has increased in all divisions, albeit at differing rates, but
remains substantially below pre-pandemic levels. However, many of our
customers and government partners recognised the need to adjust services to
fit demand, whilst preserving our ability to restore service when required.
We had constructive discussions with our major customers on revenue recovery,
including school boards throughout North America, and with local, state and
national governments in all our markets. In particular, the UK Government
quickly put in place comprehensive emergency measures to procure continuity of
critical rail services and to maintain industry-wide bus capacity for key
workers. This has subsequently been extended to support socially distanced
travel as travel restrictions eased. Meanwhile, the US federal stimulus
package (CARES Act) signed in March 2020 provided substantial funding to
states, municipal and local authorities, including school boards, to sustain
critical transportation and educational services and support businesses and
their employees.
Across all divisions we have adapted rapidly, both operationally and
commercially, to support our customers and communities. We have reduced our
fixed cost base in our Road divisions and have rigorously focused on variable
cost control to mitigate the impact of lower revenues. We have sought to
safeguard our ability to increase services rapidly as needed, including by
maintaining as many of our frontline employees as possible in their roles –
and indeed in the UK we are currently providing near-full service levels in
order to permit safe, socially distanced travel. Where appropriate we have
used wage support or tax credit schemes put in place by governments to sustain
jobs.
Progress in strategy to deliver improved shareholder value from all parts of
the portfolio
We continue to progress our plans to rationalise the portfolio as the best
means to unlock material value for all shareholders. With respect to the
divestment of our North American contract businesses, we are in discussions
with a number of credible potential buyers who have a long term perspective,
which the company and our advisers are exploring and evaluating.
With respect to the sale of Greyhound we remain in discussions, alongside our
actions to manage capacity in response to demand and secure further intercity
bus funding grants. In the meantime, we continue to rationalise our property
portfolio for value, reducing our footprint by moving operations to facilities
better tailored to our needs.
Following the North American divestments, the Group will become a more focused
UK-based transportation provider with substantial regional bus operations and
a significantly de-risked rail business at its core, and a balance sheet which
we intend would remain investment grade. In First Bus we will continue to
capture the benefits of our strong market positions and digital transformation
programme to deliver enhanced performance over the medium term. We are already
a leader in the industry for low emission vehicles and we look forward to
playing our part in decarbonising the UK economy through our commitments to
operate a zero-emission bus fleet in the UK by 2035, and to not purchase any
new diesel buses after December 2022. We also see a significant, growing role
for public transport to help deliver on national and local governments’
commitments to improve city connectivity and ‘level up’ harder hit parts
of the country through improved economic infrastructure and opportunity. The
importance of both these agendas to the UK has been clearly reiterated in the
Government’s recently announced Spending Review and ‘Green Industrial
Revolution’ plan. The fundamentals for a resurgent bus business are sound,
and we look forward to playing an important role in a robust, and
environmentally sustainable economic recovery. We will use the extensive new
passenger data available to us thanks to our digital transformation to rapidly
reshape our networks and timetables into a more focused business as commercial
service is restored.
First Rail currently operates the largest portfolio of passenger rail services
by revenue in the UK. The government is working through the process of
transitioning the present revenue forecast risk-based franchising system to a
management contract-style structure with a more appropriate balance of risk
and reward for all parties. We look forward to playing an important role in
delivering a successful railway system that works for passengers while
generating more predictable returns for shareholders.
Operational highlights – North America
First Student was successful in negotiating revenue recoveries equivalent to
c.55% of pre-pandemic expected revenue in the first quarter of our financial
year, as our school district customers recognised the importance of sustaining
our ability to restart home-to-school transportation services. With no
home-to-school service revenues in July and most of August because of the
school summer holidays, our second quarter is always loss-making and was more
so this year, with many schools delaying or amending their in-person
back-to-school plans in August and September and almost no summer charter
activity due to the pandemic. By mid-November two thirds of our fleet were
operating home to school services, however with the recent increase in
coronavirus cases in the US, this has recently fallen to c.59%. Most of our
schools where we are not fully operational are supporting us with agreements
to make either full or partial payments to ensure that we are in a position to
restart services rapidly when needed. Between services in operation and these
agreements with our customers, we are currently securing c.75% of our
pre-pandemic home-to-school revenue, with additional negotiations ongoing.
Only 14% of our buses are neither running for customers already nor have an
agreement for recovering some revenue to support restarting when appropriate.
Alongside this activity we also achieved a good outcome to the bid season,
with retention rates in line with our expectations of 87% of ‘at risk’
contracts or 95% of the whole contract portfolio. We won major contracts from
competitors in Indianapolis and Charleston, a first-time conversion to
outsourcing in Pennsylvania, and several new contracts for our Hopewell
special education business. Our bolt-on M&A pipeline is strong with a
transaction in Canada completed in the period and another signed this month.
Most of First Transit’s contracts are to provide essential services so
provision during the period was not reduced as significantly as some other
parts of the Group. Where service levels did change we worked closely with
clients to agree contractual amendments. While the rate of recovery varies by
sub-segment, overall First Transit is now operating c.71% of pre-coronavirus
services and recovering c.86% of pre-pandemic revenues. The division’s
contract retention rate was 91% in the period including major retentions with
long-standing clients in Houston and Hartford (contracts worth $225m and more
than $55m in revenue respectively over their base terms). First Transit also
delivered a number of new business wins across its traditional markets,
including an $88m revenue paratransit contract in Atlanta, as well as
continuing to build its capability in new mobility services with several
innovative contracts including an eBike maintenance and battery management
partnership with Lyft and Nike in the period.
Greyhound passenger volumes have been broadly in line with our cautious
assumptions, and we have continued to respond to very challenging conditions
through capacity adjustments in line with demand (including the suspension of
services in Canada), yield management and more than $30m in fixed cost
reductions. Negotiations with state agencies to secure CARES Act emergency
intercity bus grants for vital connections have been modestly ahead of our
expectations. The division is currently operating c.45% of its pre-pandemic
mileage and generating c.41% of pre-pandemic revenue expectations in the US.
Operational highlights – UK
Given the impact of social distancing rules and government travel guidance on
passenger volumes, operating our bus and rail networks at scale during the
period would have been unviable commercially and many could have ceased.
However, recognising the essential nature of public transport connections to
local economies, Westminster and the devolved governments have put in place a
series of measures to procure crucial transport services.
First Bus and other regional bus operators are effectively providing their
assets and expertise to operate a government-funded bus system at present,
which will be in place on a rolling basis until such time as it is no longer
required. On an operating cashflow basis before capital expenditure, the
division was breakeven in the period as a result. We continue to enhance the
ease, convenience and value for money of our services through increased
digitisation, and our increased capability to analyse and optimise our
passenger numbers and routes in real-time will stand us in good stead when
restrictions are lifted and the government schemes come to an end. Our plans
are well-advanced for the eight-week transitional period that will follow. We
are encouraged that passenger volumes recovered to c.60% of pre-pandemic
levels in some of our local areas prior to the second UK lockdown this autumn.
We support the proposal for ‘recovery partnerships’ to build on the strong
and successful collaboration between local authorities, DfT and operators
during the pandemic. Such partnerships would be based on tailored local
agreements with ring-fenced funding to deliver short term support on key
routes as passenger volumes rebuild, together with the rapid deployment of bus
priority measures to sustain networks for the longer term. Meanwhile we
continue to take the actions necessary to achieve our commitment of a
zero-carbon bus fleet by 2035.
In the period our First Rail franchises were operated under the terms of the
Emergency Measures Agreements (EMAs) put in place by the UK Government in
March. This includes our newest operation, the West Coast Partnership,
comprising Avanti West Coast services and HS2 Shadow Operator (‘Avanti’),
which began operations in December 2019. Three of the original EMAs were
replaced in September by similar arrangements known as Emergency Recovery
Measures Agreements (ERMAs) which the Government intends will transition over
time to a new model offering a more appropriate balance of risk and reward for
rail operators, passengers and the taxpayer. Accordingly, a process is
underway to agree the final termination payments with the DfT to terminate the
pre-existing franchise contracts by agreement. As announced separately, we
have today agreed franchise termination sums with the DfT of £33.2m and nil
for South Western Railway (SWR) and Avanti respectively, in line with our
expectations. The TransPennine Express (TPE) process has been extended to the
end of January 2021 by the DfT. Following agreement of the termination sums,
we are now negotiating new directly awarded management contracts with the DfT,
which will come into effect at the end of the ERMAs, under which each
incumbent operator will deliver passenger rail services. The DfT have
indicated that these new National Rail Contracts would last to 1 April 2023
for SWR, and to 1 April 2026 for Avanti, each with extension periods of up to
two further years at DfT discretion.
Financial summary: adjusted operating profit ahead of our expectations at the
outset of pandemic
Reported Group revenue decreased by 12.2% or £430.3m to £3,101.6m (H1 2019:
£3,531.9m). In constant currency and excluding the new Avanti contract,
revenue decreased by £838.2m as a result of the pandemic.
Adjusted operating profit reduced by £78.5m to £10.4m (H1 2019: £88.9m), or
by £99.1m excluding Avanti and in constant currency. This comprised the drop
through of lower revenues offset by reduced variable costs and substantial
fixed cost actions. Within our Road divisions adjusted operating profit
reduced by £93.9m in constant currency, with the robust contributions from
First Transit and First Bus offset by the expected loss in First Student,
reflecting its seasonal profile, and from lower activity in Greyhound. First
Rail’s adjusted operating profit increased by £10.9m, reflecting the
first-time contribution from the new Avanti contract offset by the EMA terms.
The adjusted loss before tax was £73.3m (H1 2019: profit of £19.9m) and
adjusted EPS was (5.3)p (H1 2019: £1.4p), reflecting higher net finance
costs, principally due to new rolling stock leases in GWR as well as the
inclusion of the Avanti franchise’s rolling stock lease liabilities from
December 2019.
Statutory operating loss was £(16.4)m (H1 2019: £(118.1)m) and statutory EPS
of (8.3)p (H1 2019: (14.3)p) after an overall charge of £26.8m (H1 2019:
£207.0m) of net adjusting items, being strategy costs of £6.4m, Rail
Termination Sums charge and other amounts payable to the DfT of £18.3m and
other intangible asset amortisation charges of £2.1m.
EBITDA of £465.0m (H1 2019: £434.2m) increased by 7.1%, with Road EBITDA
decreasing by 43.9% in constant currency and Rail EBITDA increasing by 63.6%,
mainly due to the Avanti contract.
Substantial cash flow in period, significantly ahead of expectations
The Road divisions’ adjusted cash inflow of £186.6m (H1 2019: £68.1m) was
well ahead of expectations in the period. In part this reflects our actions to
focus on cash preservation and is after extensive reprofiling of our capital
expenditure budget, focusing on delivering on our commitments for customers
while other spending was deferred or converted to lease finance. Of our
budgeted Road capital expenditure, c.£176m has been deferred in the first
half, of which c.£50m is a permanent reduction. The majority of the net
deferral of £126m will be incurred in the 2022 financial year. During the
period, cash capital expenditure, excluding right of use assets, of £59.0m
(H1 2019: £141.6m) was invested in our Road businesses. Normally the half
year represents a low point in the cash flow cycle due to the seasonality of
our business, in particular First Student. However, this year First
Student’s normal working capital outflow through school start-up has taken
place later, due to the delays to school service in many areas. Rail adjusted
cash inflow of £153.1m (H1 2019: £(21.3)m) reflects the timing of
fully-funded capital expenditure flows and £167.0m of pre-funding of working
capital flows in the period under the new ERMA agreements. Overall, the
Group’s adjusted cash inflow in the period was £231.7m (H1 2019: outflow of
£78.0m).
Stable liquidity maintained since April and balance sheet reinforced
Bonds, bank debt and other debt net of cash before IFRS 16 leases reduced by
£246.8m in the period to £815.2m (H1 2019: £1,062.0m). IFRS 16 lease
liabilities (which are predominantly Rail rolling stock leases which will
expire when the relevant operations cease) increased in the period to
£2,140.0m (H1 2019: £1,022.1m), with the majority of the increase relating
to the new Avanti contract and new rolling stock leases in GWR. Taken
together, reported net debt including IFRS 16 lease liabilities increased to
£2,955.2m (H1 2019: £2,084.1m).
Net debt: EBITDA was 1.5 times (H1 2019: 1.5 times) on the basis relevant to
the bank covenant tests, ahead of expectations, and comfortably passed the
ratio requirement of less than 3.75 times as previously anticipated.
As at 30 September 2020 the Group’s undrawn committed headroom and free cash
was £965.6m (March 2020: £585.7m). This reflects the previously disclosed
issuance of £300m in commercial paper through the UK Government’s Covid
Corporate Financing Facility (CCFF) scheme in April 2020 which was renewed for
a further year in December, cash flow in the period and the timing of working
capital movements in First Student. Subsequent to the period end, First
Student working capital has continued to normalise as higher service levels
are run and as at 8 December the Group’s undrawn committed headroom and free
cash was £805m, broadly in line with average levels since April.
Improving clarity, more robust financial position in a range of scenarios
The outlook remains uncertain due to the pandemic and both our main markets
have experienced significant fluctuations in the number of coronavirus cases
in recent months. This has resulted in changes to local guidance and differing
views about the most appropriate ways to return to pre-pandemic activities
such as education and intercity travel. However, compared with our position in
the summer, the Group now has greater clarity about the resilience of our
businesses as a result of the arrangements put in place in the UK and the
value of the customer relationships we have in North America. Combined with
our cash flow profile, additional debt facilities and the enhanced headroom
agreed with our lenders with respect to the 2021 covenant tests, the Group is
now in a more robust financial position even in a range of potential downside
scenarios. Despite the reduction in overall risks identified as part of our
full year results in July, the possibility of multiple downside potential
risks remains, principally related to lower service levels and the pace at
which our markets recover from the pandemic, giving rise to continuing
material uncertainty.
Whilst the Board is confident that the balance sheet is robust in a range of
downside scenarios, as a matter of prudence the Group secured enhanced
financial flexibility from its lenders in November 2020. The Group agreed
amendments to the 31 March 2021 and 30 September 2021 covenant tests with both
its lending banks and USPP investors on similar terms, as described further in
the financial review on page 18.
Divisional review
First Student
Six months to 30 September $m £m £m, change in
constant currency (1)
2020 2019 2020 2019
Revenue 509.6 1,078.3 404.4 851.6 (448.3)
Adjusted operating profit (66.7) 24.9 (50.3) 16.8 (71.4)
Adjusted operating margin (13.1)% 2.3% (12.4)% 2.0% (1,490)bps
(1 ) Based on retranslating H1 2019 foreign currency amounts at
H1 2020 rates.
As noted previously, First Student’s financial results are always highly
seasonal because of the overlay of our financial year with the North American
school calendar, so performance in the second half is always the key driver
for the year. This is particularly the case this year, as the limited second
quarter revenues normally received in the school summer holidays from summer
school and camp charters have been curtailed by the pandemic. In addition,
some revenue normally arising in late August and September did not materialise
as a result of the delays to the start of the new academic year by many school
customers.
First Student revenue was $509.6m or £404.4m (H1 2019: $1,078.3m or
£851.6m), a decrease of $568.7m but nonetheless a robust result given the
near total closure of schools due to the pandemic prior to the start of the
current financial year. The reduction was partially offset by recovery of a
substantial proportion of our expected home-to-school revenues from our school
board customers. As previously noted, by the end of the 2019/20 spring term,
we had agreed full or partial revenue recoveries with customers such that we
were recovering c.55% of budgeted home-to-school revenues, or an effective
recovery rate of 78% including labour and fuel savings.
Since the start of the 2020/21 academic year, many school districts have
continued to review and alter their back to school plans in light of dynamic
local conditions, even as the new school term is now well underway. We are
advising and supporting each of our 1,100 customers to implement school
transportation services in line with their requirements. Managing this process
of dynamically restarting at varying levels of service for customers is a more
complex exercise than the large-scale shutdown of home-to-school service at
the start of the pandemic. Although many schools delayed the start of full
in-person teaching this fall, by mid-November two thirds of our fleet was
operating home-to-school services either full time or as a mixture of
in-person and online teaching. However, with the recent increases in
coronavirus cases in the US, this has fallen back to c.59%. The remainder of
our school customers are currently operating all online, principally in the
larger urban districts which form a relatively significant part of our
portfolio. First Student has engaged in productive discussions with all of our
school board customers where full transportation is not restored to agree a
level of payment to ensure that when required we can restart services rapidly,
as was the case for the 2019/20 spring term. We have now agreed full or
partial payments in respect of c.69% of those buses where school start was
delayed or full service has not yet been restored. Between services in
operation and these agreements with our customers, we are currently securing
c.75% of pre-pandemic home-to-school revenue, with further negotiations
ongoing.
At the adjusted operating level, profit fell by only $91.6m to a loss of
$(66.7)m or £(50.3)m (H1 2019: adjusted operating profit of $24.9m or
£16.8m), reflecting the agreements with customers noted above and the
extensive cost actions we have undertaken to mitigate the reduced activity
levels. These include variable cost savings, temporary salary reductions,
removing all non-essential contract staff, together with some more permanent
reductions in back office headcount where unavoidable. Fixed costs were
reduced by $4.5m in the period. Where appropriate, First Student is also
making use of employee retention tax credits in the US (and wage subsidies in
Canada) available to all businesses whose operations have been disrupted by
government order. Where it was not possible to agree terms with customers to
keep our drivers in employment they have utilised the emergency federal
unemployment schemes. All non-contracted capital expenditure has been reviewed
in accordance with customers’ requirements and discretionary expenditure has
been deferred, reprofiled or converted to leasing. As a result of the delayed
start to the school year for many of our customers, the division’s normal
seasonal build-up of working capital has taken place later than normal, which
has benefitted cash flow to the period end, but has since begun to normalise.
The division reported a statutory loss of £51.8m (H1 2019: loss of £18.7m)
after amortisation of intangibles of £1.5m (H1 2019: £1.2 of amortisation of
intangibles and £34.3m of other adjustments).
In the bid season for the 2020/21 school year, First Student maintained its
leading position in the market and expects to have c.43,000 buses under
contract for the remainder of the school year (H1 2019: 43,000). This is
supported by our excellent safety record and consistently high customer
satisfaction scores, which resulted in a contract retention rate currently in
line with our expectations of 87% on contracts up for renewal this season, or
95% across our entire portfolio of multi-year contracts. The market has seen
almost no organic route growth in light of the pandemic; however we are
pleased to have won several large contracts from competitors, including in
Indianapolis, IN, Charleston, SC and Pocono Mountain, PA. In the period we
acquired Wubs Transit, extending our school and charter transport services in
Ontario, Canada, where we have nearly 40 locations. Our pipeline of potential
bolt-on acquisitions remains strong, with a further transaction signed this
month. We were also pleased that our Hopewell special education business
acquisition won two new contracts in this year’s bid season, demonstrating
our growth potential in this area.
Given the immense complexity of school start-up in the pandemic, we are
pleased with our performance this autumn. Our driver recruitment, retention
and safety programmes are responding well to the challenges the pandemic poses
for the school bus industry and its employee dynamic, though we continue to
monitor our employee levels closely as activity levels rebuild. We continue to
expand provision of our FirstView® bus tracking app, grow our FirstACTS and
First Feedback services, and develop and scale-test DriverHub and our driver
performance scoring system. We also have a number of electric vehicle pilots
now underway, and 6% of our fleet is currently powered by alternative fuels.
Operationally we continue to optimise the efficiency of procurement and
maintenance practices in particular.
First Student is the clear market leader across 38 US states and seven
Canadian provinces in school bus contracting, and a significant provider of
charter bus services. The pandemic has demonstrated the resilience of its
long-term, trusted relationships and high-quality school client base even in
extraordinary circumstances. First Student has substantial scale,
best-in-class operating track record, strong customer service and safety
credentials and a highly experienced management team, which makes it a strong,
resilient and industry-leading platform business with several opportunities in
its marketplace to add value for all stakeholders.
First Transit
Six months to 30 September $m £m £m, change in
constant currency (1)
2020 2019 2020 2019
Revenue 613.9 740.6 484.5 588.7 (99.6)
Adjusted operating profit 17.1 16.2 13.4 12.7 +0.5
Adjusted operating margin 2.8% 2.2% 2.8% 2.2% +60bps
(1 ) Based on retranslating H1 2019 foreign currency amounts at
H1 2020 rates.
First Transit continued to operate a high level of activity throughout the
period, providing essential transport services to passengers needing to travel
to work, university, for medical and other essential travel. While passenger
ridership volumes were impacted and activity levels were reduced due to the
pandemic, the essential nature of our work resulted in the continued and
consistent operation of significant levels of service in the communities we
serve. First Transit worked closely with a number of clients where service
levels did change to make contractual amendments such as additional payments
to cover fixed costs or altered productivity requirements. Overall, First
Transit’s revenue in the first half was $613.9m or £484.5m (H1 2019:
$740.6m or £588.7m), a decrease of 17.0% or £99.6m in constant currency.
While the rate of recovery over the period varies by sub-segment as we work
with our clients to adapt to local developments, overall First Transit is
currently operating c.71% of pre-coronavirus services compared with c.60% at
the low point. Initially our fixed route operations experienced service
requirement reductions to c.70% of pre-pandemic levels but are now operating
at c.81%. Paratransit operations have seen non-essential trips decline,
although the requirement for social distancing has offset this to some extent,
with activity levels now c.60% of pre-pandemic levels compared with c.50% at
the low point. Shuttle saw service reductions in some airport contracts and
many university clients; however current activity levels are now c.64% of
pre-pandemic levels in this segment. Vehicle services and transit management
contracts have not experienced any significant adverse impacts and are trading
broadly in line with pre-pandemic expectations year to date. Overall, net
revenue recovery is running at c.86% of pre-pandemic expectations, reflecting
the service levels and customer arrangements in place.
Adjusted operating profit was $17.1m or £13.4m (H1 2019: $16.2m or £12.7m),
or an increase of $0.9m in the period. This equates to an adjusted operating
margin of 2.8% (H1 2019: 2.2%). This performance reflects the contractual
variations negotiated with customers noted above, substantial variable cost
savings, including temporary furloughing of employees, and salary reductions
in the period. Fixed costs were reduced by £4.0m in the period. The division
has also made use of fiscal tax credit schemes available to all companies to
protect jobs where appropriate. Adjusted operating profit also benefitted from
the non-recurrence of prior year legal judgment costs (H1 2019: $3.5m).
Statutory profit was £13.4m (H1 2019: loss of £11.4m).
First Transit has continued to build on its portfolio of both existing and
emerging mobility services contracts, leveraging its consistently highly rated
customer service credentials and reputation for safe, innovative and best
value solutions for customers. Our contract retention rate on ‘at risk’
business increased from 89% last financial year to 91% so far this year,
including retention of two important multi-year contracts with long term
clients. Our Houston, TX fixed route contract for more than 200 buses was
renewed for five years, with base term revenues of $225m, while our Hartford,
CT contract to operate 120 paratransit vehicles is expected to generate
revenue of more than $55m over its three year term.
Despite extended bidding cycles due to the pandemic, First Transit secured new
business wins in its traditional sectors such as paratransit with MARTA in
Atlanta, GA (worth $88m in revenue over its three year base term) and Met
Council in Minneapolis, MN; fixed route and paratransit with Carson City, NV
and Hinesville, GA; and in shuttle with the Columbus, OH Regional Airport
Authority. We also continue to build our position for the future of mobility
services. In the period we started an innovative eBike maintenance contract
with battery management in partnership with Nike and Lyft in Portland, OR. Our
wheelchair accessible service platform with our TNC partners expanded in
several locations. We launched our last mile microtransit service in San
Bernardino, CA and our first ‘stackable’ autonomous vehicle partnership at
Fort Carson Army Base in Colorado Springs, CO. In the period we were also
pleased to launch JAUNT, our Mobility as a Service (MaaS) platform powered by
Moovit.
We continue to drive further cost efficiencies from lean maintenance,
predictive analytics, procurement, systematic employee engagement/retention
programmes and further shared service efficiencies. First Transit is not as
capital intensive as some of the Group’s other businesses as for the most
part we operate vehicles procured and owned by our customers, but
non-essential capital expenditure has been deferred or halted.
Despite the near-term uncertainties, the market for mobility services in North
America continues to evolve and we intend to stay at its forefront. By working
with both local authority and private sector clients to provide simplified
mobility solutions that enhance customers’ lives, First Transit aims to
achieve net new business growth at appropriate margins with modest capital
investment, as we continue to build our platform in mobility services over
time.
Greyhound
Six months to 30 September $m £m £m, change in
constant currency (1)
2020 2019 2020 2019
Revenue 202.9 422.0 159.8 335.4 (173.5)
Adjusted operating profit (19.3) 10.1 (15.8) 8.1 (23.8)
Adjusted operating margin (9.5)% 2.4% (9.9)% 2.4% (1,230)bps
(1 ) Based on retranslating H1 2019 foreign currency amounts at
H1 2020 rates.
Greyhound’s revenue was $202.9m or £159.8m (H1 2019: $422.0m or £335.4m)
in the period, principally reflecting the effects of the pandemic on demand.
US revenues reduced by $195.9m or 49.1% and Canadian revenues were
substantially lower, reflecting our decision to suspend operations there in
May due to limited demand and the closure of the US border. Like-for-like
revenue for the whole division decreased by 52.0% in the period.
As previously noted, during parts of March and April, Greyhound’s overall
passenger revenues were c.20% of pre-pandemic levels and passenger volumes
were c.15%. At the time, Greyhound was the only major coach operator that
continued to provide any service for passengers. Since then US passenger
revenue has increased through improved volumes and higher yields, reaching
c.45% of pre-pandemic levels by September, but has since flattened out to
c.41% with the resurgence of the virus in certain regions and the return of
bus competitors to the market. Passenger volumes are currently c.30% of
pre-pandemic levels. In the US during the first quarter, Greyhound operated
c.45% of its pre-outbreak timetabled mileage, sufficient to maintain the
integrity of its US transportation network and provide ongoing service to
hundreds of rural communities, many with no other form of intercity
transportation. In response to increased demand, Greyhound mileage increased
during the summer, but following the recent increases in coronavirus cases in
it is currently operating c.42% of pre-outbreak levels. Recent reductions in
fuel prices and historically low airline fares have also had an impact on
coach passenger demand.
Greyhound rapidly took management action including commercial initiatives,
optimising pricing, managing capacity and cost (principally through reduced
variable costs, furlough as well as $31.1m in fixed cost reductions) to match
lower demand levels, and is utilising employee retention tax credits as
appropriate. Greyhound has secured $116.2m (of which, $65.0m was recognised in
the reporting period) of the US CARES Act funding made available to state
agencies to maintain operation of intercity rural bus services, modestly ahead
of our expectations. However the reduction in revenue during the period was
not fully offset through these actions and as a result, Greyhound recorded an
adjusted operating loss of $(19.3)m or £(15.8)m (H1 2019: profit of $10.1m or
£8.1m) in the period. The division reported a statutory loss of £15.9m after
amortisation of intangibles of £0.6m and a profit of £0.5m on sale of a
property in the period relating to the withdrawal from Western Canada (H1
2019: loss of £127.7m after amortisation of intangibles of £1.6m and
£134.2m of other adjustments).
Greyhound continues to rationalise its property footprint by moving operations
to intermodal transport hubs or new facilities better tailored to its needs.
The division exited six small surplus locations in the period, resulting in
profit on certain property sales of $1.6m or £1.3m (H1 2019: $1.8m or £1.5m)
in adjusted operating profit in the period, despite a hiatus in commercial
property transactions early in the pandemic. A number of other property sales
processes are underway.
Greyhound continued to build on its programme of enhancements for passengers
including industry-leading Wi-Fi and streaming entertainment on all buses,
contactless boarding, and new web and mobile functionality to make bookings
and trip management more convenient. Greyhound also continues to focus on
operational and maintenance improvement and disciplined fleet management.
Taken together these have resulted in positive trends in our already strong
safety track record as well as better punctuality, emissions and other
non-financial metrics. In light of present demand conditions, new vehicle
investment reduced compared with the prior period.
Greyhound has invested in industry-leading enhanced cleaning regimes for its
buses and locations, mandated the use of face coverings across all its
operations and provided passengers with the latest coach travel safety
information, as well as introducing a flexible booking policy to help
alleviate passengers’ concerns.
First Bus
Six months to 30 September £m £m, change in
constant currency (1)
2020 2019
Revenue 311.0 424.5 (113.6)
Adjusted operating profit 17.4 21.2 (3.8)
Adjusted operating margin 5.6% 5.0% +60bps
(1 ) Based on retranslating H1 2019 foreign currency amounts at
H1 2020 rates.
First Bus reported revenue of £311.0m (H1 2019: £424.5m) in the period, with
passenger revenue decreasing by 59.5% and commercial passenger volumes
decreasing by 72.2%, reflecting government guidance and passenger behaviour in
response to the coronavirus pandemic throughout the period.
From the outset of the pandemic, we worked very closely with our partners to
meet the requirements of our local communities and ensure that key workers
were able to rely on our services for their essential journeys. The UK
Government, as well as the Scottish and Welsh Governments, put in place a
range of measures to enable us to provide these crucial services. This
includes the roll forward of pre-coronavirus initiatives and further
arrangements such as the Covid-19 Bus Services Support Grant (CBSSG) from
March in England, mirrored by similar arrangements in Scotland and Wales
subsequently.
For the duration of the initial three-month lockdown, our mileage was at c.40%
of pre-pandemic levels with passenger volumes at just c.10% of normal rates.
From late June onwards, we increased UK mileage progressively at government
request to the current level of c.95%, with some variation between local
markets. Prior to the introduction of the recent series of lockdowns in the
autumn, UK passenger volumes had recovered to c.50% of pre-pandemic levels on
average and to around 60% in some of our local areas. Following the release of
certain restrictions across the UK, volumes are now at c.50% of pre-pandemic
levels.
Under the reimbursement schemes, First Bus is paid the costs of operation less
revenue received from customers and other public sector monies. A condition of
the arrangement is that operators utilise the Government’s Coronavirus Job
Retention Scheme for frontline workers, and as a result many First Bus
employees were furloughed during the initial lockdown but almost all have now
returned to work. Recoverable costs include all reasonable operational costs
including depreciation and allocated debt finance together with pension
deficit funding. Fixed costs were also reduced by £2.7m in the period. The
division reported adjusted operating profit of £17.4m (H1 2019; £21.2m),
which is calculated before debt finance costs and pension deficit
contributions which pay down the balance sheet deficit. On an operating
cashflow basis before capital expenditure, First Bus was breakeven in the
period. Reported statutory profit was £17.4m (H1 2019; £15.7m).
Throughout the pandemic ensuring the safety of our customers has been
paramount, and we have led the industry with a professional and consistent
approach. We introduced several measures including long lasting anti-viral
cleaning regimes on buses and seat signage advising customers where they can
sit safely to maintain social distancing rules. Additionally, we enhanced our
mobile app and websites to support customers as they prepare to make their bus
journey. Upgrades include a facility to check the real-time available capacity
on an approaching bus, including the wheelchair space. A customer can also
look ahead and check how busy their bus is likely to be on any day of the week
and time of day. Sales through our mobile app or by other contactless methods
have increased significantly and now represent 63% of all ticket transactions.
Having successfully introduced daily and weekly contactless fare caps in
Aberdeen and Doncaster, this has now been extended to Southampton and Bristol.
In September we were the first national bus operator to introduce Express Mode
for Apple Pay across all our networks. The First Bus app was named Travel App
of the Year in November at the UK App Awards. Punctuality across the division
has been maintained at consistently high levels throughout the period as a
result of reduced congestion.
Throughout the pandemic we have continuously adjusted our services in
consultation with local stakeholders, to ensure we are meeting emerging travel
demands. We are able to assess demand through the range of data now available
to us following our investments in our digital ticketing systems and GPS
functionality. Going forward, this data will be fundamental in enabling us to
redesign our networks in response to evolving customer needs while being
commercially sustainable.
Our agility and focus in meeting our customer and stakeholder needs allowed us
to support continued construction at Somerset’s Hinkley Point Power Station,
by providing an additional 50 buses and 90 drivers within 48 hours’ notice.
Additionally, over the summer we supported the South West tourism industry
with extra services on our seasonal Coasters routes to support high numbers of
domestic tourists.
In July we committed to operate a wholly zero-emission bus fleet across the UK
by 2035 and not to purchase any new diesel buses after December 2022. This
builds on our existing leadership across the industry for low emission
vehicles. Recent developments include the start of delivery of the world’s
first 15 hydrogen powered double-decker buses in Aberdeen supported by funding
from the City Council, the Scottish Government and the EU; 21 electric
double-decker buses coming into operation in York which will join 12 electric
single-deckers, operating the Park & Ride network in partnership with City of
York Council; taking delivery in October of nine electric buses in partnership
with West Yorkshire Combined Authority and Leeds City Council; in Glasgow we
recently secured funding from Transport Scotland to support the purchase of 22
electric buses; and in the next few weeks we will complete the retrofit of our
1,000(th) bus to the Euro VI low-emission standard (c.48% of the fleet will
meet this standard by the end of the current financial year).
We are working closely with the UK Government as they look both to the
recovery period and to develop a National Bus Strategy for the longer term. We
are delighted that the Scottish Government recently launched a Bus Partnership
Fund for local authorities and operators to access £500m for ambitious bus
priority schemes.
In December Giles Fearnley retired as First Bus Managing Director. Giles has
made an immense contribution to First Bus, including a transformation of our
customer offering including greater digitisation and development of a strong
approach to local partnerships. He is succeeded by Janette Bell, formerly CEO
of P&O Ferries, who brings vast experience and a strong track record in
creating and delivering successful customer and commercial strategies.
The long-term fundamentals of First Bus, including its position as a market
leader, are sound. Our services are vital to the daily lives of millions
across the UK and will be key to supporting economic recovery and providing
greener and more convenient services in the areas we serve. We will continue
to address our cost base through our comprehensive efficiency programmes. As
the effects of the pandemic recede, there will be a point at which we can
transition away from current funding schemes, and we are using our operational
expertise, local knowledge and digital capabilities to optimise our networks
as travel patterns evolve.
First Rail
Six months to 30 September £m £m, change excl. Avanti
2020 2019
Revenue 1,733.6 1,323.5 (3.3)
Adjusted operating profit 59.4 48.5 (5.3)
Adjusted operating margin 3.4% 3.7% (40)bps
In line with the wider UK rail industry, passenger volumes in our businesses
reduced substantially in the early part of the period with revenue c.90% lower
due to travel restrictions as a result of coronavirus. Within a few days of
national lockdowns beginning, we operated a reduced timetable similar to
weekend service levels. Passenger volumes increased modestly during the
summer, but still remain at c.25% of pre-pandemic levels on average. We
increased service levels to c.90% of prior levels for early September to
support the return to places of work and schools and we continue to work
closely with the DfT on service provision as Government guidance changes. In
the period First Rail passenger revenue (excluding Avanti) declined by 85.5%
(H1 2019: +4.9%). Like-for-like passenger volumes decreased by 80% in the
period. Divisional revenue increased to £1,733.6m (H1 2019: £1,323.5m),
including £413.4m from Avanti which commenced in December 2019.
The UK Government acted swiftly at the start of the pandemic to secure the
continued operation of the country’s vital rail networks through the
Emergency Measures Agreements (EMAs) which were in place for the majority of
the reporting period. Under these agreements, the Government waived revenue,
cost and contingent capital risk and our Train Operating Companies (TOCs) were
paid a fixed management fee to continue to operate the rail network at service
levels agreed with the government. The fee varied according to each franchise
and included the potential for a small performance-based fee. Adjusted
operating profit was £59.4m (H1 2019: £48.5m), which reflects the fees paid,
including a first-time contribution from Avanti, and the settlement of
historical claims mainly in GWR. The division reported a statutory operating
profit of £41.1m (H1 2019: £48.4m) including intangible asset amortisation
and a £18.3m net charge for Rail Termination Sums and other amounts due to
the DfT (see below).
In September, the DfT exercised its option to extend the EMA for GWR until at
least 26 June 2021. GWR’s pre-existing direct award contract ends in March
2023, with a possible extension of up to one further year at the DfT’s
discretion. For our other three franchises, new Emergency Recovery Measures
Agreements (ERMAs) came into force on 20 September. The ERMA for Avanti, which
began operations in December 2019 and was performing well prior to the
pandemic, is in place to the end of March 2022. The SWR and TPE ERMAs are in
place to the end of March 2021, with the potential for the TPE ERMA to be
extended to September 2021 in certain circumstances. The ERMAs are similar in
operation to the previous EMAs and during their term, the DfT will continue to
waive the revenue, cost and contingent capital risk. The ERMAs also make no
material changes to the ring-fenced cash or working capital mechanisms in
place for these operations. However, both the fixed fee and overall fee
potential is lower under the new ERMAs and more heavily weighted to
performance delivery. In addition, all three include options to extend their
duration by a further half year at the DfT’s discretion.
Each ERMA requires us to agree with the DfT whether, and if so, how much
parent company support or other payments are required to terminate the
pre-existing franchise agreements. Any such termination sums fall due at the
end of the ERMA term, at which point the pre-existing franchise contract would
also terminate by agreement. SWR and Avanti have now agreed franchise
termination sums of £33.2m and nil respectively with the DfT. The process to
agree the TPE termination sum has been extended to the end of January 2021 by
the DfT.
Our Hull Trains open access business (less than 0.5% of divisional passenger
volume) was not eligible for the EMAs or ERMAs, and as a result the service
was temporarily suspended between March and August and again during the second
national lockdown in November/early December.
We are taking all necessary steps to ensure our passengers can be confident
their journey is safe. This includes running services with more carriages to
allow for social distancing, enhanced cleaning and sanitisation of our trains
and ensuring more customer-facing employees are available. On some of our
longer distance services we introduced mandatory reservations to ensure we
offered correct social distancing. We also began a trial where Avanti West
Coast customers can use the mobile app to order at-seat catering.
First Rail is now at the forefront of the industry in the use of cloud
technology and data analytics. These systems have allowed us to integrate
real-time data from several industry systems on to a single platform that
enables our controllers and resource teams to monitor all trains and identify
and resolve potential future problems before they arise. This platform also
provides information to our customers via our website and mobile app channels
on the formation and facilities available on each train. During the period we
further integrated a variety of customer-facing and back office functions into
our shared service centre.
First Rail is working with its partners to reduce carbon emissions, including
the introduction of electric trains to replace diesel where possible. This
includes future rolling stock for Avanti, the introduction of bi-mode trains
by TPE and Hull Trains in the last year which can run on both electrified and
non-electrified track, while GWR have recently taken delivery of the UK’s
first tri-mode train which can use overhead wires, third rail or diesel power.
Our plans to upgrade the SWR fleet continue with new suburban rolling stock
starting to enter service next year.
We continue to deliver services in accordance with all of our contractual
commitments. The Government intends to transition to new, directly awarded
contracts for the longer term, which would come into effect at the end of the
ERMAs, as terms are agreed on terminating the pre-existing franchise
agreements. We have long advocated for a more sustainable balance of risk and
reward for all parties which would underpin a longer-term approach to the
railway with passengers at its centre. We look forward to working closely with
the Government and our industry partners to bring this to reality.
Financial review
Going concern – basis of preparation
The Board reviewed an updated base case and a severe but plausible downside
scenario, taking into account the progress made since the Group’s
announcement of its full year results for the year ended 31 March 2020, issued
on 8 July, and the potential mitigating actions.
Based on their review of the financial forecasts and having regard to the
risks and uncertainties to which the Group is exposed, the Directors have a
reasonable expectation that the Group has adequate resources to continue in
operational existence for the 12 month period from the date on which the
financial statements were approved. Accordingly, they continue to adopt a
going concern basis of accounting in preparing the condensed consolidated
financial statements in this half-yearly report.
Despite the reduction in overall risks identified as part of the full year
2020 results, multiple potential downside risks continue to exist, including:
* materially lower service levels and revenue recovery in First Student if the
impact of the pandemic is more severe or protracted than assumed;
* the impact on future demand for our passenger revenue-based divisions First
Bus and Greyhound being worse than anticipated; and
* the Group being unable to complete its refinancing arrangements as planned,
or the availability of uncommitted facilities (including the renewal of the
CCFF to March 2022) and the receipt of covenant waivers if required;
which together give rise to a material uncertainty that could cast significant
doubt upon the Group’s ability to continue as a going concern.
In the full year 2020 results we disclosed that the risks and uncertainties
then facing the Group indicated that material uncertainty existed that could
cast doubt on the Group’s and the Company’s ability to continue as a going
concern. The material uncertainty related to:
* the uncertainty regarding the levels of fiscal financial and contractual
support which may be provided beyond the period for which that funding and
contractual support is currently being provided;
* whether passenger volumes recover to the levels necessary to sustain the
business without the current fiscal financial and contractual support;
* the ability of the Group to obtain covenant waivers from debt providers if
required;
* the ability of the Group to draw down on c.£550m of the currently available
but uncommitted facilities throughout the going concern period; and
* the timing of cash flows, including movements in working capital and the
timing of receipts of contractual and fiscal support that may impact debt
levels at covenant test dates.
Update since July
As noted in the Results overview and Divisional review, compared with the
position in July 2020, we now have substantially greater clarity about the
resilience of our businesses as a result of the arrangements in place in the
UK and North America and the strength of our customer relationships.
In First Rail, we have been operating since 1 March 2020 initially under EMA
and for certain franchises under ERMA contracts since 20 September, with the
potential to move to a management contract-style model under which we
anticipate the revenue and cost risks would not be borne by the operator.
Furthermore, agreement has been reached of the termination sums on SWR and
Avanti which has reduced this potential uncertainty with a clear path forward.
In First Student and First Transit our confidence is underpinned by long term
contractual arrangements that have performed consistently through the pandemic
to-date.
In First Bus, the UK Government confirmed on 8 August 2020 that the 12-week
rolling CBSSG-Restart programme will continue to apply until such time as
social distancing is no longer required after which there will be an eight
week transition period during which further funding will be available to allow
the industry to adjust to passenger demand and revert to a business as usual
model post-pandemic. In Greyhound, we have now formally agreed the majority of
CARES Act funding and at a higher level than we had earlier assumed.
In the primarily contract-based businesses First Student, First Transit and
First Rail we have a materially higher level of confidence than we did in
early July 2020 around future business performance as a result of our
experience and contractual changes in Bus and Rail since the start of the
pandemic. However, in the short term, the impact of the pandemic at a local
level in First Student continues to be disruptive and uncertain as the extent
to which schools re-open or adopt remote learning in response to renewed
outbreaks of the pandemic within individual school districts, which impacts
our service levels and hence potential revenue recovery.
Furthermore, there is still uncertainty regarding the medium- to longer-term
impact of the coronavirus pandemic on passenger travel patterns as economies
emerge from the crisis. The impact on future demand for our passenger
revenue-based divisions First Bus and Greyhound therefore remains uncertain.
The Group’s near-term liquidity position is also significantly better than
it was in July with improved cash generation since March 2020 and an
additional c.£140m in committed facilities in finance leases and long-term
supplier finance. The Group intends to put £200m of new facilities in place
before March 2021 in order to fund growth capex, although not included in our
model as committed facilities.
The Board also continues to believe that the Group has the ability to draw
down on c.£450m of the currently available but uncommitted facilities
throughout the going concern period if required, notably the £300m CCFF
facility that currently matures in December 2021 that, if still available, we
intend to redraw in March 2021 to be then committed to March 2022 under the
current rules.
On 9 November 2020, the Group announced that it had agreed covenant amendments
for the 31 March 2021 and 30 September 2021 tests with its lending banks and
USPP investors. Banking covenants are projected to be met for all testing
periods through to March 2022 in our base case scenarios, however the severe
but plausible downside model (“severe downside model”) shows the minimum
liquidity covenant would be breached at 31 December 2021, before implementing
further mitigation actions in reducing costs and capex as the CCFF matures.
Although it is the Group’s intention to redraw the CCFF in March 2021, if
still available, in order to extend its term until March 2022, that is not
modelled in the severe downside model. The downside scenario also assumes that
no new finance is raised throughout the going concern assessment period.
Evaluation of going concern
The Board evaluated whether it was appropriate to prepare the condensed
consolidated financial statements in this half-yearly report on a going
concern basis and in doing so considered whether any material uncertainties
exist that cast doubt on the Group’s and the Company’s ability to continue
as a going concern over the next 12 months, and in particular whether any of
the circumstances giving rise to the material uncertainties at the year-end
still existed.
Consistent with prior years, the Board’s going concern assessment is based
on a review of future trading projections, including whether the amended
banking covenants are likely to be met and whether there is sufficient
facility headroom to accommodate future cash flows for the going concern
period. During October and November 2020, divisional management teams prepared
detailed, bottom-up projections for their businesses reflecting the
coronavirus pandemic operating environment, including customer revenue
recovery where services had been disrupted and what government or contractual
support arrangements were in place.
Base case scenario
These projections were the subject of a series of Executive Management reviews
and were used to update the base case scenario that was used for the purposes
of the going concern assessment at the 2020 year-end. The updated base case
now assumes a gradual recovery in passenger volumes as a result of an
anticipated lifting of social distancing and travel restrictions in FY21/22,
but that passenger volumes remain below pre-pandemic levels in the going
concern assessment period. In the base case, we have now assumed that the
Student business remains materially disrupted throughout the remainder of the
current school year, assuming recovery to 75% in full-time school at the end
of the academic year and with 10% still in full-time home learning, before
recovering fully at the start of the next academic year.
The macro projections in the updated base case assume that the UK operates in
a post-Brexit coronavirus economy and uses a consensus macro-economic outlook
in line with HM Treasury’s Economic Forecast of October 2020. We have not
assumed any further North American fiscal support beyond what has already been
committed.
Severe, plausible downside scenario
In addition, a severe but plausible downside case was also modelled which
assumes a more protracted post-pandemic recovery profile. In this case First
Student is assumed to operate at a substantially close to full service from
the start of the Fall school term but with continued disruption until the end
of the Winter term in FY 21/22, with only 50% in full-time school and 25%
hybrid learning in the current academic year, and 10% still full-time home
learning in Winter term of FY 21/22, with capex for discretionary acquisitions
constrained. In First Transit the model assumes a more protracted recovery in
paratransit and university shuttle service levels until April 2021. In
Greyhound it assumes slower passenger recovery and weaker revenues with
passenger numbers remaining at current levels in H2 FY 20/21 at around 40% of
FY 19/20 levels, and slowly recovering to 80% of the prior year levels by the
end of H1 FY 21/22. In First Bus it assumes CBSSG-Restart comes to an end two
months earlier than in the base case, but stronger revenues in the second half
of the year. In First Rail, the model assumes £100m less of ring-fenced cash
and higher Termination Sums on expiry of the ERMAs.
Mitigating actions
If the impact on the Group of the pandemic were to be more protracted than
assumed in the base case scenarios, or if the Group is unable to raise up to
£200m of additional finance facilities by the end of the current fiscal year,
the Group would reduce and defer planned growth capex spend over the
subsequent 12 months and further reduce costs in line with a lower operating
environment to the extent that the essential services we operate are not
required to be run for the governments and communities we support.
Based on the scenario modelling undertaken, and the potential mitigating
actions referred to above, the Board is confident that the Group’s liquidity
over the going concern period is sufficient for the business needs, although
as noted above material uncertainty exists.
Group revenue
Group revenue in the first half decreased by 12.2% or £430.3m to £3,101.6m
(H1 2019: £3,531.9m). In constant currency and excluding the new Avanti
contract that started in December 2019, revenue decreased by £838.2m as a
result of the pandemic. The Road divisions’ revenue decreased by 37.9%, and
Rail revenue has declined by 0.2% (excluding Avanti). Avanti revenue was
£413.4m for the period.
Six months to 30 September 2020 Six months to 30 September 2019 Year to 31 March 2020
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 404.4 (50.3) (12.4) 851.6 16.8 2.0 1,940.4 158.8 8.2
First Transit 484.5 13.4 2.8 588.7 12.7 2.2 1,171.4 28.3 2.4
Greyhound 159.8 (15.8) (9.9) 335.4 8.1 2.4 603.2 (11.6) (1.9)
First Bus 311.0 17.4 5.6 424.5 21.2 5.0 835.9 46.1 5.5
Group items (2) 8.3 (13.7) 8.2 (18.4) 17.8 (33.7)
Road divisions 1,368.0 (49.0) (3.6) 2,208.4 40.4 1.8 4,568.7 187.9 4.1
First Rail 1,733.6 59.4 3.4 1,323.5 48.5 3.7 3,185.9 68.9 2.2
Total Group 3,101.6 10.4 0.3 3,531.9 88.9 2.5 7,754.6 256.8 3.3
North America in USD $m $m % $m $m % $m $m %
First Student 509.6 (66.7) (13.1) 1,078.3 24.9 2.3 2,474.9 205.9 8.3
First Transit 613.9 17.1 2.8 740.6 16.2 2.2 1,488.3 36.2 2.4
Greyhound 202.9 (19.3) (9.5) 422.0 10.1 2.4 766.0 (15.3) (2.0)
Total North America 1,326.4 (68.9) (5.2) 2,240.9 51.2 2.3 4,729.3 226.8 4.8
(1 ‘)Adjusted’ figures throughout this document are before
strategy costs, Rail Termination Sums, 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 £16.4m (H1 2019:
loss of £118.1m) as set out in note 4.
(2 ) Tramlink operations, central management and other items.
Group adjusted operating performance
Adjusted operating profit decreased by £78.5m to £10.4m (H1 2019: £88.9m)
and decreased by £99.1m excluding Avanti and in constant currency. This
comprised the drop through of lower revenues offset by reduced variable costs
from reduced service levels and substantial fixed cost actions. Note that
software amortisation of £6.3m (H1 2019: £8.8m) is no longer classed as a
separately disclosed item and has been charged to divisional and Group
adjusted results and the prior periods restated accordingly. Adjusted
operating profit margin in constant currency decreased by 280bps.
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 £2.1m (H1 2019: £3.0m).
Strategy costs
There was a charge of £6.9m for legal, professional and other costs
associated with the proposed rationalisation of the Group. Partially
offsetting this, Greyhound recognised a profit of £0.5m on sale of a property
relating to the withdrawal from Western Canada.
Rail Termination Sums
Under the terms of the ERMA agreements the DfT are determining the amount of
parent company support and performance bonds that may have been required to be
input into the respective franchises based on a pre-covid trajectory financial
model and what the net assets are of each franchise as at the point of
entering into the EMA (1 March 2020). As announced today, we have agreed the
termination sums for SWR and Avanti at £33.2m and £nil respectively. We are
continuing to engage with the DfT in determining the termination sum relating
to TPE with discussions currently ongoing. Based on discussions with the DfT
to date, we have provided for our best expectation of the termination sums due
under the terms of the ERMAs for each franchise and this has been recorded as
an adjusting item provision in the period that is expected to be paid in March
or September 2021 under the respective ERMA durations. As a consequence of the
ERMAs, the provisions for impairment on Right of Use assets on rail franchises
previously recognised have been released as at the period end which partially
offsets our best estimate of the termination sums payable. As a result, there
was a net charge of £18.3m to the income statement, which has been treated as
an adjusting item that reflects our estimate of concluding the pre-pandemic
contingent capital exposure of all franchises and entering into the EMAs and
subsequently the ERMAs.
Group statutory operating performance
The statutory operating loss for the period was £(16.4)m (H1 2019: loss of
£(118.1)m), reflecting the net adjusting items noted above.
Finance costs and investment income
Net finance costs were £83.7m (H1 2019: £69.0m) with the increase
principally due to the increase in lease interest from £17.4m in H1 2019 to
£36.7m in H1 2020 in line with the increase in lease liability from
£1,022.1m at 30 September 2019 to £2,140.0m at 30 September 2020. This
increase was mainly due to the new rolling stock leases in relation to new
trains in GWR as well as the inclusion of the Avanti franchise’s rolling
stock lease liabilities from December 2019.
Profit before tax
Adjusted loss before tax as set out in note 3 to the condensed consolidated
financial statements was £73.3m (H1 2019: profit £19.9m). An overall charge
of £26.8m (H1 2019: £207.0m) for adjustments principally reflecting the
Greyhound impairment of nil (H1 2019: £124.4m), Rail Termination Sums net
charge of £18.3m (H1 2019: nil), North America self-insurance reserve charge
of £nil (H1 2019: £59.3m), restructuring and reorganisation charges of
£6.4m (H1 2019: £15.4m), a legacy pension settlement of £nil (H1 2019:
£4.9m) and other intangible asset amortisation charges of £2.1m (H1 2019:
£3.0m), resulted in a statutory loss before tax of £(100.1)m (H1 2019: loss
before tax of £(187.1)m).
Tax
The tax credit on adjusted profit before tax, for the period was £13.5m (H1
2019: charge £2.9m). There was a tax charge of £1.8m (H1 2019: credit of
£17.1m) relating to other intangible asset amortisation charges and other
adjustments. The total statutory tax credit was £11.7m (H1 2019: credit of
£14.2m). The actual tax paid during the period was £0.8m (H1 2019: £2.0m).
EPS
Adjusted EPS was (5.3)p (H1 2019: 1.4p). Basic EPS was (8.3)p (H1 2019:
(14.3)p).
Shares in issue
As at 30 September 2020 there were 1,204.7m shares in issue (H1 2019:
1,214.0m), excluding treasury shares and own shares held in trust for
employees of 16.1m (H1 2019: 1.4m). 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 1,203.3m (H1 2019: 1,211.3m).
Capital expenditure
Road cash capital expenditure was £59.0m (H1 2019: £141.6m) and comprised
First Student £28.7m (H1 2019: £81.1m), First Transit £18.6m (H1 2019:
£16.4m), Greyhound £0.8m (H1 2019: £28.2m), First Bus £10.2m (H1 2019:
£13.9m) and Group items £0.7m (H1 2019: £2.0m). First Rail capital
expenditure was £70.4m (H1 2019: £51.9m) 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
£24.5m (H1 2019: £48.9m), First Transit of £10.4m (H1 2019: £0.1m),
Greyhound of £0.4m (H1 2019: £6.2m) and First Bus of £0.4m (H1 2019:
£5.2m) and Group items £0.2m (H1 2019: £0.1m). During the period First Rail
entered into leases with a capital value of £54.5m. Of our budgeted Road
capital expenditure, c.£176m has been deferred in the first half, of which
c.£50m is a permanent reduction. The majority of the net deferral of £126m
will be incurred in the 2022 financial year.
Gross capital investment (fixed asset and software additions plus the capital
value of new leases) was £286.9m (H1 2019: £371.6m) and comprised First
Student £134.5m (H1 2019: £189.4m), First Transit £26.6m (H1 2019:
£15.0m), Greyhound £1.8m (H1 2019: £32.8m), First Bus £10.1m (H1 2019:
£12.0m), First Rail £113.3m (H1 2019: £120.3m) and Group items £0.6m (H1
2019: £2.1m). The balance between cash capital expenditure and gross capital
investment represents new leases and creditor movements in the year.
Adjusted cash flow
The Road divisions’ adjusted cash inflow of £186.6m (H1 2019: £68.1m) was
well ahead of expectations in the period. In part this reflects our actions to
focus on cash preservation and is after extensive reprofiling of our capital
expenditure budget, focusing on delivering on our commitments for customers
while other spending was deferred or converted to lease finance. Normally the
half year represents a low point in the cash flow cycle due to the seasonality
of our business, in particular First Student. However, this year First
Student’s normal working capital outflow through school start-up has taken
place later, due to the delays to school service in many areas. Rail adjusted
cash inflow of £153.1m (H1 2019: £(21.3)m) reflects the timing of
fully-funded capital expenditure flows and £167.0m of pre-funding of working
capital flows in the period under the new ERMA agreements. Overall, the
Group’s adjusted cash inflow in the period was £231.7m (H1 2019: outflow of
£78.0m). The cash flow is set out below:
Six months to 30 Sep 2020 £m Six months to 30 Sep 2019 £m Year to 31 Mar 2020 £m
EBITDA 465.0 434.2 1,108.9
Other non-cash income statement charges 7.1 5.1 8.8
Working capital 298.7 (13.0) 72.6
Movement in other provisions 8.8 7.9 (64.5)
Pension payments in excess of income statement charge (8.0) (33.3) (38.8)
Cash generated by operations 771.6 400.9 1,087.0
Capital expenditure and acquisitions (134.6) (196.5) (352.8)
Proceeds from disposal of property, plant and equipment Proceeds from disposal of business 4.4 - 21.2 - 30.5 16.2
Interest and tax (81.8) (68.1) (126.1)
Lease payments now in debt/other (327.9) (235.5) (556.3)
Adjusted cash flow 231.7 (78.0) 98.5
Foreign exchange movements 9.1 (39.2) (24.1)
Inception of new leases (150.7) (130.9) (1,828.1)
Lease payments now in debt 321.9 236.6 549.2
Other non-cash movements (89.1) (1.0) (2.0)
Adjustment on transition to IFRS 16 - (1,168.2) (1,168.2)
Movement in net debt in the period 322.9 (1,180.7) (2,374.7)
Net debt
The Group’s net debt at 30 September 2020 before the impact of IFRS 16 and
the capitalisation of Right of Use Assets was £815.2m (H1 2019: £1,062.0m)
and was £2,955.2m (H1 2019: £2,084.1m) after IFRS 16 and comprised:
Analysis of net debt 30 September 2020 30 September 2019 £m 31 March 2020 £m
£m
Sterling bond (2021) 352.7 348.7 348.7
Sterling bond (2022) 322.7 322.1 322.7
Sterling bond (2024) 199.8 199.8 199.8
CCFF 299.0 - -
Bank loans and overdrafts 655.1 530.5 656.3
Supplier Financing 84.6 - -
Lease liabilities (pre-IFRS 16) 125.0 93.5 91.2
Senior unsecured loan notes 215.0 222.8 219.8
Loan notes 0.7 9.4 9.4
Gross debt excluding accrued interest (pre-IFRS 16) 2,254.6 1,726.8 1,847.9
Cash (701.3) (167.1) (319.5)
First Rail ring-fenced cash and deposits (726.0) (496.8) (611.9)
Other ring-fenced cash and deposits (12.1) (0.9) (20.3)
Net debt excluding accrued interest (pre-IFRS 16) 815.2 1,062.0 896.2
IFRS 16 lease liabilities – Road 272.1 296.1 283.3
IFRS 16 lease liabilities – Rail 1,867.9 726.0 2,098.6
IFRS 16 lease liabilities – total 2,140.0 1,022.1 2,381.9
Net debt excluding accrued interest (post-IFRS 16) 2,955.2 2,084.1 3,278.1
Under the terms of the First Rail franchise agreements, cash can only be
distributed by the TOCs either up to the lower amount of their retained
profits or the amount determined by prescribed liquidity ratios. The
ring-fenced cash represents that which is not available for distribution or
the amount required to satisfy the liquidity ratio at the balance sheet date.
First Rail ring-fenced cash increased by £114.1m to £726.0m in the period
principally due to the pre-funding of working capital flows noted elsewhere.
Net debt excluding Rail ring-fenced cash and deposits increased to £3,681.2m
(H1 2019: £2,580.9m).
Total effective net debt before Rail IFRS 16 lease liabilities of £1,093.5m
is dollar denominated either directly or through swaps the Group has entered
into.
Funding and risk management
Liquidity within the Group has remained strong. At 30 September 2020, there
was £965.6m (H1 2019: £496.6m) of undrawn committed headroom and free cash,
being £323.9m (H1 2019: £394.4m) of committed headroom and £641.7m (H1
2019: £102.2m) of net free cash after offsetting overdraft positions. This
reflects the previously disclosed issuance of £300m in commercial paper
through the UK Government’s Covid Corporate Financing Facility (CCFF) scheme
in April 2020 which was renewed for a further year in December, cash flow in
the period and the timing of working capital movements in First Student.
Subsequent to the period end, First Student working capital has continued to
normalise as higher service levels are run and as at 8 December the Group’s
undrawn committed headroom and free cash was £805m, broadly in line with
average levels since April.
In addition to the committed funding and free cash position noted above, the
Group’s diversified funding structure also includes undrawn facilities
comprising a committed £250m bridging loan entered into in March 2020 for the
redemption of the £350m bond that matures in April 2021, an uncommitted
£150m accordion facility to the RCF, as well as further lines of uncommitted
leasing facilities and more than $195m of committed supplier credit for the
procurement of buses. 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 2.8 years (H1 2019: 3.8 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.
Covenant amendment
In November as a matter of prudence the Group determined that was an
appropriate point to secure enhanced financial flexibility from its lenders
for the next two covenant testing dates, covering the typical period of 12
months. The Group therefore agreed covenant amendments for the 31 March 2021
and 30 September 2021 tests with its lending banks and USPP investors on
similar terms. The net debt:EBITDA covenant was amended to less than 5.5 times
and then 4.5 times for the March and September tests respectively (compared to
3.75 times normally). At both testing dates the fixed charge covenant was also
amended to greater than 1.0 times (compared to 1.4 times normally). The Group
agreed that net debt including rail ring-fenced cash will not exceed £2.0bn
and minimum liquidity levels of £150m will be maintained during this period.
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.
Fuel price risk
We use a progressive forward hedging programme to manage commodity risk. As at
30 September 2020, 59% of our ‘at risk’ UK crude requirements for the
current year in the UK (1.5m barrels) were hedged at an average rate of $64
per barrel, 37% of our requirements for the year to 31 March 2022 at $64 per
barrel, and 6% of our requirements for the year to 31 March 2023 at $56 per
barrel.
In North America 73% of 2020/21 ‘at risk’ crude oil volumes (0.6m barrels)
were hedged at an average rate of $63 per barrel, 21% of our requirements for
the year to 31 March 2022 at $65 per barrel, and 6% of our requirements for
the year to 31 March 2023 at $60 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 – do
not hedge their fuel exposure, so Greyhound’s pricing is responsive to fuel
price changes.
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 2020 6 months to 30 September 2019 Year to 31 March 2020
Closing rate Effective rate Closing rate Effective rate Closing rate Effective rate
US Dollar 1.27 1.30 1.23 1.34 1.25 1.29
Canadian Dollar 1.71 1.72 1.63 1.84 1.74 1.72
Pensions
We have updated our pension assumptions as at 30 September 2020 for the
defined benefit schemes in the UK and North America. The net pension deficit
of £313.4m at the beginning of the period has increased to £359.9m 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 2020 are set out below:
Movement Impact
Discount rate +0.1% Reduce deficit by £34m
Inflation +0.1% Increase deficit by £27m
Life expectancy +1 year Increase deficit by £95m
The Trustee and Company have finalised the 2019 funding valuation for the
First UK Bus Pension Scheme. Taking into account the parent company guarantee
provided by FirstGroup plc, the funding deficit of £271m at the valuation
date is lower than that of the previous triennial valuation (£302m as at
April 2016), but higher than the balance sheet position on an accounting basis
at the relevant date. The funding shortfall is estimated to be c.£150m higher
than the IAS19 accounting position at the reporting date.
We are now actively engaging with the Trustee on strategic discussions in
relation to a Long-Term Funding Target for the Scheme, including liability
management options, covenant, de-risking the investment strategy and securing
member benefits. Such a Long-Term Funding Target (often referred to as low
dependency or self-sufficiency) is not defined precisely but may be achieved
by setting a funding target in line with a discount rate for liabilities in
the range of Gilts to Gilts +50bps. In our opinion, funding the Scheme to such
a level within a reasonably short time horizon, whilst taking actions to
reduce exposure to investment risk, 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. Such a
lower risk, low dependency funding target could be c.£100m higher than the
value of liabilities in the funding valuation.
Balance sheet
Net assets have decreased by £160.5m since 31 March 2020 and by £422.2m
since 30 September 2019. The principal reasons for the £160.5m decrease since
31 March 2020 are the retained loss for the period of £88.4m, actuarial
losses on defined benefit pension schemes (net of deferred tax) of £44.8m,
unfavourable translation reserve movements of £38.1m and partly offset by
favourable after tax hedging reserve movements of £10.6m.
Balance sheets – Net assets/(liabilities) As at 30 September 2020 As at 30 September 2019 £m As at 31 March 2020 £m
£m
First Student 2,228.5 2,453.9 2,447.3
First Transit 323.4 435.9 358.1
Greyhound (171.0) (87.1) (212.3)
First Bus 355.2 288.0 319.4
First Rail (884.0) (622.1) (749.9)
Divisional net assets, with IFRS 16 assets and liabilities allocated 1,852.1 2,468.6 2,162.6
Group items (17.7) 22.4 (43.9)
Net debt excluding IFRS 16 liabilities (815.2) (1,062.0) (896.2)
Taxation (3.0) 9.4 (45.8)
Total 1,016.2 1,438.4 1,176.7
Post-balance sheet events
The Group announced on 9 November 2020 that it has agreed covenant amendments
for the 31 March 2021 and 30 September 2021 tests with its lending banks and
USPP investors on similar terms, as described on page 18.
We have repaid and re-issued £300m of the Bank of England CCFF in December
2020, providing further committed facilities for the next 12 months. The Board
believes that this facility will continue to be available for re-draw up to
March 2021 as communicated from the Bank of England.
Since 30 September 2020, we have secured $195m of long-term supplier financing
for First Student buses.
In November, an annuity buy-in was completed for all the current pensioners in
the Aberdeen LGPS. The pensioners represent £240m, or 70%, of our Scotland
LGPS pension liabilities, and removing our exposure to that risk represents a
material reduction to the Group’s overall ongoing pension risk.
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 2020 (the ‘first half’, the 'period' or ‘H1 2020’) include
the results and financial position of the First Rail business for the period
ended 26 September 2020 and the results and financial position of all the
other businesses for the 26 weeks ended 26 September 2020. The figures for the
six months to 30 September 2019 (the ‘prior period’ or ‘H1 2019’)
include the results and financial position of First Rail 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. Figures for the year to
31 March 2020 include the results and financial position of the First Rail
division for the year ended 31 March 2020 and the results and financial
position of all the other businesses for the 52 weeks ended 28 March 2020.
Full year results for 2021 will include the results and financial position of
First Rail for the year to 31 March 2021 and the results and financial
position of all the other businesses for the 52 weeks ended 27 March 2021.
References to the 'Road' divisions combine First Student, First Transit,
Greyhound, First Bus and Group items.
All references to 'adjusted' figures throughout this document are before
strategy costs, Rail Termination Sums, other intangible asset amortisation
charges and certain other items as set out in note 3 to the financial
statements.
'EBITDA’ is adjusted operating profit less capital grant amortisation plus
depreciation.
'Net debt' is the value of Group external borrowings excluding the fair value
adjustment for coupon swaps designated against certain bonds, excluding
accrued interest, less cash balances.
References to ‘like-for-like’ revenue adjust for changes in the
composition of the divisional portfolio, holiday timing, severe weather and
other factors, for example engineering possessions in First Rail, that distort
the period-on-period trends in our passenger revenue businesses.
Principal risks and uncertainties
The Board has conducted a thorough assessment of the principal risks and
uncertainties facing the Group for the remainder of the financial year,
including those that would threaten the successful and timely delivery of its
strategic priorities, future performance, solvency and liquidity.
The most immediate risk facing the Group remains the impact to the Group and
each of its businesses from the coronavirus pandemic. We have set out in more
detail elsewhere in this document (and previously announced) the measures we
have taken and continue to take as a Group and in each of our businesses to
mitigate those risks. In our going concern statement we have highlighted
continued uncertainties that could, in certain severe downside scenarios, cast
significant doubt on the Group’s ability to continue as a going concern.
The Directors recognise that significant judgements had to be made in deciding
what assumptions to make regarding how the impact of the coronavirus pandemic
might evolve over the coming months and what impact that will have on the
ability of each of the business divisions to resume near normal levels of
service. Many of those judgements are, by their nature, highly subjective and
the modelled outcomes depend to a significant degree on how the coronavirus
pandemic evolves during the remaining months of the financial year. There is
therefore a much higher degree of uncertainty than would usually be the case
in making the key judgements and assumptions that underpin the financial
forecasts.
Other material risks include:
* Climate change – many jurisdictions in which the Group operates have
introduced decarbonisation plans, which set ambitious targets for the
reduction of transport-related emissions. These may result in structural
market changes or impact the Group’s operations in terms of reduced
profitability, increased costs and/or a reduction in operational flexibility
or efficiency.
* Economic environment including Brexit – the less certain economic outlook,
together with the on-going restrictions imposed as a result of the
coronavirus, and the long term impact on the economy and a disruptive exit
from the EU, could have a negative impact on our businesses in terms of
reduced demand and reduced opportunities for growth.
* Compliance, litigation, claims, health and safety – the Group’s
operations are subject to a wide range of legislation and regulation. A higher
volume of litigation and claims can lead to increased costs, reduced
availability of insurance cover, and/or reputational impact. Increased
frequency of accidents, clusters of higher severity losses, a large single
claim, or a large number of smaller claims may negatively affect profitability
and cash flow.
* Disruption to infrastructure/operations – the Group’s operations, and
the infrastructure on which they depend, can be affected by a number of
different external factors, including terrorism and adverse weather events. An
attack, or threat of attack, could lead to reduced confidence in public
transportation and/or the Group’s security record, and could reduce demand
for our services, increase costs and cause operational disruption. Greater and
more frequent adverse weather increases the risk of service disruption and
reduced customer demand with consequential financial impact.
For a full summary of the Principal Risks and Uncertainties facing the Group,
please refer to the Annual Report and Accounts 2020 at
https://www.firstgroupplc.com/investors/annual-report-2020.aspx.
Matthew
Gregory
Ryan Mangold
Chief
Executive
Chief Financial Officer
10 December
2020
10 December 2020
Condensed consolidated income statement
Notes Unaudited Unaudited 6 months to 30 September 2019 £m Audited year to 31 March 2020 £m
6 months to
30 September 2020
£m
Revenue 2, 4 3,101.6 3,531.9 7,754.6
Operating costs (3,118.0) (3,650.0) (7,907.3)
Operating loss (16.4) (118.1) (152.7)
Investment income 5 1.6 1.2 2.7
Finance costs 5 (85.3) (70.2) (149.6)
Loss before tax (100.1) (187.1) (299.6)
Tax 6 11.7 14.2 (25.0)
Loss for the period (88.4) (172.9) (324.6)
Attributable to:
Equity holders of the parent (99.3) (172.9) (327.2)
Non-controlling interests 10.9 - 2.6
(88.4) (172.9) (324.6)
Earnings per share
Basic 7 (8.3)p (14.3)p (27.0)p
Diluted (8.3)p (14.3)p (27.0)p
Adjusted results (1)
Adjusted operating profit 3 10.4 88.9 256.8
Adjusted (loss)/profit before tax 3 (73.3) 19.9 109.9
Adjusted EPS 7 (5.3)p 1.4p 6.8p
Adjusted diluted EPS (5.3)p 1.4p 6.7p
(1 ) Adjusted for certain items as set out in note 3.
Condensed consolidated statement of comprehensive income
Unaudited Unaudited 6 months to 30 September 2019 £m Audited Year to 31 March 2020 £m
6 months to
30 September
2020
£m
Loss for the period (88.4) (172.9) (324.6)
Items that will not be reclassified subsequently to profit or loss
Actuarial losses on defined benefit pension schemes (54.2) (42.2) (29.0)
Deferred tax on actuarial losses on defined benefit pension schemes Writing down previously recognised deferred tax assets on actuarial losses on defined benefit schemes 9.4 - 7.4 - 1.1 (25.7)
(44.8) (34.8) (53.6)
Items that may be reclassified subsequently to profit or loss
Derivative hedging instrument movements (5.1) (13.4) (29.3)
Deferred tax on derivative hedging instrument movements 1.3 2.9 5.9
Exchange differences on translation of foreign operations (38.1) 142.4 91.3
(41.9) 131.9 67.9
Other comprehensive (loss)/income for the period (86.7) 97.1 14.3
Total comprehensive loss for the period (175.1) (75.8) (310.3)
Attributable to:
Equity holders of the parent (186.0) (75.8) (312.9)
Non-controlling interests 10.9 - 2.6
(175.1) (75.8) (310.3)
Condensed consolidated balance sheet
Note Unaudited Unaudited 30 September 2019 (restated) £m Audited 31 March 2020 (restated) £m
30 September 2020
£m
Non-current assets
Goodwill 8 1,634.3 1,691.3 1,663.2
Other intangible assets 9 47.4 55.0 51.9
Property, plant and equipment 10 4,294.0 3,050.9 4,374.5
Deferred tax assets 41.3 65.7 33.6
Retirement benefit assets 23 52.5 78.0 53.2
Derivative financial instruments 17 0.8 15.0 15.8
Investments 38.0 36.9 32.9
6,108.3 4,992.8 6,225.1
Current assets
Inventories 55.9 63.3 63.3
Trade and other receivables 12 1,062.5 1,211.4 1,170.6
Current tax assets 5.4 5.0 9.8
Cash and cash equivalents 22 1,439.4 664.8 951.7
Assets held for sale 11 4.2 24.8 1.0
Derivative financial instruments 17 7.4 10.2 4.8
2,574.8 1,979.5 2,201.2
Total assets 8,683.1 6,972.3 8,426.3
Current liabilities
Trade and other payables 13 1,940.9 1,651.1 1,799.7
Tax liabilities – Current tax liabilities 8.8 3.7 7.5
– Other tax and social security 20.5 46.7 42.9
Borrowings 14 1,372.4 545.9 776.7
Derivative financial instruments 17 28.4 4.3 44.2
Provisions 18 395.1 215.7 232.1
3,766.1 2,467.4 2,903.1
Net current liabilities (1,191.3) (487.9) (701.9)
Non-current liabilities
Borrowings 14 3,051.8 2,241.0 3,502.9
Derivative financial instruments 17 13.6 8.5 19.2
Retirement benefit liabilities 23 412.4 409.1 366.6
Deferred tax liabilities 20.4 10.9 38.8
Provisions 18 402.6 397.0 419.0
3,900.8 3,066.5 4,346.5
Total liabilities 7,666.9 5,533.9 7,249.6
Net assets 1,016.2 1,438.4 1,176.7
Equity
Share capital 20 61.1 60.8 61.0
Share premium 689.0 685.2 688.6
Hedging reserve (25.0) 7.0 (28.3)
Other reserves 4.6 4.6 4.6
Own shares (9.8) (1.3) (10.2)
Translation reserve 604.8 686.7 635.6
Retained earnings (286.3) 26.6 (141.5)
Equity attributable to equity holders of the parent 1,038.4 1,469.6 1,209.8
Non-controlling interests (22.2) (31.2) (33.1)
Total equity 1,016.2 1,438.4 1,176.7
‘Current borrowings’ and ‘cash and cash equivalents’ have been
restated and increased by £64.9m at 30 September 2019 (previously cash and
cash equivalents was £599.9m and current borrowings £481.0m) and increased
by £82.4m at 31 March 2020 (previously cash and cash equivalents was £869.3m
and current borrowings £694.3m), as an overdraft had been set off against the
cash balance.
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 2020 61.0 688.6 (28.3) 4.6 (10.2) 635.6 (141.5) 1,209.8 (33.1) 1,176.7
(Loss)/income for the period - - - - - - (99.3) (99.3) 10.9 (88.4)
Other comprehensive loss for the period - - (3.8) - - (38.1) (44.8) (86.7) - (86.7)
Total comprehensive (loss)/income for the period - - (3.8) - - (38.1) (144.1) (186.0) 10.9 (175.1)
Shares issued 0.1 0.4 - - - - - 0.5 - 0.5
Derivative hedging instrument movements transferred to balance sheet (net of tax) - - 14.4 - - - - 14.4 - 14.4
Reserves reclassification - - (7.3) - - 7.3 - - - -
Movement in EBT and treasury shares - - - - 0.4 - (5.3) (4.9) - (4.9)
Share-based payments - - - - - - 4.6 4.6 - 4.6
Balance at 30 September 2020 (unaudited) 61.1 689.0 (25.0) 4.6 (9.8) 604.8 (286.3) 1,038.4 (22.2) 1,016.2
Balance at 1 April 2019 Adjustment on transition to IFRS 16 Balance at 1 April 2019 60.7 - 60.7 684.0 - 684.0 17.5 - 17.5 4.6 - 4.6 (4.7) - (4.7) 544.3 - 544.3 248.1 (15.6) 232.5 1,554.5 (15.6) 1,538.9 (31.2) - (31.2) 1,523.3 (15.6) 1,507.7
Loss for the period - - - - - - (172.9) (172.9) - (172.9)
Other comprehensive (loss)/ income for the period - - (10.5) - - 142.4 (34.8) 97.1 - 97.1
Total comprehensive income/(loss) 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 Deferred tax on share-based payments - - - - - - - - - - - - 4.6 0.6 4.6 0.6 - - 4.6 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 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 Balance at 1 April 2019 - 60.7 - 684.0 - 17.5 - 4.6 - (4.7) - 544.3 (15.6) 232.5 (15.6) 1,538.9 - (31.2) (15.6) 1,507.7
Loss for the year - - - - - - (327.2) (327.2) 2.6 (324.6)
Other comprehensive income/(loss) for the year - - (23.4) - - 91.3 (53.6) 14.3 - 14.3
Total comprehensive income/(loss) for the year - - (23.4) - - 91.3 (380.8) (312.9) 2.6 (310.3)
Shares issued 0.3 4.6 - - - - - 4.9 - 4.9
Derivative hedging instrument movements transferred to balance sheet (net of tax) - - (22.4) - - - - (22.4) - (22.4)
Dividends paid/other - - - - - - 0.7 0.7 (4.5) (3.8)
Movement in EBT and treasury shares - - - - (5.5) - (4.2) (9.7) - (9.7)
Share-based payments - - - - - - 10.3 10.3 - 10.3
Balance at 31 March 2020 61.0 688.6 (28.3) 4.6 (10.2) 635.6 (141.5) 1,209.8 (33.1) 1,176.7
Condensed consolidated cash flow statement
Note Unaudited Unaudited 6 months to 30 September 2019 £m Audited Year to 31 March 2020 £m
6 months to 30 September 2020
£m
Net cash from operating activities 21 688.2 331.6 958.2
Investing activities
Interest received 1.6 1.2 2.7
Proceeds from disposal of property and plant and equipment 4.4 21.2 30.5
Purchases of property, plant and equipment (129.4) (189.5) (321.8)
Purchases of software Disposal of business (3.8) - (4.0) - (9.2) 16.2
Acquisition of business 19 (1.4) (3.0) (21.8)
Net cash used in investing activities (128.6) (174.1) (303.4)
Financing activities Acquisition of treasury shares (4.7) - (9.8)
Shares issued - 1.1 4.5
Proceeds from CCFF 299.0 - -
Proceeds from bank loan facilities and overdrafts 29.5 7.0 122.9
Repayment of loan notes (8.7) - -
Repayments of lease liabilities (347.5) (256.8) (596.5)
Fees for bank facility amendments (1.4) - (2.1)
Net cash flow used in financing activities (33.8) (248.7) (481.0)
Net increase/(decrease) in cash and cash equivalents before foreign exchange movements 525.8 (91.2) 173.8
Cash and cash equivalents at beginning of period 869.3 692.9 692.9
Foreign exchange movements (15.3) (1.8) 2.6
Cash and cash equivalents at end of period per consolidated balance sheet 1,379.8 599.9 869.3
Cash and cash equivalents are included within current assets on the condensed
consolidated balance sheet. Cash and cash equivalents includes ring-fenced
cash of £738.1m in H1 2020 (H1 2019: £497.7m; full year 2020: £632.2m).
Reconciliation to cash flow statement
The cash and cash equivalents in the balance sheet reconcile to the amount of
cash shown in the condensed consolidated cash flow statement at the end of
each reporting period as follows:
Note Unaudited Unaudited 6 months to 30 September 2019 £m Audited Year to 31 March 2020 £m
6 months to 30 September 2020
£m
Cash and cash equivalents per the balance sheet 1,439.4 664.8 951.7
Bank overdraft 14 (59.6) (64.9) (82.4)
Balances per consolidated cash flow statement 1,379.8 599.9 869.3
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 2019 £m Audited Year to 31 March 2020 £m
6 months to 30 September 2020
£m
Net increase/(decrease) in cash and cash equivalents in period 525.8 (91.2) 173.8
(Increase)/decrease in debt and leases excluding leases formerly classified as operating leases (294.1) 13.2 (75.3)
Adjusted cash flow 231.7 (78.0) 98.5
Payment of lease liabilities 321.9 236.6 549.2
Inception of new leases Fees capitalised against bank facilities and bond issues (150.7) 0.1 (130.9) - (1,828.3) 0.7
Foreign exchange movements 9.1 (39.2) (24.1)
Other non-cash movements (89.2) (1.0) (2.5)
Movement in net debt in period 322.9 (12.5) (1,206.5)
Adjustment for transition to IFRS 16 - (1,168.2) (1,168.2)
Net debt at beginning of period (3,278.1) (903.4) (903.4)
Net debt at end of period 22 (2,955.2) (2,084.1) (3,278.1)
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 2020 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 2020 include the results and
financial position of the First Rail division for the period ended 26
September 2020 and the results and financial position for the other divisions
for the 26 weeks ended 26 September 2020. The comparative 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 of the other divisions for the 26 weeks ended 28 September
2019.
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 and applicable law. The accounting policies applied are
consistent with those described in the Group’s latest annual audited
financial statements, except for a number of amendments to IFRSs which became
effective for the financial years beginning on 1 April 2020 and for income tax
which at the interim is based on applying expected full year effective tax
rates to the interim results. There has been no material change as a result of
applying these amendments. 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.
These results are unaudited but have been reviewed by the auditor. The
comparative figures for the six months to 30 September 2019 are unaudited and
are derived from the half-yearly financial report for that period, which was
also reviewed by the auditor.
Going concern – basis of preparation
Evaluation of going concern
The Board evaluated whether it was appropriate to prepare the condensed
consolidated interim financial statements in this half-yearly report on a
going concern basis and in doing so considered whether any material
uncertainties exist that cast doubt on the Group’s and the Company’s
ability to continue as a going concern over the next 12 months.
Consistent with prior years, the Board’s Going Concern assessment is based
on a review of future trading projections, including whether the amended
banking covenants are likely to be met and whether there is sufficient
facility headroom to accommodate future cash flows for the Going Concern
period. During October and November 2020, Divisional management teams prepared
detailed, bottom-up projections for their businesses reflecting the COVID19
operating environment, including customer revenue recovery where services had
been disrupted and what government or contractual support arrangements were in
place. These projections were then subject to a series of Executive management
reviews. The Board has considered the period up to March 2022.
Review of trading
Compared with the position in July 2020, we now have substantially greater
clarity about the resilience of our businesses as a result of the arrangements
in place in the UK and North America and the strength of our customer
relationships.
In First Rail we have been operating since 1 March 2020 initially under EMA
and for certain franchises under ERMA contracts since 20 September 2020 with
the potential to move to management contract-style models under which we
anticipate the revenue and cost risks would not be borne by the operator.
Furthermore, agreement has been reached of the termination sums on SWR and
Avanti which has reduced this potential uncertainty with a clear path forward.
In First Student and First Transit our confidence is underpinned by long term
contractual arrangements that have performed consistently through the pandemic
to-date.
In First Bus, the government confirmed on 8 August 2020 that the 12-week
rolling Covid19 Bus Services Support Grant (“CBSSG”) programme will
continue to apply until such time as social distancing is no longer required
after which there will be an eight-week transition period during which further
funding will be available to allow the industry to adjust to passenger demand
and revert to a business as usual model post crisis. In Greyhound, we have now
formally agreed the majority of the Cares Act 5311 (f) funding and at a higher
level than we had earlier assumed.
In the primarily contract-based businesses First Student, First Transit and
First Rail we have a materially higher level of confidence than we did in
early July 2020 around future business performance as a result of our
experience, as well as contractual changes in Bus and Rail since the start of
the pandemic. However, in the short term, the impact of the pandemic at a
local level in Student continues to be disruptive and uncertain as the extent
to which schools re-open or adopt remote learning in response to renewed
outbreaks of the pandemic within individual school districts which impacts our
service levels and hence potential revenue recovery.
Furthermore, there is still uncertainty regarding the medium to longer-term
impact of the COVID19 on passenger travel patterns as economies emerge from
the crisis. The impact on future demand for our passenger revenue-based
divisions First Bus and Greyhound therefore remains uncertain.
The Group’s near-term liquidity position is also significantly better with
improved cash generation since March 2020 and an additional c.£140m in
committed facilities in finance leases and long-term supplier finance.
The Board also continues to believe that the Group has the ability to draw
down on c.£450m of the currently available but uncommitted facilities
throughout the going concern period if required, notably the £300m COVID
Corporate Financing Facility (“CCFF”) that currently matures in December
2021 that, if still available, we intend to redraw in March 2021 to be then
committed to March 2022, under the current rules.
Base case scenario
The base case assumes a gradual recovery in passenger volumes as a result of
an anticipated lifting of social distancing and travel restrictions in
FY21/22, but that passenger volumes remain below pre-COVID19 levels in the
Going Concern assessment period. In the base case, we have assumed that the
Student business remains materially disrupted throughout the remainder of the
current school year, assuming recovery to only 75% in full time school at the
end of the current academic year with 10% still full time home learning,
before recovering fully at the start of the next academic year.
The macro projections in the base case assume that the UK operates in a
post-Brexit COVID19 economy and uses a consensus macro-economic outlook in
line with HM Treasury’s Economic Forecast of October 2020. We have not
assumed any further North American fiscal support beyond what has already been
committed.
Severe but plausible downside scenario
In addition, a severe but plausible downside case was modelled (“the severe
downside model”) which assumes a more protracted post COVID19 recovery
profile. In this case Student is assumed to operate at a substantially close
to full service from the start of the Fall school term but with continued
disruption until the end of the Winter term in FY21/22, with only 50% in full
time school and 25% hybrid learning in the current academic year, and with 10%
still full time home learning in the Winter term of FY21/22, with capex for
discretionary acquisitions constrained. In Transit the model assumes a more
protracted recovery in paratransit and university shuttle service levels until
April 2021. In Greyhound it assumes slower passenger recovery and weaker
revenues with passenger numbers remaining at current levels in H2 FY20/21 at
around 40% of FY 19/20 levels, and slowly recovering to 80% of FY 19/20 levels
by the end of H1 FY21/22. In First Bus it assumes CBSSG comes to an end two
months earlier than in the base case, but stronger revenues in the second half
of the year. In First Rail, the model assumes £100m less of ring-fenced cash
and higher Termination sums on expiry of the ERMAs.
On 9 November 2020, the Group announced that it had agreed covenant amendments
for the 31 March 2021 and 30 September 2021 tests with its lending banks and
USPP investors. Banking covenants are projected to be met for all testing
periods through to March 2022 in our base case scenario, however the severe
downside model shows the minimum liquidity covenant would be breached at 31
December 2021, before implementing further mitigation actions in reducing
costs and capex as the CCFF matures. Although it is the Group’s intention to
redraw the CCFF in March 2021, if still available, which should extend its
term until March 2022 under the current rules, this is not modelled in the
severe downside model. The downside scenario also assumes that no new finance
is raised throughout the going concern assessment period.
If the impact on the Group of the pandemic were to be more protracted than
assumed in the base case scenarios, or if the Group is unable to raise up to
£200m of additional finance facilities by the end of the current fiscal year,
the Group would reduce and defer planned growth capex spend over the
subsequent twelve months and further reduce costs in line with a lower
operating environment to the extent that the essential services we operate are
not required to be run for the governments and communities we support.
Conclusion
Based on their review of the financial forecasts and having regard to the
risks and uncertainties to which the Group is exposed, the Directors have a
reasonable expectation that the Group has adequate resources to continue in
operational existence for the twelve-month period from the date on which the
financial statements were approved. Accordingly, they continue to adopt a
going concern basis of accounting in preparing the interim financial
statements.
However, as set out above, certain downside risks continue to exist including:
* materially lower service levels and revenue recovery in Student if the
impact of the pandemic is more severe or protracted than assumed;
* the impact on future demand for our passenger revenue-based divisions First
Bus and Greyhound being worse than anticipated.
The severe downside model indicates a breach of the minimum liquidity covenant
at 31 December 2021 as well as relatively limited net debt: EBITDA covenant
headroom at 30 September 2021. The severe downside model also indicates that
additional funding may be required in advance of the repayment of the CCFF in
December 2021. Such additional funding, whether through drawdown of the
group's existing uncommitted facilities or through the group securing new
facilities, may not be available at that time. These factors give rise to a
material uncertainty that may cast significant doubt upon the Group’s
ability to continue as a going concern. No adjustments have been made to the
condensed consolidated interim financial statements that would result if the
Group were unable to continue as a going concern.
Operating and financial review
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.
Summary of significant events in the Group
Significant events in relation to the change in the financial position and
performance of the Group:
First Student was successful in negotiating revenue recoveries equivalent to
c.55% of pre-pandemic expected revenue in the first quarter of our financial
year, as our school district customers recognised the importance of sustaining
our ability to restart home-to-school transportation services. With no
home-to-school service revenues in July and most of August because of the
school summer holidays, our second quarter is always loss-making and was more
so this year, with many schools delaying or amending their in-person
back-to-school plans in August and September and almost no summer charter
activity due to the pandemic. By mid-November two thirds of our fleet were
operating home to school services, however with the recent increase in
coronavirus cases in the US, this has recently fallen to c.59%. Most of our
schools where we are not fully operational are supporting us with agreements
to make either full or partial payments to ensure that we are in a position to
restart services rapidly when needed. Between services in operation and these
agreements with our customers, we are currently securing c.75% of our
pre-pandemic home-to-school revenue, with additional negotiations ongoing.
Only 14% of our buses are neither running for customers already nor have an
agreement for recovering some revenue to support restarting when appropriate.
Alongside this activity we also achieved a good outcome to the bid season,
with retention rates in line with our expectations of 87% of ‘at risk’
contracts or 95% of the whole contract portfolio. We won major contracts from
competitors in Indianapolis and Charleston, a first-time conversion to
outsourcing in Pennsylvania, and several new contracts for our Hopewell
special education business. Our bolt-on M&A pipeline is strong with a
transaction in Canada completed in the period and another signed this month.
Most of First Transit’s contracts are to provide essential services so
provision during the period was not reduced as significantly as some other
parts of the Group. Where service levels did change we worked closely with
clients to agree contractual amendments. While the rate of recovery varies by
sub-segment, overall First Transit is now operating c.71% of pre-coronavirus
services and recovering c.86% of pre-pandemic revenues. The division’s
contract retention rate was 91% in the period including major retentions with
long-standing clients in Houston and Hartford (contracts worth $225m and more
than $55m in revenue respectively over their base terms). First Transit also
delivered a number of new business wins across its traditional markets,
including an $88m revenue paratransit contract in Atlanta, as well as
continuing to build its capability in new mobility services with several
innovative contracts including an eBike maintenance and battery management
partnership with Lyft and Nike in the period.
Greyhound passenger volumes have been broadly in line with our cautious
assumptions, and we have continued to respond to very challenging conditions
through capacity adjustments in line with demand (including the suspension of
services in Canada), yield management and more than $30m in fixed cost
reductions. Negotiations with state agencies to secure CARES Act emergency
intercity bus grants for vital connections have been modestly ahead of our
expectations. The division is currently operating c.45% of its pre-pandemic
mileage and generating c.41% of pre-pandemic revenue expectations in the US.
Operational highlights – UK
Given the impact of social distancing rules and government travel guidance on
passenger volumes, operating our bus and rail networks at scale during the
period would have been unviable commercially and many could have ceased.
However, recognising the essential nature of public transport connections to
local economies, Westminster and the devolved governments have put in place a
series of measures to procure crucial transport services.
First Bus and other regional bus operators are effectively providing their
assets and expertise to operate a government-funded bus system at present,
which will be in place on a rolling basis until such time as it is no longer
required. On an operating cashflow basis before capital expenditure, the
division was breakeven in the period as a result. We continue to enhance the
ease, convenience and value for money of our services through increased
digitisation, and our increased capability to analyse and optimise our
passenger numbers and routes in real-time will stand us in good stead when
restrictions are lifted and the government schemes come to an end. Our plans
are well-advanced for the eight-week transitional period that will follow. We
are encouraged that passenger volumes recovered to c.60% of pre-pandemic
levels in some of our local areas prior to the second UK lockdown this autumn.
We support the proposal for ‘recovery partnerships’ to build on the strong
and successful collaboration between local authorities, DfT and operators
during the pandemic. Such partnerships would be based on tailored local
agreements with ring-fenced funding to deliver short term support on key
routes as passenger volumes rebuild, together with the rapid deployment of bus
priority measures to sustain networks for the longer term. Meanwhile we
continue to take the actions necessary to achieve our commitment of a
zero-carbon bus fleet by 2035.
In the period our First Rail franchises were operated under the terms of the
Emergency Measures Agreements (EMAs) put in place by the UK Government in
March. This includes our newest operation, the West Coast Partnership,
comprising Avanti West Coast services and HS2 Shadow Operator (‘Avanti’),
which began operations in December 2019. Three of the original EMAs were
replaced in September by similar arrangements known as Emergency Recovery
Measures Agreements (ERMAs) which the Government intends will transition over
time to a new model offering a more appropriate balance of risk and reward for
rail operators, passengers and the taxpayer. Accordingly, a process is
underway to agree the final termination payments with the DfT to terminate the
pre-existing franchise contracts by agreement. As announced separately, we
have today agreed franchise termination sums with the DfT of £33.2m and nil
for South Western Railway (SWR) and Avanti respectively, in line with our
expectations. The TransPennine Express (TPE) process has been extended to the
end of January 2021 by the DfT. Following agreement of the termination sums,
we are now negotiating new directly awarded management contracts with the DfT,
which will come into effect at the end of the ERMAs, under which each
incumbent operator will deliver passenger rail services. The DfT have
indicated that these new National Rail Contracts would last to 1 April 2023
for SWR, and to 1 April 2026 for Avanti, each with extension periods of up to
two further years at DfT discretion.
Impact of seasonality on the Group
First Student’s financial results are always highly seasonal because of the
overlay of our financial year with the North American school calendar, so
performance in the second half is always the key driver for the year. This is
particularly the case this year, as the limited second quarter revenues
normally received in the school summer holidays from summer school and camp
charters have been curtailed by the pandemic. In addition, some revenue
normally arising in late August and September did not materialise as a result
of the delays to the start of the new academic year by many school customers
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 9 December
2020.
2 Revenue
The principal direct fiscal support recognised during the period comprised
£1,314.7m of EMA funding in First Rail, £48.4m of CARES Act 5311(f) funding
in Greyhound and £180.4m of CBSSG, concessions and other funding in First
Bus. These are recognised within revenue in accordance with IFRS 15 (as per
our policy on revenue recognition in the 2020 Annual Accounts), when control
of the good or service is transferred to the customer and the group is
entitled to the consideration.
Government grants were obtained in the UK and in North America businesses,
through the UK furlough scheme and the CARES and CEWS Acts
respectively. There was £55.7m of CARES and CEWS Act employee retention
credits in First Student, £16.7m in First Transit and £2.6m in Greyhound
accounted for through operating costs, as well as furlough support obtained in
the UK. These amounts were recognised as an offset to the related costs when
conditions were met and expenses were incurred
The main direct fiscal support recognised in revenue over time for each
division has been as follows:
Greyhound: Subsidy funding was made available under section 5311(f) of the
terms of the US CARES Act. The Act allows Greyhound to claim for losses made
from operating intercity bus services in the US after 20 January 2020. The
subsidy funding receivable is recognised as other revenue in the period in
which the service is provided.
First Bus: A new COVID-19 Bus Service Support Grant (CBSSG) was in place from
17 March 2020 for English bus operators. It is a grant payable to bus
operators in respect of commercial services in return for making available
sufficient capacity to run an agreed level of commercial miles.
First Rail: The Emergency Measures Agreements (EMAs) transferred all revenue
and cost risk to the government and for the majority of the period our First
Rail franchises were operated under the terms of these EMAs. Three of the
original EMAs were replaced in September by similar arrangements. Under the
arrangement, our franchised TOCs are paid a fixed management fee to continue
to operate the rail network at a service level agreed with the government. Net
EMA funding including the management fee is recognised as revenue in Rail
franchise subsidy receipts, in line with the revenue recognition policy for
franchise subsidy receipts from the DfT.
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
by management 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 strategic items (material M&A and group restructuring projects),
costs of acquisitions including aborted acquisitions and impairment of assets.
Other items below £5.0m would not normally be considered as adjusting items
unless part of a larger strategic project, but items which distort
year-on-year comparisons that exceed this amount could potentially be
classified as an adjusting item and are assessed on a case by case basis. Such
potential adjusting other items include: restructuring and reorganisation
costs, property gains or losses, aged legal and self-insurance claims,
movements on insurance discount rates, onerous contract provisions and pension
settlement gains or losses. In addition, management assess divisional
performance before other intangible asset amortisation charges (excluding
software amortisation), 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.
Software amortisation is no longer treated as an adjusting item but as a cost
in arriving at operating profit, as this treatment is considered more
appropriate. Therefore, during the period to 30 September 2020 software
amortisation charges of £6.3m (H1 2019: £8.8m; full year 2020: £16.1m) have
been charged to divisional results in arriving at adjusted operating profit.
This change in treatment was reflected in the results for the year to 31 March
2020. The prior period to 30 September 2019 has been restated accordingly.
Reconciliation of operating loss to adjusted operating profit 6 months to 6 months to 30 September 2019 (restated) £m Year to 31 March 2020 £m
30 September 2020
£m
Operating loss (16.4) (118.1) (152.7)
Adjustments for:
Other intangible asset amortisation charges 2.1 3.0 4.9
Greyhound impairment charges - 124.4 186.9
Rail termination sums net of impairment reversal 18.3 - -
North America insurance provisions - 59.3 141.3
Legacy pension settlement - 4.9 4.9
Gain on disposal of property - - (9.3)
Strategy costs 6.4 15.4 58.2
Fuel over hedge - - 7.4
First Student onerous contract provisions - - 14.1
Increase in SWR performance bond - - 1.1
Total operating profit adjustments 26.8 207.0 409.5
Adjusted operating profit 10.4 88.9 256.8
Reconciliation of loss before tax to adjusted (loss)/profit before tax 6 months to 6 months to 30 September 2019 (restated) £m Year to 31 March 2020 £m
30 September 2020
£m
Loss before tax (100.1) (187.1) (299.6)
Operating profit adjustment (see table above) 26.8 207.0 409.5
Adjusted (loss)/profit before tax (73.3) 19.9 109.9
Adjusted tax credit/(charge) 13.5 (2.9) (24.6)
Non-controlling interests (1) (3.8) - (2.6)
Adjusted earnings (63.6) 17.0 82.7
(1) Excludes the non-controlling interests on SWR adjusting items.
The principal adjusting items are as follows:
Other intangible asset amortisation charges
The charge for the period was £2.1m (H1 2019 restated to £3.0m) with the
reduction due to a number of customer contract intangibles which have now been
fully amortised.
Rail Termination Sums net of impairment reversal
We are currently engaged with the DfT in determining the termination sums with
discussions currently ongoing.
Under the terms of the ERMA agreements the DfT are determining the amount of
parent company support and performance bonds that may have been required to be
input into the respective franchises based on a pre-COVID-19 trajectory
financial model and what the net assets are of each franchise as at the point
of entering into the EMA (1 March 2020).
3 Reconciliation to non-GAAP measures and performance (continued)
Based on discussions with the DfT to date, we have provided for our best
estimate of the termination sums due under the terms of the ERMA for each
franchise and this is expected to be paid in March or September 2021 under the
respective ERMA agreements.
As a consequence of the ERMA’s, the provisions for impairment on Right Of
Use assets on Rail franchises previously recognised have been released as at
the period end which offsets our best estimate of the termination sums payable
(see note 10).
As a result there was a net charge of £18.3m to the income statement which
has been treated as an adjusted item.
Strategy costs
There was a charge of £6.9m for legal, professional and other costs
associated with the proposed rationalisation of the Group. Partially
offsetting this, Greyhound recognised a profit of £0.5m on sale of a property
relating to the withdrawal from Western Canada.
The charge of £58.2m in the year to 31 March 2020 comprised mainly £28.0m
for a Group-wide initiative to achieve systematic and structured cost savings
across the businesses, £25.1m of restructuring cost (legal, professional and
other costs) associated with the proposed rationalisation of the Group and the
trading losses in the two Manchester depots to the date of disposal).
Reconciliation of constant currency(1)
6 months to
30 September 2019
6 months to Reported £m Effect of foreign exchange £m Constant Currency £m % change
30 September 2020 £m
Revenue 3,101.6 3,531.9 (5.5) 3,526.4 (12.0)%
Operating profit 10.4 88.9 4.5 93.4 (88.9)%
Adjusted (loss)/profit before tax (73.3) 19.9 4.8 24.7 (396.8)%
Adjusted EPS (5.3)p 1.4p 0.3p 1.7p (411.8)%
Net debt 2,955.2 2,084.1 (22.3) 2,061.8 +43.3%
(1) Changes ‘in constant currency’ throughout this document are based
on retranslating H1 2019 foreign currency amounts at H1 2020 rates.
4 Business segments information
The segment results for the six months to 30 September 2020 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 - - 89.1 182.2 314.2 - 585.5
Contract revenues 393.2 401.4 - 19.3 - 8.3 822.2
Charter/private hire 5.6 0.3 1.0 - - - 6.9
Rail franchise subsidy receipts - - - - 1,347.3 - 1,347.3
Other revenues (2) 5.6 82.8 69.7 109.5 72.1 - 339.7
Revenue 404.4 484.5 159.8 311.0 1,733.6 8.3 3,101.6
EBITDA (3) 65.0 30.9 (0.9) 48.1 333.8 (11.9) 465.0
Depreciation (113.6) (16.3) (13.4) (33.7) (275.6) (1.5) (454.1)
Software amortisation (1.7) (1.2) (2.0) (0.7) (0.4) (0.3) (6.3)
Capital grant amortisation - - 0.5 3.7 1.6 - 5.8
Segment results (50.3) 13.4 (15.8) 17.4 59.4 (13.7) 10.4
Other intangible asset amortisation charges (note 3) (1.5) - (0.6) - - - (2.1)
Other adjustments (note 3) - - 0.5 - (18.3) (6.9) (24.7)
Operating (loss)/profit (51.8) 13.4 (15.9) 17.4 41.1 (20.6) (16.4)
Balance sheet Total assets Total liabilities Net assets/(liabilities)
£m £m £m
First Student 2,924.7 (590.2) 2,334.5
First Transit 631.7 (272.4) 359.3
Greyhound 272.8 (374.9) (102.1)
First Bus 746.4 (337.8) 408.6
First Rail 2,533.9 (1,550.0) 983.9
7,109.5 (3,125.3) 3,984.2
Group items 87.5 (97.3) (9.8)
Net debt (4) 1,439.4 (4,394.6) (2,955.2)
Taxation 46.7 (49.7) (3.0)
Total 8,683.1 (7,666.9) 1,016.2
1. Group items comprise Tram operations, central management and other items.
(2) Other revenue principally includes: First Transit - management
revenue, reimbursable costs and some of the COVID-19 relief revenue from
customers to cover fixed costs; Greyhound - £48.4m of CARES Act 5311(f)
funding; First Bus - £109.5m of CBSSG/CSG funding; First Rail - includes
Emergency Measurements Agreement management and performance fees, other
industry funded projects and other contractual services with third party rail
operators.
(3) EBITDA is adjusted operating profit less capital grant
amortisation plus depreciation and software amortisation.
(4) Net debt includes lease liabilities recognised under IFRS 16 of
£2,140.0m and comprises First Student £105.9m, First Transit £35.9m,
Greyhound £68.9m, First Bus £53.4m, First Rail £1,868.0m and Group items
£7.9m.
4 Business segments information (continued)
The segment results for the six months to 30 September 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 - - 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 Software amortisation (109.4) (1.5) (15.2) (1.1) (22.3) (5.2) (33.9) (0.3) (169.4) (0.4) (2.1) (0.3) (352.3) (8.8)
Capital grant amortisation - - 0.4 1.1 14.3 - 15.8
Segment results 16.8 12.7 8.1 21.2 48.5 (18.4) 88.9
Other intangible asset amortisation charges (note 3) (1.2) - (1.6) (0.1) (0.1) - (3.0)
Other adjustments (note 3) (34.3) (24.1) (134.2) (5.4) - (6.0) (204.0)
Operating (loss)/profit (18.7) (11.4) (127.7) 15.7 48.4 (24.4) (118.1)
Balance sheet Total assets (restated) £m Total liabilities (restated) £m Net assets/(liabilities) £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) 664.8 (2,748.9) (2,084.1)
Taxation 70.7 (61.3) 9.4
Total 6,972.3 (5,533.9) 1,438.4
‘Total assets’ and ‘total liabilities’’ have been restated by
£64.9m at 30 September 2019, as an overdraft had been set off against the
cash balance in the prior period.
(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 year to 31 March 2020 are as follows:
First Student £m First Transit £m Greyhound (1) £m First Bus £m First Rail £m Group items (2) £m Total £m
Passenger revenues - - 532.7 758.2 2,584.1 - 3,875.0
Contract revenues 1,764.9 1,031.9 - 63.5 - 17.8 2,878.1
Charter/private hire 159.4 5.0 3.5 - - - 167.9
Rail franchise subsidy receipts - - - - 369.1 - 369.1
Other revenues 16.1 134.5 67.0 14.2 232.7 - 464.5
Revenue 1,940.4 1,171,4 603.2 835.9 3,185.9 17.8 7,754,6
EBITDA (3) Depreciation 387.6 (225.8) 62.9 (32.2) 35.3 (39.7) 113.2 (69.2) 538.6 (518.2) (28.7) (4.3) 1,108.9 (889.4)
Software amortisation (3.0) (2.4) (8.1) (0.9) (1.0) (0.7) (16.1)
Capital grant amortisation - - 0.9 3.0 49.5 - 53.4
Segment results 158.8 28.3 (11.6) 46.1 68.9 (33.7) 256.8
Other intangible asset amortisation charges (note 3) (2.4) - (2.5) - - - (4.9)
Other adjustments (note 3) (67.0) (50.2) (239.3) (13.7) (1.1) (33.3) (404.6)
Operating (loss)/profit 89.4 (21.9) (253.4) 32.4 67.8 (67.0) (152.7)
Balance sheet Total assets £m Total liabilities £m Net assets/(liabilities) £m
First Student 3,157.7 (608.5) 2,549.2
First Transit 663.2 (274.0) 389.2
Greyhound 261.4 (392.2) (130.8)
First Bus 722.8 (343.3) 379.5
First Rail 2,513.6 (1,164.9) 1,348.7
7,318.7 (2,782.9) 4,535.8
Group items 112.5 (147.7) (35.2)
Net debt 951.7 (4,229.8) (3,278.1)
Taxation 43.4 (89.2) (45.8)
Total 8,426.3 (7,249.6) 1,176.7
‘Total assets’ and ‘total liabilities’’ have been restated by
£82.4m at 31 March 2020, as an overdraft had been set off against the cash
balance in the prior period.
(1) Greyhound segment results contain £8.3m of properties.
(2) Group items comprise Tram operating profit less capital grant
amortisation plus depreciation.
(3) EBITDA is adjusted operating profit less capital grant
amortisation plus depreciation.
5 Investment income and finance costs
6 months to 6 months to 30 September 2019 £m Year to 31 March 2020 £m
30 September 2020
£m
Investment income
Bank interest receivable (1.6) (1.2) (2.7)
Finance costs
Bonds 27.5 28.2 56.5
Bank borrowings 9.2 8.7 19.7
Senior unsecured loan notes 4.7 4.7 9.2
CCFF (Commercial Paper) 0.9 - -
Loan notes - 0.6 1.2
Interest cost on lease liabilities 36.7 17.4 42.6
Notional interest on long term provisions 2.5 5.9 11.8
Notional interest on pensions 3.8 4.7 8.6
Total finance costs 85.3 70.2 149.6
Total finance costs 85.3 70.2 149.6
Investment income (1.6) (1.2) (2.7)
Net finance costs 83.7 69.0 146.9
6 Tax on profit on ordinary activities
6 months to 6 months to 30 September 2019 £m Year to 31 March 2020 £m
30 September 2020
£m
Current tax charge/(credit) 6.6 0.5 0.5
Deferred tax (credit)/charge (18.3) (14.7) 24.5
Total tax (credit)/charge (11.7) (14.2) 25.0
The tax effect of the adjustments disclosed in note 3 was a charge of £1.8m
in H1 2020 (H1 2019: credit of £17.1m; full year 2020: credit of £39.6m).
7 Earnings per share (EPS)
EPS is calculated by dividing the loss attributable to equity shareholders of
£99.3m in H1 2020 (H1 2019: loss £172.9m; full year 2020: loss £327.2m) by
the weighted average number of ordinary shares in issue of 1,203.3m (H1 2019:
1,211.3m; full year 2020: 1,210.9m). 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 2020 30 September 2019 number m 31 March 2020 number m
number
m
Weighted average number of shares used in basic calculation 1,203.3 1,211.3 1,210.9
Executive share options 18.6 13.6 14.8
Weighted average number of shares used in the diluted calculation 1,221.9 1,224.9 1,225.7
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 2019 Year to 31 March 2020
30 September 2020
£m EPS (p) £m EPS (p) £m EPS (p)
Basic loss / EPS (99.3) (8.3) (172.9) (14.3) (327.2) (27.0)
Other intangible asset amortisation charges (note 9) 2.1 0.2 3.0 0.2 4.9 0.4
Other adjustments (note 3) 24.7 2.1 204.0 16.8 404.6 33.4
Non-controlling interest relating to SWR adjusting items (note 3) 7.1 0.6 - - - -
Tax effect of above adjustments 1.8 0.1 (17.1) (1.3) (39.6) (3.3)
Write-down of previously recognised deferred tax assets - - - - 40.0 3.3
Adjusted (loss)/profit / EPS (63.6) (5.3) 17.0 1.4 82.7 6.8
6 months to 6 months to 30 September 2019 pence Year to 31 March 2020 pence
30 September 2020
pence
Diluted EPS (8.3) (14.3) (27.0)
Adjusted diluted EPS (5.3) 1.4 6.7
8 Goodwill and impairment of assets
£m
Cost
At 1 April 2020 1,955.3
Foreign exchange movements (35.4)
At 30 September 2020 1,919.9
Accumulated impairment losses At 1 April 2020 Foreign exchange movements 292.1 (6.5)
At 30 September 2020 285.6
Carrying amount
At 30 September 2020 1,634.3
At 31 March 2020 1,663.2
At 30 September 2019 1,691.3
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 pages 163 and 164
of the 2020 Annual Report.
First Student, First Transit, First Bus and First Rail
Financial modelling at 31 March 2020 confirmed that the carrying amount did
not exceed their recoverable amounts in respect of the First Transit, First
Student and First Bus divisions and accordingly no impairment charge was
required at 31 March 2020. The assessment of the value in use of First Rail
was dependent on judgements surrounding EMA emergency measures as detailed in
note 2 of the 2020 Annual Report.
Management performed sensitivity analysis at 31 March 2020 to assess the
impact that a combination of reasonably possible changes in the principal
assumptions would have on the recoverable amount in respect of the First
Student, First Transit and First Bus divisions.
The scenarios modelled included:
* First Student: Reducing the long term growth rate to 2.0% (in line with
independent GDP forecasts for North America), maintaining an 8.7% discount
rate and adopting a terminal margin at 8.9% in perpetuity (2019/20 reported
margin: 8.2%) would lead to an £8.4m impairment on a total carrying value of
assets in use of £2,582.3m.
* First Transit: Reducing the long term growth rate to 2.0% (in line with
independent GDP forecasts for North America), maintaining an 8.7% discount
rate and adopting a terminal margin at 2.8% in perpetuity (2019/20 reported
margin: 2.4%) would lead to a £14.8m impairment on a total carrying value of
assets in use of £423.3m.
* First Bus: Reducing the long-term growth rate to 1.7% (in line with
independent GDP forecasts for the UK), maintaining an 8.0% discount rate and
adopting a terminal margin at 5.6% would lead to no impairment.
At 30 September 2020 we have revisited the First Student, First Transit, First
Bus and First Rail CGU impairment testing and concluded there are no
indicators of impairment since March 2020. Therefore no adjustment to the
carrying value of these CGUs is required at 30 September 2020.
The assessment of the value in use of First Rail was dependent on judgements
surrounding EMA emergency measures as detailed in Note 2 of the 2020 Annual
Report. Following the introduction of the ERMA's in September 2020, the
impairments of RoU assets that arose on transition to IFRS 16 were re-assessed
alongside the estimated Termination Payments - see note 3.
Greyhound
For the year ended 31 March 2020 the value of the Greyhound CGU was assessed
based on a fair value less costs to sell basis for the purposes of the
impairment review. Fair value was assessed on a value in use basis, but recent
activity in line with the intention to divest of the business indicated that
using a fair value less costs to sell basis would be a more appropriate
approach. The CGU valuation on a fair value less costs to sell basis was
assessed as a Level 3 fair value in the hierarchy as defined by IFRS 13,
assessing the value of a stand-alone Greyhound business using a discounted
cash flow approach. A risk adjusted view of the discounted future cash flows
for the next three years, including £136.0m of net property disposal
proceeds, was prepared to determine the potential value that a market
participant may ascribe to the Greyhound CGU. A long-term revenue growth rate
of 1.0% (March 2019: 2.8%) and terminal margin of 5.4% on a stand-alone CGU
basis (2019/20: -2.0% reported margin) was assumed. Cash flows were discounted
using a pre-tax discount rate of 9.7% (March 2019: 8.3% on a value in use
basis). The pre-tax discount rates applied were derived from a risked view of
a potential market participant’s weighted average cost of capital at 1.0%
above the discount rate applied to our other North American CGUs.
For the year ended 31 March 2020 this indicated an impairment of £62.5m in
addition to the £124.4m impairment recorded in the first half of the year.
The full year impairment for the year ended 31 March 2020 was therefore
£186.9m and was applied on a pro-rata basis against the assets of the
division excluding owned property. Market valuations in excess of book value
suggest no impairment to the carrying value of property. The carrying value of
the CGU at 31 March 2020 after recognising the impairment was £215.3m
($268.3m).
The Greyhound impairment was sensitive to a change in the assumptions used,
most notably to changes in the discount rate, terminal growth rate or terminal
margin. Applying a 15.7% discount rate, a -6.0% terminal growth rate or a 3.3%
terminal margin would reduce the fair value less costs to sell to £110.7m
($137.9m), being the carrying value of Greyhound owned property at 31 March
2020.
At 30 September 2020 we have revisited the Greyhound CGU impairment testing
and concluded there are no indicators of impairment since March 2020 and there
are no indicators that the impairments taken in previous periods should be
reversed. Therefore no adjustment to the carrying value of the Greyhound CGU
is required at 30 September 2020.
9 Other intangible assets
Customer contracts £m Greyhound brand and trade name £m Software £m Total £m
Cost
At 1 April 2020 501.8 74.2 87.9 663.9
Acquisitions (note 19) 0.8 - - 0.8
Additions - - 3.8 3.8
Foreign exchange movements (8.5) (1.1) (1.6) (11.2)
At 30 September 2020 494.1 73.1 90.1 657.3
Accumulated amortisation and impairment
At 1 April 2020 481.3 64.7 66.0 612.0
Charge for the period 1.5 0.6 6.3 8.4
Foreign exchange movements (8.2) (1.0) (1.3) (10.5)
At 30 September 2020 474.6 64.3 71.0 609.9
Carrying amount
At 30 September 2020 19.5 8.8 19.1 47.4
At 31 March 2020 20.5 9.5 21.9 51.9
At 30 September 2019 11.7 16.0 27.3 55.0
Intangible assets include customer contracts and the Greyhound brand and trade
name which were acquired through the purchases of businesses and subsidiary
undertakings and software. These are being amortised on a straight-line basis
over their useful lives which are between 3 and 20 years.
10 Property, plant and equipment
Owned assets
Land and buildings £m Passenger carrying vehicle fleet £m Other plant and equipment £m Total £m
Cost
At 1 April 2020 480.2 3,440.1 876.0 4,796.3
Acquisitions (note 19) - 0.6 - 0.6
Additions 1.5 124.5 66.0 192.0
Transfers from right of use assets - 81.1 - 81.1
Transfers to right of use assets - (61.5) - (61.5)
Disposals (2.7) (65.7) (64.3) (132.7)
Reclassified as held for sale (3.6) (48.6) - (52.2)
Foreign exchange movements (4.7) (42.9) (6.9) (54.5)
At 30 September 2020 470.7 3,427.6 870.8 4,769.1
Accumulated depreciation and impairment
At 1 April 2020 119.9 1,878.6 678.4 2,676.9
Transfers from right of use assets - 44.9 - 44.9
Transfers to right of use assets - (2.8) - (2.8)
Charge for period 6.9 113.8 25.1 145.8
Disposals (0.3) (51.4) (64.0) (115.7)
Reclassified as held for sale (1.6) (47.0) - (48.6)
Foreign exchange movements (1.4) (22.2) (6.2) (29.8)
At 30 September 2020 123.5 1,913.9 633.3 2,670.7
Carrying amount
At 30 September 2020 347.2 1,513.7 237.5 2,098.4
At 31 March 2020 360.3 1,561.5 197.6 2,119.4
At 30 September 2019 355.3 1,602.4 206.8 2,164.5
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 1 April 2020 2,541.4 261.3 332.8 6.8 3,142.3
Additions 53.2 27.7 9.3 0.2 90.4
Disposals - (3.0) - - (3.0)
Transfer from owned assets - - 61.5 - 61.5
Transfer to owned assets - - (81.1) - (81.1)
Foreign exchange movements - (4.8) (7.6) (0.1) (12.5)
At 30 September 2020 2,594.6 281.2 314.9 6.9 3,197.6
Accumulated depreciation and impairment
At 1 April 2020 652.3 94.0 138.4 2.5 887.2
Transfer from owned assets - - 2.8 - 2.8
Transfer to owned assets - - (44.9) - (44.9)
Charge for period 261.5 22.9 22.9 1.0 308.3
Disposals - 0.5 - - 0.5
Impairment reversal (146.5) - - - (146.5)
Foreign exchange movements - (2.4) (3.0) - (5.4)
At 30 September 2020 767.3 115.0 116.2 3.5 1,002.0
Carrying amount
At 30 September 2020 1,827.3 166.2 198.7 3.4 2,195.6
At 31 March 2020 1,889.1 167.3 194.4 4.3 2,255.1
At 30 September 2019 514.3 183.2 185.5 3.4 886.4
The impairment reversal comprises the reversal of £168.0m impairment on TPE
and SWR, adjusted for the impact on depreciation due to the impairment in H1
of £21.5m. The impairment reversal is included within adjusting items. See
Note 3.
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 2020 1,827.3 513.4 1,712.4 240.9 4,294.0
At 31 March 2020 1,889.1 527.6 1,755.9 201.9 4,374.5
At 30 September 2019 514.3 538.5 1,787.9 210.2 3,050.9
11 Assets held for sale
30 September 2020 30 September 2019 £m 31 March 2020 £m
£m
Assets held for sale 4.2 24.8 1.0
These primarily relate to the Ottawa property in Greyhound Canada and First
Student yellow school buses which are surplus to requirements and are being
actively marketed on the internet. Gains or losses arising on the disposal of
such assets are included in arriving at operating profit in the income
statement. The Group expects to sell such yellow school buses within 12 months
of them going onto the ‘for sale’ list. The value at each balance sheet
date represents management’s best estimate of their resale value less cost
of disposal. There are no liabilities associated with these held for sale
assets at the balance sheet date.
12 Trade and other receivables
Amounts due within one year 30 September 2020 30 September 2019 £m 31 March 2020 £m
£m
Trade receivables 369.8 501.3 652.2
Loss allowance (5.1) (3.3) (4.9)
Trade receivables net 364.7 498.0 647.3
Other receivables 177.7 150.2 90.2
Amounts recoverable on contracts 72.4 78.3 91.2
Prepayments 137.5 156.2 90.3
Accrued income 310.2 328.7 251.6
1,062.5 1,211.4 1,170.6
13 Trade and other payables
Amounts falling due within one year 30 September 2020 30 September 2019 £m 31 March 2020 £m
£m
Trade payables 248.3 330.4 336.9
Other payables 305.5 339.1 385.7
Accruals 1,066.5 740.3 838.5
Deferred income 312.6 157.9 152.3
Season ticket deferred income 8.0 83.4 86.3
1,940.9 1,651.1 1,799.7
14 Borrowings
30 September 2020 30 September 2019 (restated) £m 31 March 2020 (restated) £m
£m
On demand or within 1 year
Leases (2) 631.5 442.7 642.2
Bank overdraft 59.6 64.9 82.4
Loan notes (note 16) - 8.7 8.7
CCFF 299.0 - -
Bond 8.75% (repayable 2021) 367.4 14.6 30.4
Bond 5.25% (repayable 2022) (1) 14.6 14.6 5.8
Bond 6.875% (repayable 2024) (1) 0.3 0.4 7.2
Total current liabilities – borrowings 1,372.4 545.9 776.7
Within 1 – 2 years
Syndicated & other bank loan facilities 60.0 - -
Leases (2) 607.6 180.6 587.4
Supplier financing (3) 84.6 - -
Loan notes (note 16) 0.7 0.7 0.7
Bond 8.75% (repayable 2021) - 357.1 355.1
752.9 538.4 943.2
Within 2 – 5 years
Syndicated & other bank loan facilities 535.5 465.6 573.9
Leases (2) 871.8 423.7 1,030.3
Bond 5.25% (repayable 2022) 322.7 322.1 322.6
Bond 6.875% (repayable 2024) Senior unsecured loan notes 199.8 78.5 199.8 - 199.8 80.3
2,008.3 1,411.2 2,206.9
More than 5 years
Leases (2) 154.1 68.6 213.3
Senior unsecured loan notes 136.5 222.8 139.5
290.6 291.4 352.8
Total non-current liabilities at amortised cost – borrowings 3,051.8 2,241.0 3,502.9
‘Bank overdraft’ has been restated and increased by £64.9m at 30
September 2019 and increased by £82.4m at 31 March 2020, as an overdraft had
been set off against the cash balance in the prior periods.
(1) Relates to accrued interest.
(2) The right of use assets relating to lease liabilities are shown in
note 10. The maturity of lease liabilities is presented in note 15.
(32) Certain supplier financing arrangements are interest bearing and
considered to be more than normal supplier credit terms and as such are
considered to be debt in accordance with IFRS 7.
15 Lease liabilities
The Group had the following lease liabilities at the balance sheet dates:
30 September 2020 30 September 2019 £m 31 March 2020 £m
£m
Due in less than one year 691.1 488.3 702.4
Due in more than one year but not more than two years 647.5 187.2 632.8
Due in more than two years but not more than five years 916.7 440.7 1,089.3
Due in more than five years 179.2 94.1 240.6
2,434.5 1,210.3 2,665.1
Less future financing charges (169.5) (94.7) (191.9)
2,265.0 1,115.6 2,473.2
Comprising:
Lease liabilities - Road 397.1 389.6 374.6
Lease liabilities - Rail 1,867.9 726.0 2,098.6
The right of use assets relating to the lease liabilities is presented in note
10.
16 Loan notes
The Group had the following loan notes issued as at the balance sheet dates:
30 September 2020 30 September 2019 £m 31 March 2020 £m
£m
Due within 12 months - 8.7 8.7
Due within 1 – 2 years 0.7 0.7 0.7
17 Financial instruments
30 September 2020 30 September 2019 £m 31 March 2020 £m
£m
Total derivatives
Total non-current assets 0.8 15.0 15.8
Total current assets 7.4 10.2 4.8
Total assets 8.2 25.2 20.6
Total current liabilities 28.4 4.3 44.2
Total non-current liabilities 13.6 8.5 19.2
Total liabilities 42.0 12.8 63.4
Derivatives designated and effective as hedging instruments carried at fair value
Non-current assets
Coupon swaps (fair value hedge) - 11.4 13.3
Currency forwards (cash flow hedge) 0.8 3.2 2.5
Fuel derivatives (cash flow hedge) - 0.4 -
0.8 15.0 15.8
Current assets
Fuel derivatives (cash flow hedge) - 2.3 -
Currency forwards (cash flow hedge) 2.3 7.8 4.8
Currency forwards (net investment hedge) 5.1 - -
7.4 10.1 4.8
Current liabilities
Fuel derivatives (cash flow hedge) Currency forwards (net investment hedge) 24.0 4.4 4.3 - 32.4 4.4
28.4 4.3 36.8
Non-current liabilities
Fuel derivatives (cash flow hedge) 13.6 8.5 19.2
13.6 8.5 19.2
The fair value measurements of the financial derivatives held by the Group
have been derived based on observable market inputs (as categorised within
Level 2 of the fair value hierarchy under IFRS 7 (2009)).
Derivatives classified as held for trading
Current assets
Currency forwards - 0.1 -
Current liabilities
Fuel derivatives - - 7.4
17 Financial instruments (continued)
Fair value of the Group's financial assets and financial liabilities
(including cash, trade and other receivables, trade and other payables):
30 September 2020
Fair value Carrying value
Total
£m
Level 1 Level 2 Level 3 Total
£m £m £m £m
Financial assets
Cash and cash equivalents 1,439.4 - - 1,439.4 1,439.4
Trade and other receivables - 752.4 - 752.4 752.4
Derivative financial instruments - 8.2 - 8.2 8.2
Financial liabilities and derivatives
Financial liabilities 1,039.4 3,562.4 - 4,601.8 4,424.2
Trade and other payables - 1,833.8 - 1,833.8 1,833.8
Derivative financial instruments - 42.0 - 42.0 42.0
30 September 2019
Fair value Carrying value Total (restated) £m
Level 1 (restated) £m Level 2 £m Level 3 £m Total (restated) £m
Financial assets
Cash and cash equivalents 664.8 - - 664.8 664.8
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 530.5 2,369.3 - 2,899.8 2,786.9
Trade and other payables - 1,535.6 - 1,535.6 1,535.6
Derivative financial instruments - 12.8 - 12.8 12.8
‘Cash and cash equivalents’ and ‘financial liabilities’ have been
restated and increased by £64.9m (was previously £599.9m), as an overdraft
had been set off against the cash balance at 30 September 2019.
31 March 2020
Fair value Carrying value Total (restated) £m
Level 1 (restated) £m Level 2 £m Level 3 £m Total (restated) £m
Financial assets
Cash and cash equivalents 951.7 - - 951.7 951.7
Trade and other receivables - 995.0 - 995.0 995.0
Derivative financial instruments - 20.6 - 20.6 20.6
Financial liabilities and derivatives
Financial liabilities 656.3 3,672.9 - 4,329.2 4,279.6
Trade and other payables - 1,700.7 - 1,700.7 1,700.7
Derivative financial instruments - 63.4 - 63.4 63.4
‘Cash and cash equivalents’ and ‘financial liabilities’ have been
restated and increased by £82.4m (was previously £869.3m), as an overdraft
had been set off against the cash balance at 31 March 2020.
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 2020 30 September 2019 31 March 2020
Derivative contracts
1. Interest rate swaps - 11.4 13.3 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 (37.6) (10.1) (59.0) 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 3.8 11.1 2.9 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.
18 Provisions
30 September 2020 30 September 2019 £m 31 March 2020 £m
£m
Insurance claims 368.0 354.5 382.8
Legal and other 33.3 40.8 34.6
Pensions 1.3 1.7 1.6
Non-current liabilities 402.6 397.0 419.0
Insurance claims £m Legal and other £m Pensions £m Total £m
At 1 April 2020 588.9 60.6 1.6 651.1
Charged to the income statement 122.7 182.9 - 305.6
Utilised in the period (135.3) (12.6) (0.3) (148.2)
Notional interest 2.5 - - 2.5
Foreign exchange movements (12.6) (0.7) - (13.3)
At 30 September 2020 566.2 230.2 1.3 797.7
Current liabilities 198.2 196.9 - 395.1
Non-current liabilities 368.0 33.3 1.3 402.6
At 30 September 2020 566.2 230.2 1.3 797.7
Current liabilities 206.1 26.0 - 232.1
Non-current liabilities 382.8 34.6 1.6 419.0
At 31 March 2020 588.9 60.6 1.6 651.1
Current liabilities 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
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 £34.0m in H1 2020 (H1 2019:
£32.4m, full year 2020: £35.4m) can extend for up to 30 years. The
utilisation of £135.3m in H1 2020 (H1 2019: £119.0m, full year 2020:
£219.4m) represents payments made largely against the current liability of
the preceding year.
The insurance claims provision at H1 2020 by division is as follows:
30 September 2020 £m 31 March 2020 £m
Student 251.0 262.4
Transit 168.0 179.2
Greyhound 109.5 109.5
Total North America 528.5 551.1
First Bus 33.3 32.9
First Rail 4.4 4.9
Total insurance claims provision 566.2 588.9
The insurance claims provisions contain £21.7m in H1 2020 (H1 2019: £22.8m,
full year 2020: £22.1m) 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 rail estimated
termination sums relating to the ERMA’s in TPE and SWR, and restructuring
costs. The dilapidation provisions are expected to be settled at the end of
the respective franchise.
The pension’s provision relates to unfunded obligations that arose on the
acquisition of certain First Bus companies. It is anticipated that this will
be utilised over approximately five years.
19 Acquisition of businesses and subsidiary undertakings
30 September 2020 30 September 2019 £m 31 March 2020 £m
£m
Provisional fair value of net assets acquired:
Property, plant and equipment 0.6 2.3 16.2
Other intangible assets 0.9 1.2 11.1
Other liabilities - (0.5) (3.2)
1.5 3.0 24.1
Goodwill - - 1.7
Satisfied by cash paid and payable 1.5 3.0 25.8
On 21 August 2020 the Group completed the acquisition of Wubs Transit, a
provider of school and charter transportation services based in Ontario
Canada.
20 Called up share capital
30 September 2020 30 September 2019 £m 31 March 2020 £m
£m
Allotted, called up and fully paid
1,220.9m ordinary shares of 5p each 61.1 60.8 61.0
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
2020 was 1,204.7m (H1 2019: 1,214.0m). At the end of the period in H1 2020
16.1m shares (H1 2019: 1.4m shares) were being held as treasury shares and own
shares held in trust for employees.
21 Net cash for operating activities
30 September 2020 30 September 2019 £m 31 March 2020 £m
£m
Operating loss (16.4) (118.1) (152.7)
Adjustments for:
Depreciation charges 454.1 352.3 889.4
Capital grant amortisation (5.8) (15.8) (53.4)
Software amortisation charges 6.3 8.9 16.1
Other intangible asset amortisation charges 2.1 2.9 4.9
Impairment charges - 124.4 189.0
Share-based payments 4.6 4.6 10.3
Loss/(profit) on disposal of property, plant and equipment 2.5 0.9 (12.9)
Operating cash flows before working capital and pensions 447.4 360.1 890.7
Decrease/(increase) in inventories 6.8 (1.1) (1.7)
Decrease(increase) in receivables 115.9 (33.8) (9.0)
Increase in payables due within one year 182.4 72.9 169.0
Increase/(decrease) in provisions due within one year 36.7 (7.5) 9.7
(Decrease)/increase in provisions due over one year (9.6) 43.6 67.1
Defined benefit pension payments in excess of income statement charge (8.0) (33.3) (38.8)
Cash generated by operations 771.6 400.9 1,087.0
Tax paid (0.8) (2.0) (2.9)
Interest paid (45.9) (49.9) (83.3)
Interest element of leases (36.7) (17.4) (42.6)
Net cash from operating activities 688.2 331.6 958.2
22 Analysis of changes in net debt – adjusted cash flow
At 1 April 2020 (restated) £m Adjusted cash flow £m Foreign Exchange £m Other £m At 30
September
2020
£m
Components of financing activities:
Bank loans and overdrafts (656.3) (6.5) 8.0 (0.3) (655.1)
Bonds (877.5) - - 2.3 (875.2)
Fair value of interest rate coupon swaps 6.4 - - (6.4) -
Senior unsecured loan notes (219.8) - 4.9 (0.1) (215.0)
CCFF - (299.0) - - (299.0)
Supplier Financing (1) - - - (84.6) (84.6)
Lease liabilities (2) (2,473.2) 25.5 11.5 171.2 (2,265.0)
Other debt (9.4) 8.7 - - (0.7)
Total components of financing activities (4,229.8) (271.3) 24.4 82.1 (4,394.6)
Cash 319.5 397.1 (15.3) - 701.3
Ring-fenced cash 632.2 105.9 - - 738.1
Cash and cash equivalents 951.7 503.0 (15.3) - 1,439.4
Net debt (3,278.1) 231.7 9.1 82.1 (2,955.2)
‘Bank loans and overdrafts’ and ‘cash’ have been restated and
increased by £82.4m at 1 April 2020, as an overdraft had been set off against
the cash balance in prior periods.
1. Other movement in supplier finance is a non-cash movement.
2. Lease liabilities ‘Other’ includes £321.9m repayment of lease
liabilities formerly classified as operating leases through repayment, net of
the £150.7m inception of new leases.
At 1 April 2019 (restated) £m IFRS 16 Transitional Adjustment £m Adjusted cash flow £m Foreign Exchange £m Other £m At 30
September
2019 (restated)
£m
Components of financing activities:
Bank loans and overdrafts (528.6) - 10.0 (11.5) (0.4) (530.5)
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 (1,678.2) (1,168.2) 30.2 (37.4) 104.7 (2,748.9)
Cash 249.2 - (80.3) (1.8) - 167.1
Ring-fenced cash 525.6 - (27.9) - - 497.7
Cash and cash equivalents 774.8 - (108.2) (1.8) - 664.8
Net debt (903.4) (1,168.2) (78.0) (39.2) 104.7 (2,084.1)
‘Bank loans and overdrafts’ and ‘cash’ have been restated and
increased by £81.9m at 1 April 2019 and increased by £64.9m at 30 September
2019, as an overdraft had been set off against the cash balance in prior
periods.
1. Lease liabilities ‘other’ includes £236.6m decrease in leases formerly
classified as operating leases net of the £130.9m inception of new leases.
At 1 April 2019 (restated) £m IFRS 16 Transitional Adjustment £m Adjusted cash flow £m Foreign Exchange £m Other £m At 31
March
2020 (restated)
£m
Components of financing activities:
Bank loans and overdrafts (528.6) - (123.4) (4.1) (0.2) (656.3)
Bonds (879.7) - - - 2.2 (877.5)
Fair value of interest rate coupon swaps 9.4 - - - (3.0) 6.4
Senior unsecured loan notes (210.0) - (9.8) - (219.8)
Lease liabilities (1) (59.9) (1,168.2) 47.6 (12.8) (1,279.9) (2,473.2)
Other debt (9.4) - - - - (9.4)
Total components of financing activities (1,678.2) (1,168.2) (75.8) (26.7) (1,280.9) (4,229.8)
Cash 249.2 - 67.7 2.6 - 319.5
Ring-fenced cash 525.6 - 106.6 - - 632.2
Cash and cash equivalents 774.8 - 174.3 2.6 - 951.7
Net debt (903.4) (1,168.2) 98.5 (24.1) (1,280.9) (3,278.1)
‘Bank loans and overdrafts’ and ‘cash’ have been restated and
increased by £81.9m at 1 April 2019 and increased by £82.4m at 31 March
2020, as an overdraft had been set off against the cash balance in prior
periods.
1. Lease liabilities ‘other’ includes £549.2m decrease in leases formerly
classified as operating leases, net of £1,828.3m which relates to an increase
of £820.9m on commencement of Avanti West Coast, £729.7m on commencement of
GWR DA-3, £114.4m in relation to new rolling stock leases in TPE and £32.7m
in Hull Trains. The remaining amount is due to modifications to existing
leases and new PCV and property leases entered into in UK Bus and North
American divisions.
23 Retirement benefit schemes
The Group operates or participates in a number of defined benefit pension
schemes which cover the majority of UK employees and certain North American
employees. The scheme details are described on pages 190 to 191 of the Annual
Report and Accounts for the year ended 31 March 2020.
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 last signed off valuation for the TOC sections was effective 31
December 2013, and these disclosures reflect a roll-forward of that valuation.
The market value of the assets at 30 September 2020 for all defined benefit
schemes totalled £6,442m (H1 2019: £5,601m; full year 2020: £5,790m).
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 2020 30 September 2019 31 March 2020
First Bus First Rail North America First Bus % First Rail % North America % First Bus % First Rail % North America %
% % %
Key assumptions used:
Discount rate 1.55 1.55 2.38 1.80 1.80 2.95 2.40 2.40 3.30
Expected rate of salary increases 2.00 3.05 2.50 2.05 3.45 2.50 1.80 2.75 2.50
Inflation – CPI 2.00 2.00 2.00 2.05 2.05 2.00 1.80 1.80 2.00
Future pension increases 2.00 2.00 - 2.05 2.05 - 1.80 1.80 -
Amounts (charged)/credited to the condensed consolidated income statement in
respect of these defined benefit schemes are as follows:
6 months to 30 September 2020 First North America Total First Total
Bus £m non-rail Rail £m
£m £m £m
Current service cost (5.3) (4.4) (9.7) (54.4) (64.1)
Impact of franchise adjustment on operating cost - - - 28.4 28.4
Net interest cost (0.8) (3.0) (3.8) (9.5) (13.3)
Impact of franchise adjustment on net interest cost - - - 9.5 9.5
(6.1) (7.4) (13.5) (26.0) (39.5)
6 months to 30 September 2019 First Bus £m North America £m Total non-rail £m First Rail £m Total £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)
Year to 31 March 2020 First Bus £m North America £m Total non-rail £m First Rail £m Total £m
Current service cost (10.7) (8.7) (19.4) (114.1) (133.5)
Impact of franchise adjustment on operating cost - - - 68.3 68.3
Net interest cost (2.9) (5.7) (8.6) (19.4) (28.0)
Impact of franchise adjustment on net interest cost - - - 19.4 19.4
(13.6) (14.4) (28.0) (45.8) (73.8)
23 Retirement benefit schemes (continued)
Actuarial gains and losses have been reported in the condensed consolidated
statement of comprehensive income.
The amounts included in the condensed consolidated balance sheet arising from
the Group’s obligations in respect of its defined benefit pension schemes
are as follows:
As at 30 September 2020 First Bus North America Total non-rail First Rail Total
£m £m £m £m £m
Fair value of schemes' assets 2,872.9 441.0 3,313.9 3,128.3 6,442.2
Present value of defined benefit obligations (2,825.3) (677.7) (3,503.0) (5,564.4) (9,067.4)
Surplus/(deficit) before adjustments 47.6 (236.7) (189.1) (2,436.1) (2,625.2)
Adjustment for irrecoverable surplus (1) (166.3) - (166.3) - (166.3)
First Rail franchise adjustment (60%) - - - 1,457.2 1,457.2
Adjustment for employee share of RPS deficits (40%) - - - 974.4 974.4
Liability recognised in the condensed consolidated balance sheet (118.7) (236.7) (355.4) (4.5) (359.9)
The amount is presented in the condensed consolidated balance sheet as follows:
Non-current assets 52.5 - 52.5 - 52.5
Non-current liabilities (171.2) (236.7) (407.9) (4.5) (412.4)
(118.7) (236.7) (355.4) (4.5) (359.9)
As at 30 September 2019 First Bus £m North America £m Total non-rail £m First Rail £m Total £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 31 March 2020 First Bus £m North America £m Total non-rail £m First Rail £m Total £m
Fair value of schemes' assets 2,576.2 417.6 2,993.8 2,796.2 5,790.0
Present value of defined benefit obligations (2,452.2) (636.1) (3,088.3) (4,245.5) (7,333.8)
Surplus/(deficit) before adjustments 124.0 (218.5) (94.5) (1,449.3) (1,543.8)
Adjustment for irrecoverable surplus (1) (216.6) - (216.6) - (216.6)
First Rail franchise adjustment (60%) - - - 867.3 867.3
Adjustment for employee share of RPS deficits (40%) - - - 579.7 579.7
Liability recognised in the condensed consolidated balance sheet (92.6) (218.5) (311.1) (2.3) (313.4)
The amount is presented in the condensed consolidated balance sheet as follows:
Non-current assets 53.2 - 53.2 - 53.2
Non-current liabilities (145.8) (218.5) (364.3) (2.3) (366.6)
(92.6) (218.5) (311.1) (2.3) (313.4)
(1)The irrecoverable surplus represents the amount of the surplus that the
Group could not recover through reducing future company contributions to Local
LGPS.
24 Contingent liabilities
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 £1,055.5m (H1 2019:
£937.6m, March 2020: £990.0m) and letters of credit for £458.3m (H1 2019:
£393.3m, March 2020: £393.8m). The performance bonds relate to the North
American and First Bus businesses of £753.1m (H1 2019: £652.4m, March 2020:
£686.5m) and the First Rail franchise operations of £302.4m (H1 2019:
£285.2m, March 2020: £303.5m). The letters of credit relate substantially to
insurance arrangements in the UK and North America. The parent company has
committed further support facilities of up to £120.2m to First Rail Train
Operating Companies of which £49.7m 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 is 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 noise abatement notices in respect of the
operations at the Reading railway depot. The serving of the notices has been
appealed and the parties agreed in September 2020 that the related court
hearing should be put on hold until 26 June 2021 to allow the Council further
time to monitor GWR’s operations at the depot. The parties further agreed
that in June 2021 the Council will be obliged to consider whether the 2017
abatement notices should be withdrawn and, if the notices are not withdrawn,
the appeal proceedings will restart. It is not possible at this stage to
quantify the implications for the GWR operations, if any, if the notices are
not withdrawn by the Council or if GWR are not ultimately successful with
respect to any appeal.
On 26 February 2019, 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 early 2021 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.
25 Related party transactions
There are no related party transactions or changes since the Group’s 2020
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 2020.
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
10 December
2020
10 December 2020
Independent review report to FirstGroup plc
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed FirstGroup plc’s condensed consolidated interim financial
statements (the “interim financial statements”) in the Half-Yearly results
of FirstGroup plc for the 6 month period ended 30 September 2020 (the
“period”).
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in all
material respects, in accordance with International Accounting Standard 34,
‘Interim Financial Reporting’, as adopted by the European Union and the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom’s Financial Conduct Authority.
Emphasis of matter – Going concern
Without modifying our conclusion on the interim financial statements, we have
considered the adequacy of the disclosures made in note 1 to the interim
financial statements concerning the Group’s ability to continue as a going
concern. The Group’s downside model indicates a breach of the minimum
liquidity covenant at 31 December 2021 following repayment of the COVID
Corporate Financing Facility (‘CCFF’) in December 2021, as well as
relatively limited headroom on the covenant test on the net debt to EBITDA
ratio at 30 September 2021. The downside model also indicates that additional
funding may be required in advance of the repayment of the CCFF in December
2021. Such additional funding, whether through drawdown of the group's
existing uncommitted facilities or through the group securing new facilities,
may not be available at that time. These factors give rise to a material
uncertainty that may cast significant doubt upon the Group’s ability to
continue as a going concern. No adjustments have been made to the interim
financial statements that would result if the Group were unable to continue as
a going concern.
What we have reviewed
The interim financial statements comprise:
* the condensed consolidated balance sheet as at 30 September 2020;
* the condensed consolidated income statement for the period then ended;
* the condensed consolidated statement of comprehensive income for the period
then ended;
* the condensed consolidated cash flow statement for the period then ended;
* the condensed consolidated statement of changes in equity for the period
then ended; and
* the explanatory notes to the interim financial statements.
The interim financial statements included in the Half-Yearly results of
FirstGroup plc have been prepared in accordance with International Accounting
Standard 34, ‘Interim Financial Reporting’, as adopted by the European
Union and the Disclosure Guidance and Transparency Rules sourcebook of the
United Kingdom’s Financial Conduct Authority.
As disclosed in note 1 to the interim financial statements, the financial
reporting framework that has been applied in the preparation of the full
annual financial statements of the group is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The Half-Yearly results, including the interim financial statements, is the
responsibility of, and has been approved by the directors. The directors are
responsible for preparing the Half-Yearly results in accordance with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom’s Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim financial
statements in the Half-Yearly results based on our review. This report,
including the conclusion, has been prepared for and only for the company for
the purpose of complying with the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom’s Financial Conduct Authority and for no
other purpose. We do not, in giving this conclusion, accept or assume
responsibility for any other purpose or to any other person to whom this
report is shown or into whose hands it may come save where expressly agreed by
our prior consent in writing.
What a review of interim financial statements involves
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 Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, 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.
We have read the other information contained in the Half-Yearly results and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
10 December 2020
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