Annual Financial Report

11 August 2021

FirstGroup plc

LEI: 549300DEJZCPWA4HKM93

Annual Report and Financial Statements and Annual General Meeting

In accordance with LR 9.6.1R, FirstGroup plc (the “Company”) has today submitted copies of the documents listed below to the Financial Conduct Authority’s National Storage Mechanism.  These documents will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism:

• 2021 Annual Report and Financial Statements (the “2021 Annual Report”);
• Notice of the 2021 Annual General Meeting (the “2021 AGM Notice”);
• Form of Proxy; and
• Notice of Availability.

As required by DGTR 6.3.5R (3), the 2021 Annual Report and the 2021 AGM Notice are also available on the Company’s website at www.firstgroupplc.com.

A condensed set of the FirstGroup plc financial statements, including information on important events that have occurred during the year and their impact on the financial statements, were included in the Company’s announcement of its full year results published on 27 July 2021 (“Final Results Announcement.” The Final Results Announcement is available for viewing on the Company’s website at www.firstgroupplc.com.

DGTR 6.3.5R requires that certain information relating to all listed companies’ financial results be communicated in unedited full text through a Regulatory Information Service. The content of the Final Results Announcement, together with the information set out below in the Appendix, which is extracted from the 2021 Annual Report, constitute the material required to satisfy the requirements of DGTR 6.3.5R. Cross-references and page numbers in the Appendix refer to sections in the 2021 Annual Report.  This announcement is not a substitute for reading the 2021 Annual Report.

Enquiries:

Seema Kamboj

Deputy Company Secretary

[phone]

APPENDIX

DIRECTORS’ RESPONSIBILITY STATEMENT

Statement of Directors’ responsibilities in respect of the Financial Statements

The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulation.

Company law requires the Directors to prepare Financial Statements for each financial year. Under that law the Directors have prepared the Group Financial Statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and the Company Financial Statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law). Additionally, the Financial Conduct Authority’s Disclosure Guidance and Transparency Rules require the Directors to prepare the Group Financial Statements in accordance with international financial reporting standards adopted pursuant to

Regulation (EC) No 1606/2002 as it applies in the European Union.

Under Company law, Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for that period. In preparing the Financial Statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• state whether applicable international accounting standards in conformity with the requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union have been followed for the Group Financial Statements and United Kingdom Accounting Standards, comprising FRS 101 have been followed for the Company Financial Statements, subject to any material departures disclosed and explained in the Financial Statements;

• make judgements and accounting estimates that are reasonable and prudent; and

• prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business.

The Directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s and Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the Financial

Statements and the Directors’ Remuneration Report comply with the Companies Act 2006.

The Directors are responsible for the maintenance and integrity of the Company’s website.  Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.

Directors’ confirmations

The Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s and

Company’s position and performance, business model and strategy.

Each of the Directors, whose names and functions are listed in Board of Directors confirm that, to the best of their knowledge:

• the Group Financial Statements, which have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group;

• the Company Financial Statements, which have been prepared in accordance with United Kingdom Accounting Standards, comprising FRS 101, give a true and fair view of the assets, liabilities, financial position and loss of the Company; and
• the Strategic Report includes a fair review of the development and performance of the

business and the position of the Group and Company, together with a description of the

principal risks and uncertainties that it faces.

In the case of each Director in office at the date the Directors’ report is approved:

• so far as the Director is aware, there is no relevant audit information of which the Group’s and Company’s auditors are unaware; and

• they have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Group’s and Company’s auditors are aware of that information.

Ryan Mangold

Chief Financial Officer

RELATED PARTY TRANSACTIONS

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

Remuneration of key management personnel

The remuneration of the Directors, which comprise the plc Board who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures. Further information about the remuneration of individual Directors is provided in the Directors’ Remuneration Report on pages 108 to 131.

	52 weeks ending 27 March 2021 £m	52 weeks ending 28 March 2020 £m
Basic salaries1	1.1	1.2
Benefits in kind	0.1	0.1
Fees	0.7	0.8
Share based payment	0.1	0.8
	2.0	2.9

¹ Basic salaries include cash emoluments in lieu of retirement benefits and car allowance

PRINCIPAL RISKS

To deliver our strategy, it is important that we understand and manage the risks that face the Group. The table below outlines our principal risks:

Risk description, full Group	Impact of sale of First Student and First Transit to risk description	Mitigation	Comment on risk change during the year	Impact of sale of First Student and First Transit, if any, to the risk change during the year
External Risks
Economic conditions
The Group’s success depends on adapting to economic fluctuations which may negatively impact performance through increased costs, changing customer needs, reduced demand and/or reduced opportunities for growth.  Globally, the economic outlook is less certain, and the Group specifically has experienced a change in travel behaviour and new policies and procedures related to the pandemic. All these market changes have the potential to decrease the Group’s available financial resources to invest capital in innovative solutions that drive demand. Additionally, when these economic uncertainties are combined with lower fuel prices, they may further reduce demand for public transportation particularly in our Greyhound and First Bus divisions.	With the sale of First Student and First Transit, the ongoing Group is less susceptible to changes in economic conditions. The new concession-based National Rail Contracts have low revenue and contingent capital risk. Additionally, the Group has capacity and demand planning processes in place to efficiently adapt to changing economic and demand conditions. As a result, the Group’s performance is less impacted by economic volatility.	In order to adapt to market uncertainties and continue to drive demand, the Group continues to be customer-focused and strives to provide innovative transport solutions. Whilst the Group has temporarily reduced certain capital investments, we continue to focus on strategic ventures to develop new innovative service offerings (e.g. electric fleet and autonomous vehicles, ticket initiatives) in order to provide our customers with transport solutions that reduce complexity and retain customer demand through unstable economic conditions. In 2020 the Group accelerated implementation of real-time seating capacity on our First Bus app to support social distancing requirements as well as a number of further customer engagement actions through technology to provide greater insight to manage operations. Through this tracking the Group is able to adapt bus schedules to real-time demand to better manage operational costs.	Although it is not yet clear the lasting impacts the pandemic will have on commuting behaviours, lock down orders have begun to lift, resulting in increased travel demands within the UK; First Bus saw volumes increase to c.60% of pre-pandemic levels during the most recent lockdown easement. We expect increased demand over the summer holidays as we anticipate travellers largely taking domestic trips instead of travelling internationally.	The Group’s First Rail division has entered into no risk and low cost risk contracts to protect the remaining business from economic fluctuations. Further, if lockdown procedures or shelter in place orders are extended the ongoing Group will be able to right-size bus schedules based on real-time demand monitoring and government support arrangements in First Bus are expected to be extended to allow for social distanced public transport to continue.
Climate change
Businesses globally continue to come under increasing pressure from all stakeholders, particularly investors, to demonstrate strong progress on their climate-related performance. Inadequate attention to our climate-related programmes and emerging technologies could negatively impact the Group’s performance, reputation and/or result in decreased demand. Within the UK, the government has set a legally binding target for net-zero greenhouse gas emissions by 2050. All companies that operate in the UK or are owned by UK-based companies will be substantially impacted by decarbonisation policies introduced to meet this target. As a result, the Group is under increased pressure and scrutiny from both investors and government bodies to provide evidence of our strategic plans in place to mitigate climate change risks. There are also physical risks resulting from climate change (e.g. extreme weather events) which could impact our customers, service reliability, and disrupt our energy supply and/or supply chain. Delays in implementing our strategic plans to mitigate climate-related risks, including transitioning our fleets to zero emissions, could result in lost business, reduced revenue and reduced profitability.	The Group is committed to accelerating the transition to a zero-carbon world, which includes responding to the clear mandate and binding net-zero targets currently set within the UK for greenhouse gas emissions. Although the US government has not yet announced the same binding targets, the current administration’s position is clear and we expect these to result in coming years. However, we do not anticipate adverse impacts and/or changes to these risks and/or operations with the sale of First Student and First Transit.	The Group’s strategic framework for sustainability, Mobility Beyond Today, sets out the company’s ambition to be the partner of choice for innovative and sustainable transport. In 2021, FirstGroup became the first bus and rail operator in the UK to formally commit to setting an ambitious science-based target aligned with limiting global warming to 1.5°C and reaching net-zero emissions by 2050 or earlier. Within First Bus we have committed to investing in only zero-emission vehicles from December 2022, and to have a 100% zero-emission fleet by 2035. The National Bus Strategy, announced on 15 March 2021, pledged £3bn for buses in England outside London, including a commitment to support the purchase of at least 4,000 new zero emission buses for the UK, from which the Group is well positioned to benefit. We also publicly support the UK Government’s ambition to remove diesel-only trains from the network by 2040. As outlined in the Government’s rail White Paper, published in May 2021, electrification of Britain’s rail network will be expanded, and alternative technologies such as hydrogen and battery power will help to achieve zero emissions from trains. We look forward to working with the government and industry partners in support of the government’s investment plans to decarbonise Britain’s rail network. Our externally assured carbon and energy performance can be found in the KPI section on pages 55-56 and in our TCFD reporting on pages 57-60, with a more detailed breakdown in our 2021 Environmental Performance Report, available on our website. Business continuity plans are in place for all areas of our businesses in case of extreme weather or other physical events.	The Group recognises the continued pressure and opportunity to create a more sustainable world and maintains our commitment to invest in new technologies and collaborate with partners to create a cleaner future. The commitments we have made this year – particularly our science-based target and zero emission fleet target for First Bus – and the strategies we are developing to meet them will ensure we are managing our climate transition risks effectively.	With the sale of the US businesses, the regulatory environment on climate change simplifies for us as we will deal predominantly with UK policy which is well defined and which we are on track to meet with our current commitments. The physical risks of climate change are also less variable and with less extreme weather events in the UK than North America.
Geopolitical
The political landscape within which the Group operates is constantly changing. The Group’s operations depend on government policy, funding regimes and infrastructure initiatives continuing to support private company operators in public transportation. Inability to maintain rail contracts and/or leverage national funding and develop government partnerships may result in the reduction and/or an elimination of rail contracts and/or an inability to sustain and develop new bus routes resulting in adverse financial impacts. Group operations are also dependent on obtaining the necessary mechanical pieces to maintain our fleets. Changes in the political landscape may have supply chain implications and decrease the number of vehicles available to support demand.	The sale of First Student and First Transit constitutes the majority of the Group’s North American business, as a result of which there is a reduction in the operational and geographical diversity of the ongoing Group. The ongoing Group is therefore more dependent on the performance of, and revenue from, its UK divisions (i.e. First Bus and First Rail). As a result, changes in government policies, funding regimes and infrastructure initiatives in the UK have a greater overall impact on the ongoing Group.	While the Group collaborates with industry bodies to help anticipate government policy or funding regime changes in order to adjust operations, the Group is an apolitical organization and does not have the ability to control or substantially influence government policy. The Group has been able to mitigate supply chain disruptions by utilising mechanical parts from vehicles not in use due to decreased demand levels as a result of the pandemic.	The UK government announced its intention to bring the UK’s current rail franchising system to an end and replace it with a new rail contract model for delivery of rail passenger service by private operators. See pages 22-24 for additional information on the termination sum agreements of the pre-existing franchising contracts and details of the newly negotiated National Rail Contracts (NRC). Additionally, the UK government also announced new infrastructure investments, including c. £3bn to transform bus services across the country providing the Group with new opportunities to grow the First Bus division.	Although the new contracts are expected to be based on a more appropriate balance of risk and reward, First Rail is a proportionately larger part of the Retained Group and therefore the future performance of the ongoing Group will be intrinsically aligned with successful negotiations of new rail contracts and continued government support.
Strategic Risks
Contracted business
The Group’s contracted businesses are dependent on the ability to secure and renew contracts on profitable terms, comply with contract terms and avoid termination. Additionally, the ability of the Group to achieve performance targets is dependent on our ability to exceed passenger performance metrics laid out in rail contracts. Failure to do so would result in reduced revenue and profitability and / or negative impact on delivering the Group’s strategic objectives.	With the sale of First Student and First Transit, the ongoing Group has less geographic diversity and therefore is more dependent on the performance of the UK divisions; however, the new National Rail Contracts will provide the ongoing Group with a consistent single-digit margin, more cash generation, and overall greater resilience. These contracts have low cost, contingent capital and revenue risk.	The new contract structure will be concession-based with performance incentives resulting in a far better balance of risk and reward. As the largest incumbent with four UK rail operations expected to be in place until at least 2023, we have the extensive operational expertise needed to meet new contract performance incentives. We have dedicated departments that focus on DfT negotiations and ensure that future commitments to UK rail will have an appropriate balance of potential risks and rewards for shareholders.	The transition from franchising to contracts will lead to a better balance of risk and reward via reduced revenue risk, minimal cost and contingent capital risk, and will provide more consistent cash generation each year. As the largest incumbent the Group has the operational structure and expertise to exceed passenger performance targets and to build on our base business with no revenue risk.	With the sale of First Student and First Transit, First Rail is a proportionally greater part of the ongoing Group. Although this results in a less diverse portfolio, the new National Rail Contract structure provides a strong base business for the ongoing Group and provides opportunities to build on that foundation with no revenue risk and limited cost risk.
Competition and emerging technologies
The Group’s market share and competitiveness is dependent on effectively competing in areas of pricing and service options. Our success is also dependent on identifying and developing innovative offerings in line with the Group’s goal to be the partner of choice for our customers’ transport solutions, accelerating the transition to a zero carbon world. Our main competitors include the private car and other transportation service providers (e.g. ride share, price comparison websites, etc.). Airline competition also impacts demand for bus and rail travel, especially in Greyhound’s long-haul business. Zero emission and emerging technologies such as autonomous vehicles and on-demand schemes provide opportunities to grow and develop our market segments. The Group may also begin to experience more competitors for rail contracts as a result of the decreased contingent capital requirements of the National Rail Contract structure. Failure to effectively compete in the market and/or develop new and innovative options could result in decreased customer retention, decreased demand and/or adverse financial and reputational impacts.	The sale of First Student and First Transit allows the ongoing Group to further focus on our digital innovation, enhance business efficiency and flexibility, and target opportunities in adjacent markets and geographies.	To meet our goal to be the partner of choice for our customers’ transport solutions, we continue to focus on service quality and delivery in order to attract passengers and other customers to our portfolio of businesses. We are leaders in the operation and maintenance of electric and autonomous vehicles, and we continue to invest in the technology and services to support connected and on-demand travel, including Mobility as a Service (MaaS). The Group also continues to have a dedicated cross-divisional consumer experience team who help implement innovative customer convenience solutions (e.g. real-time seat capacity, contactless and capped ticketing, smart tickets, 5G/Wi-Fi, data driven pricing) which focus on improving access to our services and our overall service to customers. The Group has also identified expansion opportunities in adjacent markets and new geographies to support the expansion of public transport throughout the UK. Wherever possible the Group works with local and national bodies to promote measures aimed at increasing demand for public transport and the other services that we offer.	Low fuel prices and changes in demand for public transportation due to the pandemic have led to reduced passenger volumes. Although the lasting impact to commuting behaviours and consumer travel demand continues to be unknown, the Group saw passenger volumes reach c60% of pre-pandemic levels in some areas during the most recent lockdown easement. The Group has continued to invest in emerging technologies this year, including autonomous and electric vehicles, and services to support connected and  on-demand travel, including mobility as a service (MaaS). We continue to increase the number of low and zero emission vehicles operating in our road and rail fleets, and to focus on providing easy and convenient mobility, encouraging the switch from private car journeys to our services.	Due to the sale of First Student and First Transit the ongoing Group has increased capacity to strategically focus innovation efforts on markets within the UK, particularly in left behind towns and cities where public transportation, specifically buses, are integral to meeting the UK Government’s economic growth agenda.
Operational Risks
Financial resources
As set out in further detail in note 25 to the financial statements on pages 192-197, treasury risks include liquidity risks, risks arising from changes to foreign exchange and interest rates and fuel price risk. Liquidity risk includes the risk that the Company is unable to refinance debt as it becomes due. Foreign currency and interest rate movements may impact the profits, balance sheet and cash flows of the Group. Ineffective hedging arrangements may not fully mitigate losses or may increase them. The Group is credit rated by S&P Global Ratings and Fitch. A downgrade in the Group’s credit ratings to below current investment grade may lead to increased financing costs and other consequences and affect the Group’s ability to invest in its operations	The sale of First Student and First Transit allows us to significantly reduce the level of debt for the ongoing Group and also includes a cash reserve to provide adequate financial resources until end markets begin to emerge from the pandemic. While the sale provides significant debt decreases and working capital reserves, it also decreases the Group’s revenue streams and may impact the ongoing Group’s ability to obtain credit when the ongoing Group targets new debt facilities.	The Group monitors our leverage ratios and overall liquidity consistently to ensure we remain within our target range and have adequate financial resources on a two to three year look forward. Although the completion of the sale of First Student and First Transit decreases the ongoing Group’s revenue stream, S&P Global Ratings and Fitch currently rate us as investment grade and we do not anticipate a reduction in our ability to secure credit, including the targeted debt facilities. In the event the ongoing Group did not obtain the targeted debt facilities we have additional capacity within our current financial structures to continue our strong financial positions, such as extending our 2022 bonds.	As a result of varying passenger demand throughout the fiscal year, the Group secured additional funding to support liquidity during the pandemic. Additionally, we secured covenant amendments for both our March and September 2021 testing dates. The Group has continued with our strategy to sell First Student and First Transit in order to invest and focus on our UK divisions which are less susceptible to impacts from passenger demand and will provide us strong cash generation and liquidity in future.	The Group will apply the net proceeds from the sale to discharge certain long-term liabilities, including the £300m CCFF loan. Additionally, c£100m pro forma net debt position to be retained to ensure the ongoing Group has adequate financial resources available while UK end markets begin to emerge from the pandemic over and above the estimated short-term capital needs. As a result, the ongoing Group has a significantly de-risked balance sheet and strong financial position to unlock growth in our target markets.
Pandemic
The pandemic has altered the way in which the Group operates and how we serve our communities. Our success depends on continuing to anticipate and adapt to changes in consumer commuting and travel behaviours, implementing safeguards to prevent spread and complying with new laws and regulations relating to the pandemic. Failure to balance operational changes whilst also implementing appropriate safeguards and procedures to prevent additional spread of the pandemic and promote containment may result in adverse reputational or financial impacts.	The Group is committed to the health and safety of our employees, customers and others with which we do business. With the sale of First Student and First Transit, the ongoing Group is less susceptible to changes in consumer community behaviour and demand. The new National Rail Contracts include a management fee that is not dependent on demand and within First Bus we have the ability to adjust and change schedules in order to adapt to changing demand patterns.	To adapt our operations to impacts resulting from the pandemic the Group has implemented new policies and procedures across all vehicle fleets. These policies and procedures include providing personal protective equipment to drivers and technicians, increased sanitation and appropriate social distancing requirements. The Group complies with all applicable public health authority guidance, include the use of face coverings where mandated. Additionally, during 2020 the Group fast-tracked implementation of real-time seating capacity on our Bus app to support social distancing requirements. Under the new National Rail Contracts First Rail will not experience revenue risk as a result of decreased demand, except for in our Hull Trains open access service. Our other divisions, have a greater risk of loss caused by decreased demand. While First Bus saw passenger volumes increase to c.60% of pre-pandemic levels during the most recent lockdown easement, to adapt our operations to potential changes in commuting and travel behaviour, the division has dedicated teams to assess and monitor workforce and route planning. The dedicated teams use advanced data analytics that provide an efficient way to adjust schedules. Once end markets have emerged from the pandemic, the Group also has plans ready to reshape routes and timelines to align with observed demand. The actions taken via these plans will be based on real-time passenger flow data now available following digital transformation initiatives.	While the Group has implemented safeguards across our fleet to prevent further spread of the pandemic, guidance regarding the methods of spread and effective containment procedures continue to develop. These methods and procedures are further impacted by the new variants of the coronavirus developing throughout the world, including in the UK. This changing knowledge could continue to affect the ways in which we must adjust our operations to protect the safety of our customers, employees and third parties who interact with our business.	With the sale of First Student and First Transit, the ongoing Group is less susceptible to changes in consumer commuting  behaviour and demand.
Safety
The Group is committed to fostering and maintaining a culture of safety. However, public transport inherently includes safety related risks, many of which are out of our control. These risks include terrorism, adverse weather, human error and  increased traffic / congestion on public roadways. A safety incident, or a threat of an incident, could lead to reduced public confidence in public transportation overall and potentially reduce demand for our services.	Safety is one of the Group’s core values and the sale of First Student and First Transit has no impact on our unwavering commitment to safety. Despite our commitment to safety, we recognise that, regretably, incidents and legal claims do occur. As North America has a higher degree of litigious activity, the sale of First Student and First Transit reduces the Group’s liability insurance risk and associated costs. Although the ongoing Group will continue to operate in North America via the Greyhound division, a portion of the sale proceeds has been retained to de-risk any remaining self-insurance requirements. Whilst the sale of First Student and First Transit reduces the ongoing Group’s insurance risk, it also reduces our geographical diversity. In the event of a terrorist attack and / or safety incident within the UK, the Group may experience a decrease in demand which will not be offset by stable demand within the US.	In order to promote and maintain our culture of safety, all divisions have extensive safety plans and safety training for our drivers and employees. Points of access to vehicles are secured to prevent against malicious access. Mechanical safety controls (speed monitoring, cameras, etc.) are implemented across our fleet of vehicles. While the Group has implemented preventative safety measures and procedures, we recognise that incidents may be caused by factors that are ultimately out of our control and do at times result in legal claims. As a result, the Group has dedicated departments, utilising third party experts when needed, to analyse and maintain effective insurance structures and levels.	Although the Group continues to assess, update and implement safety procedures across our businesses, risk mitigation in this area continues to be a focus. Even with this attention, the legal climate in North America, particularly in the US, continues to deliver judgements which are disproportionately in favour of plaintiffs, and at times unpredictable. Additionally, the extent to which the claims environment may be impacted by the effects of the pandemic is not yet clear.	In relation to the sale of First Student and First Transit, as previously stated the legal climate in North America continues to deliver judgements disproportionately in favour of plaintiffs. While the Group has legal claim risk in the UK, the ongoing Group’s overall insurance risk has decreased. Although the ongoing Group’s insurance risk has decreased, the ongoing Group also has less geographical diversity to offset any decrease in demand following a terrorist attack and / or safety incident within the UK.
Pension scheme funding
The Group sponsors or participates in several significant defined benefit pension schemes, primarily in the UK. Within our North American subsidiaries, we participate in several multi-employer pension schemes in which our contributions are pooled with the contributions of other contributing employers. In both schemes the Group’s future cash contributions and funding requirements are dependent on investment performance, movements in discounts rates, expectations of future inflation and life expectancy. Within North America, funding of the schemes is also reliant on the ongoing participation by the other contributing employers. In order to maintain adequate cash funding and prevent adverse financial impacts or reputational damage, the Group must monitor the performance of our fund investments and movements in other contributing factors (e.g. discount rates, life expectancy, etc.).	Following the sale of First Student and First Transit, the ongoing Group continues to be responsible for all pension plans other than those relating to the sold divisions for which the liability has transferred as part of the sale. Although the Group used some of the net disposal proceeds to improve pension scheme funding, the ongoing Group’s ability to contribute to the Pension Schemes on an ongoing basis will be dependent on the profits of a less diversified business with a reduced operating cash flow, in particular, in relation to the First UK Bus Pension Scheme.	In order to effectively monitor our funding requirements, all our cash models/forecasts include significant pension deficit funding. The Group also utilises third party experts to monitor movements in discount rates and inflation expectations. We continue to replace our defined benefit schemes with defined contribution arrangements where possible. We are also focusing on diversifying asset classes and reallocating riskier investments to investments that better match the characteristics of the liabilities as funding levels improve. Under the First Rail franchise arrangements, the Group’s train operating companies are not responsible for any residual deficit at the end of a franchise so there is only short-term cash flow risk within any particular franchise. The Group intends to use £337m of the net disposal proceeds to contribute to the Bus and Group pension schemes. Additionally, the increase in funding levels allows for greater flexibility for the management of the pension liabilities including buy-ins and further liability hedging.	The Group has closed most of its defined benefit schemes in its road divisions to future accrual. This will lead to the natural reduction of the size and volatility of the pension funding risk over time. Through our membership of the Rail Delivery Group we are engaged in an industry-wide project to consider the long-term funding model for the Railways Pension Scheme.	Following the sale of First Student and First Transit, a portion of the net disposal proceeds was used to materially improve pension scheme funding and thereby decrease our overall funding risk.
Data security and consumer privacy, including cyber-security
The Group continues to see an increase of mobile and internet sales across all divisions. These mobile and internet channels gather large amounts of data which require safeguards in order to protect our customers’ data and to comply with the General Data Protection Regulation (GDPR) and California Consumer Privacy Act (CCPA). Whilst this data requires compliance with consumer privacy regulations, it also makes us a target of data security attacks by third parties. In addition to maintaining infrastructures that protect our consumers’ data, our operations rely on information technology systems. Cyber-attacks, computer malware, viruses, spamming and phishing attacks have become more prevalent and may result in a breach of our systems. A breach of our facilities and / or network could disrupt our operations and impair our ability to protect consumer data, and / or compromise our confidential business information. A failure to prevent, mitigate or detect security breaches and / or improper access to our business and / or customer’s information and / or comply with consumer privacy regulations could result in disruption to our operations, significant penalties and have an adverse impact on consumer confidence in the Group.	The Group is committed to protecting the privacy and personal data of our customers, employees and others with which we do business. The sale of First Student and First Transit has no impact on our commitment to protect our consumers’ data and our business systems against security breaches and / or comply with all GDPR and CCPA regulations.	To protect our customers’ data and comply with all data privacy regulations, IT infrastructure controls have been implemented Group-wide. We also have dedicated compliance officers in each division. The Group also administers a training programme to all employees, communicating their role in protecting and preventing the unauthorised access to sensitive data. Additionally, in order to comply with user preferences, the Group is implementing a software solution that makes it easier to record and update customer preferences.	Despite the Group’s continued mitigation efforts, the risk of a cyber security attack for all companies continues to increase. This risk has been additionally impacted by the increase of a remote workforce during the pandemic.	The sale of First Student and First Transit has no impact to the risk change during the year.
Regulatory compliance
The Group’s operations are subject to a wide range of legislation and regulation. Complying with such legislation and regulations may increase the Group’s operating costs, and non-compliance could lead to financial penalties, investigation expenses, legal costs or reputational damage. The Group’s corporate governance, which is recognised by external ESG ratings as strong and well aligned with stakeholder interests, supports our ability to respond to, and prepare for, financial and ESG laws and regulations. The main regulatory compliance risks specific to the Group that are not covered in other principal risks include workplace compliance (employee wage and hour, meal and break matters, etc.), workplace health and safety and anti-trust/anti-bribery regulations.	The Group is dedicated to maintaining compliance with the regulatory environment within which it works and the sale of First Student and First Transit has no impact on our commitment to comply with our regulatory requirements.	To help the Group comply with all legislation and regulations, we have dedicated compliance professionals who ensure applicable laws by locality and state are followed. We also engage with third party legal experts when necessary to advise on policies and procedures and other related compliance matters. We also provide a hotline for employees and third parties to report concerns. Whilst we strive to maintain compliance within the regulatory environment, we also maintain insurance for third party injury claims arising from vehicle and general operations, employee injuries and property damage. To help mitigate non-compliance risk with anti-bribery and anti-trust regulations we maintain robust policies and procedures and our employees receive regular training on the policies. We also complete periodic audits of our training programmes to ensure consistent training and participation.	Although our legislative and regulatory environment continues to change, the Group maintains our commitment to assess and adapt not only our insurance structure but also our policies and procedures to prevent non-compliance.	The sale of First Student and First Transit has no impact to the risk change during the year.
Human resources
Employee costs represent the largest component of the Group’s operating costs. These costs include expenses related to recruitment, retention and talent development. The costs are impacted by changes in employment markets, new regulatory requirements from Brexit and diversity and inclusion programmes. A failure to effectively recruit and retain a diverse and talented workforce could have adverse financial, reputational and operational impacts. Our driver and technician employment market has been affected by the pandemic which has increased our recruitment and retention costs and may impact operations as consumer travel demand increases. Our employee turnover rate may also be impacted by Brexit employment regulations and the announcement of the intent to sell the North American businesses.	The attraction, development, retention, reputation and succession of senior management and individuals with key skills are critical factors in the successful execution of the Group’s strategy, and operation of the Group’s divisions. The reduction in size and diversification of the ongoing Group following the sale of First Student and First Transit may make it more difficult for the Group to attract and retain employees.	In order to increase retention and decrease employee costs, the Group has enhanced recruitment practices, including leveraging online channels for all roles. The Group also has implemented all necessary coronavirus-related safety protocols to support the health and safety of our drivers and technicians. In response to Brexit employment regulations, we have secured Sponsorship Status and are in the process of implementing new employment record requirements to comply with regulations. To help prevent overall employee turnover, we continue to focus on improving communication with employees, investing in employee development and diversity and inclusion, and providing market competitive wages and benefits.	The lasting impact the pandemic will have on the labour market and employee work conditions continues to develop and will require the Group to assess and adapt our operations in the future. Additionally, employee and community expectations continue to impact our recruitment, retention, diversity and development strategies.	With the sale of First Student and First Transit, the ongoing Group has reduced in size and includes a less diverse portfolio which, if combined with any negative publicity associated with the sale, may impact the ongoing Group’s ability to attract and retain employees.