REG-FirstGroup PLC: Statement re South Western rail franchise award <Origin Href="QuoteRef">FGP.L</Origin>

FirstgroupAnnouncement

27/03/2017 07:05

FirstGroup and MTR welcome South Western rail franchise award

FirstGroup plc and MTR Corporation Limited welcome today’s announcement by
the Department for Transport (‘DfT’) of its intention to award the new
South Western rail franchise to our 70:30 joint venture First MTR South
Western Trains Limited (the ‘Franchise Operator’). The new franchise will
operate from 20 August 2017 until at least August 2024.

Over the course of the franchise, £1.2bn will be invested to raise the
quality of every aspect of train journeys on the South Western network. We are
giving customers and community groups a say in setting priorities for that
investment by focusing on the following areas, based on their feedback:

State of the art trains: We will introduce 750 new, spacious train carriages
for the Windsor, Reading and London Suburban routes by December 2020, as well
as 18 additional, fully refurbished trains (90 carriages) on the
London-Portsmouth route from December 2018. We shall deliver 52,000 more peak
seats per day at London Waterloo compared to today’s services by December
2020. The rest of our mainland fleet will be refreshed and will have free,
more reliable Wi-Fi, at-seat charging points and free infotainment as well as
real time travel and connection information screens.

Additional and faster services: From December 2018 our plans will deliver
faster journey times to stations including Hounslow, Reading, Southampton,
Bournemouth, Weymouth, Portsmouth and Salisbury; double the service to both
Reading and Windsor throughout the day; double the off-peak service between
Southampton and Portsmouth and re-introduce through services between
Portsmouth, Southampton, Bournemouth and Weymouth to aid regional
connectivity. We will also significantly improve weekend services with more
than 400 extra Sunday trains across the network.

Easier tickets and fares: We will introduce simpler fares with mobile and
smart ticketing. These will include flexible season tickets and new lower
fares for 16-18 year olds, recognising the importance of accessible rail
travel. Claiming compensation will also be made simpler with the introduction
of an easy-to-use ‘delay repay’ scheme for the first time on the network.
Our new passenger app will be a key gateway to all travel options throughout
the region.

Station improvement: £90m will be invested in our stations, including a major
refurbishment at Southampton Central station. Car parks will be extended at
key locations with at least 1,500 extra spaces and new electric vehicle
charging points. We will use station buildings to host community projects and
independent retailers. Passengers will also benefit from this summer’s
London Waterloo platform extension project that is scheduled for completion
within days of the start of the new franchise. Further capacity at Waterloo
will be introduced at the end of 2018 when the former Waterloo International
platforms are fully redeveloped and brought back into use.

People and communities: An important objective is to increase engagement with
customers, employees, local authorities and community groups to give them a
real stake in the future of rail travel in their area. We will launch a £2.6m
annual fund to support community projects across the franchise from April
2020. Connections between other local rail and bus services will deliver
genuine joined up journeys, and we plan to introduce the biggest rail operator
apprenticeship scheme in Britain.

Commenting on today's announcement, Secretary of State for Transport Chris
Grayling said:

“This is great news for rail passengers. FirstGroup and MTR will deliver the
improvements that people tell us they want right across the South Western
franchise area, from Southampton and Portsmouth, to Bristol and Exeter, to
Reading, Windsor and London.

“We are delivering the biggest rail modernisation programme for over a
century and this franchise will deliver real changes for passengers, who can
look forward to modern trains, faster journeys and a more reliable service.”

FirstGroup Chief Executive Tim O'Toole said:

“We are delighted that our partnership with MTR has been selected by the DfT
to run the South Western rail franchise, a key part of the country’s railway
network which millions of people rely on every day. Our successful bid will
deliver the tangible improvements that customers and stakeholders have told us
they want from this franchise. Passengers can look forward to new and better
trains, more seats and services, quicker journey times, improved stations and
more flexible fare options.”

Jeremy Long, CEO – European Business, MTR Corporation said:

“MTR is known across the world for the excellent quality of its rail
services, and we look forward to working with FirstGroup to provide a
best-in-class travel experience for passengers in London and the South West.
Together we will deliver a major programme of upgrades, including improvements
to both rail services and customer experience, for passengers travelling
across the South Western network.”

Key franchise terms

The new franchise will start on 20 August 2017 and is planned to run for a
core period of seven years, with an extension option of up to eleven months at
the DfT's discretion. Under the contract, the Franchise Operator will deliver
£2.6bn real NPV* in premium payments to the Government over the core period.
The JV shareholders will provide a loan of up to £30m, and £88m (of which
50% is bonded) in subordinated contingent loan facilities to the Franchise
Operator, as well as a £15m performance bond and a season ticket bond of up
to £80m. The franchise terms include GDP and Central London Employment
revenue protection mechanisms to mitigate the financial impact of exogenous
economic factors outside the control of the Franchise Operator, and a profit
sharing arrangement whereby a proportion of profit in excess of pre-specified
thresholds will be payable to the DfT.

The franchise will benefit from investment of £1.2bn, primarily during the
first four years of the franchise, leading to enhanced customer experience and
passenger capacity. Approximately £80m of investment will be directly funded
by the Franchise Operator. Franchise passenger revenues, which were £991m in
2015/16, are expected to increase from the additional capacity created.
FirstGroup expects to achieve margins comparable with the recent overall
industry average and to earn an appropriate return over the life of the
contract, reflecting the franchise risk profile. FirstGroup expects a working
capital inflow of approximately £100m principally relating to season ticket
monies, to be treated as restricted cash.

The franchise award is subject to the customary ‘standstill period’ of ten
days, after which formal contracts will be signed by the DfT. As with other UK
rail franchise awards, the Competition and Markets Authority is also required
by law to carry out a ‘phase one review’.

* Net present value of forecast premium payments over the seven year core
franchise period, expressed in 2017/18 prices and discounted using the DfT's
'real' discount rate of 3.5%.

Key benefits of the new South Western franchise:

        New trains – 750 new carriages for suburban services
*
Introduce 750 carriages by December 2020, forming 90 brand new trains
primarily for London Suburban routes and Windsor/Reading lines
*
Average age of the entire fleet coming down by almost half by December 2020
*
New fleet will provide over 46% more peak capacity for our customers than
today’s trains on the Windsor, Reading and London Suburban routes
*
Enhanced travelling experience for customers – free reliable Wi-Fi, at-seat
charging points, air conditioning, toilets, wide gangways and wide doors to
improve ease of boarding and alighting

Improved carriages – 90 for Portsmouth fast services / comfortable seating
on all fast services
*
18 trains / 90 carriages refurbished to ‘as new’ for Portsmouth to London
services by December 2018
*
Comfortable ‘two plus two’ seating on all Portsmouth fast trains to London
by December 2018

More seats – 22,000 extra morning peak seats into Waterloo and 30,000 in
evening peak from Waterloo
*
Boosting peak seats each weekday by around 30% by December 2020

Increased frequency, better weekend services and quicker journeys from
December 2018
*
Mainline journey times reduced, including Weymouth-London and Poole-London
journey times reduced by up to 14 minutes; Bournemouth-London reduced by up to
nine minutes and Southampton Central-London reduced by up to eight minutes.
Trips from Portsmouth will be quicker with an average five minutes cut from
fast journeys and up to seven minutes from slower trips
*
Better connectivity on the South Coast, with four trains an hour between
London and Portsmouth, direct service along the South Coast connecting
communities from Portsmouth to Weymouth, and a second hourly semi-fast service
between Portsmouth and Southampton
*
Sunday afternoon services will match weekdays on most routes for the first
time from 2018 with almost 400 more services; number of fast trains to
Portsmouth will double on Sunday afternoons. West of England will see two
trains per hour earlier on a Sunday than currently and we will speed up
Weymouth services by deploying a standard weekday stopping pattern
*
Double the number of trains each hour to Reading and Windsor from two to four
– Reading will see two semi-fast and two stopping services every hour and
Windsor will receive two extra semi-fast services via Hounslow
*
We will improve late evening frequencies and later last trains across the
network

Free and fast Wi-Fi on trains and stations
*
Free Wi-Fi both on-board mainland trains and at stations, with up to five
times greater bandwidth than today
*
Introduce free infotainment to many of our mainland trains by December 2018,
making films, catch-up TV, newspapers and magazines available – and full
coverage of our mainland fleet by December 2020

Real-time information on all trains ensuring customers have a smooth and
rapid, door-to-door journey
*
Live updates to passenger information screens on all our mainland trains

Charging points accessible from every seat for all our mainland trains
*
Our new suburban trains, introduced by December 2020, will all have charging
points
*
We will introduce charging points on all other mainland trains – Class 442s,
Class 444s and 450s by December 2018, Class 158s and 159s by December 2020

New innovative customer app
*
New customer app will make it the primary source of travel advice for our
customers making it easier to use our trains, pointing customers towards less
busy trains or less busy coaches within trains

Mobile ticketing and new smartcards
*
Mobile phone barcode tickets will be available on the network for the first
time, covering a wide range of journeys
*
We will implement our smartcard scheme across the franchise including
pay-as-you-go functionality
*
We will offer flexible season products

Automatic Delay Repay
*
We will bring in Delay Repay for the first time, making it simple and easy for
our customers to claim for late trains with a fully automated process offered
to those buying season and advance tickets direct on smartcards

£90m station investment
*
£90m station investment programme, including the refurbishment of Southampton
Central
*
At least 1,500 new car parking spaces across the network and 60 electric
vehicle charging points at stations
*
New stations: we will work with stakeholders to progress plans for new
stations such as Park Barn, Merrow and Wilton Parkway and others during the
franchise

Working with the Isle of Wight community to develop proposals for Island
Line’s future
*
We will engage with the Isle of Wight community to develop plans to secure a
more sustainable Island Line
*
Proposal to be submitted to Government with Island support
*
Annual £50,000 Customer and Communities Improvement Fund for Island Line

More than 100 apprenticeships each year
*
We plan to introduce the biggest rail operator apprenticeship scheme in
Britain – we will launch our apprenticeship programme from franchise start
on a wide range of courses

Customer and Communities Improvement Fund
*
£2.6m annual fund for community projects across the franchise to be launched
from April 2020

Investor information

A conference call for investors and analysts will be held at 8:30am today.
Please call +44 (0) 20 7725 3354 in advance of the call to register and
receive joining details. A presentation pack together with a pdf copy of this
announcement and a playback facility will be available at
www.firstgroupplc.com/investors.

Contacts at FirstGroup:
Faisal Tabbah, Head of Investor Relations
Stuart Butchers, Group Head of Media
Tel: +44 (0) 20 7725 3354

Michael Harrison / Andrew Porter, Brunswick PR
Tel: +44 (0) 20 7404 5959

Contacts at MTR:
Nick Collins, MHP Communications
nick.collins@mhpc.com
+44 (0) 7824 462 091

Notes
Figures presented in this announcement are not audited. Certain statements
included or incorporated by reference within this announcement may constitute
‘forward-looking statements’ with respect to the business, strategy and
plans of FirstGroup 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 which may cause actual results,
performance or achievements of FirstGroup to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Shareholders are cautioned not to place undue
reliance on the forward-looking statements. Except as required by the UK
Listing Rules and applicable law, FirstGroup does not undertake any obligation
to update or change any forward-looking statements to reflect events occurring
after the date of this announcement.

About FirstGroup
FirstGroup plc (LSE: FGP.L) is a leading transport operator in the UK and
North America. With £5.2 billion in revenues and 110,000 employees, we
transported around 2.2 billion passengers last year. Each of our five
divisions is a leader in its field: In North America, First Student is the
largest provider of student transportation with a fleet of around 47,000
yellow school buses, First Transit is one of the largest providers of
outsourced transit management and contracting services, while Greyhound is the
only nationwide operator of scheduled intercity coach services. In the UK,
FirstGroup is one of Britain's largest bus operators running a fleet of some
6,200 buses, and we are one of the country's most experienced passenger rail
operators, carrying around 140 million passengers last year. Our vision is to
provide solutions for an increasingly congested world... keeping people moving
and communities prospering. Visit our website at www.firstgroupplc.com and
follow us @firstgroupplc on Twitter.

About MTR Corporation
MTR Corporation is headquartered in Hong Kong and is acknowledged as one of
the world’s leading operators of metro, commuter, inter-city and airport
rail systems with rail operations in Hong Kong, China, Australia, Sweden and
the UK. It is also a property developer, and manages shopping malls, retail
units, apartments and other major buildings along some of its lines.

In the UK, MTR is the operator of the Elizabeth Line concession (the name for
the Crossrail route), and currently runs TfL Rail services between Liverpool
Street and Shenfield. MTR was a joint venture partner in London Overground
Rail Operations Ltd (LOROL) between November 2007 and November 2016.

Listed on the Hong Kong stock exchange, MTR has a market capitalisation of
approximately £22.3 billion, and is included on the FTSE4Good and Dow Jones
Sustainability Indexes. It won over 50 awards in 2016 for quality, customer
service and sustainability.



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