REG-FirstGroup Plc: National Rail Contract for West Coast Partnership

FirstgroupAnnouncement

19/09/2023 07:15

FIRSTGROUP PLC

NATIONAL RAIL CONTRACT FOR WEST COAST PARTNERSHIP

FirstGroup plc (‘FirstGroup’ or ‘the Group’) is pleased to announce
that a new National Rail Contract (‘NRC’) has been agreed with the
Department for Transport (‘DfT’) for the West Coast Partnership
(‘WCP’), which is a partnership between FirstGroup (70%) and Trenitalia UK
Ltd (30%).

 

The WCP NRC comprises Avanti West Coast (‘Avanti’) and the West Coast
Partnership Development (‘WCPD’), the shadow operator for the HS2
programme. Key terms of the new contract are as follows:

 
* The new NRC will commence on 15 October 2023, when WCP’s current
contractual agreement ends.
* The contract is for nine years and has a minimum core three-year term to 18
October 2026, following which a further six years until 17 October 2032,
subject to ongoing DfT approval. 
* The NRC is a management contract under which the DfT retains all revenue
risk and substantially all cost risk. 
* WCP will earn a fixed management fee of £5.1m per annum to deliver the
contract with the opportunity to earn a variable fee of up to £15.8m per
annum based on a number of criteria. Punctuality and other targets required to
achieve the maximum variable fee are designed to incentivise the highest level
of performance. Fees are also linked to milestones in WCPD’s programme.
 

Since the introduction of Avanti’s new timetable in mid-December 2022, the
operator has delivered a significant recovery in operational performance, and
customer satisfaction. Over the last six months, cancellations that Avanti is
responsible for stabilised at below 2% of scheduled services.

 

Avanti is working through a £117m refurbishment programme for its 56-strong
electric Pendolino fleet which is delivering a step change in onboard customer
experience. Further improvements for customers have included the introduction
of a new Standard Premium travel class, a new low-cost flexible ticket and
initiatives to support customers who require additional assistance.

 

FirstGroup’s ambition is to be the partner of choice for low- and
zero-emission transport. As part of the new contract, WCP will continue to
develop and implement initiatives to reduce its impact on the environment and,
as such, Avanti has placed a £350m order for 23 brand new electric or bi-mode
Hitachi trains. These trains will reduce our carbon footprint, and the
operator will continue its work to improve air quality and increase waste
recycling.
 Commenting, Graham Sutherland, FirstGroup Chief Executive Officer, said:
“Our West Coast Partnership team has worked hard over recent months to
deliver improvements for Avanti passengers, including an increase in the
number of services in the timetable and high levels of reliability for
customers. The new National Rail Contract agreed today will allow our team to
use its expertise on further improvements. These include programmes to
refurbish the existing fleet and to introduce new, more environmentally
friendly trains, which will encourage more passengers to return to the network
and help deliver the UK’s decarbonisation agenda.”

 

 

Notes

 

Additional background on financial terms of the WCP National Rail Contract

 
* The DfT retains all revenue risk, and substantially all cost risk up to the
agreed annual business plan budgetary levels, with contractual change
mechanisms that allow the annual budget to be increased for items outside of
the operating company’s control, like inflation, or changes requested by the
DfT.
* The Variable Fee is scored against five performance categories (Operational
Performance, Customer Satisfaction, Financial Performance, HS2 Shadow Operator
Delivery and HS2 Shadow Operator Financial Management). There is a mix of
quantitative metrics and qualitative assessments with three levels (‘below
acceptable’, ‘acceptable’, ‘good’) – an ‘acceptable’ rating
results in approximately 65% of the Variable Fee element being payable.
* The fixed fee and variable fee potential remains flat for the contractual
term and is only subject to escalation only after the core term and only if
CPI inflation is outside agreed bands.  
* The NRC makes provision for additional incentive fees to be earned for
participation in significant industry change projects outside normal operation
to be agreed between WCP and the DfT.
* Combined with operating Avanti West Coast, WCP also acts as the shadow
operator for the HS2 programme. The shadow operator role involves the
development, mobilisation and the eventual operation of high-speed services.
* The Group is obliged to retain its share of the £45m parent company support
and £10m Performance Bond for the previous WCP agreement until final
settlement of any net assets or liabilities between WCP and the DfT relating
to it. Thereafter, the Group’s contingent capital reduces to its share of
the £14m in total, half of which is bonded.
* WCP will continue to be fully consolidated in the Group financial
statements, with the net cost of operations and capex to be funded in advance
by the DfT.
* The Group financial statements for FY 2024 will include Right of Use assets
of c.£0.3bn recognised under IFRS 16 rules. Other impacts under IFRS 16
compared to an IAS 17 basis include EBITDA +c.£160m, EBIT +c.£10m and
interest cost +c.£10m.
 

 

Legal Entity Identifier (LEI): 549300DEJZCPWA4HKM93. Classification as per DTR
6 Annex 1R: 3.1.  
 

 

 Contacts at FirstGroup:                                                              Contacts at Brunswick Group:                             
 Marianna Bowes, Head of Investor Relations                                           Andrew Porter / Simone Selzer                            
 Stuart Butchers, Head of Corporate Communications corporate.comms@firstgroup.co.uk   Tel: +44 (0) 20 7404 5959                                
 Tel: +44 (0) 20 7725 3354                                                                                                                     
 Contacts at Liberum Capital Limited:                                                 Contacts at RBC Europe Limited: James Agnew / Jack Wood  
 Nicholas How / John Fishley                                                          Tel: +44 (0) 20 7653 4000                                
 Tel: +44 (0) 20 3100 2000                                                                                                                     

 
 About FirstGroup
FirstGroup plc (LSE: FGP.L) is a leading private sector provider of public
transport services. With £4.8 billion in revenue and around 30,000 employees,
we transported more than 1.8m passengers a day in 2022/23. 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. Each of
our divisions is a leader in its field: First Bus is the second largest
regional bus operator in the UK, serving two-thirds of the country’s 15
largest conurbations with a fleet of more than 4,500 buses, and carrying more
than a million passengers a day. 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 more than 3,500
locomotives and rail carriages through three management fee-based train
operating companies (Avanti West Coast, GWR, SWR) and two open access routes
(Hull Trains and Lumo). We are formally committed to operating a zero-emission
First Bus fleet by 2035, and First Rail will help support the UK
Government’s goal to remove all diesel-only trains from service by 2040. In
February 2023 FirstGroup was named as one of the world’s cleanest 200 public
companies for the fourth consecutive year by sustainable business media group
Corporate Knights in partnership with US not-for-profit organisation, As You
Sow. We provide easy and convenient mobility, improving quality of life by
connecting people and communities. Visit our website at www.firstgroupplc.com
and follow us @firstgroupplc on X.
 
About Avanti West Coast

Avanti West Coast, the operator of intercity rail services on the West Coast
Main Line, is a joint venture between FirstGroup and Trenitalia, delivering a
cleaner, greener railway that drives the West Coast forward. We’re on a
mission to revolutionise train travel. Our refurbed Pendolinos are returning
to the rails, with a £117m investment delivering best in class comfort.
Rebuilt using sustainable materials wherever possible, including tables made
from recycled plastic bottles, our upgraded fleet offers 25,000 brand new
seats, free Wi-Fi, onboard recycling and much more. New Hitachi trains are set
to replace our Voyager trains, leading to a 61% cut in carbon emissions.
Quieter and roomier, with more reliable Wi-Fi, wireless charging for
electrical devices and a real-time customer information system, the new
23-strong fleet is the result of a £350m investment in sustainable travel.
We’re tackling climate change wherever we can, from reducing energy and
water use to training drivers in eco-driving techniques and sourcing food and
drink from local suppliers. Our goal is to be net zero carbon by 2031. We’re
on track.

 

About West Coast Partnership Development

West Coast Partnership Development is the Shadow Operator for services on the
West Coast route corridor following the opening of HS2. Over the life of the
contract WCPD will design, deliver and then operate an integrated high-speed
and intercity train service that meets the needs and expectations of
passengers and maximises the benefits of significant public investment. Our
team of experts are working closely with HS2 and DfT to ensure the
infrastructure, stations, train and timetable are fit for purpose, ready for
launch and customer focused.

 

Forward-looking statements

Figures presented in this announcement are not audited. Certain statements
included or incorporated by reference within this announcement are, or may be
deemed to be, forward-looking statements. These forward-looking statements
include, without limitation, all matters that are not historical facts. They
appear in a number of places throughout this announcement and include, but are
not limited to, statements regarding FirstGroup and its intentions, beliefs or
current expectations concerning, among other things, the business, results of
operations, prospects, growth and strategies of the Group, or parts thereof.
By their nature, forward-looking statements involve risk and uncertainty
because they relate to future events and circumstances. Forward-looking
statements are not guarantees of future performance and the actual results of
operations of the Group, or parts thereof, and the developments in the
industries in which they operate, may differ materially from those described
in, or suggested by, the forward-looking statements contained in this
announcement. A number of factors could cause results and developments to
differ materially from those expressed or implied by the forward-looking
statements including, without limitation, general economic and business
conditions, industry trends, competition, changes in law and regulation,
currency fluctuations, changes in business strategy and political and economic
uncertainty. Forward-looking statements may, and often do, differ materially
from actual results. Any forward-looking statements in this announcement
reflect FirstGroup’s current view with respect to future events and are
subject to risks relating to future events and other risks, uncertainties and
assumptions relating to FirstGroup and its operations, results of operations
and growth strategy. Other than in accordance with its legal or regulatory
obligations (including under the Listing Rules, the Disclosure Guidance and
Transparency Rules and the Prospectus Rules), the Group is not under any
obligation and the Group expressly disclaims any intention or obligation (to
the maximum extent permitted by law) to update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise.



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