Announcement re: Rights Issue

NOT FOR PUBLICATION, DISTRIBUTION OR RELEASE, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, CANADA, JAPAN OR ANY OTHER JURISDICTION IN WHICH THE PUBLICATION, DISTRIBUTION OR RELEASE WOULD BE UNLAWFUL. OTHER RESTRICTIONS ARE APPLICABLE. PLEASE SEE THE IMPORTANT NOTICE AT THE END OF THE PRESS RELEASE. FirstGroup plc 3 for 2 Rights Issue to raise approximately Â£615 million The Board of FirstGroup plc ("FirstGroup" or "the Group") today announces a fully underwritten Rights Issue to raise gross proceeds of approximately Â£615m. FirstGroup's full year results for the financial year ended 31 March 2013 have also been released today in an accompanying announcement. Summary * 3 for 2 fully underwritten Rights Issue of 722,859,586 New Ordinary Shares to raise gross proceeds of approximately Â£615 million * The issue price of 85p per New Ordinary Share represents a discount of 62.0 per cent. to the closing price on 17 May 2013, and a 39.5 per cent. discount to the theoretical ex-rights price * The proceeds of the Rights Issue will be used for continued investment in the business and to reduce the Group's net indebtedness by paying down borrowings under the Group's bank facilities * The Board believes this will: * + remove the constraints of the Group's current balance sheet and provide a sustainable capital structure going forward; + support the Group's objective to remain investment grade, and, as the business performance improves, enable the Group to re-establish a progressive dividend policy; and + increase flexibility to continue the business transformation plans already underway in the Group's divisions, underpinning the Group's investment plans to create long term, sustainable value. * Following the Rights Issue, the Board believes its investment plans will allow the Group to target the following objectives over the next four years: * + increase Group revenue (excluding UK Rail) at a faster rate than the economies the Group serves, improve margins in First Student and UK Bus to double digits, and achieve a post-tax ROCE in the range of 10-12 per cent.; + maintain its investment grade rating, appropriate liquidity and covenant headroom; and + as the business performance improves, to re-establish a progressive dividend policy to target 2.0-2.5x cover. * The Rights Issue, which is subject to Shareholder approval, is fully underwritten by Goldman Sachs International and J.P. Morgan Cazenove acting as Joint Sponsor, Joint Global Coordinator, Joint Bookrunner and Joint Corporate Broker; BofA Merrill Lynch acting as Joint Bookrunner and HSBC acting as Joint Lead Manager Martin Gilbert, Chairman of FirstGroup, said: "I am pleased to announce the fund-raising today, which will not only strengthen the Group and support its continued growth but also underpin the ability to remain a dividend paying stock as well as supporting our investment grade rating. When this project is complete, I intend to step down as Chairman once a successor has been identified. I have led the business for 27 years, from start-up to its current position as one of the world's great transport groups, and I am extremely proud of what we have achieved at FirstGroup in that time. I shall be sorry to leave, but I'm pleased that this fund-raising will open the way to the next stage of FirstGroup's development." Tim O'Toole, Chief Executive Officer of FirstGroup, said: "FirstGroup is already a market leader in a sector that is critical to economic growth, with unrivalled scale and breadth across a diverse portfolio of transport businesses, principally in the UK and North America. Our investment plans are beginning to strengthen these businesses and enhance our ability to capture the sustainable returns that our platform of assets is capable of achieving. The proceeds of the equity raising will give us the flexibility and capital confidence to focus on the work that needs to be done to create long-term value for our shareholders and our other stakeholders. "Martin Gilbert has today announced his intention to stand down as Chairman, once a successor has been appointed. On behalf of the Board and our 120,000 employees, I would like to pay tribute to Martin and thank him for his outstanding contribution to the company. As Chairman and founder his vision and drive have led the transformation of the Group and under his stewardship the business has grown to become one of the world's leading transport operators." It is expected that a prospectus will be published on 22 May 2013 containing full details of the Rights Issue (the "Prospectus"). Once published, the Prospectus will be made available on the Company's website (www.FirstGroup.com), and will be made available for inspection at its registered office: 395 King Street, Aberdeen, AB24 5RP, and will be submitted to the National Storage Mechanism and be available for inspection at www.morningstar.co.uk/uk/nsm. A PRESENTATION TO INVESTORS AND ANALYSTS WILL TAKE PLACE AT 9:00AM TODAY ATTENDANCE IS BY INVITATION ONLY A LIVE TELEPHONE `LISTEN IN' FACILITY IS AVAILABLE, FOR DETAILS PLEASE CONTACT +44 (0) 20 7725 3354 A PLAY BACK FACILITY WILL BE MADE AVAILABLE AT www.firstgroup.com/corporate/ investors/presentations.php PHOTOS FOR THE MEDIA CAN BE OBTAINED BY CALLING +44 (0) 20 7725 3354 CONTACTS FirstGroup plc Tim O'Toole, Chief Executive +44 (0) 20 7725 3354 Chris Surch, Group Finance Director Rachael Borthwick, Group Corporate Communications Director Goldman Sachs International Joint Sponsor, Joint Global Coordinator, Joint Bookrunner, Joint Corporate Broker Anthony Gutman +44 (0) 20 7774 1000 Phil Raper Eduard van Wyk J.P. Morgan Cazenove Joint Sponsor, Joint Global Coordinator, Joint Bookrunner, Joint Corporate Broker Malcolm Moir +44 (0) 20 7742 4000 Jonathan Wilcox Guy Marks BofA Merrill Lynch Joint Bookrunner Rupert Hume-Kendall +44 (0) 20 7628 1000 Oliver Holbourn Daniel Burton-Morgan IMPORTANT NOTICE The defined terms set out in the Appendix apply in this announcement. This announcement has been issued by and is the sole responsibility of FirstGroup plc (the "Company"). A copy of the Prospectus when published will be available from the registered office of the Company and on the Company's website at www.FirstGroup.com provided that the Prospectus will not, subject to certain exceptions, be available (whether through the website or otherwise) to Shareholders in the Excluded Territories. Neither the content of the Company's website nor any website accessible by hyperlinks on the Company's website is incorporated in, or forms part of, this announcement. The Prospectus will give further details of the New Ordinary Shares, the Nil Paid Rights and the Fully Paid Rights being offered pursuant to the Rights Issue. This announcement is not a Prospectus but an advertisement and investors should not acquire any Nil Paid Rights, Fully Paid Rights or New Ordinary Shares referred to in this announcement except on the basis of the information contained in the Prospectus. The information contained in this announcement is for background purposes only and does not purport to be full or complete. No reliance may be placed for any purpose on the information contained in this announcement or its accuracy or completeness. The information in this announcement is subject to change. Goldman Sachs International, HSBC Bank plc, J.P. Morgan Securities plc and Merrill Lynch International (the "Managers" are acting for the Company and for no-one else in connection with the Rights Issue and will not be responsible to anyone (whether or not a recipient of this announcement) other than the Company for providing the protections afforded to their respective clients nor for providing advice in connection with the Rights Issue or any other matter referred to herein. Apart from the responsibilities and liabilities, if any, which may be imposed on Goldman Sachs International and J.P. Morgan Securities plc by FSMA or the regulatory regime established thereunder, none of the Managers accepts any responsibility or liability whatsoever or makes any representation or warranty, express or implied, for or in respect of the contents of this announcement, including its accuracy, completeness or verification (or whether any information has been omitted from the announcement) or for any other information or statement made or given or purported to be made by any of them, or on behalf of them, in connection with the Company, the Nil Paid Rights, the Fully Paid Rights, the New Ordinary Shares or the Rights Issue, whether written, oral or in a visual or electronic form, and howsoever transmitted or made available or for any loss howsoever arising from any use of this announcement or its contents or otherwise arising in connection therewith, and nothing in this announcement is, or shall be relied upon as, a promise or representation in this respect, whether as to the past or future. Each of the Managers accordingly disclaims all and any liability whatsoever, whether arising in tort, contract or otherwise (save as referred to above), which any of them might otherwise have in respect of this announcement. This announcement is for information purposes only and is not intended to and does not constitute or form part of any offer or invitation to purchase or subscribe for, or any solicitation to purchase or subscribe for, Nil Paid Rights, Fully Paid Rights or New Ordinary Shares or to take up any entitlements to Nil Paid Rights in any jurisdiction in which such an offer or solicitation is unlawful. This announcement cannot be relied upon for any investment contract or decision. The information contained in this announcement is not for release, publication or distribution to persons in the United States, Australia, Canada or Japan and should not be distributed, forwarded to or transmitted in or into any jurisdiction where to do so might constitute a violation of local securities laws or regulations. This announcement does not constitute or form part of an offer or solicitation to purchase or subscribe for securities of the Company in the United States, Australia, Canada or Japan. None of the Nil Paid Rights, the Fully Paid Rights or the New Ordinary Shares have been or will be registered under the US Securities Act of 1933 (the "Securities Act") or under the applicable securities laws of any state or other jurisdiction of the United States or the securities legislation of any province or territory of Australia, Canada or Japan. Accordingly, the Nil Paid Rights, the Fully Paid Rights or the New Ordinary Shares may not be offered, sold, resold, delivered or distributed, directly or indirectly, in or into the United States absent registration, or an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with state securities laws, or in or into Australia, Canada or Japan except in accordance with applicable law. There will be no public offer of Nil Paid Rights, Fully Paid Rights or New Ordinary Shares in the United States, Canada or Japan. The New Ordinary Shares will be issued without disclosure in Australia under Chapter 6D of the Corporations Act 2001 (Cth) (Corporations Act). The offer of these New Ordinary Shares for resale in Australia within 12 months of their acquisition may, under section 707 of the Corporations Act, require disclosure to investors. Accordingly the New Ordinary Shares should not, within 12 months of their acquisition, be offered, transferred, assigned or otherwise alienated to investors in Australia except in circumstances where disclosure to investors is not required. New Ordinary Shares transferred on-market on the London Stock Exchange are not subject to the Australian disclosure regime. The distribution of this announcement and/or the Prospectus and/or the Provisional Allotment Letter and/or the transfer of Nil Paid Rights, Fully Paid Rights and/or New Ordinary Shares into jurisdictions other than the United Kingdom may be restricted by law, and, therefore, persons into whose possession this announcement and/or the Prospectus and/or the Provisional Allotment Letter comes should inform themselves about and observe any such restrictions. Any failure to comply with any such restrictions may constitute a violation of the securities laws of such jurisdiction. In particular, subject to certain exceptions, the Prospectus and the Provisional Allotment Letter should not be distributed, forwarded to or transmitted in or into the United States, Canada or Japan. This announcement does not constitute a recommendation concerning the Rights Issue. The price and value of securities can go down as well as up. Past performance is not a guide to future performance. The contents of this announcement are not to be construed as legal, business, financial or tax advice. Each Shareholder or prospective investor should consult his, her or its own legal adviser, business adviser, financial adviser or tax adviser for legal, financial, business or tax advice. This announcement contains or incorporates by reference "forward-looking statements". These forward-looking statements may be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "anticipates", "projects", "expects", "intends", "aims", "plans", "predicts", "may", "will", "seeks", "could", "would", "shall" or "should" or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts and include statements regarding the intentions, beliefs or current expectations of the Board concerning, among other things, the Company's results of operations, financial condition, prospects, growth, strategies and the industries in which the Group operates. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future or are beyond the Group's control. Forward-looking statements are not guarantees of future performance and are based on one or more assumptions. The Group's actual results of operations and financial condition and the development of the industries in which the Group operates may differ materially from those suggested by the forward-looking statements contained in this announcement. In addition, even if the Company's actual results of operations, financial condition and the development of the industries in which the Group operates are consistent with the forward-looking statements contained in this announcement, those results or developments may not be indicative of results or developments in subsequent periods. The following are important factors that could cause the Group's actual results to differ materially from those projected in the forward-looking statements made in this announcement: * continued underperformance of the UK and the US economies, including prolonged recession or multiple recessions or weak recoveries, poor general business conditions, falling gross domestic product, low consumer confidence and increased unemployment; * changes in government policy in relation to any of the Group's businesses including further reductions in public spending on subsidies for passenger transport or reimbursement of concessions in the UK and continued constraints on transportation spending of school boards in the United States; * the loss of, or adverse change in, any of UK Rail's franchises and inability to win new rail franchises in the UK; * difficulties implementing the Group's transformation initiatives, including the Group's inability to sustain the improvements in operating efficiency through cost savings and business optimisation efforts realised during recent years; * adverse developments in the Group's employment and staff costs, including pensions-related costs; * adverse developments in the Group's fuel costs and risks associated with the Group not being fully hedged against such costs; * operational incidents, such as bus or rail accidents; * competition in the Group's existing and future lines of business; * strikes or work stoppages and interruptions by the Group's employees; * the cumulative effect of adverse litigation, governmental proceedings or arbitration awards against the Group and the adverse effect of new regulatory interpretations, rules and laws; * the Group's failure to comply with laws and regulations and any changes in laws and regulations; * changes in interest rates or monetary policies or exchange rates or new types of taxes or increases in taxes in the UK, the United States or Canada; * interruption or failure of systems upon which the Group's operations are reliant, including interruption or failure resulting from security breaches, terrorist action, human error, natural disasters or extreme weather events, failure by third parties to perform their responsibilities adequately and other factors beyond the Group's direct control; and * the loss of any of the Group's key managers or employees. The list above is not exhaustive and there are other factors that may cause the Group's actual results to differ materially from the forward-looking statements contained in this announcement. The forward-looking statements contained in this announcement speak only as of the date of this announcement. The Company and the Directors expressly disclaim any obligations or undertaking to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, unless required to do so by applicable law, the Prospectus Rules, the Listing Rules, the London Stock Exchange Rules or the Disclosure and Transparency Rules. In connection with the Rights Issue, the Managers and any of their respective affiliates, acting as investors for their own accounts, may subscribe for or purchase Nil Paid Rights, Fully Paid Rights or New Ordinary Shares and in that capacity may retain, purchase, sell, offer to sell or otherwise deal for their own accounts in such Nil Paid Rights, Fully Paid Rights or New Ordinary Shares and other securities of the Company or related investments in connection with the Rights Issue or otherwise. Accordingly, references in the Prospectus, once published, to the Nil Paid Rights, Fully Paid Rights or New Ordinary Shares being issued, offered, subscribed, acquired, placed or otherwise dealt in should be read as including any issue or offer to, or subscription, acquisition, placing or dealing by, the Managers and any of their respective affiliates acting as investors for their own accounts. The Managers do not intend to disclose the extent of any such investment or transactions otherwise than in accordance with any legal or regulatory obligations to do so. Each of the Company and the Managers and their respective affiliates expressly disclaims any obligation or undertaking to update, review or revise any forward looking statement contained in this announcement whether as a result of new information, future developments or otherwise. 20 May 2013 FirstGroup plc 3 FOR 2 RIGHTS ISSUE OF UP TO 722,859,586 NEW SHARES AT 85 PENCE Introduction The Company is proposing to raise gross proceeds of approximately Â£615 million (approximately Â£585 million net of expenses) by way of a 3 for 2 Rights Issue of New Ordinary Shares at a price of 85 pence per New Ordinary Share. The Rights Issue Price of 85 pence per New Ordinary Share represents a discount of approximately 62.0 per cent. to the Closing Price for an Existing Ordinary Share of 223.8 pence on 17 May 2013 (being the latest practicable date prior to the publication of this announcement) and a 39.5 per cent. discount to the theoretical ex-rights price based on that Closing Price. Following a comprehensive review of the options available to the Company, the Board believes that raising Â£615 million (gross) through the Rights Issue will enable the Group to continue investing at the appropriate level to deliver future returns from the Group's strategy, while reducing leverage to more sustainable levels. The proceeds of the Rights Issue will be used to remove the constraints of the Group's current balance sheet and provide a sustainable capital structure going forward, reinforce the Group's objective to remain investment grade, increase flexibility to continue the business transformation plans already underway in the Group's divisions, and underpin the Group's investment plans to create long term value for its Shareholders and other stakeholders. Background to and reasons for the Rights Issue Background on FirstGroup FirstGroup is the parent company of an international surface-based passenger transport group. The Group operates principally in the UK and North America, together with some minor activities in other European countries, including Denmark. The Group has grown significantly over the past two decades, from a local bus service provider in Aberdeen, to become the largest surface-based passenger transport group in the UK and North America (based on revenue), with Â£6,900.9 million in gross revenue in the year to 31 March 2013. The Group currently operates through the following five divisions, which are diversified by geography, customer base and mix of contract-backed and passenger revenue: * First Student, which is the largest provider of student transportation in North America (based on size of bus fleet), with approximately 30 per cent. of the outsourced student transportation market, an average fleet size during FY 2013 of approximately 50,000 yellow school buses, carrying approximately six million students per school day across 38 States in the US and eight provinces and territories in Canada during FY 2013; * First Transit, which is one of the largest private sector providers of public transit management and contracting in North America (based on revenue), managing fixed route services on behalf of its customers and providing shuttle bus services, paratransit operations and other light transit activities, with a fleet of approximately 11,000 vehicles (owned and managed) in FY 2013. First Transit is also one of the largest private sector providers of municipal vehicle fleet maintenance in the US (based on revenue); * Greyhound, which is the only national provider of scheduled intercity passenger coach transportation services in the US and Canada, with an average fleet size during FY 2013 of approximately 1,700 vehicles, providing passenger services to approximately 3,800 destinations. During FY 2013, approximately 18 million passengers travelled 5.6 billion miles with Greyhound; * UK Bus, which is one of the largest bus operators in the UK (based on size of bus fleet), with an average fleet size during FY 2013 of approximately 7,400 buses (approximately 900 of which the Group has agreed to sell as part of its disposal of substantially all of its London business), operating approximately a fifth of local bus services, serving a large number of communities (including 40 of the UK's largest towns and cities) and carrying approximately 2.5 million passengers per day during FY 2013; and * UK Rail, which is the largest rail operator in the UK (based on revenue), with approximately one quarter of the UK's passenger rail network, a portfolio of intercity, commuter and regional franchises and one open access operator and carrying over 310 million passengers during FY 2013. Across its business, on average during FY 2013, the Group employed approximately 120,000 employees and managed a fleet of approximately 60,000 vehicles. During FY 2013, the Group transported more than 2.5 billion passengers. The Board believes that FirstGroup is well positioned in a sector that is a key enabler of economic growth, and essential to strong, vibrant and sustainable local economies. The Board believes that the Group is increasingly well positioned to respond to two important developments that continue to drive transport provision in its markets: growing urbanisation leading to increased congestion with more complex transport demands, and the growing demand for private sector operators with global expertise to deliver more efficient and innovative passenger transport solutions. The Board believes that the services and solutions offered by the Group can form an integral part of the response of local communities to these developments. By harnessing knowledge, experience and expertise from across the full breadth of the Group to deliver services managed at a local level in partnership with its customers and stakeholders, the Board believes that it can deliver sustainable competitive advantage in its markets. Key strengths The Board believes that FirstGroup's business has a number of key strengths which will assist FirstGroup in its objective to create long term value for Shareholders and other stakeholders. These include: * diversity of portfolio - which helps to ensure the Group is not dependent on any one geographic or customer market; * scale and breadth of operations - which has allowed the Group to develop expertise in different markets and regulatory regimes, and facilitates its ability to deliver transport solutions to meet local needs; * market leading positions in the UK bus and rail markets and in the student transportation, transit and intercity coach markets in the US and Canada - which offer platforms to identify and develop other opportunities for future growth; * a clear focus on operational excellence - to improve the Group's flexibility and financial performance while continuing to provide high quality, attractive services that are safe, reliable and meet the needs of customers and the communities the Group serves; * a strong management team - that harnesses the in-depth knowledge and experience across the whole Group to address the specific objectives of the Group's local markets; and * expertise in effective deployment of assets and people - because of the scale of FirstGroup's activities, employing and training professional, dedicated employees who are committed to the Group's customers and their safety, and procuring, deploying and maintaining a wide variety of vehicle fleets and other physical assets, are both core skills of the Group. FirstGroup's capital structure FirstGroup entered the global economic downturn following a period of expansion through a number of key acquisitions and significant capital expenditures in its markets. In particular, the Group was less than a year into the integration of the Laidlaw acquisition, FirstGroup's largest-ever acquisition (total consideration of approximately US$3.5 billion), when the global credit crisis began in earnest in September 2008 after investment bank Lehman Brothers Holdings filed for bankruptcy protection. Laidlaw was the largest provider of student transportation in the US, the only national provider of scheduled inter-city bus services in North America (through the Greyhound brand) and a major supplier of public transit contracting services in North America at the time. A substantial proportion of the Laidlaw acquisition was debt-financed (resulting in an increase in the Group's level of net debt from approximately Â£ 650 million in September 2007 to approximately Â£2,161 million at 31 March 2008), which the Board considered appropriate given its expectation that following the transaction the strong cash flow from the Group's operations would enable FirstGroup to reduce its level of indebtedness over time. However, the subsequent and sustained deterioration of global economic conditions and government spending cuts, coupled with the more recent uncertainty around UK rail franchising, has put pressure on the Group's earnings (particularly in First Student and UK Bus, the Group's two core cash-generating businesses) and consequently negatively impacted its ability to reduce its level of indebtedness to the extent and within the timeframe expected at the time of the Laidlaw acquisition. The Group's level of net debt has been reduced from approximately Â£2,161 million at 31 March 2008 to Â£1,979 million at 31 March 2013, but it remains above a level which the Board considers to be appropriate in light of its strategy going forward. Trading environment and impact of adverse economic conditions The passenger transportation industry has been impacted by the global economic downturn and the Group has had to operate against a backdrop of continued economic uncertainty and weaker economic conditions in its markets, particularly the US and UK. The conditions have led to higher unemployment levels, increased business operating costs, reduced consumer confidence and decreases in disposable incomes in the countries and markets in which FirstGroup operates, all of which have generally led to a reduction in travel by both leisure and business travellers which has had an impact across the Group. In the US, the effects of this reduction in travel in the early stages of the downturn can be seen in Greyhound's results, where revenue fell by 22 per cent. from the first half of the financial year ending 31 March 2008 to the first half of the financial year ending 31 March 2009. In the UK, the impact of the recession has been felt particularly severely in the large urban conurbations of the North (where a large number of UK Bus' operations are based), negatively affecting the profits generated by that division. Economic conditions have also led national and local governments to adopt cost cutting measures, including reduced spending on public passenger transit. In particular, UK Bus has been affected by a reduction in grants to local authorities from the UK government which has impacted public transport spend (including for concessionary fares), as well as by reforms to the Bus Service Operators Grant system (which have lowered the grants made directly to bus operators, to defray some of their fuel costs, by 20 per cent. per annum since April 2012). In the US, the economic downturn has heavily affected the financial position of school boards, which are principally funded through local and state taxes. In consequence, school boards have been under pressure to reduce their budgets, including by reducing their spending on bus services and routes, which has affected First Student's performance. The continued economic uncertainty that has persisted since 2008 has also made it more difficult to offset increases in operating costs through changes in fares or other charges. Interest rates have also been kept at lower levels for a longer period than expected in the UK, adversely affecting pension deficit calculations. In summary, these conditions have resulted in reduced earnings (with the Group's underlying EBITDA decreasing from Â£762 million in the financial year ending 31 March 2009 to Â£667 million in FY 2013) and reduced cash generation by the Group. As mentioned above, First Student and UK Bus were most affected by adverse economic conditions (with underlying EBITDA in these divisions decreasing by 21 per cent. and 22 per cent. respectively from the financial year ended 31 March 2009 to FY 2013). The Board expected that rail franchise wins would provide the time for First Student and UK Bus to recover and deliver improved returns. However, as described below, these did not materialise due to disruptions and delays in the Government's rail franchising programme, which has put further pressure on the Group's profits. Disruption to UK rail franchising programme The Group's UK Rail business has also been affected by the decision in October 2012 by the DfT to cancel the competition for the InterCity West Coast franchise, which FirstGroup had been awarded only two months earlier, and suspension of the other three franchise competitions (Great Western, TSGN and Essex Thameside) for which FirstGroup was shortlisted, due to the discovery of flaws in the way the DfT conducted the bidding process for InterCity West Coast. While the DfT publicly emphasised that FirstGroup was in no way at fault, the decision to cancel the InterCity West Coast contract award has led to lower anticipated revenue in UK Rail in the short term and a period of considerable uncertainty around future rail franchising more generally. On 26 March 2013, following an independent review of the rail franchising programme, the DfT announced a new timetable for all rail franchise awards for which the DfT is the responsible franchising authority over the next eight years, exercised its option to extend the Group's First Capital Connect franchise for a further six months to March 2014 and noted that negotiations were underway with FirstGroup to extend the First Capital Connect franchise to September 2014, the TransPennine franchise to February 2016 and the First Great Western franchise to July 2016. Although the timetable for future rail franchise awards is now clearer, there remains considerable uncertainty as to the tender processes for future rail franchises and the detailed commercial terms of both future franchises and the proposed extensions to existing franchises. Management actions undertaken Against this challenging backdrop, FirstGroup's management has taken and continues to take decisive action, leveraging its international expertise to seek to create a stronger business and continuing to invest to drive growth at a local level, while seeking to tightly manage the level of working capital (including through extended payment terms in UK Bus and First Student) and control capital expenditure in the financial years ending 31 March 2010 and 31 March 2011, and focusing on improving operating performance in all the Group's businesses. The Group has also carried out selected business and asset disposals to reduce indebtedness, raising proceeds of approximately Â£269 million since 2009 from the disposals of GB Railfreight, First Support Services, Inc., German bus operations and selected UK regional bus operations and, more recently, has agreed, subject to regulatory approvals, to dispose of substantially all of UK Bus' regulated London bus businesses. The Group has also completed certain cost-reduction programmes. For example, it has achieved approximately US$150 million per annum of cost synergies following its acquisition of Laidlaw (completed in 2008) and Â£220 million per annum in cost savings from a Group-wide cost reduction programme (completed in 2010), and it is currently on track to deliver US$100 million per annum in savings from the First Student recovery programme (in each case excluding the one-off costs required to achieve them). While the Group has plans to enhance value creation across the Group, the specific actions underway or to be implemented within each of the five divisions are at different stages of progression, with First Transit and UK Rail well advanced, followed by Greyhound, then by First Student, and UK Bus. These actions have included: * reforming the operating model and enhancing the customer proposition of First Student through a more efficient cost structure, improving labour productivity, right-sizing the vehicle fleet, streamlining systems to reduce bureaucracy, standardising operating procedures and applying best practice, extending payment terms, expanding the use of the Group's GPS systems and FOCUS software (which links on-board data to back-office systems), reducing fuel costs through enhanced driver training and reducing bus maintenance costs through regional workshops and improved procurement; * strengthening the core services of First Transit, with new contract wins (including additional paratransit services), increased technological innovation and focus on higher-growth operations (such as its shuttle business) and the disposal of First Support Services, Inc. in March 2013; * significantly transforming Greyhound's operating model to become a more flexible and agile business, including through improvements in technology (including online sales), right-sizing and relocating terminals, reviewing refurbish/buy decision-making and expansion of the Group's Greyhound Express services, leading to a marked improvement in profitability; * rebalancing the Group's UK Bus portfolio in part through selected business disposals, improving efficiency by standardising the Group's maintenance and operating models, improving the bus fleet profile and changing the commercial model to be more responsive locally and enhance patronage growth, through customer-focused service planning, network redesign, partnerships with local authorities and locally customised fare structures; and * maintaining a market leading presence and improving operating performance across all of the Group's franchises in UK Rail, with the Group being awarded contract extensions for ScotRail in 2008 and again in 2012, and for First TransPennine Express in 2011. UK Rail was also successfully short-listed for all four franchises (InterCity West Coast, Great Western, TSGN and Essex Thameside) which had been tendered by the DfT, and had been awarded the InterCity West Coast franchise prior to the discovery of flaws in the way the DfT conducted the bidding process for InterCity West Coast in 2012. Although the operating environment has been challenging, the management actions outlined above have assisted the Group in reducing its net debt to underlying EBITDA ratio from 3.3 times at 31 March 2009 to 3.0 times at 31 March 2013. Credit rating The Board maintains a close review of FirstGroup's rating position and a regular dialogue with the credit rating agencies. The Group's senior bonds currently continue to be considered "investment grade" by credit rating agencies Standard & Poor's (BBB-/A-3) and Fitch (BBB-/F-3), although in August 2012, Standard & Poor's changed its outlook from "stable" to "negative". The rating agencies' views include an assessment of the Group's cash and earnings trajectory. One of Standard & Poor's key credit metrics when evaluating transport groups such as FirstGroup is the ratio of adjusted funds from operations to adjusted net debt ("FFO-to-Debt"), for which it sets a target of, or a trajectory toward, 25 per cent. or above for investment grade status. Since the last formal reviews by the credit rating agencies in 2012, a number of factors have changed, including a more pessimistic view now taken by Standard & Poor's in respect of the pace of economic recovery compared with last year, and the delay to the Government's rail franchising programme, which has pushed back FirstGroup's expected earnings and cash flow, and changed the forecast trajectory of the Group's performance on key credit metrics, including FFO-to-Debt. Based on the methodology for treating UK rail businesses as amended in October 2012, the Group's FFO-to-Debt ratio has been below 25 per cent. for a sustained period of time, and is estimated to be approximately 16 per cent. as at 31 March 2013. Following recent dialogue with the ratings agencies it has become clear that the Group's senior bonds will be downgraded to sub-investment grade if no action is taken to improve the Group's credit profile. The Group continues to enjoy substantial liquidity (Â£1,215.5 million as at 31 March 2013), there remains sufficient covenant headroom under its financing facilities (Â£126 million EBITDA headroom as at 31 March 2013) and its current leverage is at 3.0 times underlying EBITDA at 31 March 2013. However, as the Board has previously stated, maintaining the Group's investment grade rating is important for FirstGroup's ability to create long-term value for Shareholders in a number of ways and, given the Group's largely long-term business portfolio, the Board believes that access to long-term debt markets, which is facilitated by its investment grade status, reduces the Group's overall cost of debt financing. If, and for as long as, the Group's credit rating were to fall below investment grade, an interest step-up would be triggered under the majority of the Group's existing senior bonds (being the 2018 Bonds, the 2021 Bonds, the 2022 Bonds and the 2024 Bonds), leading to an annualised incremental cost in interest payments of Â£14.7 million per year to 2018 (when the 2018 Bond matures). Should FirstGroup want to raise funds in the debt capital markets, it would have to do so in the more expensive high yield market. In addition, although there would be no immediate incremental interest cost on its current term and revolving credit facilities, any refinancing or new bank debt (expected to be required in the ordinary course of business before December 2015) would likely be obtained only at more expensive pricing and on terms which would impose greater operational restrictions on the Group. As a result, the Group's ratio of bank debt to bonds would likely be lowered, making it more dependent on the bond market. There would also potentially be additional operational costs, including in connection with the Group's bus and other vehicle leases, operating leases, finance leases, existing and future rail bonds and the requirement to post greater collateral for insurance and other contingent liabilities. The Board believes that the overall additional finance cost to the Group of its senior bonds being re-rated as sub-investment grade would be around Â£50 million per annum by the year ending 31 March 2016 (for reference, Group net finance costs were Â£168 million in FY 2013). In addition, if the credit rating of the Group's senior bonds were to fall below investment grade, the trustees of the Group pension schemes might require additional contributions to fund the deficits in such schemes and could accelerate the repayment programme already in place, and there could be an unquantifiable but detrimental impact on the Group's perceived qualities as a counterparty across all its contracting businesses, particularly when bidding for contract or franchise renewals or winning new business. Given the impact of seasonality on some of the Group's businesses, the result of all of the foregoing would be a meaningful reduction in headroom, particularly at the end of the first half of each financial year, in the absence of any reduction in discretionary cash outlays. As a result, part of the resources which the Board would otherwise allocate for investment in the Group's businesses to deliver its value creation strategy would, as part of prudent risk management, be applied to re-build covenant headroom, thereby delaying the Group's generation of future returns and value for Shareholders. Other measures considered The Board has resolved to effect the Rights Issue after careful consideration of other possible options to improve its credit metrics, including: * changing its dividend policy to reduce the level of dividend declared. As set out in more detail below, the Board has proposed not to recommend a final dividend for the financial year to 31 March 2013, and intends to reduce the quantum of future dividends for a period, but notes that reducing the dividend will not resolve the rating agencies' concerns as a standalone measure; * continuing to operate with its current capital structure and operating the business of the Group with the higher finance costs (as discussed above) that would arise if, as is currently expected, the Group's credit rating was downgraded. As set out above, the Board believes that a credit rating downgrade and increased finance costs over the medium term would reduce the Group's operational flexibility and delay its investment strategy, which the Board does not consider to be in the best interests of Shareholders; * seeking to dispose of certain core assets to raise additional cash. The Board's analysis of the impact of such disposals at prevailing value expectations indicates that the debt reduction achieved would not be sufficient to offset the earnings forgone and would not improve the Group's credit ratios, therefore weakening the business profile and increasing the risk of a downgrade; * seeking to demerge and separately list one or more of the Group's divisions on the London Stock Exchange or a market other than the London Stock Exchange. However, the Board believes that separating its divisions would be value destructive for Shareholders and would have no material impact on the overall quantum of debt required to be serviced by the Group's operations; and * raising capital through the issue of hybrid bonds or convertible debt instruments, using the proceeds to fund further investment in the Group's business and reducing the risk of a credit rating downgrade. However, given the restrictions on the maximum size of such a bond or convertible instrument provided by the credit rating agencies and the bond market, and the relatively high interest costs on a hybrid bond, the Board has concluded that this method of capital raising is not in the best interests of Shareholders. Accordingly, after careful consideration of the above options, and following feedback from certain of the Group's major Shareholders, the Board concluded that the Rights Issue is the most appropriate strategy to seek to remove the risk of a credit rating downgrade, and enable the continued investments to support growth and returns for Shareholders. Further investment in the Group's businesses Over the next four years, the Board intends to invest approximately Â£1.6 billion in its divisions to continue funding the operational transformation plans already underway, which will be financed from the Group's existing cash resources, future cash generated from operations, and a portion of the proceeds of the Rights Issue (as set out below). The key priorities for delivering its business plan and generating Shareholder value over the medium term are as follows: * in First Student, to continue to execute the ongoing recovery plan by improving operational efficiency with a view to targeting double digit margins in the medium term, ultimately driving up contract retention rates above 90 per cent., taking advantage of opportunities to win new contracts as state authorities and school boards continue to outsource their student bus services and returning to a selective bolt-on acquisition strategy to enhance growth; * in First Transit, to maintain margins while investing to take advantage of key outsourcing opportunities, including in the expanding shuttle bus business (particularly on university campuses and in Canadian oil fields); * in Greyhound, investing in infrastructure and IT, including new reservation and ticketing systems, to drive operational efficiencies, facilitate better yield management and thereby seek to achieve revenue growth in excess of GDP growth, as we have done in BoltBus and Greyhound Express. Further capital expenditures will also be made to renew and refurbish its fleet and continue to fund the addition of new routes and services; * in UK Bus, to improve margins to double digit levels in the medium term, by continuing its depot transformation programme, network redesign plans, reducing the fleet age to in line with sector average, as well as raising the information provision and smart ticketing capabilities of the business to support volume growth; and * ensuring the capital strength of the Group continues to support UK Rail as it participates in a range of future franchise competitions to seek to maintain its market leading position. In aggregate, the Board believes these investment plans will allow the Group to target the following objectives over the next four years: * grow the Group's revenue (excluding the UK Rail division) at a faster rate than the economies the Group serves, improve margins in First Student and UK Bus to double digit levels, and seek to achieve a post-tax ROCE in the range of 10-12 per cent., * to maintain its investment grade rating and appropriate liquidity and covenant headroom, targeting a net debt to underlying EBITDA ratio of 2.0-2.2 times, while maintaining at least Â£250 million of liquidity headroom; and * as the business performance improves, to re-establish a progressive dividend policy to target 2.0-2.5x cover. Summary The Board believes that FirstGroup remains a strong, profitable and well invested business with market leading positions, which has managed to deliver operational performance against a backdrop of difficult market conditions that have been felt for longer than was generally anticipated. As discussed above, the Board has already taken a series of actions to address the effects of the economic downturn, and these actions have contributed to the Group's ability to continue to deliver a relatively resilient performance. Going forward, the Board believes that the strengths of the existing platform of businesses, together with the above investments in the Group, will enable FirstGroup to generate attractive returns for Shareholders in the medium term, whilst continuing to deliver on its promises to its customers and other stakeholders. Nevertheless, the economic outlook remains challenging, and this, coupled with other factors such as the disruption of the UK rail franchising programme, continues to put pressure on the Group's profits, cash flow generation, balance sheet position and investment grade profile in the near term. As described above, the Board has considered a broad range of alternatives to generate further capital and has concluded that these would not be in the best interests of Shareholders. In line with FirstGroup's stated strategy to create long term value for Shareholders and other stakeholders, the Board therefore believes that FirstGroup needs to raise additional capital through the Rights Issue in order to remove the constraints of the Group's current balance sheet and provide a sustainable capital structure going forward, increase flexibility to continue the business transformation plans already underway in the Group's divisions, and underpin the Group's investment plans to create long term value, while at the same time seeking to maintain its investment grade credit rating and avoid the additional interest and other expected financing costs of becoming sub-investment grade. Accordingly, the Board believes the Rights Issue to be in the best interests of the Group and of Shareholders as a whole. Use of proceeds The proceeds of the Rights Issue will be used to reduce the Group's net indebtedness by paying down borrowings under the Group's bank facilities and for continued investment in the Group's business as described above. Of the net proceeds from the Rights Issue of approximately Â£585 million: * approximately Â£215 million will be used to repay debt; and * the remainder, approximately Â£370 million, will be retained by the Group and, together with existing and anticipated cash resources generated from the Group's operations, will be used to fund the Group's investment plan of approximately Â£1.6 billion over the next four years, as set out above. Of this amount, it is expected that approximately Â£340 million will be invested in the Group's businesses before 31 March 2014 and the remainder over the period between 31 March 2014 and 31 March 2017. Financial impact of the Rights Issue Had the Rights Issue taken place as at the last balance sheet date, being 31 March 2013, the effect on the balance sheet would have been an increase in cash and cash equivalents and an increase in share capital. The Group's net debt to underlying EBITDA ratio as at 31 March 2013 would reduce from 3.0x as reported, to 2.1x on a pro forma basis, following the Rights Issue. The foregoing does not reflect the impact of the use of the proceeds of the Rights Issue. Current Trading and Prospects In the announcement of FirstGroup's preliminary results for FY2013, released today, the Company stated the following: "With a fundamentally attractive portfolio of businesses and leading positions in each of our markets, we are focused on delivering outstanding services to our customers and communities, and harnessing the significant opportunities we have to create long term sustainable value. We have delivered a resilient trading performance in line with our expectations and have also achieved most of the other goals we had set ourselves during the year, including our Â£100m UK Bus disposal programme and divesting other non-core assets including First Support Services. "The real long term opportunity for us, however, arises from our business recovery programmes, particularly in First Student and UK Bus. We have clear plans in place for all of our divisions and, while there remains significant work to be done, our confidence continues to grow as a result of the progress to date. "The proposed c.Â£615 million capital raising transaction will remove the constraints from our balance sheet and enhance our ability to invest in our businesses going forward. We plan to invest around Â£1.6 billion across our five divisions over the next four years to underpin growth and return our businesses to our target levels of profitability. Through these actions, combined with our scale and expertise, we are positioning the business for improved growth returning it to a profile of consistent returns and cash generation." Dividends The Board recognises that dividends are seen as an important component of equity returns by many of the Shareholders. In the medium term, as the business performance improves, the Board intends to re-establish a progressive and sustainable dividend policy to target dividend cover of 2.0-2.5 times. In the short term, the Board intends that: * no final dividend will be paid in respect of FY 2013; * no interim dividend will be paid in respect of FY 2014; * dividend payments will recommence with a final dividend in FY 2014, subject to performance in line with business expectations, as a transition to re-establishing a progressive dividend policy thereafter; * subject to the Board determining the exact amount, a transitional final dividend of up to Â£50 million in FY 2014 would be recommended; and * thereafter, a dividend cover of 2.0-2.5x would be targeted. The following table sets out the dividend for Ordinary Shares paid in respect of each of FY 2011, FY 2012 and FY 2013: FY 2011 FY 2012 FY 2013 (pence) (pence) (pence) Interim dividend per 7.12 7.62 7.62 Ordinary Share Final dividend per Ordinary 15.0 16.05 nil Share Summary of the principal terms of the Rights Issue Subject to, among other things, the Resolution being passed and the conditions described in Terms of the Rights Issue in the Prospectus, the Directors propose to offer the New Ordinary Shares by way of rights to all Qualifying Shareholders (other than, subject to certain exceptions, Qualifying Shareholders with a registered address in the Excluded Territories) on the following basis: 3 New Ordinary Shares at 85 pence each for every 2 Ordinary Shares held and registered in their name at the close of business on the Record Date. The Issue Price of 85 pence per New Ordinary Share represents a 62.0 per cent. discount to the Closing Price of an Existing Ordinary Share of 223.8 pence on 17 May 2013 (being the latest practicable date prior to the publication of this announcement) and a 39.5 per cent. discount to the theoretical ex-rights price based on that Closing Price. If a Qualifying Shareholder does not take up the offer of New Ordinary Shares, his/her proportionate shareholding will be diluted by up to approximately 60 per cent.. The New Ordinary Shares will rank for all dividends declared, made or paid after the date of allotment and issue of the New Ordinary Shares and otherwise pari passu with the Existing Ordinary Shares. Holdings of Ordinary Shares in certificated and uncertificated form will be treated as separate holdings for the purpose of calculating entitlements under the Rights Issue. Entitlements to New Ordinary Shares will be rounded down to the nearest whole number. Fractions of New Ordinary Shares will not be allotted to any Qualifying Shareholders but will be aggregated and sold in the market ultimately for the benefit of the Company. Qualifying Shareholders with fewer than 2 Ordinary Shares at the close of business on the Record Date are not entitled to any New Ordinary Shares. FirstGroup has arranged for the Rights Issue to be underwritten by the Underwriters to provide certainty as to the amount of capital to be raised. The Underwriting Agreement is not subject to any right of termination after Admission (including in respect of any statutory withdrawal rights). The terms of the Underwriting Agreement will be summarised in the Prospectus. Qualifying Shareholders who take up their pro rata entitlements to New Ordinary Shares in full will suffer no dilution to their shareholdings in the Company as a result of the Rights Issue. Qualifying Shareholders who do not take up their entitlements to New Ordinary Shares will suffer an immediate dilution of up to approximately 60 per cent. in their interests in the Company as a consequence of the Rights Issue. General Meeting The Rights Issue is subject to a number of conditions, including Shareholders' approval of the Resolution proposed at the General Meeting. Notice convening the General Meeting to be held at 11 a.m. on 10 June 2013 at Holborn Bars, 138 - 142 Holborn, London EC1 2NQ, is set out at the end of this document. Shareholders are being asked to vote on the Resolution in order to provide the Directors with the necessary authority and power under the Companies Act to proceed with the Rights Issue. The Rights Issue is conditional on the passing of the Resolution; if the Resolution is not approved at the General Meeting, FirstGroup will be unable to complete the Rights Issue. The Resolution authorises the Directors to allot up to 725,000,000 Ordinary Shares, representing approximately 150 per cent. of FirstGroup's current issued share capital (excluding treasury shares) as at 17 May 2013, being the latest practicable date before the publication of this announcement. This will enable FirstGroup to allot sufficient Ordinary Shares to satisfy its obligations in connection with the Rights Issue. This authority will expire at the conclusion of the next annual general meeting of FirstGroup in 2013. The authority granted under the Resolution is in addition to the authority to allot Ordinary Shares which was granted to the Directors at FirstGroup's annual general meeting in 2012, which the Directors have no present intention of exercising and which will expire at FirstGroup's annual general meeting in 2013. The Resolution grants the Directors the authority to allot up to 725,000,000 Ordinary Shares so that if any holders of options over Ordinary Shares under the Employee Share Schemes were to exercise those options between the date of this document and the Record Date and if the Company were to satisfy those options by the issue of new Ordinary Shares or the transfer of Ordinary Shares out of treasury (thereby increasing the number of total voting rights in FirstGroup), the Directors will have authority to allot sufficient Ordinary Shares to satisfy its obligations in connection with the Rights Issue. As at the date of this document, FirstGroup holds 160,779 Ordinary Shares in treasury, representing approximately 0.033 per cent. of the current issued share capital of FirstGroup and approximately 0.013 per cent. of the Enlarged Share Capital. Overseas shareholders The attention of Qualifying Shareholders who have registered addresses outside the United Kingdom, or who are citizens or residents of countries other than the United Kingdom, or who are holding Ordinary Shares for the benefit of such persons (including, without limitation, custodians, nominees, trustees and agents) or who have a contractual or other legal obligation to forward this document, a Provisional Allotment Letter and any other document in relation to the Rights Issue to such persons, is drawn to the information which will appear in Terms of the Rights Issue in the Prospectus. In particular, subject to certain exceptions, the Rights Issue is not being made to shareholders in the United States or into any of the other Excluded Territories. In particular, persons who have registered addresses in or who are resident in, or who are citizens of, countries other than the United Kingdom should consult their professional advisers whether they require any governmental or other consents or need to observe any other formalities to enable them to take up their entitlements to the Rights Issue. Action to be taken in respect of the Rights Issue The latest time for acceptance by Shareholders under the Rights Issue is 11.00 a.m. (London Time) on 25 June 2013. The procedure for acceptance and payment will be set out in Terms of the Rights Issue of the Prospectus. Further details also appear in the Provisional Allotment Letter which will be sent to all Qualifying Non-CREST Shareholders (other than, subject to certain exceptions, those Qualifying Non-CREST Shareholders with a registered address in the Excluded Territories). If you are in any doubt as to the action you should take, you are recommended to seek your own personal financial advice immediately from your stockbroker, bank manager, solicitor, accountant, fund manager or other independent financial adviser authorised under FSMA if you are in the United Kingdom or, if you are not, from another appropriately authorised independent financial adviser. Recommendation The Board believes that the Rights Issue and the Resolution are in the best interests of the Company and its Shareholders as a whole. Accordingly, the Board unanimously recommends that Shareholders vote in favour of the Resolution, as the Directors intend to in respect of their own beneficial holdings. Expected timetable of principle events Each of the times and dates in the table below is indicative only and may be subject to change. Please read the notes for this timetable set out below. 2013 Record Date for entitlements under the Rights COB on 7 June Issue Latest time and date for receipt of Forms of 11.00 a.m. on 8 June Proxy General Meeting 11.00 a.m. on 10 June Provisional Allotment Letters despatched (to 10 June Qualifying non-CREST Shareholders only) Admission 8.00 a.m. on 11 June Dealings in New Ordinary Shares, nil paid, 8.00 a.m. on 11 June commence on the London Stock Exchange Ordinary Shares marked "ex-rights" by the 8.00 a.m. on 11 June London Stock Exchange Nil Paid Rights credited to stock accounts in as soon as 11 June CREST (Qualifying CREST Shareholders only) practicable after 8.00 a.m. on Nil Paid Rights and Fully Paid Rights enabled as soon as 11 June in CREST practicable after 8.00 a.m. on Recommended latest time for requesting 4.30 p.m. on 19 June withdrawal of Nil Paid Rights or Fully Paid Rights from CREST (i.e. if your Nil Paid Rights or Fully Paid Rights are in CREST and you wish to convert them into certificated form) Latest time and date for depositing renounced 3.00 p.m. on 20 June Provisional Allotment Letters, nil paid or fully paid, into CREST or for dematerialising Nil Paid Rights or Fully Paid Rights into a CREST stock account (i.e. if your Nil Paid Rights or Fully Paid Rights are represented by a Provisional Allotment Letter and you wish to convert them to uncertificated form) Latest time and date for splitting 3.00 p.m. on 21 June Provisional Allotment Letters, nil paid or fully paid Latest time and date for acceptance, payment 11.00 a.m. on 25 June in full and registration of renounced Provisional Allotment Letters Result of Rights Issue to be announced by 8.00 a.m. on 26 June Dealings in New Ordinary Shares, fully paid, 8.00 a.m. on 26 June commence on the London Stock Exchange and New Ordinary Shares credited to CREST stock accounts (uncertificated holders only) Expected date of despatch of definitive share by not later 8 July certificates for New Ordinary Shares in than certificated form DEFINITIONS "2018 Bonds" FirstGroup's 8.125 per cent. bonds due 2018; "2021 Bonds" FirstGroup's 8.750 per cent. bonds due 2021; "2022 Bonds" FirstGroup's 5.250 per cent. bonds due 2022; "2024 Bonds" FirstGroup's 6.875 per cent. bonds due 2024; "Admission" admission of the New Ordinary Shares, nil paid, to the Official List and to trading on the London Stock Exchange's main market for listed securities; "Board" the board of Directors of the Company from time to time; "certificated" or "in a share or other security which is not in certificated form" uncertificated form (that is, not in CREST); "Closing Price" the closing, middle market quotation, as published in the Daily Official List; "Companies Act" the Companies Act 2006, as such act may be amended, modified or re-enacted from time to time; "CREST" the system for the paperless settlement of trades in securities and the holding of uncertificated securities in accordance with the Uncertificated Securities Regulations operated by Euroclear; "Daily Official List" the daily official list of the London Stock Exchange; "DfT" the UK Department for Transport; "Director" a director of the Company; "Disclosure and the disclosure rules and transparency rules Transparency Rules" made by the UK Listing Authority acting under Part VI of FSMA (as set out in the FCA Handbook), as amended from time to time; "Enlarged Share Capital" the issued ordinary share capital of the Company following the issue of the New Ordinary Shares pursuant to the Rights Issue (excluding, for the avoidance of doubt, the Ordinary Shares held in treasury by FirstGroup); "EU" the European Union, first established by the treaty made at Maastricht on 7 February 1992; "Excluded Territories" United States and any other jurisdiction where the extension or availability of the Rights Issue (and any other transaction contemplated thereby) would breach any applicable law; "Existing Ordinary Shares" the Ordinary Shares existing at the date of this document; "Ex-Rights Date" the date on which the New Ordinary Shares are expected to commence trading ex-rights, being 11 June 2013; "FCA" the Financial Conduct Authority of the United Kingdom; "First Student" the operations of First Student, Inc. in the US and operations of First Canada ULC in Canada (together operating FirstGroup's school bus business); "First Transit" First Transit, Inc. (operating FirstGroup's public transit management and contracting business in North America) and First Vehicle Services; "Fitch" Fitch Ratings Limited; "FirstGroup" or the FirstGroup plc, a company incorporated in "Company" Scotland with registered number SC157176, whose registered office is at 395 King Street, Aberdeen, AB24 5RP; "FSMA" the Financial Services and Markets Act 2000, as amended; "Fully Paid Rights" rights to acquire New Ordinary Shares, fully paid; "FY 2011" the financial year of the Company ended 31 March 2011; "FY 2012" the financial year of the Company ended 31 March 2012; "FY 2013" the financial year of the Company ended 31 March 2013; "FY 2014" the financial year of the Company to end 31 March 2014; "General Meeting" the general meeting of the Company to be convened pursuant to the notice set out at the end of this document (including any adjournment thereof); "Greyhound" Greyhound Lines, Inc. and Greyhound Canada Transportation ULC (together operating FirstGroup's intercity passenger coach transport business); "Greyhound Express" Greyhound's non-stop, city-to-city service, launched in December 2010; "Group" the Company together with its subsidiaries and subsidiary undertakings; "IFRS" the International Financial Reporting Standards as adopted by the EU; "Issue Price" 85 pence per New Ordinary Share; "Joint Bookrunners" J.P. Morgan Securities plc, Goldman Sachs International and Merrill Lynch International; "Joint Global Coordinators" J.P. Morgan Securities plc and Goldman Sachs International; J.P. Morgan Securities plc and Goldman Sachs "Joint Sponsors" International; "Laidlaw" Laidlaw International, Inc.; "Listing Rules" the Listing Rules published by the UK Listing Authority acting under Part VI of FSMA (as set out in the FCA Handbook), as amended from time to time; "London Stock Exchange" London Stock Exchange plc or its successor (s); "New Ordinary Shares" the Ordinary Shares to be issued by the Company pursuant to the Rights Issue; "Nil Paid Rights" New Ordinary Shares in nil paid form provisionally allotted to Qualifying Shareholders pursuant to the Rights Issue; "North America" the US and Canada; "Official List" the list maintained by the UK Listing Authority in accordance with section 74(1) of FSMA for the purposes of Part VI of FSMA; "Ordinary Shares" the ordinary shares of 5 pence each in the capital of the Company; "Overseas Shareholders" means Shareholders who are resident in, ordinarily resident in, or citizens of, jurisdictions outside the United Kingdom; "Prospectus" the prospectus expected to be published on 22 May 2013 containing full details of the Rights Issue; "PD Regulation" Regulation number 809/2004 of the European Commission; "pence", "Pounds", "Â£", the lawful currency of the United Kingdom; "Pounds Sterling", "Sterling" or "UK pence" "PRA" the Prudential Regulation Authority of the United Kingdom; "Prospectus Directive" the EU directive 2003/71/EC and any implementing measure in each member state of the European Economic Area that has implemented directive 2003/71/EC; "Prospectus Rules" the Prospectus Rules published by the UK Listing Authority acting under Part VI of FSMA (as set out in the FCA Handbook), as amended from time to time; "Provisional Allotment the provisional allotment letter to be issued Letter" to Qualifying Non-CREST Shareholders; "Qualifying CREST Qualifying Shareholders holding Ordinary Shareholders" Shares in uncertificated form; "Qualified Institutional a Qualified Institutional Buyer, as defined Buyer" or "QIB" in Rule 144A under the Securities Act; "Qualifying Non-CREST Qualifying Shareholders holding Ordinary Shareholders" Shares in certificated form; "Qualifying Shareholders" holders of Ordinary Shares on the register of members of the Company on the Record Date; "Record Date" COB on 7 June 2013; "Resolution" the resolution to be proposed at the General Meeting as set out in the notice of general meeting and as detailed in the prospectus; "Rights Issue" the offer by way of rights to Qualifying Shareholders to acquire New Ordinary Shares, on the terms and conditions set out in this document and, in the case of Qualifying Non-CREST Shareholders only, the Provisional Allotment Letter; "ROCE" return on capital employed; "SEC" the United States Securities and Exchange Commission; "Securities Act" the US Securities Act of 1933, as amended; "Shareholders" holders of Ordinary Shares registered on the register of members of the Company (other than the Company, to the extent it is such a holder in respect of Ordinary Shares held in treasury); "Standard & Poor's" Standard & Poor's Credit Market Services Europe Limited; "UK Bus" the Group's UK bus division; "UK Listing Authority" the FCA acting in its capacity as the competent authority for the purposes of FSMA; "UK Rail" the Group's UK rail division; "uncertificated" or "in a share or other security recorded on the uncertificated form" relevant register of the share or security concerned as being held in uncertificated form in CREST and title to which by virtue of the Uncertificated Securities Regulations, may be transferred by means of CREST; "Uncertificated Securities the Uncertificated Securities Regulations Regulations" (2001) S.I. 2001/3755; "Underwriters" Goldman Sachs International, J.P. Morgan Securities plc, Merrill Lynch International, HSBC "Underwriting Agreement" the underwriting agreement dated 20 May 2013 among the Company, Goldman Sachs International, J.P. Morgan Securities plc, Merrill Lynch International, and HSBC IMPORTANT NOTICE The defined terms set out in the Appendix apply in this announcement. This announcement has been issued by and is the sole responsibility of FirstGroup plc (the "Company"). A copy of the Prospectus when published will be available from the registered office of the Company and on the Company's website at www.FirstGroup.com provided that the Prospectus will not, subject to certain exceptions, be available (whether through the website or otherwise) to Shareholders in the Excluded Territories. Neither the content of the Company's website nor any website accessible by hyperlinks on the Company's website is incorporated in, or forms part of, this announcement. The Prospectus will give further details of the New Ordinary Shares, the Nil Paid Rights and the Fully Paid Rights being offered pursuant to the Rights Issue. This announcement is not a Prospectus but an advertisement and investors should not acquire any Nil Paid Rights, Fully Paid Rights or New Ordinary Shares referred to in this announcement except on the basis of the information contained in the Prospectus. The information contained in this announcement is for background purposes only and does not purport to be full or complete. No reliance may be placed for any purpose on the information contained in this announcement or its accuracy or completeness. The information in this announcement is subject to change. Goldman Sachs International, HSBC Bank plc, J.P. Morgan Securities plc and Merrill Lynch International (the "Managers" are acting for the Company and for no-one else in connection with the Rights Issue and will not be responsible to anyone (whether or not a recipient of this announcement) other than the Company for providing the protections afforded to their respective clients nor for providing advice in connection with the Rights Issue or any other matter referred to herein. Apart from the responsibilities and liabilities, if any, which may be imposed on Goldman Sachs International and J.P. Morgan Securities plc by FSMA or the regulatory regime established thereunder, none of the Managers accepts any responsibility or liability whatsoever or makes any representation or warranty, express or implied, for or in respect of the contents of this announcement, including its accuracy, completeness or verification (or whether any information has been omitted from the announcement) or for any other information or statement made or given or purported to be made by any of them, or on behalf of them, in connection with the Company, the Nil Paid Rights, the Fully Paid Rights, the New Ordinary Shares or the Rights Issue, whether written, oral or in a visual or electronic form, and howsoever transmitted or made available or for any loss howsoever arising from any use of this announcement or its contents or otherwise arising in connection therewith, and nothing in this announcement is, or shall be relied upon as, a promise or representation in this respect, whether as to the past or future. Each of the Managers accordingly disclaims all and any liability whatsoever, whether arising in tort, contract or otherwise (save as referred to above), which any of them might otherwise have in respect of this announcement. This announcement is for information purposes only and is not intended to and does not constitute or form part of any offer or invitation to purchase or subscribe for, or any solicitation to purchase or subscribe for, Nil Paid Rights, Fully Paid Rights or New Ordinary Shares or to take up any entitlements to Nil Paid Rights in any jurisdiction in which such an offer or solicitation is unlawful. This announcement cannot be relied upon for any investment contract or decision. The information contained in this announcement is not for release, publication or distribution to persons in the United States, Australia, Canada or Japan and should not be distributed, forwarded to or transmitted in or into any jurisdiction where to do so might constitute a violation of local securities laws or regulations. This announcement does not constitute or form part of an offer or solicitation to purchase or subscribe for securities of the Company in the United States, Australia, Canada or Japan. None of the Nil Paid Rights, the Fully Paid Rights or the New Ordinary Shares have been or will be registered under the US Securities Act of 1933 (the "Securities Act") or under the applicable securities laws of any state or other jurisdiction of the United States or the securities legislation of any province or territory of Australia, Canada or Japan. Accordingly, the Nil Paid Rights, the Fully Paid Rights or the New Ordinary Shares may not be offered, sold, resold, delivered or distributed, directly or indirectly, in or into the United States absent registration, or an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with state securities laws, or in or into Australia, Canada or Japan except in accordance with applicable law. There will be no public offer of Nil Paid Rights, Fully Paid Rights or New Ordinary Shares in the United States, Canada or Japan. The New Ordinary Shares will be issued without disclosure in Australia under Chapter 6D of the Corporations Act 2001 (Cth) (Corporations Act). The offer of these New Ordinary Shares for resale in Australia within 12 months of their acquisition may, under section 707 of the Corporations Act, require disclosure to investors. Accordingly the New Ordinary Shares should not, within 12 months of their acquisition, be offered, transferred, assigned or otherwise alienated to investors in Australia except in circumstances where disclosure to investors is not required. New Ordinary Shares transferred on-market on the London Stock Exchange are not subject to the Australian disclosure regime. The distribution of this announcement and/or the Prospectus and/or the Provisional Allotment Letter and/or the transfer of Nil Paid Rights, Fully Paid Rights and/or New Ordinary Shares into jurisdictions other than the United Kingdom may be restricted by law, and, therefore, persons into whose possession this announcement and/or the Prospectus and/or the Provisional Allotment Letter comes should inform themselves about and observe any such restrictions. Any failure to comply with any such restrictions may constitute a violation of the securities laws of such jurisdiction. In particular, subject to certain exceptions, the Prospectus and the Provisional Allotment Letter should not be distributed, forwarded to or transmitted in or into the United States, Canada or Japan. This announcement does not constitute a recommendation concerning the Rights Issue. The price and value of securities can go down as well as up. Past performance is not a guide to future performance. The contents of this announcement are not to be construed as legal, business, financial or tax advice. Each Shareholder or prospective investor should consult his, her or its own legal adviser, business adviser, financial adviser or tax adviser for legal, financial, business or tax advice. This announcement contains or incorporates by reference "forward-looking statements". These forward-looking statements may be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "anticipates", "projects", "expects", "intends", "aims", "plans", "predicts", "may", "will", "seeks", "could", "would", "shall" or "should" or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts and include statements regarding the intentions, beliefs or current expectations of the Board concerning, among other things, the Company's results of operations, financial condition, prospects, growth, strategies and the industries in which the Group operates. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future or are beyond the Group's control. Forward-looking statements are not guarantees of future performance and are based on one or more assumptions. The Group's actual results of operations and financial condition and the development of the industries in which the Group operates may differ materially from those suggested by the forward-looking statements contained in this announcement. In addition, even if the Company's actual results of operations, financial condition and the development of the industries in which the Group operates are consistent with the forward-looking statements contained in this announcement, those results or developments may not be indicative of results or developments in subsequent periods. The following are important factors that could cause the Group's actual results to differ materially from those projected in the forward-looking statements made in this announcement: * continued underperformance of the UK and the US economies, including prolonged recession or multiple recessions or weak recoveries, poor general business conditions, falling gross domestic product, low consumer confidence and increased unemployment; * changes in government policy in relation to any of the Group's businesses including further reductions in public spending on subsidies for passenger transport or reimbursement of concessions in the UK and continued constraints on transportation spending of school boards in the United States; * the loss of, or adverse change in, any of the UK Rail's franchises and inability to win new rail franchises in the UK; * difficulties implementing the Group's transformation initiatives, including the Group's inability to sustain the improvements in operating efficiency through cost savings and business optimisation efforts realised during recent years; * adverse developments in the Group's employment and staff costs, including pensions-related costs; * adverse developments in the Group's fuel costs and risks associated with the Group not being fully hedged against such costs; * operational incidents, such as bus or rail accidents; * competition in the Group's existing and future lines of business; * strikes or work stoppages and interruptions by the Group's employees; * the cumulative effect of adverse litigation, governmental proceedings or arbitration awards against the Group and the adverse effect of new regulatory interpretations, rules and laws; * the Group's failure to comply with laws and regulations and any changes in laws and regulations; * changes in interest rates or monetary policies or exchange rates or new types of taxes or increases in taxes in the UK, the United States or Canada; * interruption or failure of systems upon which the Group's operations are reliant, including interruption or failure resulting from security breaches, terrorist action, human error, natural disasters or extreme weather events, failure by third parties to perform their responsibilities adequately and other factors beyond the Group's direct control; and * the loss of any of the Group's key managers or employees. The list above is not exhaustive and there are other factors that may cause the Group's actual results to differ materially from the forward-looking statements contained in this announcement. The forward-looking statements contained in this announcement speak only as of the date of this announcement. The Company and the Directors expressly disclaim any obligations or undertaking to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, unless required to do so by applicable law, the Prospectus Rules, the Listing Rules, the London Stock Exchange Rules or the Disclosure and Transparency Rules. In connection with the Rights Issue, the Managers and any of their respective affiliates, acting as investors for their own accounts, may subscribe for or purchase Nil Paid Rights, Fully Paid Rights or New Ordinary Shares and in that capacity may retain, purchase, sell, offer to sell or otherwise deal for their own accounts in such Nil Paid Rights, Fully Paid Rights or New Ordinary Shares and other securities of the Company or related investments in connection with the Rights Issue or otherwise. Accordingly, references in the Prospectus, once published, to the Nil Paid Rights, Fully Paid Rights or New Ordinary Shares being issued, offered, subscribed, acquired, placed or otherwise dealt in should be read as including any issue or offer to, or subscription, acquisition, placing or dealing by, the Managers and any of their respective affiliates acting as investors for their own accounts. The Managers do not intend to disclose the extent of any such investment or transactions otherwise than in accordance with any legal or regulatory obligations to do so. Each of the Company and the Managers and their respective affiliates expressly disclaims any obligation or undertaking to update, review or revise any forward looking statement contained in this announcement whether as a result of new information, future developments or otherwise. 1

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FirstGroup (FGP)

Tuesday, 24th December 2024

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