REG-FirstGroup PLC: Update on TPE contract

FirstgroupAnnouncement

11/05/2021 07:05

FirstGroup plc
Update on TPE contract

FirstGroup plc (‘FirstGroup’ or the ‘Group’) has reached agreement
with the Department for Transport (‘DfT’) on the termination fee payable
for the TransPennine Express (‘TPE’) train operating company.

As previously indicated, a condition of the Emergency Recovery Measures
Agreements (‘ERMA’) put in place by the DfT to provide continuity for rail
passengers and the industry during the coronavirus pandemic was that train
operators and the DfT would work to agree whether any payment is required to
terminate the pre-existing franchise agreements, and if so how much, based on
a pre-coronavirus trajectory financial model. The DfT and FirstGroup have now
agreed the financial impact of the termination for TPE which requires a
further FirstGroup contribution of c.£6m, over and above the £42.5m already
paid into the operating company. The DfT has extended the TPE ERMA term until
19 September 2021, following their conclusion that no event of default would
have taken place had the pandemic not occurred, although DfT and the Group are
working collaboratively with a view to entering into a National Rail Contract
in advance of that date.

As at 31 March 2020, £80m remained of the Group’s contingent capital
exposure to the TPE contract that had been provided for in the accounts as an
impairment of Right of Use Assets under IFRS 16. Following today’s
agreement, this impairment provision will be released and will be credited to
the income statement as an adjusting item in the Group’s accounts for the
year to 31 March 2021.

The TPE agreement is the final termination agreement for the Group’s train
operating companies and follows the agreements reached for a FirstGroup
contribution on South Western Railway (‘SWR’) of £33.2m and of nil on the
West Coast Partnership (comprising Avanti West Coast and the HS2 shadow
operator role), announced on 10 December 2020. Following this agreement, the
Group is working towards agreeing directly awarded National Rail Contracts for
each of the West Coast Partnership, TPE and SWR with the DfT. These will come
into effect by the end of their respective ERMAs, when the pre-existing
franchise agreements will terminate. This settlement reduces the overall
financial risk within the First Rail portfolio.

The ERMA for SWR is in place to the end of May 2021 and the West Coast
Partnership ERMA is in place until the end of March 2022 (both can be extended
by a further half year at the discretion of the DfT). Latest indications from
the DfT are that the new National Rail Contracts would have a core period to
the end of May 2023 for TPE and SWR, (each with extension periods of up to two
further years at the DfT’s discretion), and up to 31 March 2032 for the West
Coast Partnership (with the core and extension periods to be determined). As
previously announced, the existing Emergency Measures Agreement for Great
Western Railway (‘GWR’) has already been extended to June 2021, and the
underlying GWR direct award runs to 1 April 2023 with an extension option of
up to one year. There is no termination sum on GWR given that this contract
was entered into after the transition to the Emergency Measures Agreements.

On 23 April 2021, the Group announced the proposed sale of First Student and
First Transit. In that announcement, the Group stated that £345m in cash
would be retained for the discharge of certain liabilities, including for the
rail termination sums in respect of SWR and TPE. At the time of the
announcement the Group made an assumption as to the TPE termination fee based
on the best knowledge then available and the status of discussions with the
DfT. The final agreement now reached with the DfT is c.£50m better than that
assumption. The Board has committed to keep the balance sheet position of the
Group under review, and in addition to the proposed return of value to
shareholders described in the sale announcement and the shareholder circular
published yesterday, the Board will consider the potential for making further
additional distributions to shareholders in due course.

Commenting, Chief Executive Matthew Gregory said:

“We welcome this agreement with the DfT, and are continuing to discuss a
long-term National Rail Contract for TPE which will focus on passengers and
operational performance, with a more appropriate balance of risk and reward.
We are working closely with the Government and our other partners to ensure
that TPE continues to provide the safe and vital services that are essential
to communities across the North of England and Scotland.”

Contacts at FirstGroup:
Faisal Tabbah, Head of Investor Relations
Stuart Butchers, Group Head of Communications
corporate.comms@firstgroup.com
+44 (0) 20 7725 3354

Contacts at Brunswick PR:
Andrew Porter / Simone Selzer, Tel: +44 (0) 20 7404 5959

Notes
Legal Entity Identifier (LEI): 549300DEJZCPWA4HKM93. Classification as per DTR
6 Annex 1R: 2.2. This announcement contains inside information. The person
responsible for arranging the release of this announcement on behalf of
FirstGroup is David Isenegger, Group General Counsel and Company Secretary.

FirstGroup plc (LSE: FGP.L) is a leading provider of transport services in the
UK and North America. With £7.8bn in revenue in the year to 31 March 2020 and
around 100,000 employees, we transported 2.1bn passengers. Whether for
business, education, health, social or recreation – we get our customers
where they want to be, when they want to be there. We create solutions that
reduce complexity, making travel smoother and life easier. We provide easy and
convenient mobility, improving quality of life by connecting people and
communities. Visit our website at www.firstgroupplc.com and follow us
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