REG-FirstGroup PLC: Half-year Report
09/11/2022 07:15
FIRSTGROUP PLC
HALF-YEARLY REPORT FOR THE 26 WEEKS TO 24 SEPTEMBER 2022
* Resilient financial performance delivered despite the challenging political,
economic and industrial relations environment FirstGroup is experiencing, in
commin with many UK businesses
* Group's adjusted attributable profit was in line with management
expectations in the period, and expectations for the current financial year
are broadly unchanged despite a shift in mix
* Financial performance in First Rail was led by strong growth in open access
operations; working hard to deliver passenger service level objectives across
the four management fee-based contracts
* Continuing to strengthen First Bus for when current funding arrangements
end, while managing industry-wide driver shortages and cost inflation in the
near term
* Progress made monetising contingent values from exiting North America, with
£122m sale of legacy Greyhound properties anticipated to complete in December
and First Transit earnout recently triggered at c.£74m
* Strategy focused on continuous improvement in operational delivery, targeted
investment in adjacent growth opportunities and playing a leading role in the
decarbonisation of public transport
H1 2023 (£m) H1 2022 (£m)
Cont. Disc. Total Cont. Disc. Total
Revenue 2,212.4 2.7 2,215.1 2,139.1 970.6 3,109.7
Adjusted (1)operating profit/(loss) 66.1 (8.4) 57.7 51.8 121.3 173.1
Adjusted (1)operating profit margin 3.0% 2.6% 2.4% 12.5% 5.6%
Adjusted (1)profit/(loss) before tax 41.0 (8.1) 32.9 (6.3) 110.0 103.7
Adjusted (1)EPS (2) 4.4p (1.0)p 3.4p (0.4)p 7.0p 6.6p
Group adjusted attributable profit (3) 30.8 13.3
Dividend per share 0.9p -
Adjusted net cash/(debt) (4) 7.3 603.9
H1 2023 (£m) H1 2022 (£m)
Statutory Cont. Disc. Total Cont. Disc. Total
Revenue 2,212.4 2.7 2,215.1 2,139.1 970.6 3,109.7
Operating profit/(loss) 62.1 (28.6) 33.5 52.2 592.3 644.5
Profit/(loss) before tax 37.0 (28.3) 8.7 (64.5) 581.0 516.5
EPS (2) (0.1)p 42.4p
Net cash/(debt) (1,475.0) (234.2)
- Bonds, bank and other debt net of (cash) 346.3 1,188.8
- IFRS 16 lease liabilities (1,821.3) (1,423.0)
'Cont.' refers to the Continuing operations comprising First Bus, First Rail,
and Group items. 'Disc.' refers to discontinued operations, being First
Student, First Transit and Greyhound US.
H1 2023 financial summary (continuing operations vs H1 2022 unless otherwise
stated)
* Group adjusted operating profit increased to £66.1m (H1 2022: £51.8m),
principally reflecting: * increased open access earnings with aggregate rail
management fee-based income broadly in line
* lower First Bus adjusted operating profit, reflecting the slower transition
from pandemic recovery funding towards a commercial model and cost impacts of
inflation
* lower central costs
* Group adjusted attributable profit(3) increased to £30.8m (H1 2022: pro
forma £13.3m)
* Statutory operating profit of £62.1m (H1 FY23: £52.2m) includes net
adjusting item charges of £4.0m
* Adjusted net cash(4) of £7.3m (March 2022: adjusted net debt of £(3.9)m),
with £557.7m of undrawn committed liquidity
* Interim dividend declared of 0.9p, in line with announced policy
Key developments
First Bus:
* Commercial volumes increased by 32%, with concession volumes recovering more
slowly
* Revenue beginning to benefit from recent pricing actions, partly offset by
reductions in funding level
* As the industry moves towards a more commercial model, network realignments
commencing to better align to demand, First Scotland East location disposed of
and regional management structure reorganised
* However, the recent extension of recovery funding arrangements in England,
ongoing driver shortages and the cost inflationary backdrop limit the pace of
near-term progress
First Rail:
* Open access operations ahead of plan, underpinned by strong leisure volumes
for Lumo and Hull Trains
* Focused on operational delivery for passengers across all our services in a
challenging industrial relations environment
* West Coast Partnership (WCP) contract recently extended, enabling the Avanti
West Coast team to execute their plans to restore services to the levels that
passengers rightly expect
Corporate:
* Sale of almost all remaining legacy Greyhound properties for $141m (£122m)
to Twenty Lake Holdings expected to complete in December 2022; as a result,
the Group's exit from residual Greyhound will be substantially complete at an
aggregate net value in excess of $160m since start of the financial year
* FirstGroup estimates First Transit earnout consideration of c.$85m (£74m at
hedged rates) to be received during FY 2024, following recently announced sale
of the Transit business by EQT Infrastructure
* Potential for additional distributions as the contingent values from exiting
North America are realised
FY 2023 outlook
* Although the political, economic and industrial relations backdrop and pace
of travel volume recovery are challenges, management's expectations for FY
2023 are broadly unchanged despite a shift in mix
* First Bus: although clearly sensitive to the broader consumer spending and
inflation trends, we expect sequential progress in H2 2023, with the
realignments of routes/timetables in October and pricing actions partially
offset by a higher cost base for increased mileage as a result of the
extension of recovery funding in England, currently in place until March 2023
* First Rail: we expect higher profit from our open access operations with the
four management fee-based operations to deliver aggregate financial
performance broadly in line with management expectations
* On track to realise the further c.£5m in annual central cost savings
previously guided
* Adjusted net cash(4) position expected to be in the range of £100-110m at
the end of FY 2023 after receipt of Greyhound property proceeds in December
and before any deployment of this capital
Commenting, Chief Executive Officer Graham Sutherland said:
"We have delivered a resilient financial performance in the period despite
significant headwinds – demonstrating our strengths in the UK bus and rail
markets and the increasing capability and potential we are building into our
businesses as public transport continues to navigate the aftershocks of
pandemic travel restrictions.
"With a strong balance sheet and an important role supporting the
sustainability and economic growth agendas in our core UK public transport
markets, we see clear opportunities to create further value and deliver
progressive returns to shareholders in the coming years."
Contacts at FirstGroup: Investor relations: Faisal Tabbah / Marianna Bowes Media: Stuart Butchers corporate.comms@firstgroup.co.uk Tel: +44 (0) 20 7725 3354 Contacts at Brunswick PR: Andrew Porter / Simone Selzer Tel: +44 (0) 20 7404 5959
A webcast for investors and analysts will be held at 9:00am today –
attendance is by invitation. Please email corporate.comms@firstgroup.co.uk in
advance of the webcast to receive joining details. To access the presentation
to be discussed on the webcast, 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
adjusting items as set out in note 3 to the financial statements.
(2) Weighted average number of shares reduced from 1,203.4m to 739.8m
between H1 2023 and H1 2022, reflecting the tender offer completed in December
2021; as a result EPS figures are not directly comparable between the two
periods.
(3) For definitions of alternative performance measures and other key
terms, see the definitions section from page 17.
(4) 'Adjusted net cash/(debt) excludes ring-fenced cash and IFRS 16
lease liabilities from net debt as shown in the table on page 14.
Legal Entity Identifier (LEI): 549300DEJZCPWA4HKM93. Classification as per DTR
6 Annex 1R: 1.2.
FirstGroup plc (LSE: FGP.L) is a leading private sector provider of public
transport services. With £4.6 billion in revenue and more than 30,000
employees, our UK divisions transported nearly 1.5m passengers a day in the
last financial year. First Bus is the second largest regional bus operator in
the UK, serving two-thirds of the UK’s 15 largest conurbations with a fleet
of c.4,900 buses. First Rail is the UK’s largest rail operator, with many
years of experience running long-distance, commuter, regional and sleeper rail
services. We operate a fleet of c.3,800 rail vehicles through four management
fee-based train operating companies (Avanti West Coast, GWR, SWR, TPE) and two
open access routes (Hull Trains and Lumo). We create solutions that reduce
complexity, making travel smoother and life easier. Our businesses are at the
heart of our communities and the essential services we provide are critical to
delivering wider economic, social and environmental goals. We are formally
committed to operating a zero-emission First Bus fleet by 2035 and to cease
purchasing further diesel buses after 2022; and First Rail will help support
the UK Government’s goal to remove all diesel-only trains from service by
2040. In 2022 FirstGroup was named as one of the world's cleanest 200 public
companies for the third consecutive year by sustainable business media group
Corporate Knights in partnership with US not-for-profit organisation, As You
Sow. Visit our website at www.firstgroupplc.com and follow us @firstgroupplc
on Twitter.
CEO review
Introduction and strategic summary
Since joining FirstGroup as Chief Executive Officer in May 2022, I have
focused on understanding the strategic opportunities and risks of our public
transport operations across the UK. I believe that the Group has demonstrated
that it is financially resilient in the face of the political, economic and
industrial relations headwinds currently being experienced. It is clear there
are several challenges to overcome, uncertainties to resolve and improvements
to be made in the consistency of our service delivery, and these will be a key
focus in the coming months and years. However, as the regional bus market
returns to a more commercial model and our realignment of First Bus to reflect
changing passenger trends is completed, we believe there is scope for
significant earnings growth and margin enhancement over time. Meanwhile we are
confident that our experience and market position in rail stands us in good
stead as this industry continues its evolution.
As a leader in both bus and rail in the UK, FirstGroup already has a robust
platform to build on and there are a number of organic and inorganic
opportunities to invest for growth where we have a comparative advantage. For
example, our capabilities and experience in First Bus can be deployed more
proactively into bus franchising, business to business (B2B) contracted
services (including employee shuttle), as well as new revenue opportunities
allied to the electrification of our fleets and depots. There are significant
challenges at present in parts of our rail operations, particularly in Avanti
West Coast and TransPennine Express (TPE), where our teams are completely
focused on delivering their plans to tackle the issues that are causing
disruption for passengers. In rail we also have notable successes such as our
Lumo open access service, which in its first year of operation has already
served a million passengers, many of whom would otherwise have flown between
London and Edinburgh at a far greater environmental cost. As the largest
private sector rail operator in the UK we have the experience and
entrepreneurial spirit to resolve challenges, fix problems and innovate for
the future, encouraging passengers back to the railway while growing our
business.
Our existing bus and rail businesses are cash generative and we have a strong
financial position with scope to increase gearing prudently over time. I
believe the core Group is therefore very well-placed to capture adjacent
growth opportunities in the UK and elsewhere while also offering a
sustainable, progressive dividend as part of a balanced capital allocation
policy going forward, with the potential for additional distributions to
shareholders as the contingent values from exiting North America are realised.
We will continue to invest to meet our commitment of transitioning our
regional bus operations to a 100% zero emission fleet by 2035 as part of our
objective to be a sustainability leader in public transport. We continue to
work successfully with local authorities to secure government funding
assistance for zero emission vehicles and associated infrastructure. Based on
our recent committed orders, including the largest Electric Vehicle (EV) bus
order outside of London to-date, almost 13% of our entire fleet will be
electrified by March 2024. We are also accelerating our investment in energy
efficiency and some self-generation of power, and exploring additional revenue
streams relating to the electrification of our networks. In addition, in
further recognition of our sustainability progress, I am pleased to report
that we were ranked third in the World Benchmarking Alliance’s recently
published Transport Benchmark. The Benchmark uses publicly available
information to assess ninety of the world’s largest transportation companies
on their progress towards decarbonisation and their contributions to a just
transition and social transformation.
Protecting our passengers and employees
Our first priority has always been, and remains, the health and safety of our
passengers, employees and the communities in which we operate. We maintain
robust safety management systems and technology solutions throughout the
Group, with a clear focus on ensuring compliance with policies, processes, and
procedures, as well as operating our safety behavioural change programme,
which aims to make safety a personal core value for every employee. Since the
start of the coronavirus pandemic we have followed all appropriate public
health authority guidance and maintained our commitment to best practice in
areas such as enhanced cleaning and decontamination of vehicles, depots and
stations. We take great pride in the way all our colleagues and teams continue
to provide direct assistance and support to those most in need, right at the
heart of our communities.
Operational summary – First Bus
Whilst our commercial passenger volumes have increased in the period,
concessionary volumes continue to recover more slowly and we have been
severely affected by cost inflation. Nevertheless, we have made progress in
the period with several of the key drivers that will support improvement in
bus margins once the sector transitions to a more commercial model, including
yield and pricing actions, network realignment and the sale of First Scotland
East. However, the extension of the Bus Recovery Grant funding in England into
H2 2023, the tapering of concession funding, inflation and continued
industry-wide driver shortages are limiting the scope for significant margin
progress in the near term. Despite this, we have a range of opportunities
ahead to right-size and optimise our route networks, our operating portfolio
and our engineering practices using new tools and enhanced data. In our B2B
business we have been awarded a five-year extension to our contract to
transport employees at Hinkley Point in our Somerset Passenger Services
business, and we recently announced that our Aircoach business has completed
the acquisition of the Northern Ireland-based transport firm Airporter.
Overall, we continue to target revenue growth and a 10% margin in regional bus
over time.
Operational summary – First Rail
The industrial action that has taken place across the rail sector during H1
2023 has caused significant disruption for our passengers, although the
financial impact on our business overall is relatively limited under the terms
of our four management fee-based contracts. We are committed to working
closely with government and our partners across the industry to deliver a
successful railway that serves the needs of our customers and communities. Our
open access operations Lumo and Hull Trains were profitable in the period, a
significant swing from losses incurred in the prior financial year, which
reflected the start-up of Lumo and periodic pandemic-related closures of Hull
Trains. Following the award of an up to six-year National Rail Contract to
Great Western Railway (GWR) in June 2022, in October 2022 we agreed with the
Department for Transport (DfT) an extension of the current contractual
arrangements for the West Coast Partnership (WCP) to March 2023. The extension
allows our team at Avanti West Coast to sustain their focus on delivering
their robust plan to increase the availability of trained drivers and restore
services to the levels that passengers rightly expect. Discussions are ongoing
with DfT regarding the longer-term National Rail Contract for WCP.
Resilient performance with Group adjusted attributable profit in line with
management expectations
Revenue from continuing operations increased to £2,212.4m (H1 2022:
£2,139.1m), with increased passenger revenue in First Bus partly offset by
lower grant funding receipts, while First Rail revenue increased across both
open access and management-fee based operations.
Adjusted operating profit from continuing operations was £66.1m (H1 2022:
£51.8m), with First Rail higher, principally reflecting the transition from
loss to profit of our open access operations, while First Bus was lower than
the prior period, primarily reflecting the net impact of inflation and changes
in the pandemic recovery funding model as the sector transitions to a more
fully commercial model. The additional leases recognised under IFRS 16 for the
new GWR contract are now expected to increase adjusted profit by approximately
£22m in FY 2023 rather than by £30m as guided on signing, as the leases were
signed later and at different lease terms. Central costs of £(10.0)m were
lower than the prior period, reflecting the actions taken to resize the
organisation following the North American disposals. Adjusted EPS was 4.4p (H1
2022: adjusted loss (0.4)p from continuing operations).
Statutory operating profit (continuing basis) of £62.1m (H1 2022: £52.2m)
includes £4.0m of net costs from adjusting items (H1 2022: £0.4m credit),
and statutory EPS was (0.1)p (H1 2022: 42.4p).
The Group reports on two alternative profit performance measures, which focus
on the contractually agreed net fees available to be distributed up to the
parent company from the management fee-based operations (as described in more
detail on page 12) rather than their earnings, which management believes is
helpful to aid understanding of the Group's underlying performance. The first
of these, Group adjusted attributable profit, increased in the period to
£30.8m (H1 2022: pro forma £13.3m). Meanwhile the Group's EBITDA adjusted
for First Rail management fees was £118.8m on a rolling last twelve month
basis (FY 2022: £98.5m). As previously noted, these metrics define our
leverage and dividend policies as set out on page 14.
Underlying cash flow in period in line with expectations
The Group's adjusted cash outflow of £(112.1)m (H1 2022: inflow of
£1,704.7m, including inflows of £2.3bn relating to the disposal of the North
American operations) in the period reflects strong underlying cash generated
by operations offset by outflows relating to investment in First Bus, lease
payments and movement in First Rail ring-fenced cash (£125.1m outflow since
FY 2022).
At the period end, the Group had adjusted net cash of £7.3m (FY 2022:
adjusted net debt of £(3.9)m). The Group's accounts continue to consolidate
the Train Operating Companies (TOCs) which manage the four management-fee
based operations, including their substantial ring-fenced cash balances and
right of use liabilities under IFRS 16, which primarily relate to the leased
rolling stock used to operate these contracts. Both ring-fenced cash and the
IFRS 16 liabilities are excluded from the Group's adjusted net cash/(debt)
measure.
IFRS 16 lease liabilities increased to £1,821.3m (FY 2022: £1,083.2m) mainly
as a result of new and updated lease arrangements across the First Rail
management-fee based operations, while ring-fenced cash was £339.0m (FY 2022:
£468.1m). Taken together, the reported net debt including IFRS 16 lease
liabilities and ring-fenced cash increased to £(1,475.0)m (FY 2022:
£(619.0)m).
Corporate activity
In September the Group announced the sale of all but two of its remaining
Greyhound US properties to an affiliate of Twenty Lake Holdings LLC, for net
proceeds of c.$141m cash (£122m). The portfolio sale is subject to customary
closing conditions, with completion expected to occur and the proceeds
received in December 2022. In addition, the Group also completed the sale of a
site in Denver for $9m in August 2022. In aggregate, profits on sale of c.$90m
(net of property tax, selling and other costs) are expected to be booked over
the course of the financial year. Following these property sales, FirstGroup's
residual legacy Greyhound assets comprise deferred consideration, residual
real estate in Canada and two sites in the US (both under contract subject to
due diligence), and funding awards from the Coronavirus Aid, Relief, and
Economic Security (CARES) Act and American Rescue Plan (ARP) schemes relating
to the period Greyhound was under the Group's ownership, altogether valued at
c.$55m. Legacy Greyhound liabilities (comprising residual insurance and
pension liabilities which FirstGroup expects to de-risk in due course) and
other provisions total c.$35m.
In accordance with the terms of the disposal of First Transit by FirstGroup
plc to EQT Infrastructure V (EQT Infrastructure) in July 2021, the Group was
notified in October 2022 that affiliates of EQT Infrastructure had signed an
agreement to sell First Transit to Transdev North America, Inc. The sale is
subject to customary conditions, including regulatory and antitrust clearance
processes in the US and Canada. As part of the First Transit disposal to EQT
Infrastructure, FirstGroup is entitled to an earnout consideration, which is
calculated as a percentage of the realised equity value on the sale by EQT and
contemplating the cash flows generated by First Transit since March 2021 to
completion (subject to certain permitted leakage provisions). We currently
estimate the earnout consideration will be around £74m based on the
information received on the sale by EQT and accordingly, we have recorded a
non-cash loss of £27.9m relative to the previous carrying value of the
earnout. The final earnout consideration amount will be determined in the
period following completion of the sale, with receipt expected in FY 2024.
Following a period of significant gilt yield rises since the start of 2022,
gilt yield movements in the period immediately following the period end were
exceptional. The Bus Pension Scheme was able to maintain its high level of
hedge protection against interest rate and inflation risks throughout this
volatile period. As a precautionary measure, after the period end the Group
agreed to make £95m from the Limited Partnership created following the sale
of the North American divisions (the escrow) available to the Scheme to assist
with liquidity management. This amount has been loaned from the escrow to the
Scheme on a short term basis, whilst its investment strategy and assets are
repositioned as necessary. Following the rise in gilt yields, the funding
shortfall (the basis which will determine the final distribution of funds from
the escrow following the next triennial valuation) is currently materially
lower than it was at the beginning of the period.
On 26 May 2022 the Group announced it had received a series of unsolicited,
conditional proposals from I Squared Capital Advisors (UK) LLP (I Squared) in
relation to a possible offer to acquire the entire issued, and to be issued,
share capital of the Company. The unsolicited offers received from I Squared
resulted in a final proposal on 15 August 2022 of 135 pence per FirstGroup
share (comprising 133.9 pence plus the 1.1 pence final dividend being paid on
19 August 2022) together with further contingent value from the First Transit
earnout. The Board, having carefully evaluated this proposal together with its
advisers, concluded that the cash component significantly undervalued
FirstGroup's continuing operations and its future prospects, and the
contingent value did not provide shareholders with sufficient certainty. On 16
August 2022 I Squared announced that it did not intend to make a firm offer
for FirstGroup and was therefore bound by the restrictions contained within
Rule 2.8 of the City Code on Takeovers and Mergers.
Interim dividend
The Board is declaring an interim dividend of 0.9p per share (c.£6.7m in
aggregate), to be paid on 23 December 2022 to shareholders on the register at
18 November 2022. The amount reflects the current policy of c.3x cover against
the Group adjusted attributable profit, to be paid one third interim and two
thirds final.
Looking ahead
Although the political, economic and industrial relations backdrop and pace of
travel volume recovery are challenges, our expectations for FY 2023 are
broadly unchanged, despite a shift in mix between our bus and rail divisions.
While First Bus is clearly sensitive to broader consumer spending and
inflation trends, we do expect sequential progress in H2 2023, with the
realignments of routes and timetables in October and our pricing actions
partially offset by a higher cost base for increased mileage as a result of
the extension of recovery funding in England, which is currently in place
until March 2023. In First Rail, we expect the four management fee-based
operations to deliver aggregate financial performance broadly in line with
management expectations, with higher profit from our open access operations
over FY 2023. We are on track to realise the further c.£5m in annual central
cost savings previously guided to this financial year, ahead of our original
target. We expect our adjusted net cash position to be in the range of
£100-110m at the end of FY 2023 after receipt of the Greyhound property
proceeds in December and before any deployment of this capital.
In the medium term we expect further value creation through both earnings
growth, as First Bus continues the transition to a more commercial model, and
from targeted deployment of growth capital.
Graham Sutherland
Chief Executive Officer
9 November 2022
Business review
First Bus
£m £m, change
26 weeks to 24 September H1 2023 H1 2022
Revenue 427.7 392.5 +35.2
Adjusted operating profit 20.7 26.8 (6.1)
Adjusted operating margin 4.8% 6.8% (200)bps
EBITDA 51.0 55.5 (4.5)
Net operating assets 468.0 509.4 (41.4)
Capital expenditure 46.1 9.9 +36.2
First Bus reported revenue of £427.7m (H1 2022: £392.5m), principally
reflecting improving passenger volumes partially offset by lower government
funding support (including the tapering of concession reimbursement to current
volume levels) than in H1 2022. Overall passenger volumes increased by 29%
compared with the prior period, underpinned by commercial volumes, whilst the
pace of recovery in concessionary and peak-time commuter travel remains
slower. During H1 2023 commercial passenger volumes were at 78% and
concessions at 68% of 2019 equivalent levels. First Bus is currently operating
c.80% on average of the service mileage compared with the equivalent period in
2019 following the network changes we implemented in October 2022.
For a substantial portion of FY 2022 First Bus and other regional bus
operators effectively provided their assets and expertise to operate a
government-funded bus system on a broadly cash break-even basis to ensure
continuity of service during the pandemic. Under these arrangements, called
the Covid Bus Service Support Grant-Restart (CBSSG-R) programme in England,
operators were paid the costs of operation, less revenue received from
customers and other public sector monies. Recoverable costs included all
reasonable operational costs, including depreciation and allocated debt
finance, together with any pension deficit funding. In Wales and Scotland bus
operators received government pandemic support funding which is in place to
July 2023 and Autumn 2022 respectively. The CBSSG-R programme in England
formally came to an end on 1 September 2021, and since that time delivery of
local bus services across England has been reinforced by the DfT's £226.5m
Bus Recovery Grant (BRG) package, which was allocated to regional bus
operators based on mileage and volumes. In March 2022 the DfT announced a
further £150m in transitional funding for regional bus and light rail
operators, and this scheme was subsequently extended with a further £130m
announced in August 2022, to support bus operators in England to March 2023.
In FY 2022 the Scottish Government committed to funding free bus travel for
all under-22s from 31 January 2022 and we have subsequently seen a significant
increase in the volume of under-22s travelling on our services in Scotland. In
September 2022 the DfT announced £60m of funding in order to cap adult
regional bus fares in England at £2 between January and March 2023. The
division reported adjusted operating profit of £20.7m (H1 2022: £26.8m) in
the period, reflecting the changes in the funding regime noted above and cost
inflation. Statutory operating profit was £16.4m (H1 2022: £26.8m).
Optimising our business
We are continuing to enhance our business and its prospects for when the
current transitional period ends. Our cost reduction and operational
efficiency programmes have delivered annualised savings of c.£20m since 2019
and we have several initiatives in place to deliver further savings. In H1
2023, higher than anticipated inflation impacted a number of our key input
costs, including pay, fuel and utility costs. We have continued the roll out
of a number of initiatives to ensure that we continue to offer an attractive
and competitive employee proposition, as industry-wide driver shortages remain
elevated. The vast majority of our local wage agreements (a number of which
are multi-year) have been concluded in FY 2022 and H1 2023, with a small
number set to be concluded shortly. Fuel costs were mitigated by our fuel
hedge programme. We have also implemented energy efficiency measures such as
aligning electricity usage with building occupancy, awareness campaigns to
encourage behavioural change and we are accelerating our investment in the
self-generation of power. This has included the installation of new energy
efficient lighting, bus washes and energy management systems, and we are
commencing the installation of solar panels at a number of our depots.
We have continued to develop our pricing and yield management strategy,
resulting in a shift towards shorter term products such as lower entry single
and return fares, and updated weekly and monthly discounts being implemented
across our operations. Having been prohibited from doing so under the earlier
CBSSG pandemic funding, we increased fares in October 2021, and have since
made further interventions within the CPI cap permitted under more recent
funding schemes. The increases we have implemented have been designed to
better match our new ticketing products to evolving travel trends, whilst at
the same time recognising the potential impact of the cost of living crisis on
discretionary passenger journeys by retaining low single fares.
As part of our initiatives to address underperforming locations, we completed
the sale of our First Scotland East operations to McGill's Group in September
2022. We have also completed a reorganisation of our regional management
structure in the period.
Digital innovation
Our real-time passenger volume data capture, GPS functionality and ticketing
systems are allowing us to make commercial decisions more efficiently,
optimise our networks and timetables and roll out innovative functionality to
our customers. We are also able to structure our pricing models more
effectively and introduce new ticketing options for customers that are more
closely aligned with their preferences and able to attract new customers. In
addition, we are partnering with specialist software companies to roll out
enhanced timetabling, vehicle and employee rostering capabilities across the
network, improving efficiency and reducing cost. Ticket transactions using
digital payment methods now account for around 70% of our ticket transactions,
and during H1 2023 we continued the roll out of ‘tap on tap off’ capped
payment technology, which is now installed on more than half of our fleet. We
are also participating in the development of a multi operator contactless
payment ticketing system in a partnership between the bus industry and
Transport for West Midlands. The scheme will allow passengers to access the
best value travel for a day or week across multiple operators.
Fleet decarbonisation
We continue to work successfully with local authorities to secure government
funding assistance for zero emission vehicles and associated infrastructure
under the Zero Emission Buses Regional Area (ZEBRA) funding in England, and
Transport Scotland’s Scottish Zero Emission Bus (ScotZEB) funding scheme. In
August 2022 First Bus placed the UK’s largest ever EV bus order outside of
London with UK manufacturer Wrightbus. The £81m order totalling 193 buses
will see new zero emission buses being rolled out from March 2023. We
anticipate that we will have 591 EVs, almost 13% of our entire fleet, by March
2024. In addition to growing our EV fleet we are also identifying
opportunities to generate adjacent revenue streams created by the transition
of our fleet and depot infrastructure to electricity.
B2B and other contracted revenue
In H1 2023 we have continued to develop and grow our activities in the B2B bus
services market and have further contracts in the pipeline. Having acquired
the 50% of Somerset Passenger Solutions (SPS) that we did not own in FY 2022,
in H1 2023 we agreed a five year extension to our contract to provide
passenger transport for the construction workers employed at the EDF Hinkley
Point C nuclear power station. During the period we have also been active with
regard to bus franchising opportunities. In the period First West of England
took over the running of the m1 metrobus service, a bus rapid transit contract
serving more than 50,000 passengers a week, from Bristol Community Transport
after its parent HCT Group announced that it would cease operation of the
route. Subsequent to the period end we announced in October 2022 that our
Aircoach operation had completed the acquisition of Northern Ireland-based
Airporter. This has expanded Aircoach’s footprint in Ireland, increasing its
daily routes to seven, with an enhanced all-island route connecting the north
west to Belfast International Airport, Dublin Airport and Dublin city centre.
First Bus outlook
Although clearly sensitive to broader consumer spending and inflation trends,
we expect sequential progress in H2 2023, with the realignments of routes and
timetables in October and pricing actions partially offset by a higher cost
base for increased mileage as a result of the extension of the transitional
Bus Recovery Grant funding, currently in place until March 2023.
Looking further ahead, we are focused on rightsizing our regional bus business
around the actual passenger activity we are seeing as the sector moves to a
more commercial model. We have the tools in place to continue to adapt our
operations, deliver further efficiencies and manage the inflationary
environment, as recovery funding tapers off. We will accelerate the
decarbonisation of our fleet and have identified a number of potential
opportunities to deploy growth capital, including to create additional revenue
streams from the electrification of our fleets and depots, develop our B2B
business, and pursue attractive, potentially scalable opportunities in bus
franchising.
First Rail
£m £m, change
Six months to 17 September H1 2023 H1 2022
Revenue from management fee-based operations 1,743.3 1,729.8 +13.5
Revenue from open access and additional services 85.5 45.7 +39.8
Inter-divisional eliminations (44.1) (28.9) (15.2)
First Rail revenue 1,784.7 1,746.6 +38.1
Attributable net income from management fee-based operations (1) 19.1 17.5 +1.6
Gross up for tax, minorities and IFRS 16 24.3 29.3 (5.0)
Adjusted operating profit/(loss) from open access and additional services 12.0 (7.6) +19.6
First Rail adjusted operating profit 55.4 39.2 +16.2
(1) Represents the Group's share of the management fee income
available for dividend distribution from the GWR, SWR, TPE and WCP
(incorporating Avanti West Coast) contracts with DfT on a pre-IFRS 16 basis
net of tax and minority interests as described in more detail on page 12. See
also note 3 to the financial statements for a reconciliation to the segmental
disclosures.
Total revenue increased in H1 2023 to £1,784.7m (H1 2022: £1,746.6m), with
passenger volumes increasing in the period. Open access contributed £32.7m in
revenue in the period (H1 2022: £6.6m) and adjusted operating profit of
£6.7m (H1 2022: adjusted loss £(10.4)m), reflecting the successful launch of
Lumo and the restoration of regular Hull Trains services following periods of
closure due to the pandemic in the prior period. Additional services such as
Mistral Data and rail contact centres delivered gross revenue of £52.8m (H1
2022: £39.1m) before interdivisional eliminations in the period and adjusted
operating profit of £5.3m (H1 2022: £2.8m).
In H1 2023 the four management fee-based operations have recorded performance
fees at management's best estimate in aggregate for the period. Rail
attributable net income from management fee-based operations – being the
Group's share of the management fee income available for distribution from the
GWR, SWR, TPE and WCP (incorporating Avanti West Coast) contracts with the DfT
– was £19.1m (H1 2022: £17.5m). The Group receives an annual dividend from
the TOCs reflecting the post-tax net management and performance fees from the
prior year. These become payable up to the Group in the second half of the
financial year following completion of the TOC audited accounts.
First Rail adjusted operating profit increased to £55.4m (H1 2022: £39.2m),
which principally reflects the increase in open access contribution, as well
as higher IFRS 16 lease depreciation following the award of the new GWR
contract in June 2022, which is now expected to increase adjusted profit by
approximately £22m in FY 2023 rather than £30m as guided on signing, as the
leases were signed later and at different lease rates. The division reported a
statutory operating profit of £55.4m (H1 2022: £43.2m).
Transition to National Rail Contracts
In May 2021 SWR and TPE transitioned to the Government’s new National Rail
Contracts (NRCs) which run to May 2023 with potential extensions to May 2025.
In March 2022 the DfT issued a Prior Information Notice which provides for a
NRC for TPE starting in Spring 2023, with a minimum core term of four years
with up to a further four years at the DfT’s discretion. GWR was awarded an
NRC in June 2022 with a core three-year term to 21 June 2025, with an option
for the DfT to extend it by up to three further years to June 2028. Under the
NRCs, the DfT retains substantially all revenue and cost risk (including for
fuel and wage increases). There is a fixed management fee and the opportunity
to earn an additional performance fee. The punctuality and other operational
targets required to achieve the maximum level of performance fee under the
contracts are designed to incentivise service delivery for customers.
The West Coast Partnership (WCP) has been operating under an Emergency
Recovery Measures Agreement (ERMA) which was put in place by the DfT in
September 2020. On 7 October 2022 the Group announced that it had agreed with
the DfT to extend the current contractual arrangements for WCP to the end of
March 2023 under broadly the same terms and conditions. The WCP contract
comprises operation of Avanti West Coast and acting as shadow operator to the
HS2 programme. The agreement will allow the team at Avanti West Coast to
sustain their focus on delivering their robust plan to restore service levels
to the levels that passengers expect. Discussions are ongoing with DfT
regarding the longer-term NRC for WCP which is currently envisaged will run up
to October 2032. Under these contractual arrangements the four TOCs continue
to be fully consolidated in the Group accounts with the net cost of operations
and capital expenditure funded in advance by the DfT.
Innovation and adjacent rail opportunities
We continue to develop, market and deploy our additional rail customer,
industry and technology tools and services. In the period, the installation of
our evo-rail track-to-train superfast rail-5G technology across 70 kilometres
of the SWR main line commenced, and international trials continued. Our
analytics business Mistral Data developed a new application in the period that
identifies areas of potential low rail-wheel adhesion, based on real-time
wheel slip reported data, which was installed on the SWR network.
To address energy cost inflation in our open access operations, both Lumo and
Hull Trains have joined an industry hedging group to mitigate the long-term
impact of electricity costs which represent a significant proportion of their
costs.
Rail sector
The rail sector is in the midst of a period of reform aiming to modernise
industry practices and secure its long-term future at a time when passenger
volumes in a number of segments remain below pre-pandemic levels. First Rail
has on average operated a fifth of the UK passenger rail market by revenue
since 2007, and currently has a quarter of the market. As a result, we have a
strong track record of delivery on major projects such as fleet introductions,
capital projects on behalf of Network Rail, customer service innovations and
managing the impact of significant infrastructure changes, from network
electrification through to route upgrades, and through our experience as a
‘shadow operator’ on the HS2 infrastructure project. We believe this
unrivalled knowledge and expertise stands us in good stead as the industry
structure in the UK continues to evolve.
A number of trade unions have held industrial action at train operating
companies across the UK and at Network Rail during H1 2023. Whilst the
financial impact of industrial action is expected to be limited under the
terms of the management fee-based contracts, it is possible that if industrial
action continues over a prolonged period of time, this could impact some of
the performance metrics. We will continue to work with our industry partners
to do all that we can to minimise the disruption for our passengers caused by
prolonged industrial action, as well as continuing talks on securing the
long-term future for the railways.
First Rail outlook
For FY 2023, we expect higher profit increases from our open access
operations, with the four management fee-based operations to deliver aggregate
financial performance broadly in line with management expectations. We
continue to work collaboratively with our industry partners and stakeholders
to enhance our service offering and to increase connectivity with other
transport modes for our customers.
Looking further ahead, in the medium term we expect a broadly consistent level
of contribution from First Rail's four management fee-based operations for
their contractual durations, with further growth from open access and
additional rail services. As the UK’s largest operator we are well placed
both to drive increased patronage and to generate resilient and consistent
returns for shareholders as the UK passenger rail industry continues its
evolution to a more customer-focused and sustainable railway system that works
better for all parties.
Financial review
Discontinued operations
In the first half of the year, the Group’s residual Greyhound US activities
are disclosed as discontinued operations. As described in more detail in the
2022 Annual Report and Accounts, the Group completed the sale of its First
Student and First Transit divisions to EQT Infrastructure on 21 July 2021, and
the sale of Greyhound lines Inc. to a wholly owned subsidiary of FlixMobility
GmbH on 21 October 2021. All three are reported as discontinued operations in
the prior periods.
Revenue
Revenue from continuing operations increased to £2,212.4m (H1 2022:
£2,139.1m), principally reflecting increased passenger volumes partly offset
by lower receipts from government grants in First Bus, and in First Rail
increased revenue across open access, additional services and management-fee
based operations.
Operating performance
Statutory operating performance by division is as follows:
26 weeks to 24 September 2022 26 weeks to 25 September 2021 52 weeks to 26 March 2022
Revenue Operating profit (1) Operating margin (1) Revenue £m Operating profit (1) £m Operating margin (1) % Revenue £m Operating profit (1) £m Operating margin (1) %
£m £m %
First Bus 427.7 16.4 3.8 392.5 26.8 6.8 789.9 45.2 5.7
First Rail 1,784.7 55.4 3.1 1,746.6 43.2 2.5 3,801.2 91.8 2.4
Group items (2) - (9.7) n/a - (17.8) n/a - (14.2) n/a
Continuing operations 2,212.4 62.1 2.8 2,139.1 52.2 2.4 4,591.1 122.8 2.7
Discontinued operations 2.7 (28.6) n/a 970.6 592.3 n/a 996.9 683.3 n/a
Total 2,215.1 33.5 1.5 3,109.7 644.5 20.7 5,588.0 806.1 14.4
Adjusted operating performance by division is as follows:
26 weeks to 24 September 2022 26 weeks to 25 September 2021 52 weeks to 26 March 2022
Revenue Adjusted operating profit (1) 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 £m %
First Bus 427.7 20.7 4.8 392.5 26.8 6.8 789.9 45.2 5.7
First Rail 1,784.7 55.4 3.1 1,746.6 39.2 2.2 3,801.2 87.8 2.3
Group items (2) - (10.0) n/a - (14.2) n/a - (26.3) n/a
Continuing operations 2,212.4 66.1 3.0 2,139.1 51.8 2.4 4,591.1 106.7 2.3
Discontinued operations 2.7 (8.4) n/a 970.6 121.3 n/a 996.9 120.1 n/a
Total 2,215.1 57.7 2.6 3,109.7 173.1 5.6 5,588.0 226.8 4.1
(1 ‘)Adjusted’ figures throughout this document are before
adjusting and certain other items as set out in note 3 to the financial
statements.
(2) Central management, other items and retained Greyhound results.
Adjusted operating profit from continuing operations was £66.1m (H1 2022:
£51.8m), reflecting the transition from loss to profit of our open access
rail operations, while First Bus was lower than the prior period, primarily
reflecting net cost inflation and the changes in the pandemic recovery funding
regime in September 2021. The additional leases recognised under IFRS 16 for
the new GWR contract are now expected to increase adjusted profit by
approximately £22m in FY 2023 rather than by £30m as guided on signing, as
the leases were signed later and at different lease terms. Central costs of
£(10.0)m were lower than the prior period, reflecting the actions taken to
resize the organisation following the North American disposals.
The Group's adjusted attributable profit alternative performance measure is
calculated as follows and increased significantly in the period:
26 weeks to 24 September 2022 26 weeks to 25 September 2021 £m 52 weeks to 26 March 2022 £m
£m
First Bus adjusted operating profit 20.7 26.8 45.2
Attributable net income from First Rail management fee-based operations (1)– Group's share of the management fee income available for dividend distribution from GWR, SWR, TPE and WCP contracts 19.1 17.5 45.5
First Rail adjusted operating profit/(loss) from open access and additional services 12.0 (7.6) (9.7)
Group central costs (operating profit basis) (10.0) (13.9) (26.3)
Subtotal 41.8 22.8 54.7
Cash interest (2) (8.3) (10.3) (20.7)
Tax (3) (2.7) 0.8 2.2
Group adjusted attributable profit 30.8 13.3 36.2
(1) A reconciliation to the segmental disclosures is set out in note
3.
(2) Pro forma interest charge excluding notional interest, lease
interest on IFRS 16 Right of Use assets and interest on discontinued
operations.
(3) Pro forma taxation at 19%.
A reconciliation of the Group's adjusted attributable profit measure to
adjusted earnings after tax is shown below:
H1 2023 Movements H1 2023 Adjusted earnings after tax £m
Group adjusted attributable profit
£m
Adjusted First Rail earnings to IFRS 16 basis £m Gross up tax and minority interests £m Actual interest and tax £m
First Bus adjusted operating profit 20.7 - - - 20.7
Attributable net income from First Rail management fee-based operations (1) 19.1 17.4 6.9 - 43.4
First Rail adjusted operating profit from open access and additional services 12.0 - - - 12.0
Group central costs (operating profit basis) (10.0) - - - (10.0)
Subtotal 41.8 17.4 6.9 - 66.1
Cash interest (2) (8.3) (20.0) - 3.2 (25.1)
Tax (3) (2.7) - (4.9) 1.5 (6.1)
Minority interest - - (2.0) - (2.0)
Total 30.8 (2.6) - 4.7 32.9
(1) A reconciliation to the segmental disclosures is set out in note
3.
(2) Pro forma interest charge excluding notional interest, lease
interest on IFRS 16 Right of Use assets and interest on discontinued
operations, H1 FY22 pro forma due to material deleveraging following the sale
of North American businesses.
(3) Pro forma taxation at 19%.
The Group's EBITDA adjusted for First Rail management fees performance measure
also increased year-on-year. On a last twelve month basis, the Group's EBITDA
adjusted for First Rail management fees was £118.8m. It is calculated as
follows:
26 weeks to 24 September 2022 26 weeks to 25 September 2021 £m 52 weeks to 26 March 2022 £m
£m
First Bus EBITDA (1) 42.8 47.6 87.6
Attributable net income from First Rail management fee-based operations (2)– Group's share of the management fee income available for dividend distribution from GWR, SWR, TPE and WCP contracts 19.1 17.5 45.5
First Rail EBITDA from open access and additional services (1) 12.6 (7.4) (9.7)
Group central costs (EBITDA basis (1)) (9.6) (13.0) (24.8)
Group EBITDA adjusted for First Rail management fees 64.9 44.7 98.6
(1) Pre-IFRS 16 basis.
(2) A reconciliation to the segmental disclosures is set out in note
3.
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 principal adjusting items in H1 2023 are as follows:
First Bus restructuring
As part of the restructuring of the First Bus division to transition to a more
commercial model, the Group completed the sale of its First Scotland East
business in September 2022, realising a loss on disposal of £(3.7)m. In line
with this transition plan, the Group also incurred costs of £(0.6)m relating
to the reorganisation of its First Bus regional management structure.
Other restructuring costs
Restructuring costs of £(1.3)m were incurred in relation to the Group's
central functions as part of its ongoing cost efficiency initiatives.
Greyhound Canada
A provision relating to the continued winding down of Greyhound Canada
operations was released in the period.
Adjusting items – discontinued operations
Following the announcement on 26 October 2022 of EQT Infrastructure’s
agreement to sell First Transit to Transdev North America, Inc, the Group now
estimates its earnout consideration to be around £74m based on the
information received on the sale by EQT. This gives rise to a non-cash
adjusting charge of £27.9m (before currency hedging entered into after the
period end) relative to the carrying value of the earnout of £106.1m as at 26
March 2022. A gain of £7.7m arose upon disposal of Greyhound US property
during the first half of the year.
Group statutory operating profit
Statutory operating profit (continuing basis) was £62.1m (H1 2022: £52.2m),
reflecting the £(4.0)m charge from net adjusting items, compared with the
£0.4m credit in net adjusting items in H1 2022.
Finance costs and investment income
Net finance costs were £24.8m (H1 2022: £128.0m) with the decrease
principally due to lower finance costs following the repayment of debt after
receipt of the First Student and First Transit disposal proceeds, and the
impact in the prior year of debt early settlement make-whole costs of £50.0m
and charges of £8.6m for the write-off of unamortised fees.
Profit before tax
Statutory profit before tax (continuing basis) was £37.0m (H1 2022: loss of
£(64.5)m). Adjusted profit before tax (continuing basis) as set out in note 4
to the financial statements was £41.0m (H1 2022: adjusted loss of £(6.3)m).
Adjusting items were an overall charge of £4.0m, principally reflecting the
loss on disposal of the First Scotland East business (H1 2022: charge of
£58.2m mainly reflecting the adjusting finance costs).
Tax
The tax charge on statutory profit before tax (continuing basis) was £5.1m
(H1 2022: tax credit of £26.4m) representing an effective tax rate of 13.8%
(H1 2022: not meaningful). The tax charge on adjusted profit before tax
including discontinued operations for the period was £6.1m (H1 2022:
£21.6m), representing an effective tax rate of 18.5% (H1 2022: 20.8%). The
lower rate in the current period reflects the absence of profits in the US
which had a higher effective tax rate. There was a tax charge of £2.0m (H1
2022: credit of £24.3m) relating to adjusting items and a tax credit of
£0.8m (H1 2022: charge of £5.9m) from adjustments to deferred tax. The total
tax charge, including tax on discontinued operations, was £7.3m (H1 2022:
£3.2m). The actual tax paid during the period was £0.4m (H1 2022: £12.2m).
The ongoing Group's effective tax rate is expected to be broadly in line with
UK corporation tax levels (currently 19% and increasing to 25% from 1 April
2023).
EPS
Total adjusted diluted EPS was 3.2p (H1 2022: 6.6p). Basic EPS was (0.1)p (H1
2022: 42.4p).
Shares in issue
As at 24 September 2022 there were 738.5m shares in issue (H1 2022: 1,215.3m),
excluding treasury shares and own shares held in trust for employees of 11.9m
(H1 2022: 7.6m). In December 2021, 476.2m shares were acquired pursuant to a
tender offer and cancelled. 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) in the period was 739.8m (H1 2022:
1,203.4m).
Capital allocation framework
The Group's capital allocation framework can be summarised as follows:
Sustainable investment * First Bus: c.£90m per annum in net cash capital expenditure, principally transition of bus fleet to 100% zero emissions by 2035, expected to be covered by operational cash generation
* First Rail: continues to be cash capital-light, with any capital expenditure required by the four management fee-based operations fully funded under the contracts
Growth * Actively reviewing organic and inorganic opportunities to deploy capital in the UK and elsewhere
Returns for shareholders * Dividends: progressive annual dividends, 3x covered by Group adjusted attributable profit
* Interim dividend of 0.9p per share declared (expected to be c.1/3 interim, 2/3 final typically)
* Potential for additional distributions as the contingent values from exiting North America are realised
Balance sheet * Maintain leverage of less than 2.0x Adjusted Net Debt: rail management fee-adjusted EBITDA
Dividend
The Board has declared an interim dividend of 0.9p per share (c.£6.7m in
aggregate), to be paid on 23 December 2022 to shareholders on the register at
18 November 2022.
Adjusted cash flow
The Group's adjusted cash outflow of £(112.1)m (H1 2022: inflow of
£1,704.7m, including inflows of £2.3bn relating to the disposal of the North
American operations) in the period reflects strong underlying cash generated
by operations offset by outflows relating to investment in First Bus, lease
payments and movement in First Rail ring-fenced cash (£125.1m outflow since
FY 2022. The adjusted cash flow is set out below:
26 weeks to 24 September 2022 26 weeks to 25 September 2021 £m 52 weeks to 26 March 2022 £m
£m
EBITDA 339.5 478.9 862.1
Other non-cash income statement charges 1.3 1.2 3.8
Working capital (92.2) (7.6) (11.6)
Movement in other provisions (8.2) (20.4) (27.4)
Increase in financial assets/contingent consideration receivable - - (223.1)
Settlement of foreign exchange hedge (1.8) - -
Pension payments in excess of income statement charge/LGPS refund 11.1 (338.6) (340.4)
Cash generated by operations 249.7 113.5 263.4
Capital expenditure and acquisitions (61.5) (142.2) (262.9)
Proceeds from disposal of property, plant and equipment 23.0 3.4 23.1
Net proceeds from disposal of businesses 2.0 2,293.4 2,320.0
Interest and tax (33.2) (167.9) (196.6)
Share buy back resulting from tender offer - - (506.0)
External dividends paid (8.2) - -
Lease payments now in debt/other (283.9) (395.5) (632.1)
Adjusted cash flow (112.1) 1,704.7 1,008.9
Foreign exchange movements 8.6 (7.9) (3.8)
Net (inception)/termination of leases (1,029.0) 172.4 184.1
Lease payments in debt 276.5 378.4 609.8
Other non-cash movements - 144.0 207.8
Movement in net debt in the period (856.0) 2,391.6 2,006.8
Capital expenditure
Non-First Rail cash capital expenditure was £46.8m, all of which related to
First Bus (H1 2022: £114.5m, comprising First Bus £8.7m, Group items £0.4m,
First Student £72.6m, First Transit £21.8m and Greyhound £11.0m). First
Rail cash capital expenditure was £14.7m (H1 2022: £25.1m) and is typically
matched by receipts from the DfT under current contractual arrangements or
other funding.
In addition, during the period leases in the non-First Rail divisions were
entered into with capital values in First Bus of £19.3m and Group items
£0.2m (H1 2022: First Bus £1.9m, Group items £0.7m, First Student £8.4m,
First Transit £1.3m and Greyhound £2.1m). During the period First Rail
entered into leases with a capital value of £1,015.9m (H1 2022: £26.1m).
Non-First Rail gross capital investment (fixed asset and software additions,
plus the capital value of new leases) was £65.6m and comprised First Bus
£65.4m and Group items £0.2m (H1 2022: £178.2m, comprising First Bus
£11.9m, Group items £0.9m, First Student £94.7m, First Transit £13.5m,
Greyhound £12.3m). First Rail gross capital investment was £1,032.2m (H1
2022: £44.9m). The balance between cash capital expenditure and gross capital
investment represents new leases, creditor movements and the recognition of
additional right of use assets in the period.
Funding
As at the period end, the Group had £557.7m of undrawn committed headroom and
free cash (FY 2022: £532.1m), being £300.0m (FY 2022: £300.0m) of committed
headroom and £257.7m (FY 2022: £232.1m) of net free cash after offsetting
overdraft positions.
Net cash/(debt)
As at 24 September 2022 the Group’s adjusted net cash, which excludes the
capitalisation of Right of Use Assets under IFRS 16 and ring-fenced cash, was
£7.3m (FY 2022: adjusted net debt of £(3.9)m). Reported net debt was
£1,475.0m (FY 2022: £619.0m) after IFRS 16 and including ring-fenced cash of
£339.0m (FY 2022: £468.1m), as follows:
Analysis of net debt 24 September 2022 25 September 2021 £m 26 March 2022 £m
£m
Sterling bond (2024) 199.9 199.9 199.9
Bank loans and overdrafts 39.9 31.4 87.5
Lease liabilities 1,821.3 1,366.4 1,083.2
Asset backed financial liabilities 49.9 56.6 35.5
Loan notes 0.6 0.6 0.6
Gross debt excluding accrued interest 2,111.6 1,654.9 1,406.7
Cash (297.6) (892.4) (319.6)
First Rail ring-fenced cash and deposits (315.3) (518.3) (440.4)
Other ring-fenced cash and deposits (23.7) (10.0) (27.7)
Net debt excluding accrued interest 1,475.0 234.2 619.0
IFRS 16 lease liabilities – rail 1,780.9 1,255.7 1,031.2
IFRS 16 lease liabilities – non-rail 40.4 110.7 52.0
IFRS 16 lease liabilities – total 1,821.3 1,366.4 1,083.2
Net (cash)/debt excluding accrued interest (pre-IFRS 16) (346.3) (1,132.2) (464.2)
Adjusted net (cash)/debt (pre-IFRS 16 and excluding ring-fenced cash) (7.3) (603.9) 3.9
Under the terms of the First Rail contractual agreements with the DfT, 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 ratios at the balance sheet date.
Interest rate risk
Exposure to floating interest rates is managed to ensure that at least 50%
(but at no time more than 100%) of the Group's pre-IFRS 16 gross debt is fixed
rate for the medium term.
Fuel price risk
We use a progressive forward hedging programme to manage commodity risk. As at
9 November 2022, 97% of our ‘at risk’ UK crude requirements for H2 2023
(44m litres, which is all in First Bus) were hedged at an average rate of 40p
per litre, 63% of our requirements for the year to the end of March 2024 at
46p per litre, and 10% of our requirements for the year to the end of March
2025 at 59p per litre.
Foreign currency risk
‘Certain’ and ‘highly probable’ foreign currency transaction exposures
(including fuel purchases for the UK divisions) may be hedged into the Group
reporting currency (pounds Sterling) 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. In accordance with this policy, the legacy Greyhound property sale
and First Transit earnout proceeds have been substantially hedged into pounds
Sterling during the period, at a rate of $1.1543. The Group does not hedge the
translation of earnings into the Group reporting currency but accepts that
reported Group earnings will fluctuate as exchange rates against pounds
Sterling fluctuate for the currencies in which the Group does business,
although this exposure is materially reduced following the sales of the North
American divisions. 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:
26 weeks to 24 September 2022 26 weeks to 25 September 2021 52 weeks to 26 March 2022
Closing rate Effective rate Closing rate Effective rate Closing rate Effective rate
US Dollar 1.09 1.12 1.37 1.39 1.32 1.40
Canadian Dollar 1.48 1.60 1.73 1.72 1.64 1.73
Pensions
We have updated our pension assumptions for the defined benefit schemes in the
UK and North America. The net pension surplus (comprising continued and
discontinued operations) of £186.7m at the beginning of the reporting period
moved to a net surplus of £60.2m as at the balance sheet date on 24 September
2022, with the movement principally due to a deterioration in pension asset
performance partially offset by the impact of higher discount rates in the
period. The main factors that influence the balance sheet position for
pensions and the principal sensitivities to their movement at 24 September
2022 are set out below:
Movement Impact
Discount rate +0.1% Increase surplus by £21m
Inflation +0.1% Decrease surplus by £17m
Life expectancy +1 year Decrease surplus by £61m
Following a period of significant gilt yield rises since the start of 2022,
gilt yield movements in the period immediately following the balance sheet
date were exceptional. The Bus Pension Scheme was able to maintain its high
level of hedged protection against interest rate and inflation risks
throughout this volatile period. As a precautionary measure, after the period
end the Group agreed to make £95m from the Limited Partnership created
following the sale of the North American divisions (the escrow) available to
the Scheme to assist with liquidity management. This amount has been loaned
from the escrow to the Scheme on a short term basis, whilst its investment
strategy and assets are repositioned as necessary.
The basis on which the Scheme is valued for funding purposes (Technical
Provisions) following the next triennial valuation will determine the final
distribution of funds from the escrow during 2025, and within that the
liabilities are valued by reference to gilt yields. As at the reporting date,
the Scheme liabilities were estimated to be around 12% higher on a funding
basis than on the accounting basis shown on the balance sheet. Following the
rise in gilt yields, the funding shortfall is currently materially lower than
it was at the beginning of the period, although slightly higher than at the
reporting date, with volatility in gilt yields remaining elevated.
Balance sheet
Net assets have decreased by £126.8m since 26 March 2022. The principal
reason is the reduction in the net pension surplus. The GWR leases under the
new NRC arrangement underpin the increase in First Rail’s net assets, with
the related liability reflected in reported net debt.
Balance sheets – net assets/(liabilities) As at As at 25 September 2021 £m As at 26 March 2022 £m
24 September 2022
£m
First Bus 468.0 509.4 626.4
First Rail 1,501.0 777.7 597.3
Greyhound (retained) (21.6) (49.0) (4.8)
Divisional net assets 1,947.4 1,238.1 1,218.9
Group items 221.7 53.2 245.8
Borrowings and cash (1,475.2) (170.5) (619.0)
Taxation 18.4 5.2 0.9
Held for sale assets 46.0 73.6 38.5
Total 758.3 1,199.6 885.1
Legacy North American assets and liabilities on balance sheet
As part of the disposal of First Transit to EQT Infrastructure, FirstGroup is
entitled to an ‘earnout’ consideration of up to $290m (c.£220m). The
earnout is for a period of three years from 21 July 2021 and is calculated as
a percentage of the realised equity value on disposal of the First Transit
business by EQT Infrastructure or an arm's length valuation as at the third
anniversary of the sale (21 July 2024) if not disposed by that point.
Following the announcement on 26 October 2022 of EQT Infrastructure’s
agreement to sell First Transit to Transdev North America, Inc, the Group now
estimates its earnout consideration will be around £74m. Following the
property sales announced in the period, total Greyhound assets and liabilities
are carried at a value of £24.4m.
Post-balance sheet events
* On 26 October 2022, EQT Infrastructure announced its agreement to sell First
Transit to Transdev North America, Inc. As part of the First Transit disposal
to EQT Infrastructure, FirstGroup is entitled to an earnout consideration. The
Group currently estimates the earnout consideration to be around £78m. The
Group considered this to be an adjusting event and therefore it was reflected
in the fair value of the contingent consideration receivable for the earnout
at 24 September 2022. In the first half of the year this gives rise to a
non-cash, adjusting charge of £27.9m relative to the carrying value of the
earnout of £106m at 26 March 2022.
* In light of the liquidity problems encountered by several UK Defined Benefit
pension schemes which have resulted from recent rapid and significant
movements in government bond yields, FirstGroup provided a short-term loan of
£95m to the Bus Pension Scheme so that it could continue to maintain its
current level of risk management during the uncertain times as the Bank of
England support in the market is withdrawn, and to allow its asset portfolio
to be rebalanced in an orderly manner. The Company utilised the funds held in
escrow following the sale of the North American business to support the Scheme
funding strategy as the source of funds for the loan.
* In October 2022 an extension of the current contractual arrangements for WCP
was agreed with DfT to March 2023. Discussions are ongoing with DfT regarding
the longer-term NRC for WCP.
* On 28 October 2022, the Group announced that its Aircoach business had
agreed a deal to purchase the Northern Ireland-based transport firm Airporter.
Going concern
The Board carried out a review of the Group’s financial projections for the
18 months to 31 March 2024 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
foreseeable future. Accordingly, the condensed consolidated financial
statements in the half-yearly report have been prepared on the going concern
basis.
Definitions
Unless otherwise stated, all financial figures for the 26 weeks to 24
September 2022 (the 'first half', the 'period' or 'H1 2023') include the
results and financial position of the First Rail business for the period ended
17 September 2022 and the results of all other businesses for the 26 weeks
ended 24 September 2022. The figures for the 26 weeks to 25 September 2021
(the 'prior period' or 'H1 2022') include the results and financial position
of the First Rail business for the period ended 18 September 2021 and the
results of all other businesses for the 26 weeks ended 25 September 2021.
Figures for the 52 weeks to 26 March 2022 ('FY 2022') include the results and
financial position of the First Rail business for the year ended 31 March 2022
and the results of all other businesses for the 52 weeks ended 26 March 2022.
Results for the 52 weeks to 25 March 2023 ('FY 2023') will include the results
and financial position for First Rail for the year ending 31 March 2023 and
the results and financial position of all the other businesses for the 52
weeks ending 25 March 2023.
'Cont.' or the 'Continuing operations' refer to First Bus, First Rail and
Group items.
'Disc.' or the 'Discontinued operations' refer to First Student, First Transit
and Greyhound US.
References to 'adjusted operating profit', 'adjusted profit before tax', and
'adjusted EPS' throughout this document are before the adjusting items as set
out in note 3 to the financial statements.
'EBITDA’ is adjusted operating profit less capital grant amortisation plus
depreciation.
The Group's 'EBITDA adjusted for First Rail management fees' is First Bus,
central costs and First Rail EBITDA from open access and additional services
on a pre-IFRS 16 basis, plus First Rail attributable net income from
management fee-based operations.
'Group adjusted attributable profit' is First Bus and First Rail adjusted
operating profit from open access and additional services, plus First Rail
attributable net income from management fee-based operations, minus central
costs, minus cash interest, minus tax.
'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.
'Adjusted net Cash/(Debt)' excludes ring-fenced cash and IFRS 16 lease
liabilities from net debt.
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. No statement in this document should be construed
as a profit forecast for any period. 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.
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.
There are a number of risks and uncertainties facing the Group in the
remaining six months of the financial year in addition to those mentioned in
the Business and Financial Reviews. The underlying principal risks and
uncertainties in our operating businesses remain as set out in detail on pages
76 to 81 of the Annual Report and Accounts 2022, with several of these risks
being more elevated currently given the wider political and economic backdrop
(impacting cost inflation, driver availability, industrial action, policy
uncertainty and passenger demand levels), namely:
* Economic conditions including economic fluctuations
* Climate change
* Geopolitical
* Contracted businesses
* Competition and emerging technologies
* Transactions
* Financial resources
* Pandemic
* Safety
* Data security including cyber security and GDPR
* Regulatory compliance
* Human resources
Risks that are of particular focus in the final six months of the year include
changes in the UK economy, particularly the effect of rising inflation on the
Group and associated industrial relation challenges across the First Rail
business. A change of UK Government transport policy could also lead to the
renationalisation of our First Rail operations as the expiry dates of our
various agreements with the DfT are reached. Finally, workforce availability,
linked to both labour market shortages and staff retention, is a key risk that
could impact operational capacity across both our bus and rail operations.
For a full summary of the Principal Risks and Uncertainties facing the Group,
please refer to the Annual Report and Accounts 2022 at
https://www.firstgroupplc.com/investors/annual-report-2022.aspx.
Graham
Sutherland
Ryan Mangold
Chief Executive
Officer
Chief Financial Officer
9 November
2022
9 November 2022
Condensed consolidated income statement
Notes Unaudited Unaudited 26 weeks to 25 September 2021 £m
26 weeks to
24 September 2022
£m
Revenue 2, 4 2,212.4 2,139.1
Operating costs (2,150.3) (2,086.9)
Operating profit 62.1 52.2
Investment income 5 1.8 0.3
Finance costs 5 (26.9) (117.0)
Profit/(loss) before tax 37.0 (64.5)
Tax 6 (5.1) 26.4
Profit/(loss) from continuing operations 31.9 (38.1)
(Loss)/profit from discontinued operations 13 (30.5) 551.4
Profit for the period 1.4 513.3
Attributable to:
Equity holders of the parent (0.6) 510.7
Non-controlling interests 2.0 2.6
1.4 513.3
Earnings per share
Earnings per share for profit/(loss) from continuing operations attributable to the ordinary equity holders of the company
Basic 4.0p (3.4)p
Diluted 3.9p (3.4)p
Earnings per share for (loss)/profit attributable to the ordinary equity holders of the company
Basic 7 (0.1)p 42.4p
Diluted 7 (0.1)p 42.4p
Adjusted results (from continuing operations) (1)
Adjusted operating profit 3 66.1 51.8
Adjusted profit/(loss) before tax 41.0 (6.3)
Adjusted EPS 7 4.4p (0.4)p
Adjusted diluted EPS 4.3p (0.4)p
(1 ) Adjusted for certain items as set out in note 3.
The accompanying notes form an integral part of this consolidated income
statement.
Condensed consolidated statement of comprehensive income
Unaudited Unaudited 26 weeks to 25 September 2021 £m
26 weeks to
24 September
2022
£m
Profit for the period 1.4 513.3
Items that will not be reclassified subsequently to profit or loss
Actuarial losses on defined benefit pension schemes (117.0) (30.7)
Deferred tax on actuarial losses on defined benefit pension schemes 30.8 2.7
Impact of UK tax rate change on deferred tax on actuarial losses - 10.0
(86.2) (18.0)
Items that may be reclassified subsequently to profit or loss
Hedging instrument movements (22.8) 15.5
Deferred tax on hedging instrument movements (4.1) (3.9)
Exchange differences on translation of foreign operations – continuing operations (4.8) 0.6
Exchange differences on translation of foreign operations – discontinued operations 21.2 (1.7)
Reclassification of foreign currency translation reserve on discontinued operations - (450.6)
(10.5) (440.1)
Other comprehensive loss for the period (96.7) (458.1)
Total comprehensive (loss)/income for the period (95.3) 55.2
Attributable to:
Equity holders of the parent (97.3) 52.6
Non-controlling interests 2.0 2.6
(95.3) 55.2
Total comprehensive (loss)/income for the period attributable to owners of FirstGroup Plc arises from
Attributable to
Continuing operations (52.1) (42.9)
Discontinued operations (43.2) 98.1
(95.3) 55.2
The accompanying notes form an integral part of this consolidated statement of
comprehensive income.
Condensed consolidated balance sheet
Note Unaudited Audited 26 March 2022 £m
24 September 2022
£m
Non-current assets
Goodwill 8 93.5 93.5
Other intangible assets 10.1 12.4
Property, plant and equipment 9 2,389.7 1,692.7
Contingent consideration receivable 11 - 106.1
Deferred tax assets 65.8 36.1
Retirement benefit assets 21 67.6 203.0
Derivative financial instruments 16 5.2 4.2
Financial asset 16 117.0 117.0
Investments 2.7 2.2
2,751.6 2,267.2
Current assets
Inventories 30.7 28.9
Contingent consideration receivable 11 78.2 -
Trade and other receivables 11 804.4 682.3
Current tax assets - 3.1
Cash and cash equivalents 20 636.6 787.7
Derivative financial instruments 16 21.4 26.2
Assets held for sale 10 46.0 38.5
1,617.3 1,566.7
Total assets 4,368.9 3,833.9
Current liabilities
Trade and other payables 1,174.8 1,245.1
Tax liabilities – Current tax liabilities 0.9 -
– Other tax and social security 46.5 38.3
Borrowings 14 502.6 677.0
Derivative financial instruments 16 21.2 -
Provisions 17 107.9 114.6
Current liabilities 1,853.9 2,075.0
Net current liabilities (236.6) (508.3)
Non-current liabilities
Borrowings 14 1,609.2 736.8
Retirement benefit liabilities 21 7.4 16.3
Derivative financial instruments 16 0.4 -
Provisions 17 139.7 120.7
1,756.7 873.8
Total liabilities 3,610.6 2,948.8
Net assets 758.3 885.1
Equity
Share capital 18 37.5 37.5
Share premium 693.0 692.8
Hedging reserve (22.1) 19.3
Other reserves 22.4 22.4
Own shares (13.3) (9.0)
Translation reserve (7.6) (24.0)
Retained earnings 37.9 137.6
Equity attributable to equity holders of the parent 747.8 876.6
Non-controlling interests 10.5 8.5
Total equity 758.3 885.1
The accompanying notes form an integral part of this consolidated balance
sheet.
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 26 March 2022 37.5 692.8 19.3 22.4 (9.0) (24.0) 137.6 876.6 8.5 885.1
(Loss)/income for the period - - - - - - (0.6) (0.6) 2.0 1.4
Other comprehensive (loss)/income for the period - - (26.9) - - 16.4 (86.2) (96.7) - (96.7)
Total comprehensive income/(loss) for the period - - (26.9) - - 16.4 (86.8) (97.3) 2.0 (95.3)
Shares issued - 0.2 - - - - - 0.2 - 0.2
Hedging instrument movements transferred to balance sheet (net of tax) - - (14.5) - - - - (14.5) - (14.5)
Movement in EBT and treasury shares - - - - (4.3) - (6.3) (10.6) - (10.6)
Share-based payments - - - - - - 1.6 1.6 - 1.6
Dividends paid - - - - - - (8.2) (8.2) - (8.2)
Balance at 24 September 2022 (unaudited) 37.5 693.0 (22.1) 22.4 (13.3) (7.6) 37.9 747.8 10.5 758.3
Balance at 28 March 2021 61.1 689.6 (3.4) 4.6 (9.0) 524.7 (89.6) 1,178.0 (23.9) 1,154.1
Income for the period - - - - - - 510.7 510.7 2.6 513.3
Other comprehensive income/(loss) for the period - - 11.6 - - (451.7) (18.0) (458.1) - (458.1)
Total comprehensive income/(loss) for the period - - 11.6 - - (451.7) 492.7 52.6 2.6 55.2
Shares issued - 0.9 - - - - - 0.9 - 0.9
Hedging instrument movements transferred to balance sheet (net of tax) - - (1.4) - - - - (1.4) - (1.4)
Disposal of non-controlling interest in First Transit - - - - - - - - (0.7) (0.7)
Movement in EBT and treasury shares - - - - 2.6 - (13.4) (10.8) - (10.8)
Share-based payments - - - - - - 2.3 2.3 - 2.3
Balance at 25 September 2021 (unaudited) 61.1 690.5 6.8 4.6 (6.4) 73.0 392.0 1,221.6 (22.0) 1,199.6
The accompanying notes form an integral part of this consolidated statement of
changes in equity.
Condensed consolidated cash flow statement
Note Unaudited Unaudited 26 weeks to 25 September 2021 £m
26 weeks to 24 September 2022
£m
Cash generated by operations 249.7 113.5
Tax paid (0.4) (12.2)
Interest paid (35.0) (156.0)
Net cash from/(used in) operating activities 19 214.3 (54.7)
Investing activities
Interest received 2.2 0.3
Proceeds from disposal of property and plant and equipment 23.0 3.4
Purchases of property, plant and equipment (60.7) (135.2)
Purchases of software (0.8) (4.4)
Net proceeds from disposal of subsidiaries (net of cash disposed) (1) 2.0 2,293.4
Settlement of foreign exchange hedge (16.3) -
Acquisition of business - (2.7)
Net cash (used in)/from investing activities (50.6) 2,154.8
Financing activities Shares purchased by Employee Benefit Trust (10.7) (17.4)
Shares issued 0.3 0.6
External dividends paid (8.2) -
Dividends paid to non-controlling shareholders - (0.3)
Repayments of CCFF - (298.2)
Repayment of bank facilities - (581.2)
Repayment of bond issues - (675.4)
Repayment of senior unsecured loans - (200.1)
Proceeds from/(repayment of) asset backed financial liabilities 14.4 (65.8)
Repayments of lease liabilities (271.6) (312.5)
Fees for finance facilities - (1.7)
Net cash flow used in financing activities (275.8) (2,152.0)
Net decrease in cash and cash equivalents before foreign exchange movements (112.1) (51.9)
Cash and cash equivalents at beginning of period 700.2 1,443.4
Foreign exchange movements 8.6 (3.9)
Cash and cash equivalents at the end of the period 596.7 1,387.6
(1 ) H1 2023 amount of £2.0m comprises cash consideration
received of £7.2m less cash and cash equivalent sold of £5.2m. H1 2022
amount of £2,293.4m comprises cash consideration received of £2,377.3m less
cash and cash equivalent sold of £83.9m.
Cash and cash equivalents are included within current assets on the
consolidated balance sheet. Cash and cash equivalents includes ring-fenced
cash of £339.0m in H1 2023 (full year 2022: £468.1m). The most significant
ring-fenced cash balances are held by the Group’s First Rail subsidiaries.
All non-distributable cash in franchised Rail subsidiaries is considered
ring-fenced under the terms of the National Rail Contracts and ERMAs. Non Rail
ring-fenced cash includes three elements: (1) loss escrow funds maintained by
various third-party administrators, the purpose of which is to provide a
source of funds for use by the administrators for payment of the
self-insurance liability for losses and loss adjustment expenses in accordance
with agreements between the administrators and the Business; (2) balances
within former First Transit subsidiaries which were retained by the Group
following the sale of First Transit, where those subsidiaries act as a
disbursement agent on the behalf of their customers and the cash is only
allowed to be used to settle customer liabilities; (3) funds in escrow for
upfront deposit received relating to the sale of Greyhound property portfolio.
Reconciliation to cash flow statement Note Unaudited Audited 26 March 2022 £m
24 September 2022
£m
Cash and cash equivalents – Balance Sheet 20 636.6 787.7
Bank overdraft 20 (39.9) (87.5)
Balances per consolidated cash flow statement 596.7 700.2
Note to the condensed consolidated cash flow statement – reconciliation of
net cash to movement in net debt
Note Unaudited Unaudited 26 weeks to 25 September 2021 £m
26 weeks to 24 September 2022
£m
Net decrease in cash and cash equivalents in period (112.1) (51.9)
Decrease in debt excluding leases - 1,756.6
Adjusted cash flow (112.1) 1,704.7
Payment of lease liabilities 276.5 378.3
(Inception)/termination of leases (1,029.0) 172.4
Fees capitalised against bank facilities and bond issues - (1.7)
Foreign exchange movements 8.6 (7.9)
Other non-cash movements - 145.8
Movement in net debt in period (856.0) 2,391.6
Net debt at beginning of period (619.0) (2,625.8)
Net debt at end of period 20 (1,475.0) (234.2)
Management considers that adjusted cash flow is an appropriate measure for
assessing the Group cash flow as it is the measure that is used to assess both
Group and divisional cash performance against budgets and forecasts. Adjusted
cash flow is stated prior to cash flows in relation to debt excluding leases.
The accompanying notes form an integral part of this consolidated cash flow
statement.
Notes to the CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1 Basis of preparation
The half yearly results for the 26 weeks to 24 September 2022 include the
results and financial position of the First Rail division for the period ended
17 September 2022 and the results and financial position for the other
divisions for the 26 weeks ended 24 September 2022. The comparative figures
for the 26 weeks to 25 September 2021 include the results of the First Rail
division for the period ended 18 September 2021 and the results of the other
divisions for the 26 weeks ended 25 September 2021. The comparative figures
for the 52 weeks ended 26 March 2022 include the financial position of the
First Rail division at 31 March 2022 and the financial position of the other
divisions at 26 March 2022.
These half yearly results do not comprise statutory accounts within the
meaning of section 434 of the Companies Act 2006. Statutory accounts for the
year ended 26 March 2022 were approved by the board of directors on 14 June
2022 and delivered to the Registrar of Companies. The report of the auditors
on those accounts was unqualified, did not contain an emphasis of matter
paragraph and did not contain any statement under section 498 of the Companies
Act 2006. The half yearly results have been reviewed, not audited.
These condensed consolidated interim financial statements for the half year
reporting period for the 26 weeks to 24 September 2022 has been prepared in
accordance with the UK-adopted International Accounting Standard 34, 'Interim
Financial Reporting' and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom’s Financial Conduct Authority.
The condensed consolidated interim financial statements do not include all of
the notes of the type normally included in an annual financial report.
Accordingly, this report is to be read in conjunction with the annual report
for the year ended 26 March 2022, and any public announcements made by
FirstGroup plc during the interim reporting period.
The accounting policies applied are consistent with those described in the
Group’s latest annual audited financial statements, except 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 26 weeks to 25 September 2021 are unaudited and
are derived from the condensed consolidated interim financial statements for
that period, which was also reviewed by the auditor.
Going concern – basis of preparation
The Directors have carried out a review of the Group’s financial projections
for the 18 months to 31 March 2024, with due regard for the risks and
uncertainties to which the Group is exposed, the uncertain economic climate
and the impact that this could have on trading performance. Based on this
review, the Directors believe that the Company and the Group have adequate
resources to continue in operational existence for the foreseeable future.
Accordingly, the half yearly results have been prepared on the going concern
basis in preparing this report.
Update since the FY22 results
* The contractual arrangements in First Rail have continued to develop with
the award of a six-year National Rail Contract to GWR in June 2022. In October
an extension of the current contract arrangements was agreed for the West
Coast Partnership to March 2023, and discussions are ongoing with DfT
regarding the longer-term National Rail Contract for the West Coast
Partnership.
* The Group’s open access operations Lumo and Hull Trains were profitable in
the period, a significant swing from losses incurred in the prior financial
year in these operations, which reflected the start-up of Lumo and periodic
pandemic-related closures of Hull Trains.
* In the First Bus division, good progress has been made in the period with
several of the key drivers that the Group believes will support the
improvement in Bus margins once the sector transitions to a more commercial
model, including yield and pricing actions, network realignment and the sale
of First Scotland East.
* Commercial passenger volume levels in First Bus have increased in the period
although concessionary volumes continue to recover more slowly. In the near
term the tapering of concession funding, the extension of the Bus Recovery
Grant funding into H2 2023, inflation and continued driver shortages will
limit the scope for significant margin progress.
* The Group has a £300m sustainability-linked Revolving Credit Facility
(‘RCF’) with a group of its relationship banks. This committed RCF remains
undrawn. In June 2022, the Group exercised its option to extend the maturity
of the facility for a further year to August 2025.
* Management has demonstrated the flexibility of our businesses to generate
cash flows well within required debt facility and covenant levels since the
pandemic struck.
Evaluation of going concern
The Board evaluated whether it was appropriate to prepare the half yearly
results in this 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 going concern
period.
1 Basis of preparation (continued)
Consistent with prior years, the Board’s going concern assessment is based
on a review of future trading projections, including whether banking covenants
are likely to be met and whether there is sufficient committed facility
headroom to accommodate future cash flows for the going concern period.
Divisional management teams prepared detailed, bottom-up projections for their
businesses reflecting the impact of the post-pandemic operating environment,
including assumptions on passenger volume recovery and government support
arrangements as well as inflationary cost pressures.
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 2022 year end. The base case assumes a
gradual recovery in passenger volumes in FY23 and FY24 as activity reaches its
normalised post-pandemic levels, although passenger volumes remain below
pre-pandemic levels in the going concern assessment period. The macro
projections in the updated base case assume that the UK operates in a
recovering, post-pandemic economy.
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 First Bus the
severe but plausible downside case assumes slower recovery of passenger
revenues in the second half of FY23 and through FY24 and further inflationary
cost pressures. In First Rail, the downside case assumes reduced TOC
performance fee awards, lower revenues in Hull Trains and East Coast Open
Access, and the risk of losing one National Rail Contract. The downside case
also assumed a delay in realising proceeds from the Greyhound property
portfolio until after the going concern period.
Mitigating actions
If the future operating environment of the Group were to be more challenging
than assumed in the base case or downside case scenarios, the Group would
reduce and defer planned growth capital expenditure and further reduce costs
in line with a lower volume operating environment, to the extent that the
essential services we operate in Bus are not required to be run for the
governments and communities we support.
Going concern statement
Based on the scenario modelling undertaken, and the potential mitigating
actions referred to above, the Board is satisfied that the Group’s liquidity
and covenant headroom over the going concern period is sufficient for the
business needs.
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:
On 26 October 2022, EQT Infrastructure announced its agreement to sell First
Transit to Transdev North America, Inc. As part of the First Transit disposal
to EQT Infrastructure, FirstGroup is entitled to an earnout consideration. The
Group currently estimates the earnout consideration to be around $85m
(£78.2m). In the first half of the year this gives rise to a non-cash,
adjusting charge of £27.9m relative to the carrying value of the earnout of
£106.1m at 26 March 2022.
The contractual arrangements in First Rail have continued to develop with the
award of a six-year National Rail Contract to GWR in June 2022. In October an
extension of the current contract arrangements was agreed for the West Coast
Partnership to March 2023, and discussions are ongoing with DfT regarding the
longer-term National Rail Contract for the West Coast Partnership.
Critical accounting judgements and key sources of estimation uncertainty
The preparation of these half yearly results requires management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities, income
and expense. Actual results might differ from these estimates.
In preparing these half yearly results, the significant judgements made by
management in applying the Group's accounting policies and the key sources of
estimation uncertainty were the same as those that applied to the consolidated
financial statements for the year ended 26 March 2022, with the exception of
the First Transit earnout where the estimated valuation is now underpinned by
EQT Infrastructure’s agreement to sell First Transit to Transdev North
America, Inc.
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.
These condensed consolidated interim financial statements were approved by the
Board on 9 November 2022.
2 Revenue
Passenger revenue in First Bus was £322.3m (H1 2022: £266.3m) as passenger
volumes continued their post-pandemic recovery. First Rail Passenger revenue
was £1,290.9m (H1 2022: £699.2m).
The principal direct fiscal support recognised during the period comprised
£247.1m (H1 2022: £920.2m) of EMA/ERMA funding in First Rail and £43.7m (H1
2022: £127.9m) of BRG, NSG+ and BES funding and concessions in First Bus.
These are recognised within revenue in accordance with IFRS 15 (as per our
policy on revenue recognition in the 2022 Annual Accounts), when control of
the good or service is transferred to the customer and the Group is entitled
to the consideration.
The main direct fiscal support recognised in revenue over time for each
division has been as follows:
First Bus: The English, Scottish and Welsh Governments have each supported bus
operators, through a variety of funding schemes since March 2020. The current
BRG scheme in England, which has been in place since September 2021, has
recently been extended by the DfT to run through to the end of March 2023
providing a fixed monthly payment to operators to offset some of their
commercial revenue losses. The Scottish NSG+ scheme provides operators with a
fixed payment per km operated. In Wales the BES scheme which funds operators
to a pre-agreed margin has been extended again and will now continue until
March 2023.
First Rail: The Emergency Measures Agreements (EMAs), the Emergency Recovery
Measures Agreement (ERMAs) and the National Rail Contracts (NRCs) transferred
substantially all revenue and substantially all cost risk to the government
and for the full period our First Rail franchises were operated under the
terms of these arrangements.
* EMA in respect of GWR up to 26 June 2022, whereupon GWR transitioned to a
new, three-year NRC with an option for the DFT to extend by a further three
years to June 2028
* ERMA in respect of WCP / Avanti for the full period. On 16 October 2022, the
existing arrangement was extended by a further six months by the DfT to March
2023
* NRCs for SWR and TPE for the full period
Under the arrangements, 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 DfT funding including the management and performance 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 (including 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 assesses
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 considers that this overall basis more appropriately
reflects operating performance and provides a better understanding of the key
performance indicators of the business.
3 Reconciliation to non-GAAP measures and
performance (continued)
Reconciliation of operating profit to adjusted operating profit on a continuing basis 26 weeks to 26 weeks to 25 September 2021 £m
24 September 2022
£m
Operating profit on a continuing basis 62.1 52.2
Adjustments for:
Loss on sale of Scotland East 3.7 -
Strategic items 1.9 -
Greyhound Canada (1.6) 3.6
Rail termination sums net of impairment reversal - (4.0)
Total adjusting operating profit items on a continuing basis 4.0 (0.4)
Adjusted operating profit on a continuing basis 66.1 51.8
Reconciliation of operating (loss)/profit to adjusted operating (loss)/profit on a discontinued basis 26 weeks to 26 weeks to 25 September 2021 £m
24 September 2022
£m
Operating (loss)/profit from discontinued operations including gains on sale of First Student and First Transit (28.6) 592.3
Less gain on sale of First Student and First Transit - (479.4)
Operating (loss)/profit from discontinued operations (28.6) 112.9
Adjustments for:
Transit earnout charge 27.9
Gain on sale of Greyhound properties (7.7) -
Other intangible asset amortisation charges - 0.4
Other costs associated with the disposal of First Student and First Transit - 31.5
Partial reversal of prior year impairments of Greyhound - (55.4)
Professional fees relating to Greyhound - 2.9
Employment taxes relating to First Student and First Transit - 6.6
North America insurance provisions - 22.4
Total adjusting operating profit adjustments from discontinued operations 20.2 8.4
Adjusted operating (loss)/profit from discontinued operations (8.4) 121.3
Reconciliation of profit before tax to adjusted profit before tax 26 weeks to 26 weeks to 25 September 2021 £m
24 September 2022
£m
Profit before tax (including discontinued operations) (1) 8.7 516.5
Adjusting operating profit items – continuing operations 4.0 (0.4)
Adjusting operating profit items – discontinued operations 20.2 8.4
Gain on sale of First Student and First Transit - (479.4)
Adjusting operating profit items – total operations 24.2 (471.4)
Finance costs adjustment – continuing operations - 58.6
Adjusted profit before tax including discontinued operations 32.9 103.7
Adjusted tax charge (6.1) (21.6)
Non-controlling interests (2) (2.0) (2.6)
Adjusted earnings including discontinued operations 24.8 79.5
1. See note 4.
2. Statutory non-controlling interests principally reflects Avanti West Coast
and South Western Trains.
Adjusting items
The principal adjusting items in relation to the operating profit adjustments
- continuing operations were as follows:
First Bus restructuring
As part of the restructuring of the Bus division to transition to a more
commercial model, the Group completed the sale of its First Scotland East
business in September 2022, realising a loss on disposal of £(3.7)m. In line
with this transition plan, the Group also incurred costs of £(0.6)m relating
to the reorganisation of its Bus management structure.
Other restructuring costs
Restructuring costs of £(1.3)m were incurred in relation to the Group’s
central functions, as part of its ongoing cost efficiency initiatives.
Greyhound Canada
A provision relating to the continued winding down of Greyhound Canada
operations was released in the period.
3 Reconciliation to non-GAAP measures and
performance (continued)
The principal adjusting items in relation to the operating profit adjustments
- discontinued operations were as follows:
Transit earnout charge
Following the announcement on 26 October 2022 of EQT Infrastructure’s
agreement to sell First Transit to Transdev North America, Inc, the Group now
estimates its earnout consideration to be around $85m (£78.2m). This gives
rise to a non-cash adjusting charge of £27.9m relative to the carrying value
of the earnout of £106.1m at 26 March 2022.
Greyhound US strategic items
A gain of £7.7m arose upon disposal of Greyhound US property during the first
half of the year.
Group adjusted attributable EBITDA and operating profit
First Bus EBITDA comprises:
26 weeks to 26 weeks to 25 September 2021 £m
24 September 2022
£m
Pre-IFRS16 EBITDA 42.8 47.6
IFRS16 adjustments (1) 8.2 7.9
First Bus adjusted EBITDA per segmental results (note 4) 51.0 55.5
First Rail EBITDA comprises:
Non-management fees based TOCs 12.6 (7.4)
Group’s share of management fee income available for dividends 19.1 17.5
Depreciation relating to contracted TOCs - 2.9
Pre-EMA/ERMA and other adjustments - 4.1
Minority interest 2.0 2.8
Tax at 19% 4.9 4.7
IFRS16 adjustments (1) 267.0 279.6
First Rail adjusted EBITDA per segmental results table (note 4) 305.6 304.2
Group items EBITDA comprises:
Pre-IFRS16 EBITDA (9.6) (13.0)
IFRS16 adjustments (1) 0.9 0.8
Group items adjusted EBITDA per segmental results table (note 4) (8.7) (12.2)
First Rail adjusted operating profit comprises:
Non-management fees based TOCs 12.0 (7.6)
Group’s share of management fee income available for dividends 19.1 17.5
Pre-EMA/ERMA and other adjustments - 4.1
Minority interest 2.0 2.8
Tax at 19% 4.9 4.7
IFRS16 adjustments (1) 17.4 17.7
First Rail adjusted operating profit per segmental results table (note 4) 55.4 39.2
1 IFRS16 adjustments to EBITDA principally reflect the add back of
operating lease rental costs charged to the income statement before the
adoption of IFRS16. IFRS16 adjustments to operating profit reflect operating
lease rental costs less depreciation charges on Right of Use Assets.
4 Business segments information
For management purposes, the Group was organised into five operating divisions
– First Bus, First Rail, First Student, First Transit and Greyhound. First
Student and First Transit were categorised as Discontinued Operations at 27
March 2021 and the sale of these completed on 21 July 2021. Greyhound US and
Mexico were categorised as Discontinued Operations at 25 September 2021 and
the sale of this completed on 21 October 2021. The properties related to the
retained Greyhound US business have been classified as held for sale and have
therefore been treated as discontinued. Greyhound Canada was retained and is
categorised as a Continuing Operation however, trading operations have ceased.
The divisions are managed separately in line with the differing services that
they provide and the geographical markets which they operate in. There is a
clear distinction between each division and no judgement is required to
identify each reportable segment.
The segment results for the 26 weeks to 24 September 2022 are as follows:
Continuing Operations Discontinued Operations
First Bus £m First Rail £m Greyhound £m Group Items (1) £m Total £m Greyhound £m Group Items (1) £m Total £m
Passenger revenue 322.3 1,290.9 - - 1,613.2 - - 1,613.2
Contract revenue 54.8 - - - 54.8 - - 54.8
Rail franchise subsidy receipts - 361.2 - - 361.2 - - 361.2
Other 50.6 132.6 - - 183.2 2.7 - 185.9
Revenue 427.7 1,784.7 - - 2,212.4 2.7 - 2,215.1
Adjusted EBITDA (2) 51.0 305.6 - (8.7) 347.9 (8.4) - 339.5
Depreciation (33.2) (310.4) - (1.0) (344.6) - - (344.6)
Software amortisation (0.8) (3.2) - (0.3) (4.3) - - (4.3)
Capital grant amortisation 3.7 63.4 - - 67.1 - - 67.1
Segment results 20.7 55.4 - (10.0) 66.1 (8.4) - 57.7
Other intangible asset amortisation charges - - - - - - - -
Other adjustments (note 3) (4.3) - 1.6 (1.3) (4.0) 7.7 (27.9) (24.2)
Operating profit/(loss) 16.4 55.4 1.6 (11.3) 62.1 (0.7) (27.9) 33.5
Investment income - 1.3 - 0.5 1.8 0.4 - 2.2
Finance costs (1.1) (19.5) - (6.3) (26.9) (0.1) - (27.0)
Profit/(loss) before tax 15.3 37.2 1.6 (17.1) 37.0 (0.4) (27.9) 8.7
Tax (7.3)
Profit after tax 1.4
1 Group items comprise central management and other items.
2 Adjusted EBITDA is adjusted operating profit less capital grant
amortisation plus depreciation plus software amortisation.
4 Business segments information (continued)
Balance sheet at 24 September 2022 Total assets Total liabilities Net assets/(liabilities)
£m £m £m
Greyhound retained 128.4 (150.0) (21.6)
First Bus 720.6 (252.6) 468.0
First Rail 2,483.8 (982.8) 1,501.0
3,332.8 (1,385.4) 1,947.4
Group items 287.7 (66.0) 221.7
Borrowings and cash 636.6 (2,111.8) (1,475.2)
Taxation 65.8 (47.4) 18.4
Total 4,322.9 (3,610.6) 712.3
Greyhound (held for sale) (1) 46.0 - 46.0
Grand total 4,368.9 (3,610.6) 758.3
1 Greyhound US and Canada land and properties are classified as held
for sale at 24 September 2022 and shown as such in the Condensed Consolidated
Balance Sheet .
The segment results for the 26 weeks to 25 September 2021 are as follows:
Continuing Operations Discontinued Operations
First Bus £m First Rail £m Grey- hound £m Group Items (1) £m Continuing Operations £m First Student £m First Transit £m Grey- hound £m Group Items (1) £m Total £m
Passenger revenue 266.3 699.2 - - 965.5 - - 132.6 - 1,098.1
Contract revenue 32.9 - - - 32.9 450.3 203.2 - - 686.4
Charter/private hire - - - - - 21.8 0.1 0.8 - 22.7
Rail franchise subsidy receipts - 948.4 - - 948.4 - - - - 948.4
Other 93.3 99.0 - - 192.3 7.4 96.4 58.0 - 354.1
Revenue 392.5 1,746.6 - - 2,139.1 479.5 299.7 191.4 - 3,109.7
Adjusted EBITDA (2) 55.5 304.2 (0.2) (12.2) 347.3 88.2 20.7 22.7 - 478.9
Depreciation (30.3) (302.5) (0.2) (1.3) (334.3) - - (10.5) - (344.8)
Software amortisation (0.7) (0.8) - (0.3) (1.8) - - (0.4) - (2.2)
Capital grant amortisation 2.3 38.3 - - 40.6 - - 0.6 - 41.2
Segment results 26.8 39.2 (0.4) (13.8) 51.8 88.2 20.7 12.4 - 173.1
Other intangible asset amortisation charges - - - - - - - (0.4) - (0.4)
Other adjustments (note 3) - 4.0 (3.6) - 0.4 (14.8) (6.5) 44.0 448.7 471.8
Operating profit/(loss) 26.8 43.2 (4.0) (13.8) 52.2 73.4 14.2 56.0 448.7 644.5
Investment income - 0.2 - 0.1 0.3 - - - - 0.3
Finance costs (3) (1.3) (20.8) (0.7) (94.2) (117.0) (7.5) (0.7) (3.1) - (128.3)
Profit/(loss) before tax 25.5 22.6 (4.7) (107.9) (64.5) 65.9 13.5 52.9 448.7 516.5
Tax (3.2)
Profit after tax 513.3
1 Group items comprise central management and other items.
2 Adjusted EBITDA is adjusted operating profit less capital grant
amortisation plus depreciation plus software amortisation.
3 Finance costs under Group items include £58.6m of adjusting items
for total make-whole costs (bonds and facilities) and for the write off of
unamortised bridge, bond and facility costs (see note 3).
Balance sheet at 26 March 2022 Total assets Total liabilities Net assets/(liabilities)
£m £m £m
Greyhound retained 132.2 (137.0) (4.8)
First Bus 806.0 (179.6) 626.4
First Rail 1,659.9 (1,062.6) 597.3
2,598.1 (1,379.2) 1,218.9
Group items 370.4 (124.6) 245.8
Borrowings and cash 787.7 (1,406.7) (619.0)
Taxation 39.2 (38.3) 0.9
Total 3,795.4 (2,948.8) 846.6
Greyhound (held for sale) (1) 38.5 - 38.5
Grand total 3,833.9 (2.948.8) 885.1
1 Greyhound US and Canada land and properties are classified as held
for sale at 26 March 2022 and shown as such in the Condensed Consolidated
Balance Sheet.
Segment assets and liabilities are determined by identifying the assets and
liabilities that relate to the business of each segment but excluding
intercompany balances, borrowings and cash and taxation.
5 Investment income and finance costs
26 weeks to 26 weeks to 25 September 2021 £m
24 September 2022
£m
Investment income
Bank interest receivable (2.2) (0.3)
Finance costs
Bonds 6.9 15.4
Bank interest and facility fees 1.6 14.9
Total make-whole costs (bonds and facilities) - 50.0
Write off of unamortised bridge, bond and facility costs - 8.6
Senior unsecured loan notes - 3.2
Finance charges payable in respect of lease liabilities 20.0 22.9
Finance charges payable in respect of asset backed financial liabilities 0.7 1.7
Interest on long term provisions 0.5 3.4
Interest on pensions (2.8) 5.8
Interest - other 0.1 2.4
Total finance costs (including discontinued operations) 27.0 128.3
Total finance costs 27.0 128.3
Investment income (2.2) (0.3)
Net finance costs (including discontinued operations) 24.8 128.0
Split:
Adjusted net finance costs 24.8 69.4
Other adjustments (note 3) - 58.6
24.8 128.0
Investment income relating to discontinued operations was £(0.4)m (H1 2022:
£nil) and finance costs relating to discontinued operations were £0.1m (H1
2022: £11.3m).
6 Tax on profit on ordinary activities
26 weeks to 26 weeks to 25 September 2021 £m
24 September 2022
£m
Current tax charge 0.5 1.8
Deferred tax charge 6.8 1.4
Total tax charge (including discontinued operations) 7.3 3.2
Tax charge/(credit) attributable to:
Profit/(loss) from continuing operations 5.1 (26.4)
Profit from discontinued operations 2.2 29.6
The tax effect of the adjustments disclosed in note 3 was a charge of £2.0m
in H1 2023 (H1 2022: credit of £24.3m). In addition, there were further
adjustments to brought forward tax balances giving rise to a net credit of
£0.8m (H1 2022: charge of £5.9m).
7 Earnings per share (EPS)
EPS is calculated by dividing the (loss)/profit attributable to equity
shareholders of £(0.6)m in H1 2023 (H1 2022: £510.7m) by the weighted
average number of ordinary shares in issue of 739.8m (H1 2022: 1,203.4m). The
number of ordinary shares used for the basic and diluted calculations is 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.
24 September 2022 25 September 2021 number m
number
m
Weighted average number of shares used in basic calculation 739.8 1,203.4
Executive share options (1) 24.5 -
Weighted average number of shares used in the diluted calculation 764.3 1,203.4
1 For the period ended 25 September 2021 the loss from continuing
operations made the executive share options anti-dilutive and therefore the
options were not included in this period.
7 Earnings per share (EPS) (continued)
The adjusted EPS is intended to highlight the recurring results of the Group
before amortisation charges and certain other adjustments as set out in note
3. A reconciliation is set out below:
26 weeks to 26 weeks to 25 September 2021
24 September 2022
£m EPS (p) £m EPS (p)
Basic (loss)/profit / EPS (0.6) (0.1) 510.7 42.4
Amortisation charges (note 3) - - 0.4 -
Finance cost adjustments (note 3) - - 58.6 4.9
Other adjustments (note 3) 24.2 3.3 (471.8) (39.2)
Tax effect of above adjustments 2.0 0.3 (24.3) (2.0)
Other adjustments to deferred tax assets (0.8) (0.1) 5.9 0.5
Adjusted profit and EPS attributable to the ordinary equity holders of the company 24.8 3.4 79.5 6.6
Adjusted (loss)/profit from discontinued operations (8.1) (1.0) 84.4 7.0
Adjusted profit/(loss) EPS from continuing operations 32.9 4.4 (4.9) (0.4)
26 weeks to 26 weeks to 25 September 2021 pence
24 September 2022
pence
Diluted EPS (0.1) 42.4
Adjusted diluted EPS 3.2 6.6
8 Goodwill and impairment of assets
£m
Cost
At 27 March 2022 93.5
At 24 September 2022 93.5
Accumulated impairment losses At 27 March 2022 -
At 24 September 2022 -
Carrying amount
At 24 September 2022 93.5
At 26 March 2022 93.5
Disclosures including goodwill by cash generating unit (CGU), details of
impairment testing and sensitivities thereon are set out on pages 185 to 186
of the 2022 Annual Report.
First Bus
At 24 September 2022 the First Bus impairment testing was revisited and it was
concluded that there are no indicators of impairment since March 2022.
Therefore no adjustment to the carrying value of First Bus is required at 24
September 2022.
Hull Trains
At 24 September 2022 the Hull Trains impairment testing was revisited and it
was concluded that there are no indicators of impairment since March 2022.
Therefore no adjustment to the carrying value of Hull Trains is required at 24
September 2022.
Lumo
At 24 September 2022 the Lumo operation’s impairment testing was revisited
and it was concluded that there are no indicators of impairment since March
2022. Therefore no adjustment to the carrying value of Lumo is required at 24
September 2022.
9 Property, plant and equipment
Owned assets
Land and buildings £m Passenger carrying vehicle fleet £m Other plant and equipment £m Total £m
Cost
At 27 March 2022 203.6 799.1 662.8 1,665.5
Additions - 31.4 30.2 61.6
Disposals (7.9) (93.7) (4.0) (105.6)
Transfers - 2.3 (2.3) -
At 24 September 2022 195.7 739.1 686.7 1,621.5
Accumulated depreciation and impairment
At 27 March 2022 76.9 484.2 448.0 1,009.1
Charge for period 1.9 22.8 62.0 86.7
Disposals (4.5) (68.6) (2.8) (75.9)
At 24 September 2022 74.3 438.4 507.2 1,019.9
Carrying amount
At 24 September 2022 121.4 300.7 179.5 601.6
At 26 March 2022 126.7 314.9 214.8 656.4
9 Property, plant and equipment (continued)
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 27 March 2022 2,585.6 55.9 60.2 7.5 2,709.2
Additions and modifications 1,002.6 13.4 (0.3) 0.4 1,016.1
Disposals (4.0) (0.6) (6.5) (0.3) (11.4)
Foreign exchange movements - 0.5 - - 0.5
At 24 September 2022 3,584.2 69.2 53.4 7.6 3,714.4
Accumulated depreciation and impairment
At 27 March 2022 1,609.7 22.5 35.6 5.1 1,672.9
Charge for period 246.8 4.0 6.3 0.8 257.9
Disposals (0.8) (0.2) (3.9) (0.1) (5.0)
Foreign exchange movements - 0.5 - - 0.5
At 24 September 2022 1,855.7 26.8 38.0 5.8 1,926.3
Carrying amount
At 24 September 2022 1,728.5 42.4 15.4 1.8 1,788.1
At 26 March 2022 975.9 33.4 24.6 2.4 1,036.3
The discounted lease liability relating to the right of use assets included
above is shown in note 14.
£990.0m of additions relate to the extension of leases as a result of signing
of the National Rail Contract in Great Western Railway. As at 24 September
2022 the Group had entered into contractual capital commitments amounting to
£91.6m principally representing buses ordered in the United Kingdom.
Rolling stock £m Land and buildings £m Passenger carrying vehicle fleet £m Other plant and equipment £m Total £m
Carrying amount
At 24 September 2022 1,728.5 163.8 316.1 181.3 2,389.7
At 26 March 2022 975.9 160.1 339.5 217.2 1,692.7
The maturity analysis of lease liabilities is presented in note 15.
Amounts recognised in income statement 26 weeks to 24 September 2022 £m 26 weeks to 25 September 2021 £m
Depreciation expense on right of use assets 257.9 275.5
Interest expense on lease liabilities 20.0 24.6
Expense relating to short-term leases - 0.3
Expense relating to leases of low value assets 1.5 1.7
279.4 302.1
10 Assets held for sale
24 September 2022 26 March 2022 £m
£m
Assets held for sale 46.0 38.5
Assets held for sale relate to properties in discontinued Greyhound US of
£44.8m and properties in continuing Greyhound Canada of £1.2m.
11 Trade and other receivables
24 September 2022 26 March 2022 £m
£m
Amounts due within one year (from discontinued operations)
Contingent consideration receivable 78.2 -
Amounts due after more than one year (from discontinued operations)
Contingent consideration receivable - 106.1
Amounts due within one year (from continuing operations) 24 September 2022 26 March 2022 £m
£m
Trade receivables 300.9 292.1
Loss allowance (20.6) (15.2)
Trade receivables net 280.3 276.9
Other receivables 212.9 194.7
Amounts recoverable on contracts 53.4 3.1
Prepayments 71.4 69.4
Accrued income 186.4 138.2
804.4 682.3
12 Business disposals
First Scotland East Limited
On 19 September 2022, the Group completed the divestment of its subsidiary,
First Scotland East Limited, to McGill’s Bus Service Limited, for a total
consideration of £11.0m. Of the total consideration, £7.2m of cash was
received at completion, with the remaining £5.0m of cash to be received over
the next three years. The cost of the disposal was £2.5m, including
transaction fees, recognition of insurance indemnification and PCV warranty
provisions, offset by a working capital adjustment of £1.3m. There are no
conditions attached to the deferred consideration.
Net assets disposed were £14.7m, including £5.2m of cash, giving rise to a
loss before tax on disposal of £3.7m. The loss has been recognised as an
adjusting item. First Scotland East Limited was included within the Bus
segment.
13 Discontinued operations
First Student and First Transit
The sale of First Student and First Transit was approved by a shareholder
majority on 27 May 2021 and was reported as a discontinued operation in the
financial statements for the 52 weeks ended 27 March 2022 for the period to
the sale completion on 21 July 2021. Proceeds net of direct transaction
costs/fees were £2,323.3m excluding earnout. Financial information relating
to the discontinued operation for the period to the date of disposal (21 July
2021) was presented in the Group’s FY22 Annual Report.
As part of the disposal transaction, FirstGroup are entitled to an
‘earnout’ consideration of up to $290m (c.£220m) relating to First
Transit. The earnout is for a period of three years from 21 July 2021 and is
calculated as a percentage of the Realised Equity Value.
On 26 October 2022, EQT Infrastructure announced its agreement to sell First
Transit to Transdev North America, Inc. As a result of this agreement, the
Group estimates the earnout consideration to be around $85m (£78.2m). In the
first half of the year this gives rise to a non-cash, adjusting charge of
£27.9m relative to the carrying value of the earnout of £106.1m at 26 March
2022.
At 26 March 2022, the earnout was fair valued using stochastic modelling of
discounted cash flows and assumed EQT did not dispose of the business by the
third anniversary (21 July 2024). Fair value at 26 March 2022 was $140m
(£106.1m).
Greyhound
The disposal of Greyhound Lines, Inc to a wholly-owned subsidiary of
FlixMobility GmbH was announced and completed on 21 October 2021. Greyhound US
was therefore reported as a discontinued operation for the period to the sale
completion in the financial statements for the 52 weeks to 26 March 2022. The
properties relating to the retained Greyhound US business were classified as
held for sale and therefore in FY23 continue to be treated as discontinued as
it is anticipated that these properties will be disposed of in 2022 as part of
a single plan to exit the Greyhound business. Financial information relating
to the discontinued operation for the period to the date of disposal (21
October 2021) was presented in the Group’s FY22 Annual Report.
14 Borrowings
24 September 2022 26 March 2022 £m
£m
On demand or within 1 year
Leases (note 15) (1) 445.1 573.4
Asset backed financial liabilities (note 15) (2) 17.4 9.0
Bank overdraft 39.9 87.5
Bond 6.875% (repayable 2024) (3) 0.2 7.1
Total current liabilities 502.6 677.0
Within 1 – 2 years
Leases (note 15) (1) 336.0 167.8
Asset backed financial liabilities (note 15) (2) 8.3 15.7
Bond 6.875% (repayable 2024) 199.9 -
Loan notes 0.6 0.6
544.8 184.1
Within 2 – 5 years
Leases (note 15) (1) 836.6 294.4
Asset backed financial liabilities (note 15) (2) 14.1 10.5
Bond 6.875% (repayable 2024) - 199.9
850.7 504.8
More than 5 years
Leases (note 15) (1) 203.6 47.6
Asset backed financial liabilities (note 15) (2) 10.1 0.3
213.7 47.9
Total non-current liabilities 1,609.2 736.8
1 The right of use assets relating to lease liabilities are shown in
note 9. The maturity analysis of lease liabilities is presented in note 15.
2 The maturity analysis of asset backed financial liabilities is
presented in note 15.
3 Includes accrued interest only.
15 Lease liabilities and asset backed financial
liabilities
The Group had the following lease liabilities at the balance sheet dates:
Lease liabilities 24 September 2022 26 March 2022 £m
£m
Due in less than one year 503.4 593.0
Due in more than one year but not more than two years 374.0 179.4
Due in more than two years but not more than five years 893.8 304.4
Due in more than five years 217.3 59.8
1,988.5 1,136.6
Less future financing charges (167.2) (53.4)
1,821.3 1,083.2
Comprising:
Lease liabilities - Road 40.4 52.1
Lease liabilities - Rail 1,780.9 1,031.1
The Group had the following asset backed financial liabilities at the balance
sheet dates:
Asset backed financial liabilities 24 September 2022 26 March 2022 £m
£m
Due in less than one year 18.0 9.3
Due in more than one year but not more than two years 8.9 16.6
Due in more than two years but not more than five years 16.1 11.9
Due in more than five years 12.5 0.5
55.5 38.3
Less future financing charges (5.6) (2.8)
49.9 35.5
Comprising:
Asset backed financial liabilities - Road 49.9 35.5
Asset backed financial liabilities - Rail - -
16 Financial instruments
Non-derivative financial instruments
24 September 2022 26 March 2022 £m
£m
Total non-derivatives
Total non-current assets 117.0 117.0
Total assets 117.0 117.0
Certain pension partnership structures were implemented during the previous
financial year. These structures involved the creation of special purpose
vehicles (SPVs) to hold cash to fund the Bus and Group pension schemes if
required based on a designated funding mechanism. The amounts paid into the
Bus and Group SPVs during the previous financial year were £95m and £22m
respectively. Management have concluded that these amounts represent financial
assets under IAS 32.
Derivative financial instruments
24 September 2022 26 March 2022 £m
£m
Derivatives designated and effective as hedging instruments carried at fair value
Non-current assets
Fuel derivatives (cash flow hedge) 2.2 4.0
Currency forwards (cash flow hedge) 3.0 0.2
5.2 4.2
Current assets
Fuel derivatives (cash flow hedge) 14.5 25.6
Cross currency swaps (net investment hedge) 6.9 -
Currency forwards (cash flow hedge) - 0.6
21.4 26.2
Current liabilities
Fuel derivatives (cash flow hedge) 0.4 -
Currency forwards (net investment hedge) 20.8 -
21.2 -
Non-current liabilities
Fuel derivatives (cash flow hedge) 0.4 -
0.4 -
Fair value of the Group's financial assets and financial liabilities
(including trade and other receivables and trade and other payables) on a
continuing basis:
24 September 2022
Fair value Carrying value
Total
£m
Level 1 Level 2 Level 3 Total
£m £m £m £m
Financial assets and derivatives
Trade and other receivables - 540.7 - 540.7 540.7
Contingent consideration receivable - 78.2 - 78.2 78.2
Derivative financial instruments - 26.6 - 26.6 26.6
Financial liabilities and derivatives
Borrowings (1) 0.6 2,050.1 - 2,050.7 2,111.8
Trade and other payables - 1,070.3 - 1,070.3 1,070.3
Derivative financial instruments - 21.6 - 21.6 21.6
26 March 2022
Fair value Carrying value Total £m
Level 1 £m Level 2 £m Level 3 £m Total £m
Financial assets and derivatives
Trade and other receivables - 443.1 - 443.1 443.1
Contingent consideration receivable - - 106.1 106.1 106.1
Derivative financial instruments - 30.4 - 30.4 30.4
Financial liabilities and derivatives
Borrowings (1) 10.6 1,345.4 - 1,356.0 1,326.3
Trade and other payables - 1,144.1 - 1,144.1 1,144.1
Derivative financial instruments - - - - -
(1) Includes lease liabilities as set out in note 14.
16 Financial instruments (continued)
The estimated fair value of cash and cash equivalents, short term trade and
other receivables and short term trade and other payables is a reasonable
approximation to the carrying value of these items.
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 year. The announcement of EQT Infrastructure’s agreement to sell First
Transit to Transdev North America, Inc, means that the Group’s valuation of
the earnout now reflects an observable market value, and the contingent
consideration receivable has therefore been reclassified from Level 3 to Level
2 at 24 September 2022.
17 Provisions
Insurance claims £m Legal and other £m Pensions £m Total £m
At 27 March 2022 148.0 86.0 1.3 235.3
Charged to the income statement 7.6 17.2 (1.3) 23.5
Utilised in the period (16.0) (17.7) - (33.7)
Notional interest 0.6 - - 0.6
Foreign exchange movements 18.9 3.0 - 21.9
At 24 September 2022 159.1 88.5 - 247.6
Current liabilities 55.7 52.2 - 107.9
Non-current liabilities 103.4 36.3 - 139.7
At 24 September 2022 159.1 88.5 - 247.6
Current liabilities 51.8 62.7 0.1 114.6
Non-current liabilities 96.2 23.3 1.2 120.7
At 26 March 2022 148.0 86.0 1.3 235.3
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 five years although certain
liabilities in respect of lifetime obligations of £9.5m in H1 2023 (full year
2022: £8.9m) can extend for up to 30 years. The utilisation of £16.0m in H1
2023 (full year 2022: £43.0m) represents payments made largely against the
current liability of the preceding year.
The insurance claims provisions contain £94.8m in H1 2023 (full year 2022:
£88.5m) which is recoverable from insurance companies and is included within
other receivables in note 11.
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 ten years. Also included are provisions in respect of costs anticipated
on the exit of surplus properties which are expected to be settled over the
remaining terms of the respective leases and dilapidation and other provisions
in respect of contractual obligations under rail franchises and restructuring
costs. The dilapidation provisions are expected to be settled at the end of
the respective franchise.
18 Called up share capital
24 September 2022 26 March 2022 £m
£m
Allotted, called up and fully paid
750.4m ordinary shares of 5p each (26 March 2022: 750.2m) 37.5 37.5
The Company has one class of ordinary shares which carries no right to fixed
income.
The directors have declared an interim dividend of 0.9p per ordinary share in
respect of the period ended 24 September 2022, totalling approximately £6.7m.
19 Net cash from operating activities
26 weeks to 24 September 2022 26 weeks to 25 September 2021 £m
£m
Operating profit/(loss) from:
Continuing Operations 62.1 52.2
Discontinued Operations (including gain on sale of First Student and First Transit) (28.6) 592.3
Total Operations 33.5 644.5
Adjustments for:
Depreciation charges 344.6 344.9
Capital grant amortisation (67.1) (41.7)
Software amortisation charges 4.3 2.3
Other intangible asset amortisation charges - 0.5
Loss/(gain) on disposal of subsidiaries 3.7 (479.4)
Reversal of impairment charges - (55.4)
Share-based payments 1.6 2.3
Profit on disposal of property, plant and equipment (8.0) (0.9)
Operating cash flows before working capital and pensions 312.6 417.1
Increase in inventories (2.6) (5.1)
Increase in receivables (95.8) (112.0)
Increase in payables due within one year 6.5 150.1
Decrease in contingent consideration receivable 27.9 -
(Decrease)/increase in provisions due within one year (14.2) 1.5
Increase in provisions due over one year 6.0 0.5
Settlement of foreign exchange hedge (1.8) -
Aberdeen Local Government Pension Scheme refund 11.8 -
Defined benefit pension payments in excess of income statement charge (0.7) (338.6)
Cash generated by operations 249.7 113.5
Tax paid (0.4) (12.2)
Interest paid (1) (35.0) (156.0)
Net cash from/(used in) operating activities 214.3 (54.7)
1 Interest paid includes £20.0m relating to lease liabilities (H1
2022: £22.9m).
20 Analysis of changes in net debt – adjusted cash flow
At 27 March 2022 £m Cash flow £m Foreign Exchange £m Other £m At 24
September
2022
£m
Components of financing activities:
Bonds (199.9) - - - (199.9)
Lease liabilities (1) (1,083.2) 271.6 - (1,009.7) (1,821.3)
Asset backed financial liabilities (2) (35.5) 4.9 - (19.3) (49.9)
Other debt (0.6) - - - (0.6)
Total components of financing activities (1,319.2) 276.5 - (1,029.0) (2,071.7)
Cash 319.6 (30.6) 8.6 - 297.6
Bank overdrafts (87.5) 47.6 - - (39.9)
Ring-fenced cash 468.1 (129.1) - - 339.0
Cash and cash equivalents 700.2 (112.1) 8.6 - 596.7
Net debt (619.0) 164.4 8.6 (1,029.0) (1,475.0)
1. Lease liabilities ‘Other’ includes £1,009.7m net inception of new
leases. This comprises £1,025.4m inception of new leases, being £1,011.8m of
rolling stock leases, £13.4m of property leases and £0.2m of PCV leases,
offset by £15.7m lease disposals. Lease disposals consists of £12.7m of
rolling stock leases and £3.0m of property and other leases.
2. Asset backed financial liabilities ‘Other’ includes £19.3m of
inception of leases in First Bus.
21 Retirement benefit schemes
The Group supports defined contribution and defined benefit schemes for the
benefit of employees across the following business areas:
* UK Bus and Group - including The First UK Bus Pension Scheme, The FirstGroup
Pension Scheme and two Local Government Pension Schemes
* North America - legacy schemes from operations which have now been sold (see
note 13)
* Rail - sponsoring six sections of the Railways Pension Scheme (RPS) relating
to the Group's obligations for its TOCs, with an additional section for its
Open Access Hull Trains business. Since the obligations to the TOC
arrangements are considered to be limited to contributions during the period
of the contract, these are fundamentally different to the obligations to the
other pension arrangements.
Each of these groups of arrangements have therefore been shown separately. The
scheme details are described on pages 220 to 229 of the Annual Report and
Accounts for the 52 weeks ended 26 March 2022.
(a) UK Bus and Group (including Hull Trains)
The table below is set out to show amounts charged/(credited) to the condensed
consolidated income statement along with the amounts included in the condensed
consolidated balance sheet arising from the fair value of schemes' assets
(Assets) and the present value of defined benefit obligations (DBO)
(Liabilities) for the UK Bus, Group and Hull Trains defined benefit schemes:
Income statement 26 weeks to 24 September 2022 26 weeks to 25 September 2021
£m £m
Operating
– Current service and administration cost 4.1 5.1
– Past service gain including curtailments and settlements - -
Total operating 4.1 5.1
Interest (income)/cost (3.0) 0.7
Total income statement 1.1 5.8
21 Retirement benefit schemes (continued)
Balance sheet 24 September 2022 26 March 2022
£m £m
Fair value of scheme assets 2,068.3 2,930.1
Present value of defined benefit obligations (1,930.7) (2,571.7)
Surplus before adjustment 137.6 358.4
Impact of shared cost (0.3) 1.4
Adjustment for irrecoverable surplus (1) (73.2) (162.3)
Surplus in schemes 64.1 197.5
The amount is presented in the condensed consolidated balance sheet as follows:
Non-current assets 67.6 203.0
Non-current liabilities (3.5) (5.5)
64.1 197.5
1. The irrecoverable surplus represents the amount of the surplus that the
Group could not recover through reducing future Company contributions to LGPS,
see below.
(b) North America
Greyhound pension arrangements
The Group has retained certain responsibilities for the provision of
retirement benefits for a number of legacy schemes.
The Group operates a single legacy defined benefit arrangement in the US,
while in Canada, there are three funded legacy plans and a small unfunded
supplementary executive retirement plan. The assets for the funded plans in
Canada have been co-mingled in a master trust for a number of years and are
being merged into a single plan (subject to regulatory approval) in order to
further improve oversight and streamline investment strategy, which is
expected to result in efficiency savings when winding up the plans.
The table below is set out to show amounts charged/(credited) to the condensed
consolidated income statement along with the amounts included in the condensed
consolidated balance sheet arising from the fair value of schemes' assets
(Assets) and the present value of defined benefit obligations (DBO)
(Liabilities) for the North American defined benefit schemes:
Income statement 26 weeks to 24 September 2022 26 weeks to 25 September 2021
£m £m
Operating
– Current service and administration cost 0.9 2.4
– Past service gain including curtailments and settlements - (27.7)
Total operating 0.9 (25.3)
Interest cost 0.2 1.1
Total income statement 1.1 (24.2)
Balance sheet 24 September 2022 26 March 2022
£m £m
Fair value of schemes' assets 429.9 412.4
Present value of defined benefit obligations (424.8) (408.7)
Surplus before adjustment 5.1 3.7
Change in irrecoverable surplus (9.0) (13.7)
Currency loss on irrecoverable surplus - (0.8)
Deficit in schemes (3.9) (10.8)
The amount is presented in the condensed consolidated balance sheet as follows:
Non-current assets - -
Non-current liabilities (3.9) (10.8)
(3.9) (10.8)
During FY22, the Group transferred responsibility for the FirstGroup America
(US) and Supplementary Executive (Canada) schemes. As such, these schemes have
been removed from the balance sheet position and the tables above.
21 Retirement benefit schemes (continued)
First Transit management contracts
The Group retained ten First Transit Management Contracts following the sale
of First Transit in 2021. As at the balance sheet date, the Group’s First
Transit subsidiary companies sponsored a total of five single-employer pension
arrangements. The Group is indemnified against any pension liabilities by the
relevant transit authorities, and pension costs are reimbursed as they fall
due. The Group will not retain any pension liability upon expiry of the
contract or if the contracts are reassigned.
Details of the assets and liabilities of these schemes are as follows:
24 September 2022 £m 26 March 2022 £m
Assets 317.1 281.6
Liabilities (336.6) (322.1)
Deficits in schemes (19.5) (40.5)
Amounts recoverable from contracting authorities 19.5 40.5
Net deficits in schemes - -
(c) Rail contracts
The Railways Pension Scheme (RPS)
The Group is responsible for collecting and paying contributions for a number
of sections of the Railways Pension Scheme (RPS) as part of its obligations
under the contracts which it holds for its TOCs. These responsibilities
continue for the periods of the TOCs and are passed to future contract holders
when those TOCs terminate. Management of the RPS is not the responsibility of
the Group, nor is it liable to benefit from any future surplus or fund any
deficit of those funds.
The Group currently sponsors six sections of the RPS, relating to its
contracting obligations for its TOCs. The RPS is managed 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 contractual
arrangements with the DfT, the employer’s responsibility is to pay the
contributions following triennial funding valuations while it operates the
contracted services. These contributions are subject to change on
consideration of future statutory valuations. At the end of the franchise, any
deficit or surplus in the scheme section passes to the subsequent train
operating company with no compensating payments from or to the outgoing TOC.
The statutory funding valuations of the various Rail Pension Scheme sections
in which the Group is involved (last finalised with an effective date of 31
December 2013) and the IAS 19 actuarial valuations are carried out for
different purposes and may result in materially different results. The IAS 19
valuation is set out in the disclosures below. The accounting treatment for
the time-based risk-sharing feature of the Group’s participation in the RPS
is not explicitly considered by IAS 19 Employee Benefits (Revised). The
contributions currently committed to being paid to each TOC section are lower
than the share of the service cost (for current and future service) that would
normally be calculated under IAS 19 (Revised) and the Group does not account
for uncommitted contributions towards the sections’ current or expected
future deficits. Therefore, the Group does not need to reflect any deficit on
its balance sheet. A TOC adjustment (asset) exists that exactly offsets any
section deficit that would otherwise remain after reflecting the cost sharing
with the members. This reflects the legal position that some of the existing
deficit and some of the service costs in the current year will be funded in
future years beyond the term of the current franchise and committed
contributions. The TOC adjustment on the balance sheet date reflects the
extent to which the Group is not currently committed to fund the deficit.
The table below is set out to show amounts charged/(credited) to the condensed
consolidated income statement along with the amounts included in the condensed
consolidated balance sheet arising from the fair value of schemes' assets
(Assets) and the present value of defined benefit obligations (DBO)
(Liabilities) for the TOC defined benefit schemes:
Income statement 26 weeks to 24 September 2022 26 weeks to 25 September 2021
£m £m
Operating
– Current service cost 69.6 69.2
– Administrative cost 0.7 -
– Impact of franchise adjustment on operating cost (43.7) (42.2)
Total operating 26.6 27.0
Interest cost 9.0 8.4
Impact of franchise adjustment on net interest income (9.0) (8.4)
Total income statement 26.6 27.0
21 Retirement benefit schemes (continued)
Balance sheet 24 September 2022 26 March 2022
£m £m
Fair value of schemes' assets 3,769.5 3,790.6
Present value of defined benefit obligations (3,770.8) (5,066.1)
Deficit before adjustment (1.3) (1,275.5)
Franchise adjustment (60%) 0.8 765.3
Adjustment for employee share of RPS deficits (40%) 0.5 510.2
Surplus/(deficit) in schemes - -
(d) Valuation assumptions
The valuation assumption used for accounting purposes have been made uniform
to Group standards, as appropriate, when each scheme is actuarially valued.
The key assumptions were as follows:
24 September 2022 26 March 2022
First Bus First Rail North America First Bus % First Rail % North America %
% % %
Key assumptions used:
Discount rate 5.17 4.65 4.77 - 5.17 2.91 - 2.97 2.83 3.72 - 4.19
Expected rate of salary increases 3.84 3.25 n/a 4.01 3.43 n/a
Inflation – CPI 2.75 - 2.84 2.75 2.00 2.89 - 3.01 2.93 2.00
Future pension increases 2.74 - 2.84 2.75 n/a 2.681 2.93 n/a
22 Contingent liabilities
To support subsidiary undertakings in their normal course of business,
FirstGroup plc and certain subsidiaries have indemnified certain banks and
insurance companies who have issued performance bonds for £71.3m (26 March
2022: £69.4m) and letters of credit for £224.0m (26 March 2022: £219.7m).
The performance bonds primarily relate to residual North American obligations
of £3.6m and the First Rail franchise operations of £67.7m. The letters of
credit relate substantially to insurance arrangements in the UK and North
America. The parent company has committed further support facilities of up to
£98.5m to First Rail Train Operating Companies of which £60.6m remains
undrawn. Following the sale of Greyhound, the majority of the surety bonds
were cancelled, with a residual amount of £3.6m remaining as noted above.
Letters of credit remain in place to provide collateral for legacy Greyhound
insurance and pension obligations.
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 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. Two of the Company’s North American subsidiaries participate
in 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 the Group has ongoing contractual
negotiations with national, regional and local 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.
The inquest relating to the death of seven passengers in the Croydon tram
incident in November 2016 concluded in July 2021. The tram was operated by
Tram Operations Limited (‘TOL’), a subsidiary of the Group, under a
contract with a Transport for London (‘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. The
Office of Rail & Road (‘ORR’) announced on 24 March 2022 that it had taken
the decision to prosecute TfL, the driver of the tram and TOL for breaches of
Health and Safety law. While TOL has indicated a guilty plea to the charge
laid against it, the Company cannot yet accurately determine the quantum or
timing of any financial penalties or related costs which may arise from these
proceedings.
22 Contingent liabilities (continued)
First MTR South Western Trains Limited (‘FSWT’), a subsidiary of the
Company and the operator of the South Western railway contract, is a defendant
to collective proceedings before the UK Competition Appeal Tribunal (the
‘CAT’) in respect of alleged breaches of UK competition law. Stagecoach
South Western Trains Limited (‘SSWT’) (the former operator of the South
Western network) is also a defendant to these proceedings. A separate set of
proceedings has been issued against London & South Eastern Railway Limited
(‘LSER’) in respect of the operation of other rail services. The two sets
of proceedings are being heard together. The class representative (‘CR’)
alleges that FSWT, SSWT and LSER breached their obligations under UK
competition law by not making boundary fares sufficiently available for sale,
and/or by failing to ensure that customers were aware of the existence of
boundary fares and/or bought an appropriate fare in order to avoid being
charged twice for part of a journey.
A collective proceedings order (‘CPO’) was made by the CAT in January 2022
and following an unsuccessful appeal by FSWT, SSWT and LSER, the proceedings
will now proceed with the next key step for FSWT, SSWT and LSER being to file
their substantive defences. A trial date has not yet been set. In March 2022,
FSWT, the Company and the CR executed an undertaking under which the Company
has agreed to pay to the CR any sum of damages and/or costs which FSWT fails
to pay, and which FSWT is legally liable to pay to the CR in respect of the
claims (pursuant to any judgment, order or award of a court or tribunal),
including any sum in relation to any settlement of the claims. At present the
Company cannot accurately determine the likelihood, quantum or timing of any
damages and costs which may arise from these proceedings.
23 Related party transactions
There are no related party transactions or changes since the Group’s 2022
Annual Report which could have a material effect on the Group’s financial
position or performance of the Group in the 26 weeks to 24 September 2022.
24 Post balance sheet events
On 26 October 2022, EQT Infrastructure announced its agreement to sell First
Transit to Transdev North America, Inc. As part of the First Transit disposal
to EQT Infrastructure, FirstGroup is entitled to an earnout consideration. The
Group currently estimates the earnout consideration to be around $85m
(£78.2m). The Group considered this to be an adjusting event and therefore it
was reflected in the fair value of the contingent consideration receivable for
the earnout at 24 September 2022. In the first half of the year this gives
rise to a non-cash, adjusting charge of £27.9m relative to the carrying value
of the earnout of £106.1m at 26 March 2022.
In light of the liquidity problems encountered by several UK defined benefit
pension schemes which have resulted from recent rapid and significant
movements in government bond yields, FirstGroup provided a short-term loan of
£95m to the Bus Pension Scheme so that it could continue to maintain its
current level of risk management during the uncertain times as the Bank of
England support in the market is withdrawn, and to allow its asset portfolio
to be rebalanced in an orderly manner. The Company utilised the Limited
Partnership that was created following the sale of the North American business
to support the Scheme funding strategy as the source of funds for the loan.
In October we agreed with DfT an extension of the current contractual
arrangements for the West Coast Partnership to March 2023. Discussions are
ongoing with DfT regarding the longer-term National Rail Contract for the West
Coast Partnership.
On 28 October 2022, the Group announced that its Aircoach business had agreed
a deal to purchase the Northern Ireland-based transport firm Airporter.
Responsibility statement
The directors confirm that these condensed consolidated interim financial
statements have been prepared in accordance with UK adopted International
Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom’s Financial
Conduct Authority and that the interim management report includes a fair
review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:
* an indication of important events that have occurred during the first 26
weeks and their impact on the half yearly results, and a description of the
principal risks and uncertainties for the remaining 26 weeks of the financial
year; and
* material related-party transactions in the first 26 weeks and any material
changes in the related-party transactions described in the last annual report.
The Directors of FirstGroup plc are listed on the Group's website at
www.firstgroupplc.com.
Graham
Sutherland
Ryan Mangold
Chief Executive
Officer
Chief Financial Officer
9 November
2022
9 November 2022
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 Report
of FirstGroup plc for the 26 week period ended 24 September 2022 (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 UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom’s Financial Conduct
Authority.
The interim financial statements comprise:
* the Condensed Consolidated Balance Sheet as at 24 September 2022;
* 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 Report of
FirstGroup plc have been prepared in accordance with UK adopted International
Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom’s Financial
Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, ‘Review of Interim Financial Information Performed by
the Independent Auditor of the Entity’ issued by the Financial Reporting
Council for use in the United Kingdom. A review of interim financial
information consists of making 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 Report and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on the review
procedures performed in accordance with this ISRE. However, future events or
conditions may cause the group to cease to continue as a going concern.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The Half-Yearly Report, 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 Report in accordance with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom’s Financial Conduct Authority. In preparing the Half-Yearly Report,
including the interim financial statements, the directors are responsible for
assessing the group’s ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the group or to
cease operations, or have no realistic alternative but to do so.
Our responsibility is to express a conclusion on the interim financial
statements in the Half-Yearly Report based on our review. Our conclusion,
including our Conclusions relating to going concern, is based on procedures
that are less extensive than audit procedures, as described in the Basis for
conclusion paragraph of this report. 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.
PricewaterhouseCoopers LLP
Chartered Accountants
Watford
9 November 2022
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