Final Results

EMBARGOED UNTIL 7:00am on Wednesday 21 May 2014 FIRSTGROUP PLC PRELIMINARY RESULTS FOR THE YEAR TO 31 MARCH 2014 Group overview: * Overall trading in line with expectations for the year, excluding the Â£14m operating profit impact of unprecedented weather conditions on First Student and Greyhound in the fourth quarter * Adjusted operating profit increased by 5.5%, reflecting improved underlying operating performances in four divisions, partially offset by slower progress in First Student and the extreme weather * Adjusted EPS fell 31.8% due to the dilutive effect of the rights issue completed in June 2013 * Statutory operating profit and EPS substantially improved * Net cash flow broadly flat for the year (excluding the proceeds of the rights issue), in line with expectations * Balance sheet strengthened, net debt: EBITDA ratio reduced to 2.2 times from 3.4 times last year and new Â£800m five-year revolving credit facility signed * Disciplined investment programme underway, with gross capital expenditure increasing by 15% in the period * ROCE increased to 8.2% (2013: 7.0%) in line with expectations. Medium term 10-12% ROCE target and other financial targets maintained * Dividend - taking together the current stage of the turnaround programmes and our commitment to our capital programme, the Board has decided to refrain from reinstating a dividend at this point * Board changes - including the appointment of three new non-executive directors with effect from 24 June 2014 2014 2013 Change Restated1 Revenue Â£6,717.4m Â£6,900.9m (2.7)% Adjusted2 - EBITDA3 Â£579.8m Â£585.7m (1.0)% - Operating profit Â£268.0m Â£254.1m +5.5% - Profit before tax Â£111.9m Â£90.9m +23.1% - Attributable profit Â£79.3m Â£65.1m +21.8% - EPS 7.5p 11.0p (31.8)% Statutory - Operating profit Â£232.2m Â£139.8m +66.1% - Profit/(loss) before tax Â£58.5m Â£(28.9)m n/m - Attributable profit/(loss) Â£54.2m Â£(17.8)m n/m - EPS 5.1p (3.0)p n/m Net debt4 Â£1,303.8m Â£1,979.1m (34.1)% 1Restated for adoption of IAS19 (revised) on pensions, the reclassification of certain exceptional items and the impact of the rightsissue on EPS as explained in note 2. 2Before amortisation charges, ineffectiveness on financial derivativesand exceptional items. Allreferences to `adjusted' figures throughout this document are defined in this way. 3Adjustedoperating profit less capital grant amortisation plus depreciation. 4Net debt is stated excluding accrued bond interest. Operating summary: * First Student - performance affected by historically severe weather; accelerated programmes to address contract portfolio pricing and deliver further cost savings * First Transit - record of good growth and margin performance maintained * Greyhound - underlying improvement in demand trends and continuation of profitable expansion of Greyhound Express, partially offset by weather disruption to the network * UK Bus - step-by-step transformation plan progressing and delivering sustainable improvements in key metrics * UK Rail delivering solid revenue growth underpinned by continued passenger volume increases and strong operational delivery Commenting, FirstGroup's Chief Executive, Tim O'Toole said: "We have made satisfactory progress on our key priorities in the year, delivering earnings growth despite the historically severe weather in North America. We saw good performances in four of our divisions partially offset by slower progress in First Student, where driving forward our detailed recovery plan is a key priority. Although part way through the current bid season, our programme to address contract portfolio pricing has made encouraging progress, though we recognise that we still have some way to go. "The Group is broadly on track to achieve our medium term targets and, while we are encouraged by progress so far, there remains a significant amount of work ahead. We are confident that we have the right plans underway to build on our market leading positions, strengthen the resilience of the Group, and return to a profile of sustainable cash generation and value creation for the long term." Contacts: FirstGroup plc: Rachael Borthwick, Group Corporate Communications Director Faisal Tabbah, Group Investor Relations Manager Stuart Butchers, Group Media Relations Manager Tel: +44 (0) 20 7291 0512 Brunswick PR: Michael Harrison/Andrew Porter Tel: +44 (0) 20 7404 5959 A PRESENTATION TO INVESTORS AND ANALYSTS WILL BE HELD AT 9:00AM TODAY ATTENDANCE IS BY INVITATION ONLY A LIVE TELEPHONE `LISTEN IN' FACILITY IS AVAILABLE, FOR JOINING DETAILS PLEASE CONTACT +44 (0) 20 7725 3354 A PLAYBACK FACILITY WILL BE AVAILABLE AT WWW.FIRSTGROUP.COM/INVESTORS PHOTOS FOR MEDIA ARE AVAILABLE, PLEASE CALL +44 (0) 20 7725 3354 CHAIRMAN'S STATEMENT I am pleased to have joined FirstGroup as Chairman, at a key stage of its evolution. This is an important company, operating in five major divisions, providing services to millions of customers in the UK and North America, is one of the largest corporate employers, and a major contributor to the communities in which we operate. Since taking on the role at the beginning of the year, I have reviewed the business plans and actively engaged on major decisions and forward plans with the senior team. Essentially, I have found the challenges and opportunities facing the company to be broadly in keeping with my initial expectations. I have also met all of our major shareholders. It is fair to say that they are very supportive of the Group, but are disappointed we have not matched this support with appropriate returns. Turning this situation around is therefore the first priority of the Board. I am encouraged that the Group has an attractive portfolio of transport businesses - each a leader in its market, and each with good growth and returns prospects, particularly as the economies recover from the global financial crisis. With the correct decisions and actions, we should be able to turn this into acceptable returns for shareholders in the form of appropriate dividends and capital growth that has eluded us more recently. First Transit, Greyhound and UK Rail are delivering returns broadly in line with what I would expect, though clearly we have significant opportunity for further improvement. On the other hand, two of our businesses, First Student and UK Bus, have not performed, and are well short of their potential and delivering lower margins than their competitors. Although both divisions have faced challenging economic conditions in their respective markets, we cannot escape that we should have managed them better. Progress has been made in addressing the performance of these two divisions, with headway being made in UK Bus in particular, but there remains much to do still. Fixing these and delivering the business plans we announced recently is the Group's key priority. Also, as a result of past acquisitions, and notwithstanding the rights issue last year, Group leverage remains higher than its optimal long term level despite the good strides made to reduce it over the past five years, and the interest burden continues to weigh on the income statement. It will take some years of good operating cash flow to bring this down to a more prudent level, but we will consider ways to accelerate this. At the same time, some of the businesses have, in the past, suffered from a lack of appropriate capital investment and this has been boosted significantly in our business plans. Taking together the current stage of the First Student and UK Bus recovery programmes and our commitment to the capital investment programme, it will take some time before the Group is able to deliver a profile of consistent surplus cash that can be distributed to shareholders. As a result, the Board has decided that we should refrain from reinstating a dividend at this point. Having consulted with our major shareholders I am confident they will support this decision. We will keep shareholders advised of progress in this respect. The task of extracting greater value from First Student and UK Bus is fundamental. Turning around performance in both of these divisions, as well as delivering profitability and returns at least in line with our peers, would generate additional cash flow to enable us to reduce leverage and increase shareholder returns. Central to this is the need to make disciplined decisions on pricing, productivity and capital allocation. I am confident these issues are resolvable over time and my own experience in corporate recovery situations should assist in this. Turning to performance for the year, while below our ultimate potential, the Group has performed broadly in line with expectations, once account is taken for the extraordinary weather particularly in North America. Excluding businesses sold this and last year, Group revenues have increased modestly, but more importantly from a strategic perspective, adjusted operating profit increased by 5.5%, adjusted profit before tax is 23.1% greater, and adjusted profit attributable to ordinary shareholders has increased by 21.8%. Adjusted EPS has fallen by 31.8%, principally due to the increased number of shares following the rights issue. Adjusting for the proceeds of the rights issue, Group cash flow was in line with guidance, reflecting the planned increase in capital investment. The Board was particularly encouraged by the performance of First Transit, Greyhound, UK Bus and UK Rail this year. UK Bus, while still working through its transformation programme, is beginning to show that it is on the right track. First Student's slower progress however, which was heavily affected by the unusual winter weather, was disappointing. A strong, experienced and diverse Board with the right mix of skills and experience will be essential to the successful execution of the transformation programme, by providing strategic oversight to management as well as rigorous and robust challenge. It is a natural process after periods of long service for Directors to retire and for the Board to be refreshed. Accordingly, we have announced that John Sievwright, David Begg, and Colin Hood will retire from the Board, and Warwick Brady, Drummond Hall and Imelda Walsh will join the Board as Non-Executive Directors, with effect from 24 June 2014. I am pleased to welcome Warwick, Drummond and Imelda to the Board and I am delighted that such distinguished directors have placed their faith in us. I would like to thank John, David and Colin for their dedication and contribution to the company, and particularly for their support to me as incoming Chairman. On behalf of the Board I would also like to pay tribute to my predecessor Martin Gilbert who stepped down from the Board on 31 December 2013 and, having been involved with the Group since its formation, was instrumental in establishing its position as the leading transport operator in the UK and North America. I have been impressed by the commitment and dedication of our people who remain focused on the task of delivering high quality services to our customers. The Board is grateful for the continued efforts and dedication of our 117,000 employees, particularly during what has been a challenging period for the Group. As I have spent time reviewing and challenging the strategy of the Group, my early impression is that this is the right one for current conditions. We will however continue to review other options that are financially compelling, as I work with management and the Board over the coming months. Clearly it is disappointing that we have not been in a position to declare a dividend for the year, but we ask for shareholders' patience while we return the Group to a dividend paying position. Looking forward, although it is early days for me as your Chairman, I believe we have correctly assessed the situation, are putting the right programmes in place, and are taking the appropriate action to improve profitability, cash generation and to strengthen the balance sheet. With a resolute focus on bringing these issues to a successful conclusion, I sincerely look forward to playing a pivotal role in the next stage of the Group's evolution. John McFarlane Chairman 21 May 2014 Note: Operating profit referred to throughout this document refers to operating profit before amortisation charges, ineffectiveness on financial derivativesand exceptional items. EBITDA is adjustedoperating profit less capital grant amortisation plus depreciation. CHIEF EXECUTIVE'S REVIEW Our services help to create strong, vibrant and sustainable local economies and our opportunity is to be the provider of choice for our customers and communities. We have a unique competitive advantage as a result of our scale and the diversity of our portfolio of market leading transport businesses: we design and operate more networks, we hire and train more employees, we procure, maintain and deploy more vehicles, and we work with more local communities than any other operator. Our vision is to provide solutions for an increasingly congested worldâ€¦ keeping people moving and communities prospering. Our strategy Our overall strategy is designed to leverage our scale by developing and sharing our global expertise for the benefit of our local markets. In recent years, although we have excelled in particular ways and at different times, we have not delivered the overall financial performance that would reflect our leading market positions. As a consequence, we are repositioning the Group for improved growth and to restore us to a profile of consistent financial returns. Last year, we strengthened the balance sheet to give us the flexibility to invest in our transformation programme and set out detailed medium term financial targets. Our strategic objectives under the transformation programme are: focused and disciplined bidding in our contract businesses (First Student, First Transit and UK Rail), driving growth through attractive commercial propositions in our passenger revenue businesses (Greyhound and UK Bus), continuous improvement in operating and financial performance, prudent investment in our key assets (fleets, systems, and people), and responsible partnerships with our customers and communities who rely on us and on whom, in turn, we depend. We are confident that successful execution of our strategy will deliver our key medium term financial targets, which are to increase Group revenue (excluding UK Rail) at a faster rate than the economies we serve, improve margins in First Student and UK Bus to double digit levels and in Greyhound to 12%, and to achieve a post-tax return on capital employed (ROCE) in the 10 to 12% range for the Group as a whole. As importantly, our plans will create a more robust company and one that is better placed to deliver on its potential. Year in review The year to 31 March 2014 has been one of repositioning and investing in the Group to drive greater value from our market leading portfolio of businesses, focusing on our people, our divisional performance and priorities and our financial position. Our people In December 2013 we were delighted to announce the appointment of John McFarlane as Chairman. The Group is already benefitting from his extensive international experience and track record of strategic change and value creation. The experience, skills and perspectives of our new Non-Executive Directors Warwick Brady, Drummond Hall and Imelda Walsh will also be invaluable to the Group as we drive forward our plans. In January 2014 Dennis Maple joined the Group as President of First Student. The wealth of experience that Dennis brings will be important as we build on the cost savings actions already taken and accelerate our contract repositioning programme to deliver double digit margins in the medium term. During the year, UK Bus restructured its senior leadership team to ensure that the necessary commercial and operational expertise is focused on our local operations and to bring in new talent (over 30% of the management within the division have been changed in the last two years). In the year, we have also launched important Group-wide employee professional development, engagement and diversity initiatives, which will strengthen our ability to deliver our transformation programme. Divisional performance and priorities In the year, we made satisfactory progress with our key divisional priorities, with good performances in four of our divisions partially offset by slower progress in First Student. We also have clear plans in place for each of the divisions to contribute to the Group's overall progress towards its medium term targets: First Student made progress in its recovery plan, achieving the $100m p.a. in cost savings as planned. However, current cost inflation that marginally exceeds the pricing adjustments provided for in our multi-year contracts, together with an unprecedented amount of school closures due to the severity of the North American winter season, meant that our rate of progress toward our medium term objective of double digit margins was slower than we had targeted. Going forward, First Student is accelerating its programme to address contract portfolio pricing and focus capital on higher returning opportunities, and targeting a further $50m p.a. of identified cost efficiencies. First Transit delivered another year of strong growth and good margins, with continued bid success across all segments. Going forward, First Transit will continue to invest in its market leading people and solutions to deliver further growth with attractive returns. Although its reported results were negatively affected by the severe weather which caused significant disruption to the network this winter, the underlying performance in Greyhound indicates signs of a modestly improving market for its traditional coach services. Our Greyhound Express and BoltBus point-to-point brands continued to achieve strong profitable growth, benefitting from the unique feed from our national network. Going forward, the modernisation of Greyhound's IT infrastructure and web presence will deliver improved ticketing, real-time pricing and yield management, and this, together with the continued profitable growth of our point-to-point brands, will deliver our medium term margin target of 12% for the division. UK Bus has achieved overall passenger volume growth for the first time in several years, as a result of the network transformations, fare reviews and significant investments in fleet and service during the year. Going forward, we will continue to improve our commercial proposition to drive passenger volume growth and revenues, while continuing to strengthen operational discipline as we make progress with our step-by-step plan to raise margins to double digits. During the year, UK Rail delivered continued revenue growth underpinned by robust passenger volume growth. Our train operating companies worked closely with our industry partners to deliver both planned infrastructure and fleet upgrades, and remedial work to restore services on parts of the network damaged by flooding. First Great Western and First Capital Connect extended their roles through direct awards from the Department for Transport (DfT) in the year. UK Rail is currently shortlisted on five franchising competitions. Going forward, UK Rail will participate in a range of franchise competitions to achieve profit on a par with the last round of franchising, with an acceptable level of risk. Our financial position In June 2013, we received the net Â£584m proceeds of the rights issue which strengthened our balance sheet and provided the necessary flexibility to continue our transformation programme and invest to create sustainable value. In May 2014, we signed a 5 year, Â£800m revolving credit facility with our relationship banks. In addition to achieving better pricing and increased flexibility in certain areas, the new facility gives us strong liquidity and a stable financing platform to drive forward our transformation programme, with our next debt maturity in October 2016. Group outlook We have made satisfactory progress on our key priorities in the year, delivering earnings growth despite the historically severe weather in North America. We saw good performances in four of our divisions partially offset by slower progress in First Student, where driving forward our detailed recovery plan is a key priority. Although part way through the current bid season, our programme to address contract portfolio pricing has made encouraging progress, though we recognise that we still have some way to go. The Group is broadly on track to achieve our medium term targets and, while we are encouraged by progress so far, there remains a significant amount of work ahead. We are confident that we have the right plans underway to build on our market leading positions, strengthen the resilience of the Group, and return to a profile of sustainable cash generation and value creation for the long term. Tim O'Toole Chief Executive 21 May 2014 OPERATING AND FINANCIAL REVIEW Group revenue was Â£6,717.4m (2013: Â£6,900.9m), a decrease of 2.7%. Adjusting for the UK Bus portfolio changes, the disposal of First Support Services (FSS) in First Transit and the non-recurring London 2012 Games, like-for-like Group revenue increased by 1.2%. Adjusted operating profit increased 5.5% to Â£268.0m (2013: Â£254.1m), reflecting higher profits in UK Rail and First Transit partially offset by reductions in the other divisions, including Â£14m profit impact of unprecedented weather conditions on First Student and Greyhound in the fourth quarter. Group margins increased, with improvements in UK Bus, First Transit, and UK Rail more than offsetting declines in First Student and Greyhound. Statutory operating profit was Â£232.2m (2013: Â£139.8m) reflecting the increased adjusted operating profit and a much reduced charge for exceptional items this year. Adjusted basic EPS decreased to 7.5p (2013: 11.0p), reflecting the increased number of shares in issue following the rights issue, whereas attributable profit for the adjusted EPS calculation increased by 21.8% from Â£65.1m to Â£79.3m in the year. EBITDA decreased 1.0% to Â£579.8m (2013: Â£585.7m). ROCE1 improved to 8.2%, compared with 7.0% (as restated) for the year to 31 March 2013. The Group has reviewed its treatment of exceptional items, in particular generally recurring costs associated with UK Rail bids and profit/(loss) on property disposals. As a result, these items have been included in our measure of adjusted results in this document and the prior year has also been restated accordingly. The net cash inflow for the year, excluding the net proceeds of Â£584.4m from the rights issue, was Â£26.9m (2013: outflow of Â£74.4m). The net debt to EBITDA ratio was 2.2 times (2013: 3.4 times). The average debt duration at 31 March 2014 was 6.1 years (2013: 5.4 years) and there was Â£988.5m (2013: Â£1,215.5m) of headroom under committed facilities and free cash. During the year gross capital expenditure of Â£464.7m (2013: Â£404.3m) was invested in our business to continue the transformation programme and invest in future growth. We continue to anticipate investing approximately Â£400m p.a. in capital expenditure over the next three financial years in our businesses as we pursue our medium term financial objectives, which are as follows: * The Group aims to increase Group revenue (excluding UK Rail) at a faster rate than the economies we serve, through careful investment in our passenger revenue-based services, and disciplined bidding in our contract-based businesses. * First Student and UK Bus will improve margins to double digit levels through the detailed recovery plans underway, Greyhound targets a margin of approximately 12%, First Transit will continue its record of growth while maintaining margins, and in UK Rail we will participate in a range of future franchise competitions to achieve profit on a par with the last round of franchising, with an acceptable level of risk. * Overall the Group's objective is to achieve ROCE in the range of 10% to 12% in the medium term, compared to 8.2% in the 2013/14 financial year. * We also aim to maintain an investment grade credit rating and appropriate balance sheet liquidity and headroom. The Group has net debt : EBITDA of 2.2 times as at 31 March 2014, and is targeting net debt : EBITDA of 2.0 times in the medium term. 1 Return on capital employed (ROCE) is calculated by dividing adjusted operating profit after tax by all assets and liabilities excluding debt items. Divisional results Restated Year to 31 March 2014 Year to 31 March 2013 Operating Operating Operating Operating Revenue profit1 margin1 Revenue profit1 margin1 Â£m Â£m % Â£m Â£m % First Student 1,467.4 93.5 6.4% 1,503.1 110.1 7.3% First Transit 811.9 60.3 7.4% 814.6 49.1 6.0% Greyhound 624.6 46.4 7.4% 647.1 54.3 8.4% UK Bus 930.2 44.4 4.8% 1,128.2 50.8 4.5% UK Rail 2,870.1 55.2 1.9% 2,795.1 19.3 0.7% Group2 13.2 (31.8) 12.8 (29.5) Total Group 6,717.4 268.0 4.0% 6,900.9 254.1 3.7% North America in $m $m % $m $m % US Dollars First Student 2,339.3 152.8 6.5% 2,378.6 175.2 7.4% First Transit 1,290.5 95.7 7.4% 1,286.8 77.7 6.0% Greyhound 990.6 73.2 7.4% 1,022.0 85.2 8.3% Total North 4,620.4 321.7 7.0% 4,687.4 338.1 7.2% America 1Adjusted. 2Tramlink operations, central management and other items. First Student Revenue in our First Student division was $2,339.3m or Â£1,467.4m (2013: $2,378.6m or Â£1,503.1m), 1.7% lower on a US Dollar basis, principally due to an unprecedented number of school closures due to the abnormal weather conditions across North America in the second half of our financial year. Operating profit was $152.8m or Â£93.5m (2013: $175.2m or Â£110.1m), resulting in a margin of 6.5% (2013: 7.4%), which also reflects school closures and the higher associated operating costs during the unusually severe weather. 75% of our territory suffered some impact from the extraordinary snow falls and extremely cold conditions, with more than 4,000 school days lost, approximately twice the impact we would expect to see in a typical year. A number of the lost operating days may potentially be recovered in the summer term, which occurs in our 2014/ 15 financial year. On an underlying basis, excluding the approximately $25m of net weather impact for the year, First Student's margin would have been flat compared with the prior year, reflecting the achievement of the $100m in annual cost savings as planned, offset by cost inflation running slightly ahead of price indexation in our multi-year contracts. Focused and disciplined bidding State and local finances have continued to improve modestly in the year; over the 2013 bid season we achieved organic growth from within existing contracts of more than 470 buses, almost double the rate of organic growth in the prior year and equating to approximately 1% growth. We continue to be competitive in the conversion market from in-house to the private sector, winning 55% of the contracts bid for-and-awarded. We remain cautious about conversion growth however, as only a small proportion of contracts put out to tender convert to the outsourced sector, a trend we do not envisage changing in the medium term. A number of our `share shift' contract wins were cost-effective expansions of existing operations, such as for the Los Angeles Unified School District and for Kansas City, Missouri. Our continuing focus on returns resulted in some contract losses including several where, although the numbers of buses operated were significant, their contribution to profits was limited. Overall contract retention for the 2013 bidding season was around 90%, and the number of buses operated fell by around 550. Continuous improvement in operating and financial performance We have continued to focus on delivering cost efficiencies during the year, an area which remains an important component of First Student's recovery plan. Having delivered $100m p.a. in cost savings in the year - through implementing uniform best practice in driver operating procedures, maintenance, fuel use and procurement - the business is enhancing its ability to generate returns, despite continued cost inflation in the industry. The next phase of cost savings, amounting to c.$50m, have been identified, and focus on optimising the overhead structures of the business, together with ensuring full compliance of ever more consistent operating procedures throughout our more than 500 locations. Two thirds of our engineering workshops have now achieved silver or gold `lean' certification, up from a quarter in the prior year. Although non-school charter results were impacted by the weather, growing 9.5% in the period, we are pleased with the progress of our more structured approach to this business, which delivers a very strong incremental return on capital employed. Prudent investment in our key assets We continue to invest in technology to differentiate our offering, raise customer service levels and promote environmental benefits. The roll out of our FOCUS GPS system (which links on board data to back office systems) has been completed and is delivering savings to plan, and the DriveSmart system (which provides real-time fuel use feedback to drivers) is being fitted throughout the fleet. In the second half we launched the MyFirstPass system in selected locations, which gives parents and customers real-time information about student ridership as they swipe on and off the bus. We invested approximately $300m in new buses, refurbishments, on-board technology and facilities improvements in the year; our average fleet age remains around 7.5 years. Responsible partnerships with our customers and communities First Student achieved a fifth consecutive year of improved customer service scores, with particularly pleasing results in the important start up phase of the school year. We are achieving fuel efficiency improvements of around 5% across the division through the DriveSmart system, and added approximately 500 alternative fuel buses (mainly propane) to the fleet in the year. First Student's safety performance is both a source of competitive advantage and, more fundamentally, is deeply embedded in our culture and values. Future priorities First Student is a leader in its market in terms of both its size and the quality and safety of the services it provides. Although the recovery plan continues to make progress, more work remains to be done to ensure the division delivers its medium term double digit margin target. At present, the division deploys significant capital across parts of its contract portfolio that does not attract a fair margin for the quality of service provided or an appropriate rate of return on that capital. Therefore the division is working through a programme to address contract portfolio pricing, focus capital on higher returning opportunities and continues to drive further cost efficiencies through the business. We remain confident in the ability of our detailed recovery plan to improve margins to double digits over the medium term. In the longer term, First Student will be increasingly well placed for growth through further share shift, in-fill acquisitions, and organic opportunities. Outlook During the 2014 bid season, First Student is intensifying its focus on retaining or winning contracts that deliver an appropriate level of return on capital employed, which may result in some further losses of lower margin contracts. To the extent this is the case, the division will cascade the freed up vehicles to other opportunities, with a commensurate saving in capital expenditure. Although this approach may result in a modestly smaller revenue base and some short term costs, over the medium term this approach - coupled with the further cost savings - will result in a more sustainably attractive contract portfolio, which will deliver double digit margins and better returns on capital. Although part way through the current bid season, our programme to address contract portfolio pricing has made encouraging progress, though we recognise that we still have some way to go. First Transit Revenue in our First Transit division was $1,290.5m or Â£811.9m (2013: $1,286.8m or Â£814.6m). Adjusting for the disposal of FSS, US Dollar revenue increased by 8.0%, reflecting continued new business wins and organic growth within existing contracts. All key segments saw growth in the year, led by fixed route, paratransit and shuttle. Operating profit was $95.7m or Â£60.3m (2013: $77.7m or Â£49.1m), resulting in a margin of 7.4% (2013: 6.0%), which reflects a strong operating performance and the absence of the significant historic legal claim settlement in the prior year. Focused and disciplined bidding During the year, First Transit continued to leverage its longstanding management reputation and expertise to win new work. At the same time, through its collaborative approach with its public transit authority and private customers, the division also generated growth from increased utilisation of its services under existing contracts. Contract retention remained above 90%, reflecting high customer regard for our capabilities and the competitive pricing of our services. The largest award in the year was a paratransit contract for PACE, part of the regional transport authority of Chicago, Illinois. We were also successful in expanding our call centre work with an important win for the Chicago Regional Transit Authority's Travel Information Center. Our shuttle business continues to be successful, with further contract wins at Auburn University and the University of Alabama at Birmingham joining other recent contracts including for the University of Tennessee Knoxville and Brown University in our market leading university portfolio. First Transit transitioned several large contracts from other operators including the newly unified fixed route contract for Valley Metro RPTA in Mesa/Tempe, Arizona, the MetroACCESS paratransit contract in Washington, DC, and the Maryland Transit Administration paratransit contract in Baltimore, MD. Important contract retentions this year included fixed route services for the Potomac and Rappahannock Transportation Commission in Woodbridge, VA, fixed and route and paratransit services for Johnson County, Kansas, and shuttle services at the Baltimore/Washington International Airport. Collaborating with our Fort McMurray oil industry partners resulted in further revenue growth under existing contracts. Continuous improvement in operating and financial performance A significant proportion of First Transit's opportunities will continue to arise from business outsourced to the private sector for the first time, where our national service platform, technology infrastructure and management expertise can deliver substantial cost savings compared to public provision. Through a culture of continuous improvement and technology insertion, First Transit has continued to maintain our ability to provide both exceptional service and low cost for new and existing customers. For example, First Transit has continued to improve operational efficiencies, including through the refinement of our fixed route mileage optimisation programme which results in reduced non-revenue time and mileage, paratransit productivity which improves vehicle routing and scheduling efficiency, and direct and indirect cost reductions through the negotiation of more competitive purchasing agreements. Prudent investment in our key assets First Transit focuses investment spending on three principal areas: people, technology solutions and on vehicles for the shuttle segment, where typically we own the fleet as well as delivering a service. To ensure we maintain the depth and breadth of expertise required to consistently deliver high-quality bid submissions and a subsequent service that meets customer expectations, we maintained our significant investment in recruitment, retention and continuous training of our people. The division successfully initiated the roll out throughout the US of its management IT system providing automated operational, maintenance and financial information in the year, which will deliver significant cost savings. This system will also allow us to offer real-time vehicle location information to our customers. In shuttle, we continue to invest in state-of-the-art fleet through a combination of direct investment and operating leases, where commercially appropriate. Responsible partnerships with our customers and communities Our customer service trends continue to be positive, with our commitment to safety, technical and operational knowledge and professionalism particularly recognised by our customers. We have enhanced our industry leading safety programme through the continued roll out of DriveCam technology, an event capture and driver behaviour monitoring system, which has the added benefit of improving fuel efficiency. Future priorities The continued success of First Transit depends on maintaining our competitive advantage, which resides in the expertise of our people and the quality of our technology. Both are vital components in delivering services that continue to innovate and to deliver cost efficiencies, which in turn ensures we will be the low cost supplier of choice for our customers. We see continued growth potential in all of our existing segments, together with emerging outsourcing opportunities in light rail, commuter rail, high speed rail and Bus Rapid Transit (BRT) in the US and internationally. Over the coming years, we anticipate there will also be opportunities for targeted acquisitions of complementary businesses, which would immediately increase market share, leverage our scale and enhance profits and returns. We look forward to leveraging our market position and reputation to deliver continued growth at attractive margins. Outlook The pipeline of potential new business remains attractive, with a wide range of bid opportunities to add to our portfolio of over 370 contracts. As we look ahead to next year, current identified opportunities are weighted to fixed route, paratransit and shuttle segments. Greyhound Greyhound's overall US Dollar revenue was $990.6m or Â£624.6m (2013: $1,022.0m or Â£647.1m) with the reduction of 3.1% including the impact of severe weather which caused significant disruption to the network in the fourth quarter. Excluding weather, like-for-like revenue over the financial year was approximately 0.7% lower, although the revenue growth trajectory improved over the course of the year. Adjusted operating profit was $73.2m or Â£46.4m (2013: $85.2m or Â£54.3m), resulting in a margin of 7.4% (2013: 8.3%). This margin performance in part reflects the modestly improving economic conditions over the course of the year and the continued profitable growth of our point-to-point services, offset by the impact of weather-related disruption and higher associated operating costs in the final quarter. Driving growth through attractive commercial propositions Greyhound's iconic brand is synonymous with long distance coach travel in North America and our unique national network provides a significant competitive advantage and an established base for future growth, by providing passenger feed from the 42,000 city pairs that we offer as operating leverage to our point-to-point services. Whilst traditional Greyhound remains a largely cyclical business, our programme of expansion in Greyhound Express and our other point-to-point brands continued even during recent periods of economic fragility in North America. Greyhound Express continues to perform well, with like-for-like revenue increasing by more than 10% for the year. The multiple price points we now offer gives us broader market potential and helps us to attract users back to coach travel as well as encouraging new customer demographics. Greyhound Express now covers more than 30% of our US network including most of the major city pairs. During the year we launched Greyhound Express in additional markets including routes around Vancouver, Edmonton to Grand Prairie, Dallas to Memphis, and from Jacksonville to Miami and New Orleans. Our BoltBus services also expanded in California, adding Los Angeles to San Francisco, San Jose to Oakland and Los Angeles to Las Vegas, and our YO!Bus brand, which links Chinatowns in the Northeast, saw positive year on year performance. We are taking the experience from our point-to-point services and introducing best practice across our traditional network. Greyhound is re-engaging with our customers through increased marketing and has improved the amenities of our fleet with multiple new and refurbished vehicles that provide leather seats, WiFi and power sockets. We are further developing our dynamic pricing proposition and opening up innovative ways to interact with both new and existing customers through additional sales channels, such as our mobile-enabled website which came online in 2013/14 with print at home ticketing functionality, and the ability to book online and pay cash for tickets in over 10,000 Seven Eleven and Ace Cash Express kiosks. In the last two years, the proportion of tickets purchased online has increased from 34% to 47%. Continuous improvement in operating and financial performance Over the last five years we have significantly improved our operating flexibility, in part through depot and location rationalisation. Our ongoing efforts to right size our terminal footprint continues, and over the next few months we expect to open new terminals in Miami, Seattle and Baltimore. We are restructuring our Canadian business, have launched our Greyhound Express product in four provinces, and are improving our package delivery offering, which over time will deliver a more commercially viable service. Prudent investment in our key assets Our disciplined fleet investment has led to improved amenities for our customers and prolonged the life of our buses, enabling us to reduce maintenance costs and become more coordinated in the scheduling of preventive maintenance programmes. Our move towards a revitalised fleet continues with three quarters of our vehicles now either new or refurbished. We continue to introduce new vehicles from our April 2013 order of 220 coaches, and during 2014/15 we will have completed our refurbishment programme. Our investment in information technology will allow us to offer many new ways to better leverage and monetise the existing network capacity through yield and capacity optimisation, including the development of new dynamic pricing and yield management systems across our core network. We are developing the architecture needed to introduce a loyalty programme and increasing our marketing, helping us to engage further with our customers. Responsible partnerships with our customers and communities With an increased emphasis on customer service training across the division, our customer satisfaction scores have maintained their long term improving trend. Our new fleet now operates using some of the most fuel efficient engines in the industry, and we continue to promote initiatives including a focus on reduced idling and, through DriveCam, a more effective fuel consumption strategy. DriveCam's event capturing and driver behaviour monitoring also provides us with safety data. New terminals that we have opened recently or will open in the short term have the most up to date environmental credentials and are LEED certified by the US Green Buildings Council. Future priorities Since FirstGroup acquired Greyhound in 2007 we have transformed the operating model, making the business more flexible and introducing a reduced cost base and improved capital profile, which means that we are now poised for growth both within our existing network and with new demographics through Greyhound Express and our other point-to-point brands. We are on track with our investment programme, which will transform our offering principally through applying the yield management, real-time pricing and more consumer friendly ticketing features of Greyhound Express to the traditional network. This focused investment, together with the continued growth of our successful point-to-point products, gives us confidence in achieving our medium term margin target of 12%. Outlook Our main priority for the year ahead includes the further roll out of Greyhound Express routes and progress on our IT transformation. During the first half of the 2014/15 year we expect to begin piloting yield managed pricing on our traditional network. We will also complete our programme of fleet revitalisation; by the end of the financial year, all of our vehicles will be new or refurbished, further increasing the attractiveness of our customer offer. In 2014, Greyhound celebrates its centennial, and we plan to increase marketing to ensure that as the economy improves, more and more of our addressable market uses the services provided by our transformed iconic American brand. UK Bus Revenue in our UK Bus division was Â£930.2m (2013: Â£1,128.2m) and like-for-like passenger revenue growth (adjusting for the sale of our London business) was 1.8%. Adjusted operating profit was Â£44.4m (2013: Â£50.8m), resulting in a margin of 4.8% (2013: 4.5%). This encouraging performance is despite the continued challenges posed by economic conditions in some of our local markets as well as further reductions in public funding. During the year we completed the first stages of our transformation plan, including the previously announced disposals of certain bus businesses in order to rebalance the portfolio. As a result of this we exited the London market in order to focus on our commercial deregulated businesses elsewhere. Our transformation plans to return the division to double-digit margin performance in the medium term are focused on: stimulating passenger volume through improving our customer proposition (fares, networks, local partnerships), delivering improved service quality and cost savings through rigorous focus on disciplined operations and investment in our employees' capabilities; and investing in our fleet, ticketing and other customer-facing technologies to stimulate growth and loyalty. Driving growth through attractive commercial propositions A typical approach in a market is to rebase certain fares products to ensure competitiveness and value for money, which encourages volume growth and maintains revenue levels in the early stages. This acts as a platform from which to build further volume and pricing growth in future years. Following our success in the first half of the year principally in markets in the North region, the full year passenger volume growth across the division of 2.6% is the first full year of commercial passenger volume growth for a decade. Tailored fares reductions in Manchester have persuaded an extra 150,000 people per week to travel with First and contributed to an improvement of more than 30% in customer perceptions of our value for money. In the second half of the year we expanded our fares reviews to other markets including Leeds, Portsmouth, Southampton and Bristol, where we worked with the elected Mayor of Bristol to undertake a wide ranging consultation that we used to inform our new fares structure introduced in November. In many areas we coupled changes to the fares structure with improved network designs, allowing us to maximise growth opportunities and increase market share. We have completed ten major redesigns so far, including our SimpliCITY network in Glasgow which has restored frequencies of ten minutes or better to core services and coordinated these routes to create simpler links to the city centre. Against the backdrop of an economy that struggled in 2013/14, SimpliCITY outperformed the rest of the network, delivering a growth rate 1.0% higher. Effective partnerships, which foster better and stronger coordination with local authorities and other stakeholders, are hugely important for us in terms of our customer proposition. We are a key partner in two new Better Bus Areas announced in 2013, York and the West of England Partnership, receiving enhanced funding from the DfT. Working closely with our partners, we seek to align agendas and through this deliver greater passenger growth to the networks. Of the five areas across the country that have now secured this funding, we have been at the forefront of three, reflecting how important we consider fostering powerful partnerships are to the future success of local bus services. We are working hard with local authorities to ensure they make best use of their limited funds particularly for tendered services. In Cornwall, we have worked with the council to ensure that the network maximises the coordination between commercial and tendered services. In West Yorkshire we, along with other local operators, have developed a compelling proposition to enable buses to support the growth of the local economy, which will now be considered by the newly formed Combined Authority. In Portsmouth we have worked closely with the City Council to introduce bus priority measures including bus lanes and a park and ride system. Continuous improvement in operating and financial performance We have continued to focus on cost optimisation and disciplined operations during the year. Adoption of best practice operating procedures and standards have led to cost efficiencies including a 27% reduction in breakdowns and lost mileage reducing by 21%. This focus on disciplined operations has also delivered an increase in punctuality and reliability standards. With the optimisation of our depot operations making good progress, we have intensified our focus on leadership development. Our programmes aim to give our management teams the support to develop local initiatives, seek development opportunities and stimulate commercial initiatives. During the year, the division restructured its senior leadership team to refresh talent and ensure that the necessary commercial and operational expertise is in place to support our local operations. Prudent investment in our key assets In January we announced our biggest ever investment in vehicles outside London and we plan to introduce 425 vehicles during the 2014/15 financial year at a cost of Â£70m, taking our total investment in new vehicles to Â£310m invested in 2,000 new vehicles over four years. Almost all of these buses will be manufactured in the UK, with 274 Wrightbus StreetLite Micro Hybrid buses forming the bulk of the latest order. These diesel-based vehicles incorporate an innovative onboard hybrid system which improves fuel efficiency by around 10%, and we will be the first company to operate these new buses. Capital investment into our fleet will continue in the coming years, further reducing our average fleet age and improving customer experience. In both Aberdeen and Worcester we launched mobile ticketing during the year and through 2014 all of our networks will be equipped with this technology. We are also introducing smartcard schemes, with multi-operator capability where appropriate, allowing us to offer a more sophisticated pricing model and give us more information about who are customers are and how they use our services. This will give us a strong platform from which to launch customised loyalty initiatives based on a detailed understanding our customers' needs. Responsible partnerships with our customers and communities Our efforts to improve the quality of our fleet and the reliability of our services was recognised in the recent independent Passenger Focus Autumn 2013 survey of customer satisfaction. The results showed a 5% rise in overall passenger satisfaction across our services to 86%, including an increase in score in 34 of the 35 variables measured. We were particularly pleased that our Glasgow network achieved an overall satisfaction score of 91% following the launch of the SimpliCITY network this year. Our close partnership working also extends to ensuring our services are accessible for all. For example, in Glasgow we are offering job seekers significant discounts on single fares, our child fare of 60p in the same city is one of the cheapest in the UK, while in Bristol we offer a 30% discount to all young people under 21. We became the first national bus operator to pledge our support for a charter, developed by the Royal National Institute of Blind People, to ensure services are accessible for customers with sight loss. Our ongoing partnership with Disability Rights UK, and other disability organisations, is helping our drivers meet the needs of those living with disability and health conditions. We also support Greener Journeys' annual Catch the Bus Week initiative, which promotes the benefits of bus travel including environmental considerations and the importance of bus services to local economies. We were pleased to be awarded the contract to offer bus services for the 2014 Commonwealth Games in Glasgow, which follows two years of planning. Our SimpliCITY network across the city will be supplemented by new services and shuttles linking principal Games venues with the city centre. We will also be providing bus and coach services for all client groups during the Games including the athletes, technical officials, media and sponsors. Future priorities In the 2013/14 year we saw each component of our transformation plans coming together to enable the full potential in each market to begin to be realised. Each of our core initiatives are being rolled out across our bus businesses in a tailored local way. Our customers are beginning to recognise and welcome the improvements we are making to services across our operations, and we are seeing positive signs of passenger satisfaction scores improving and passenger volumes increasing. In combination, our strategies are building a more resilient business and we continue to move towards achieving double digit margins over the life of the plan. Outlook In 2014/15 we will continue to work through our network and fares optimisation programmes, and will be embedding the benefits of changes already made as some of the early schemes reach their first anniversary during the first half of the financial year. During 2014/15 the introduction of smart and mobile ticketing, together with enhancements to customer information channels, are designed to spur further volume growth. Although the local economies in some of our markets continue to be challenging, and local authority concessionary fare budgets remain under pressure, we have confidence that we will harness our compelling market positions to deliver sustained volume and revenue growth underpinned by tight cost disciplines over the coming years. UK Rail Our UK Rail division saw like-for-like passenger growth of 5.9% during the year (2013: 7.4%) as the strong demand that has been seen across the industry since privatisation continued into 2013/14. Revenue during the year was Â£2,870.1m (2013: Â£2,795.1m), with the increase principally due to the strong passenger volume growth across all of our train operating companies. Adjusted operating profit was Â£55.2m (2013: Â£19.3m), representing a margin of 1.9% (2013: 0.7%), in part reflecting First Great Western moving from a loss-making position to normal commercial terms under the direct award agreed in October 2013 and the successful delivery of a number of important fleet and infrastructure projects in conjunction with industry partners. Focused and disciplined bidding This year the DfT and Transport Scotland have made significant progress in the third generation of their rail re-franchising programmes, which will see Â£8bn p.a. of long term contract-backed passenger revenue available through 19 major franchise opportunities in the coming years. We are shortlisted for the ScotRail, Caledonian Sleeper, Essex Thameside, InterCity East Coast, and Thameslink Southern and Great Northern (TSGN) franchises, the only owning group to do so. We have submitted compelling bids for the first four of these which demonstrate value for money for passengers, the taxpayer and our shareholders, and expect to submit a competitive bid for the InterCity East Coast competition in the summer. We are also investigating contract opportunities from other franchising authorities, and during the year we were pleased to be shortlisted for the tender to operate the Luas light rail system in Dublin by the Railway Procurement Agency of the Republic of Ireland. The contract award decision is expected in the third quarter of 2014. Following the review of the re-franchising programme completed in 2012/13, the DfT announced a new timetable in March 2013 which was subsequently updated in April 2014. As part of this new timetable, we agreed shorter direct awards with the DfT to run our First Capital Connect franchise for an additional six months until September 2014 and our First Great Western franchise for an additional two years until September 2015, securing continuity of rail services for passengers and retaining our experience in managing the impact of the multi-billion pound investment programme already underway on these networks. We are progressing negotiations with the DfT to continue operating our First TransPennine Express franchise until February 2016, and working with the Department to explore whether a longer direct award with First Great Western may offer better value for money and better services for passengers during the significant programme of works to improve services on the Greater Western network. Continuous improvement in operating and financial performance Our UK Rail teams have a depth of expertise and a record of delivery. Our operating companies have outperformed the industry in delivering punctuality and customer satisfaction improvements since 2006, despite infrastructure challenges. We continue to work closely with Network Rail where we can in order to both help them reduce infrastructure issues, which in some of our operating areas accounts for two thirds of delays, and also to ensure upgrades are delivered in an efficient manner which causes the least possible disruption to our passengers. By far the most visible impact of infrastructure failures were the various incidents associated with the severe winter weather in December 2013 and February 2014, which led to significant and high profile damage to the Great Western Mainline at Dawlish, Bridgwater and Maidenhead. We worked closely with Network Rail as they undertook repairs to the line at Dawlish, during which time trains were unable to travel between Exeter and Plymouth. We introduced a revised timetable and our rail replacement bus teams were able to provide comprehensive support including a direct coach link between Exeter and key Cornish towns and cities. The line reopened on 4 April 2014. Amongst the infrastructure upgrades we are currently involved in are the Â£7.5bn Great Western Mainline upgrade in preparation for the introduction of the InterCity Express Programme, Crossrail and a new fleet of local electric trains. This upgrade includes the Â£850m Reading station remodelling project, which is due to finish a year ahead of schedule thanks in part to excellent working relationships with our industry partners. Following our success at securing additional services in Wiltshire in partnership with the DfT and local authorities, we began a consultation on improving the timetable between London and the South West for introduction later in the year. First Capital Connect were involved in the unveiling of brand new Class 700 trains which will be introduced from 2016 and the beginning of significant work to improve the busy London Bridge station, as part of the Â£6bn Thameslink Programme which will double capacity on the key cross-London route. We are also a key partner within the industry to deliver rolling stock and capacity upgrades with four successful fleet introductions in recent years. We are currently involved in programmes to deliver a further 1,500 new vehicles. The previously announced investment in 40 new carriages for First TransPennine Express saw the first new longer electric trains run on the Manchester-Scotland route in December, as part of the Government's Northern Hub electrification project. By May 2014 all of the new vehicles will be in service permitting an improved timetable and in turn freeing up carriages to increase capacity on the popular Manchester-Leeds route. Prudent investment in our key assets First Capital Connect's fleet of Class 365 trains is being transformed with fresh interiors and enhanced accessibility features as part of a Â£31m investment by Eversholt Rail, whilst we are deep cleaning 221 carriages to a high standard. More than 20 First ScotRail trains have been upgraded with new fittings and lighting by Eversholt, with another 21 vehicles set to be refurbished and repainted by 2016. The customer app for our operating companies has been downloaded more than one million times, providing journey planning and mobile retailing capabilities. Our First ScotRail smart ticketing trial is proving successful, and we are using the outputs to determine how best to introduce smart ticketing across our other franchises. Between First ScotRail and First Great Western we are leading the largest roll out of free WiFi on the UK rail network. Our Class 180 trains at both First Great Western and First Hull Trains are already WiFi equipped. First ScotRail launched a new responsive website in mid-March and more people are visiting the website using smartphones than computers for the first time ever. Responsible partnerships with our customers and communities The latest twice-yearly Passenger Focus survey was completed during the autumn. Amongst the results were some notable improvements for our train operating companies - as scores for our stations have increased across the board, our employees at First ScotRail and First TransPennine Express saw increased satisfaction scores, and specific initiatives such as our refreshed train interiors at First Capital Connect saw improved results. We have studied all of these findings and are acting on what our customers tell us is important. First ScotRail is the Official Supporter - Passenger Rail Services for the 2014 Commonwealth Games in Glasgow and is planning the most extensive train timetable that Scotland has ever seen in support of the event. Extra carriages and more frequent services will be provided until late at night to help journeys run as smoothly as possible for spectators as well as regular customers. We have been preparing the timetable with Glasgow 2014 and industry partners for more than two years - with more than a million extra journeys expected on our trains during the 11 days of sport. First ScotRail secured the UK's most recognised people award during the year for its sustained investment in staff training, being accredited with Investors in People (IIP) Gold status. First ScotRail is now the largest IIP Gold-accredited company in the UK, measured by the number of people employed. We became the first UK rail operator to partner with a national loyalty points scheme during the year as we joined Nectar, the country's largest such programme. This allows us to reward our customers by giving them additional incentives when booking online. During the year we were recognised for our successes, with First ScotRail winning the national Rail Business of the Year Award and First TransPennine Express awarded European InterCity Operator of the Year at the European Rail Congress. Future priorities We have been running rail services in the UK since 1997 and currently operate around a quarter of the rail market, with the delivery of rail services aligned with our customers' needs at the heart of our offer. We are the only UK rail owning group whose services include long distance, regional, commuter and sleeper operations. Our well regarded management team has strong commercial, rolling stock and major infrastructure project upgrade expertise and we have a highly experienced bidding team which aims to replenish our franchise portfolio to deliver profit on a par with the last round of franchising, with an acceptable level of risk. Outlook Rail passenger volumes across the industry continue to see strong growth, with passenger numbers more than doubling since 1996. We have seen consistent strong performance and have a highly successful record of delivery, outperforming the industry in achieving punctuality and customer satisfaction improvements. We remain committed to maintaining a leading position in this market and have a clear focus on meeting the needs of passengers, taxpayers and delivering an economic return for shareholders. Group outlook We have made satisfactory progress on our key priorities in the year, delivering earnings growth despite the historically severe weather in North America. We saw good performances in four of our divisions partially offset by slower progress in First Student, where driving forward our detailed recovery plan is a key priority. Although part way through the current bid season, our programme to address contract portfolio pricing has made encouraging progress, though we recognise that we still have some way to go. The Group is broadly on track to achieve our medium term targets and, while we are encouraged by progress so far, there remains a significant amount of work ahead. We are confident that we have the right plans underway to build on our market leading positions, strengthen the resilience of the Group, and return to a profile of sustainable cash generation and value creation for the long term. Exceptional items and amortisation charges Restated1 Year to Year to 31 March 31 March 2014 2013 Â£m Â£m Disposals UK Bus depot sales and closures 13.0 (19.8) First Transit FSS disposal and exit from Diego Garcia - (12.6) operations 13.0 (32.4) Onerous contracts/impairments UK Rail First Great Western contract provision 4.6 (15.9) UK Rail joint venture provision (DSBFirst) - (5.0) First Student onerous contract - (2.7) 4.6 (23.6) Legal claims First Student legal claims - (19.8) First Transit legal settlements - (5.9) First Transit Diego Garcia insurance claim - 6.7 - (19.0) Other UK Rail bid cost recoveries - 12.7 - 12.7 Exceptional itemscharged to operating profit 17.6 (62.3) Amortisation charges (53.4) (52.0) Operating profit charge (35.8) (114.3) Ineffectiveness on financial derivatives charged to (17.6) (5.5) finance costs Net charge before tax credit (53.4) (119.8) Tax credit 28.1 41.4 Net charge (25.3) (78.4) 1 Restated as set out in note 2. UK Bus depot sales and closures UK Bus depot sales and closures relate to measures taken by the Group to rebalance its portfolio in the UK Bus operations, which included selling or closing certain operations. The principal amount represents a Â£16.5m gain on the disposal of the eight London bus depots, which completed during the year offset by Â£3.5m of losses on depots sold or closed. UK Rail First Great Western contract provision The total loss in the final seven periods of the franchise was not as high as initially projected partly due to contractual changes agreed with the DfT. As a result Â£4.6m has been released as an exceptional credit. UK Rail bid cost recoveries The group received Â£12.7m of bid cost recoveries during the year to 31 March 2013 representing cost reimbursement from the DfT following the cancellation of the InterCity West Coast Franchise process. Amortisation charges The charge for the year was Â£53.4m (2013: Â£52.0m) with the increase mainly due to the amortisation of the First Great Western contract intangible recognised as a result of the contract extension, partly offset by the impact of foreign exchange movements. Ineffectiveness on financial derivatives Due to the ineffective element and undesignated fair value movements on financial derivatives there was a Â£17.6m non-cash charge (2013: Â£5.5m) to the income statement during the year. The principal component of this non-cash charge relates to certain US Dollar interest rate swaps, which are no longer required as the underlying US Dollar debt was repaid from the proceeds of the rights issue. Tax The tax credit as a result of these amortisation charges and exceptional items was Â£24.9m (2013: Â£39.4m). In addition there was a one-off deferred tax credit of Â£3.2m (2013: Â£2.0m) as a result of the reduction in the UK corporation tax rate from 23% to 20% (2013: 24% to 23%). Finance costs and investment income Adjusted net finance costs were Â£156.1m (2013: Â£163.2m) with the reduction principally reflecting the lower level of debt as a result of repayments following the rights issue, partly offset by the additional Â£8.7m of interest on pensions due to the impact of IAS 19 (revised). Profit before tax Adjusted profit before tax was Â£111.9m (2013: Â£90.9m) with the increase due principally to higher adjusted operating profit and lower net finance costs. An overall charge of Â£53.4m (2013: Â£119.8m) for exceptional items and amortisation charges resulted in statutory profit before tax of Â£58.5m (2013: loss of Â£ 28.9m). Tax The tax charge, on adjusted profit before tax, for the period was Â£22.4m (2013: Â£17.5m) representing an effective rate of 20.0% (2013: 19.3%). There was a tax credit of Â£24.9m (2013: credit of Â£39.4m) relating to amortisation charges and exceptional items. There was also a one-off credit adjustment of Â£3.2m (2013: Â£ 2.0m) to the UK deferred tax liability as a result of the reduction in the UK corporation tax rate from 23% to 20% (2013: 24% to 23%), which will apply from April 2016. This resulted in a total tax credit of Â£5.7m (2013: Â£23.9m) on continuing operations. The actual tax paid during the period was Â£8.2m (2013: Â£ 6.3m). North American cash tax remains low due to tax losses brought forward and tax depreciation in excess of book depreciation. We expect the North American cash tax rate to remain low for the near term. EPS The adjusted basic EPS was 7.5p (2013: 11.0p). Basic EPS was 5.1p (2013: (3.0) p), with the improvement primarily due to higher operating profit, lower net finance costs and lower net exceptional items compared to last year. EBITDA EBITDA by division is set out below: Restated Year to 31 March 2014 Year to 31 March 2013 Revenue EBITDA1 EBITDA Revenue EBITDA1 EBITDA margin1 margin1 Â£m Â£m Â£m Â£m % % First Student 1,467.4 241.1 16.4% 1,503.1 259.0 17.2% First Transit 811.9 72.0 8.9% 814.6 60.0 7.4% Greyhound 624.6 74.9 12.0% 647.1 83.2 12.9% UK Bus 930.2 105.9 11.4% 1,128.2 120.4 10.7% UK Rail 2,870.1 117.1 4.1% 2,795.1 91.7 3.3% Group 13.2 (31.2) 12.8 (28.6) Total Group 6,717.4 579.8 8.6% 6,900.9 585.7 8.5% North America in $m $m % $m $m % US Dollars First Student 2,339.3 387.2 16.6% 2,378.6 410.2 17.2% First Transit 1,290.5 114.4 8.9% 1,286.8 94.8 7.4% Greyhound 990.6 118.4 12.0% 1,022.0 131.2 12.8% Total North 4,620.4 620.0 13.4% 4,687.4 636.2 13.6% America 1Adjusted operating profit less capital grant amortisation plus depreciation. Cash flow The net cash inflow for the year was Â£26.9m (2013: outflow Â£74.4m). The cash inflow combined with the Â£584.4m net proceeds from the rights issue and the movements in debt due to foreign exchange contributed to a net debt decrease of Â£675.3m (2013: increase Â£141.6m) as detailed below: Restated Year to Year to 31 March 31 March 2014 2013 Â£m Â£m EBITDA 579.8 585.7 Cash exceptional items - (0.6) Other non-cash income statement charges 7.8 9.6 Working capital excluding FGW provision movement (37.0) (52.5) Working capital - FGW provision movement (current (35.3) (17.0) liabilities) Movement in other provisions (36.1) (12.2) Pension payments in excess of income statement charge (27.7) (34.1) Cash generated by operations 451.5 478.9 Capital expenditure (334.5) (338.1) Proceeds from disposal of property, plant and equipment 14.1 14.7 Interest and tax (157.2) (144.4) Dividends payable to Group shareholders - (114.0) Dividends payable to non-controlling minority (21.3) (10.7) shareholders Proceeds from sale of businesses 76.3 39.2 Other (2.0) - Net cash inflow/(outflow) 26.9 (74.4) Net proceeds from rights issue 584.4 - Foreign exchange movements 68.2 (63.1) Other non-cash movements in relation to financial (4.2) (4.1) instruments Movement in net debt in the year 675.3 (141.6) The net cash inflow compared to the outflow last year was primarily due to: * No equity dividend payments (2013: Â£114.0m). * Proceeds from sale of businesses were Â£37.1m higher, reflecting the London depots disposal completion in the year. * Working capital excluding FGW provision movement was Â£15.5m favourable to the prior year principally due to the timing of certain receipts in UK Rail. Partly offset by: * Higher planned FGW provision utilisation of Â£18.3m during the year. * Higher interest and tax payments of Â£12.8m primarily due to the timing of interest payments on the bonds, offset by a lower bank interest charge as a result of the rights issue. * Higher movement in other provisions of Â£23.9m due to the benefit last year of First Student and First Transit legal claims provided for but not paid in the year. * Higher dividends payable to non-controlling minority shareholders of Â£ 10.6m. * EBITDA of Â£579.8m was Â£5.9m lower than last year. Capital expenditure Cash capital expenditure was Â£334.5m (2013: Â£338.1m) and comprised First Student Â£130.8m (2013: Â£127.7m), First Transit Â£18.1m (2013: Â£18.0m), Greyhound Â£45.8m (2013: Â£51.3m), UK Bus Â£67.4m (2013: Â£72.4m), UK Rail Â£68.5m (2013: Â£ 66.1m) and Group items Â£3.9m (2013: Â£2.6m). In addition during the year we entered into operating leases for passenger carrying vehicles in First Student with capital values of Â£25.2m (2013: Â£nil), First Transit with capital values of Â£19.5m (2013: Â£12.5m), Greyhound with capital values Â£14.7m (2013: Â£nil) and UK Bus with capital values of Â£24.3m (2013: Â£21.6m). Gross capital investment was Â£464.7m (2013: Â£404.3m) and comprised First Student Â£194.3m (2013: Â£150.8m), First Transit Â£37.2m (2013: Â£30.5m), Greyhound Â£60.5m (2013: Â£51.3m), UK Bus Â£101.7m (2013: Â£103.0m), UK Rail Â£69.4m (2013: Â£ 63.9m) and Group items Â£1.6m (2013: Â£4.8m). Funding and risk management Liquidity within the Group has remained strong. At the 31 March there was Â£ 988.5m (2013: Â£1,215.5m) of committed headroom and free cash, being Â£796.2m (2013: Â£821.6m) of committed headroom and Â£192.3m (2013: Â£393.9m) of free cash. Largely due to seasonality in the North American school bus business, committed headroom typically reduces during the financial year up to October and increases thereafter. Treasury policy requires a minimum of Â£250m of committed headroom at all times. During the year the 2013 Â£300m bond was repaid in full as planned. As at 31 March 2014 the Group's average debt maturity was 6.1 years (2013: 5.4 years). In May 2014, we signed a 5 year, Â£800m revolving credit facility with our relationship banks. The Group does not enter into speculative financial transactions and uses only authorised financial instruments for certain risk management purposes. Interest rate risk The Group reduces exposure by using a combination of fixed rate debt and interest rate derivatives to achieve an overall fixed rate position over the medium term of more than 75% of net debt. Fuel price risk The Group uses a progressive forward hedging programme to manage commodity risk. In 2013/14 in the UK, 93% of the `at risk' crude requirements (2.2m barrels p.a.) were hedged at an average rate of $105 per barrel. At the end of the period we have hedged 92% of our `at risk' UK crude requirements for the year to 31 March 2015 at $101 per barrel and 58% of our requirements for the year to 31 March 2016 at $98 per barrel. In North America 69% of 2013/14 `at risk' crude oil volumes (1.6m barrels p.a.) were hedged at an average rate of $93 per barrel. At the end of the period we have hedged 55% of the volumes for the year to 31 March 2015 at $90 per barrel and 39% of our volumes for the year to 31 March 2016 at $87 per barrel. Foreign currency risk Group policies on foreign currency risk affecting cash flow, profits and net assets are maintained to minimise exposures to the Group by using a combination of natural hedge positions and derivative instruments where appropriate. Translation risk relating to US Dollar earnings arising in the US is largely offset by US Dollar denominated costs incurred in the UK, principally UK fuel costs, US Dollar interest and tax costs so that exposure to EPS on a year to year basis is not significant. Net debt The Group's net debt at 31 March 2014 was Â£1,303.8m (2013: Â£1,979.1m) and comprised: Year to Year to 31 March 31 March 2014 2013 Fixed Variable Total Total Â£m Â£m Â£m Â£m Sterling bond (2013)1 - - - 299.4 Sterling bond (2018)1 297.5 - 297.5 343.0 Sterling bond (2019)1 - 249.5 249.5 249.6 Sterling bond (2021)1 347.5 - 347.5 339.0 Sterling bond (2022)1 319.5 - 319.5 319.1 Sterling bond (2024)1 199.5 - 199.5 199.5 US Dollar bank loans - - - 358.1 Canadian Dollar bank loans - - - 15.5 Euro and other bank loans - - - 11.8 HP contracts and finance leases 311.1 33.5 344.6 418.2 Senior unsecured loan notes 89.9 - 89.9 98.3 Loan notes 8.7 1.0 9.7 9.7 Gross debt excluding accrued interest 1,573.7 284.0 1,857.7 2,661.2 Cash (192.3) (393.9) UK Rail ring-fenced cash and deposits (360.9) (273.8) Other ring-fenced cash and deposits (0.7) (14.4) Net debt excluding accrued interest 1,303.8 1,979.1 1Excludes accrued interest. Under the terms of the UK Rail franchise agreements, cash can only be distributed by the TOCs either up to the lower amount of their retained profits or the amount determined by prescribed liquidity ratios. The ring-fenced cash represents that which is not available for distribution or the amount required to satisfy the liquidity ratio at the balance sheet date. Shares in issue As at 31 March 2014 there were 1,204.2m shares in issue (2013: 481.8m), excluding treasury shares and own shares held in trust for employees of 0.7m (2013: 0.3m). The weighted average number of shares in issue for the purpose of basic EPS calculations (excluding treasury shares and own shares held in trust for employees) was 1,059.3m (2013: 590.8m). Balance sheet Net assets have increased by Â£408.5m since the start of the period. The principal reasons for this are the net proceeds from the rights issue of Â£ 584.4m, the retained profit for the year of Â£64.2m, favourable hedging reserve movements of Â£40.4m partly offset by unfavourable translation reserve movements of Â£231.1m and actuarial losses on defined benefit pension schemes (net of deferred tax) of Â£30.5m. Goodwill The carrying value (net assets including goodwill but excluding intercompany balances) of each cash generating unit (CGU) was tested for impairment during the year and there continues to be sufficient headroom in all of the CGUs. Foreign exchange The most significant exchange rates to Sterling for the Group are as follows: Year to 31 March Year to March 2013 2014 Closing Effective Closing Effective rate rate rate rate US Dollar 1.66 1.61 1.52 1.58 Canadian Dollar 1.84 1.69 1.55 1.59 Pensions Comparative figures for the year to 31 March 2013 have been restated for IAS 19 (revised) as explained in note 2. The Group has updated its pension assumptions as at 31 March 2014 for the defined benefit schemes in the UK and North America. The net pension deficit of Â£247.8m at the beginning of the year has increased to Â£260.9m at the end of the year, principally due to a lower net discount rate in the UK. The main factors that influence the balance sheet position for pensions and the sensitivities to their movement at 31 March 2014 are set out below: Movement Impact Discount rate +0.1% Reduce deficit by Â£29m Inflation +0.1% Increase deficit by Â£21m Seasonality The First Student business generates lower revenues and profits in the first half of the year than in the second half of the year as the school summer holidays fall into the first half. Greyhound operating profits are typically higher in the first half of the year due to demand being stronger in the summer months. Going concern The Group has established a strong balanced portfolio of businesses with approximately 50% of Group revenues secured under medium term contracts with government agencies and other large organisations in the UK and North America. The Group has a diversified funding structure with average debt duration at 31 March 2014 of 6.1 years (2013: 5.4 years) and which is largely represented by a medium term to committed long term unsecured bond debt and finance leases. As at 31 March 2014 the Group had a $1,250m committed revolving banking facility of which $1,200m (2013: $1,113m) was undrawn at the year end. This facility was refinanced in May 2014 and now has a maturity of June 2019. The Directors have carried out a detailed review of the Group's budget for the year to 31 March 2015 and medium term plans, with due regard for the risks and uncertainties to which the Group is exposed, the uncertain economic climate and the impact that this could have on trading performance. Based on this review, the Directors believe that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, the financial statements have been prepared on a going concern basis. Tim O'Toole Chris Surch Chief Executive Group Finance Director 21 May 2014 21 May 2014 Consolidated income statement For the year ended 31 March Restated 2014 2013 1 Adjusted Adjusted results2 Adjustments3 Total results2 Adjustments3 Total Notes Â£m Â£m Â£m Â£m Â£m Â£m Revenue 6,717.4 - 6,717.4 6,900.9 6,900.9 - Operating costs (6,449.4) (35.8) (6,485.2) (6,646.8) (114.3) (6,761.1) Operating profit 268.0 (35.8) 232.2 254.1 (114.3) 139.8 Amortisation charges (53.4) (53.4) (52.0) (52.0) - - Exceptional items 17.6 17.6 (62.3) (62.3) - - (35.8) (35.8) (114.3) (114.3) - - Investment income 1.7 - 1.7 1.8 1.8 - Finance costs (157.8) (17.6) (175.4) (165.0) (5.5) (170.5) Profit/(loss) before tax 111.9 (53.4) 58.5 90.9 (119.8) (28.9) Tax (22.4) 28.1 5.7 (17.5) 41.4 23.9 Profit/(loss) for the year 89.5 (25.3) 64.2 73.4 (78.4) (5.0) Attributable to: Equity holders of the 79.3 (25.1) 54.2 65.1 (82.9) (17.8) parent Non-controlling interests 10.2 (0.2) 10.0 8.3 4.5 12.8 89.5 (25.3) 64.2 73.4 (78.4) (5.0) Earnings per share Basic 4 7.5p (2.4)p 5.1p 11.0p (14.0)p (3.0)p Diluted 4 7.5p (2.4)p 5.1p 10.9p (13.9)p (3.0)p Dividends of Â£nil (2013: Â£114.0m) were paid during the year. Dividends of Â£nil (2013: Â£nil) are proposed for approval in respect of the year. 1Restated for adoption of IAS19 (revised) on pensions, the reclassification of certain exceptional items and the impact of the rights issue on EPS as explained in note 2. 2Adjusted trading results before items noted in 3 below. 3Amortisation charges, ineffectiveness on financial derivatives, exceptional items and tax thereon. Consolidated statement of comprehensive income Year ended 31 March Restated 2014 2013 Â£m Â£m Profit/(loss) for the year 64.2 (5.0) Items that will not be reclassified subsequently to profit or loss Actuarial (losses)/gains on defined benefit pension (33.5) 7.5 schemes Deferred tax on actuarial losses/gains on defined 3.0 0.2 benefit pension schemes (30.5) 7.7 Items that may be reclassified subsequently to profit or loss Derivative hedging instrument movements 44.3 (52.7) Deferred tax on derivative hedging instrument (3.9) 7.6 movements Exchange differences on translation of foreign (231.1) 103.2 operations (190.7) 58.1 Other comprehensive (expense)/income for the year (221.2) 65.8 Total comprehensive (expense)/income for the year (157.0) 60.8 Attributable to: Equity holders of the parent (167.0) 48.0 Non-controlling interests 10.0 12.8 (157.0) 60.8 Consolidated balance sheet Year ended 31 March Restated1 Restated1 2014 2013 2012 Notes Â£m Â£m Â£m Non-current assets Goodwill 5 1,509.5 1,665.8 1,599.3 Other intangible 6 217.9 281.8 318.8 assets Property, plant 7 1,864.9 1,977.6 2,006.3 and equipment Deferred tax 15 35.8 53.2 43.3 assets Retirement 29.9 15.4 25.2 benefit assets Derivative 14 25.9 63.3 72.6 financial instruments Investments 2.8 3.2 7.2 3,686.7 4,060.3 4,072.7 Current assets Inventories 8 71.4 79.9 91.0 Trade and other 9 663.6 641.0 601.9 receivables Cash and cash 553.9 682.1 499.7 equivalents Assets held for 6.2 44.7 3.7 sale Derivative 14 26.0 23.3 43.5 financial instruments 1,321.1 1,471.0 1,239.8 Total assets 5,007.8 5,531.3 5,312.5 Current liabilities Trade and other 10 1,219.8 1,256.7 1,271.5 payables Tax liabilities 34.2 28.7 21.8 Financial 11 127.8 441.3 195.3 liabilities Derivative 14 17.7 64.7 17.1 financial instruments 1,399.5 1,791.4 1,505.7 Net current 78.4 320.4 265.9 liabilities Non-current liabilities Financial 11 1,823.9 2,317.4 2,252.9 liabilities Derivative 14 9.2 21.7 50.1 financial instruments Retirement 290.6 263.2 293.1 benefit liabilities Deferred tax 15 37.0 62.2 95.6 liabilities Provisions 16 224.6 260.9 242.5 2,385.3 2,925.4 2,934.2 Total liabilities 3,784.8 4,716.8 4,439.9 Net assets 1,223.0 814.5 872.6 Equity Share capital 17 60.2 24.1 24.1 Share premium 676.4 676.4 676.4 Hedging reserve 7.8 (32.6) 12.5 Other reserves 4.6 4.6 4.6 Own shares (1.8) (1.1) (1.1) Translation 17.8 248.9 145.7 reserve Retained earnings 446.4 (130.5) (12.0) Equity 1,211.4 789.8 850.2 attributable to equity holders of the parent Non-controlling 11.6 24.7 22.4 interests Total equity 1,223.0 814.5 872.6 1 Restated as set out in note 2. Consolidated statement of changes in equity Share Share Hedging Other Own Translation Retained Total Non-controlling Total capital premium reserve reserves shares reserve earnings interests equity Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Balance at 1 24.1 676.4 12.5 4.6 (1.1) 145.7 (3.6) 858.6 22.4 April 2012 as 881.0 previously reported Prior year - - - - - - (8.4) (8.4) - (8.4) adjustment Balance at 1 24.1 676.4 12.5 4.6 (1.1) 145.7 (12.0) 850.2 22.4 April 2012 872.6 restated Total - - 103.2 (10.1) 48.0 12.8 60.8 comprehensive income for - - (45.1) the year Dividends - - - (114.0) (114.0) (10.5) (124.5) paid - - - Share-based - - - 5.6 5.6 - 5.6 payments - - - Balance at 31 24.1 676.4 (32.6) 4.6 (1.1) 248.9 (130.5) 789.8 24.7 March 2013 814.5 Rights issue1 36.1 - - - - - 548.3 584.4 - 584.4 Total - - 40.4 - - (231.1) 23.7 (167.0) 10.0 (157.0) comprehensive income for the year Movement in - - - - (0.7) - 0.3 (0.4) - (0.4) EBT and treasury shares Dividends - - - - - - - - (23.1) (23.1) paid Share-based - - - 4.6 4.6 - 4.6 payments - - - Balance at 31 60.2 676.4 7.8 4.6 (1.8) 17.8 446.4 1,211.4 11.6 1,223.0 March 2014 1 The rights issue which completed in June 2013 was effected through a legal structure that resulted in the excess of the proceeds over the nominal value of the share capital being recognised within retained earnings as a distributable reserve. Consolidated cash flow statement Year ended 31 March 2014 2013 Note Â£m Â£m Net cash from operating activities 18 292.3 332.7 Investing activities Interest received 2.0 1.8 Proceeds from disposal of property, plant 14.1 14.7 and equipment Purchases of property, plant and equipment (277.0) (213.1) Disposal of subsidiary/business 76.3 39.2 Net cash used in investing activities (184.6) (157.4) Financing activities Dividends paid - (114.0) Dividends paid to non-controlling (21.3) (10.7) shareholders Shares purchased by Employee Benefit Trust (2.0) - Proceeds from rights issue 614.4 - Fees paid on rights issue (30.0) - Proceeds from bond issues - 325.0 Repayment of bonds (300.0) - Drawdowns from bank facilities 20.1 63.3 Repayment of bank debt (416.9) (197.8) Repayments under HP contracts and finance (101.8) (55.8) leases Fees for bank facility amendments and bond - (6.2) issues Net cash flow from financing activities (237.5) 3.8 Net (decrease)/increase in cash and cash (129.8) 179.1 equivalents before foreign exchange movements Cash and cash equivalents at beginning of 682.1 499.7 year Foreign exchange movements 1.6 3.3 Cash and cash equivalents at end of year per 553.9 682.1 consolidated balance sheet Cash and cash equivalents are included within current assets on the consolidated balance sheet. Note to the consolidated cash flow statement - reconciliation of net cash flow to movement in net debt 2014 2013 Â£m Â£m Net (decrease)/increase in cash and cash equivalents (129.8) 179.1 in year Decrease/(increase) in debt and finance leases 798.6 (134.7) Inception of new HP contracts and finance leases (57.5) (125.0) Fees capitalised against bank facilities and bond - issues 6.2 Net cash flow 611.3 (74.4) Foreign exchange movements 68.2 (63.1) Other non-cash movements in relation to financial (4.2) (4.1) instruments Movement in net debt in year 675.3 (141.6) Net debt at beginning of year (1,979.1) (1,837.5) Net debt at end of year (1,303.8) (1,979.1) Net debt excludes all accrued interest. Notes to the consolidated financial statements 1 BASIS OF PREPARATION The financial information set out above does not constitute the Company's Statutory Accounts for the year ended 31 March 2014 or 2013, but is derived from those accounts. Statutory Accounts for 2013 have been delivered to the Registrar of Companies and those for 2014 will be delivered following the Company's Annual General Meeting. The auditors have reported on both sets of account; their reports were unqualified and did not contain statements under section 498 (2), (3) or (4) of the Companies Act 2006. Whilst the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRSs), this announcement does not in itself contain sufficient information to comply with IFRSs. The financial information has been prepared on the basis of the accounting policies as set out in the Statutory Accounts for 2013 with the exception of the adoption of IAS 19 (Revised) as explained in note 2. On adoption of IAS 19 (revised) the Group now presents interest on pensions in the finance costs line whereas previously such items were presented in operating costs. In addition the Group has adopted IFRS 13 - Fair Value Measurement. Copies of the Statutory Accounts for the year ended 31 March 2014 will be available to all shareholders in June and will also be available thereafter at the Registered Office of the Company at 395 King Street, Aberdeen, AB24 5RP. 2 Restatement of prior YEAR numbers The tables below show restated prior year comparative figures for the divisions and for the Group for the financial year ended 31 March 2013. The restatement reflects (a) the retrospective adjustment from the adoption of the changes in IAS 19 `Employee Benefits' (revised), (b) the reclassification of certain exceptional items and (c) the retrospective adjustment of earnings per share figures as required by IAS 33 `Earnings Per Share', reflecting the rights issue completed in June 2013. (a) IAS 19 (revised) IAS 19 (revised) applies to financial years beginning 1 January 2013 or later. The key impact on the Group from the revised standard will be to remove the separate assumptions for expected return on plan assets and discounting of scheme liabilities and replace them with one single discount rate for the net deficit. The actual benefits and the cash contributions for these plans are not impacted by IAS 19 (revised). (b) Exceptional items The directors have decided to reclassify certain generally recurring costs that were previously treated as exceptional. Principally these relate to costs incurred relating to bidding for rail franchises and the profit/(loss) on disposal of properties. (c) Rights issue Pursuant to the rights issue, on 10 June 2013, 722,859,586 new ordinary shares of 5 pence each were issued, with three new ordinary shares issued for every two existing ordinary shares held. As a result the total issued share capital increased to 1,204.9m ordinary shares. For the calculation of earnings per share, the number of shares held prior to 10 June 2013 has been increased by a factor of 1.227 to reflect the bonus element of the rights issue. Year to 31 March 2013 Adjusted results1: Reported Impact Exceptional Impact Restated of items of IAS 19 rights issue Â£m Â£m Â£m Â£m Â£m First Student 109.9 - 0.2 110.1 First Transit 49.1 - - 49.1 Greyhound 52.0 2.5 (0.2) 54.3 UK Bus 90.7 (37.2) (2.7) 50.8 UK Rail 63.2 (25.2) (18.7) 19.3 Group items (29.5) - - (29.5) Adjusted operating profit 335.4 (59.9) (21.4) 254.1 Net finance costs (163.0) (0.2) - (163.2) Adjusted profit before tax 172.4 (60.1) (21.4) 90.9 Tax (34.7) 12.1 5.1 (17.5) Adjusted profit for the year 137.7 (48.0) (16.3) 73.4 Attributable to: Equity holders of the parent 129.4 (48.0) (16.3) 65.1 Non-controlling interests 8.3 - - 8.3 137.7 (48.0) (16.3) 73.4 Weighted average number of shares 481.7 - - 109.1 590.8 (million) Adjusted EPS (p) 26.9p (10.0)p (3.4)p (2.5)p 11.0p Adjusted profit/(Loss) 129.4 (48.0) (16.3) 65.1 attributable to equity holders of the parent Adjustments2: Amortisation charges (52.0) - - (52.0) Exceptionals, property disposals (83.2) (6.0) 21.4 (67.8) Tax thereon 45.3 1.2 (5.1) 41.4 Non-controlling interests (4.5) - - (4.5) Profit/(loss) for the year 35.0 (52.8) - (17.8) Basic EPS (p) 7.3p (10.8)p - p 0.5p (3.0)p 1 IAS 19 (revised) increases the accounting losses on the FGW contract. The incremental loss for the year to 31 March 2013 of Â£10.5m has been treated as a prior year adjustment as at 1 April 2012 with utilisation of Â£10.5m in the year to 31 March 2013. 2 The incremental loss of Â£6.0m for the 7 period extension to October 2013 has been included in the restatement of the exceptional charge for the year to 31 March 2013. 2 RESTATEMENT OF PRIOR YEAR NUMBERS continued Condensed consolidated statement of comprehensive income Year to 31 March 2013 Reported Impact FGW IAS Restated of 19 IAS 19 Â£m Â£m Â£m Â£m Profit/(loss) for the year 47.8 (48.0) (4.8) (5.0) Items that will not be reclassified subsequently to profit or loss Actuarial (losses)/gains on defined (63.1) 60.1 10.5 7.5 benefit pension schemes Deferred tax on actuarial losses/gains on 14.4 (12.1) (2.1) 0.2 defined benefit pension schemes (48.7) 48.0 8.4 7.7 Items that may be reclassified subsequently to profit or loss Derivative hedging instrument movements (52.7) - - (52.7) Deferred tax on derivative hedging 7.6 - - 7.6 instrument movements Exchange differences on translation of 103.2 - - 103.2 foreign operations 58.1 - - 58.1 Other comprehensive income for the year 9.4 48.0 8.4 65.8 Total comprehensive income for the year 57.2 - 3.6 60.8 Attributable to: Equity holders of the parent 44.4 - 3.6 48.0 Non-controlling interests 12.8 - - 12.8 57.2 - 3.6 60.8 FGW contract provision At 31 March 2013 Reported Impact Impact Restated of IAS of 191 IAS 192 Â£m Â£m Â£m Â£m At 1 April 2012 56.9 10.5 - 67.4 Provided in the period 9.9 - 6.0 15.9 Utilised in the period (32.9) (10.5) - (43.4) At 31 March 2013 33.9 - 6.0 39.9 1 IAS 19 (revised) increases the accounting losses on the FGW contract. The incremental loss for the year to 31 March 2013 of Â£10.5m has been treated as a prior year adjustment as at 1 April 2012 with utilisation of Â£10.5m in the year to 31 March 2013 respectively. 2 The incremental loss of Â£6.0m for the 7 period extension to October 2013 has been included in the restatement of the exceptional charge for the year to 31 March 2013. 3 BUSINESS SEGMENTS AND GEOGRAPHICAL INFORMATION For management purposes, the Group is organised into five operating divisions - First Student, First Transit, Greyhound, UK Bus and UK Rail. These divisions are managed separately in line with the differing services that they provide and the geographical markets which they operate in. The principal activities of these divisions are described in the operating and financial review. The segment results for the year to 31 March 2014 are as follows: First First Group Student Transit Greyhound UK Bus UK Rail items1 Total Â£m Â£m Â£m Â£m Â£m Â£m Â£m Revenue 1,467.4 811.9 624.6 930.2 2,870.1 13.2 6,717.4 EBITDA2 241.1 72.0 74.9 105.9 117.1 (31.2) 579.8 Depreciation (147.6) (11.7) (28.5) (61.5) (94.3) (0.6) (344.2) Capital grant - - - - 32.4 - 32.4 amortisation Segment results2 93.5 60.3 46.4 44.4 55.2 (31.8) 268.0 Amortisation charges (41.5) (3.9) (3.0) - (5.0) - (53.4) Exceptional items - - - 13.0 4.6 - 17.6 Operating profit3 52.0 56.4 43.4 57.4 54.8 (31.8) 232.2 Investment income 1.7 Finance costs (157.8) Ineffectiveness on (17.6) financial derivatives Profit before tax 58.5 Tax 5.7 Profit after tax 64.2 The restated segment results for the year to 31 March 2013 are as follows: Restated4 First First Group Student Transit Greyhound UK Bus UK Rail items1 Total Â£m Â£m Â£m Â£m Â£m Â£m Â£m Revenue 1,503.1 814.6 647.1 1,128.2 2,795.1 12.8 6,900.9 EBITDA2 259.0 60.0 83.2 120.4 91.7 (28.6) 585.7 Depreciation (148.9) (10.9) (28.9) (70.1) (105.0) (0.9) (364.7) Capital grant - - - 0.5 32.6 - 33.1 amortisation Segment results2 110.1 49.1 54.3 50.8 19.3 (29.5) 254.1 Amortisation charges (43.1) (3.9) (3.1) (1.9) (52.0) - - Exceptional items (22.5) (11.8) (19.8) (8.2) - (62.3) - Operating profit3 44.5 33.4` 51.2 31.0 9.2 (29.5) 139.8 Investment income 1.8 Finance costs (165.0) Ineffectiveness on (5.5) financial derivatives Loss before tax (28.9) Tax 23.9 Loss after tax (5.0) 1Group items comprise Tram operations, central management and other items. 2Adjusted. 3Although the segmental results are used by management to measure performance, statutory operating profit by operating division is also disclosed for completeness. 4Restated for adoption of IAS19 (revised) on pensions and the reclassification of certain exceptional items as explained in note 2. 4 EARNINGS PER SHARE (EPS) EPS is calculated by dividing the profit attributable to equity shareholders of Â£54.2m (2013: loss Â£17.8m) by the weighted average number of ordinary shares of 1,059.3m (2013: 590.8m). The numbers of ordinary shares used for the basic and diluted calculations are shown in the table below. The difference in the number of shares between the basic calculation and the diluted calculation represents the weighted average number of potentially dilutive ordinary share options. Restated 2014 2013 Number Number m m Weighted average number of share used in basic 1,059.3 590.8 calculation SAYE share options - 0.2 Executive share options 3.0 2.9 Weighted average number of shares used in the 1,062.3 593.9 diluted calculation The Adjusted EPS is intended to highlight the recurring results of the Group before amortisation charges, ineffectiveness on financial derivatives and exceptional items. A reconciliation is set out below: 2014 Restated 2013 Â£m EPS(p) Â£m EPS (p) Basic profit/(loss)/EPS 54.2 5.1 (17.8) (3.0) Amortisation chargesÂ¹ 53.2 5.0 51.8 8.8 Ineffectiveness on financial derivatives 17.6 1.7 5.5 0.9 Exceptional items (17.6) (1.7) 62.3 10.5 Non-controlling interests on exceptional - - 4.7 0.8 items Tax effect of above adjustments (24.9) (2.3) (39.4) (6.7) Deferred tax credit due to change in UK (3.2) (0.3) (2.0) (0.3) corporation tax rate Adjusted profit/EPS 79.3 7.5 65.1 11.0 1Amortisation charges of Â£53.4m per note 6 less Â£0.2m (2013: Â£52.0m less Â£0.2m) attributable to equity non-controlling interests. 2014 Restated 2013 Diluted EPS Pence pence Basic 5.1 (3.0) Adjusted 7.5 (10.9) 5 GOODWILL 2014 2013 2012 Â£m Â£m Â£m Cost At 1 April 1,669.8 1,604.3 1,613.0 Additions - - 2.9 Disposals (7.7) (11.5) (11.3) Foreign exchange movements (148.6) 77.0 (0.3) At 31 March 1,513.5 1,669.8 1,604.3 Accumulated impairment losses At 1 April 4.0 5.0 5.0 Impairment losses for the year (recorded - 4.0 - in exceptional items) Disposals - (5.0) - At 31 March 4.0 4.0 5.0 Carrying amount At 31 March 1,509.5 1,665.8 1,599.3 6 OTHER INTANGIBLE ASSETS Customer Greyhound Rail Total contracts brand and franchise trade agreements name Â£m Â£m Â£m Â£m Cost At 1 April 2012 381.2 61.8 57.7 500.7 Foreign exchange movements 19.1 3.0 - 22.1 At 31 March 2013 400.3 64.8 57.7 522.8 Additions 1.6 - 13.7 15.3 Disposals - - (35.3) (35.3) Foreign exchange movements (39.7) (6.7) - (46.4) At 31 March 2014 362.2 58.1 36.1 456.4 Amortisation At 1 April 2012 114.3 14.4 53.2 181.9 Charge for year 47.0 3.1 1.9 52.0 Foreign exchange movements 6.3 0.8 - 7.1 At 31 March 2013 167.6 18.3 55.1 241.0 Charge for year 45.4 3.0 5.0 53.4 Disposals - - (35.3) (35.3) Foreign exchange movements (18.5) (2.1) - (20.6) At 31 March 2014 194.5 19.2 24.8 238.5 Carrying amount At 31 March 2014 167.7 38.9 11.3 217.9 At 31 March 2013 232.7 46.5 2.6 281.8 At 31 March 2012 266.9 47.4 4.5 318.8 7 PROPERTY PLANT & EQUIPMENT Land and Passenger Other Total carrying plant and buildings vehicle equipment fleet Â£m Â£m Â£m Â£m Cost At 1 April 2012 507.3 2,623.7 666.3 3,797.3 Additions in the year 12.6 249.3 108.2 370.1 Disposals (22.5) (96.6) (25.7) (144.8) Reclassified as held for sale (25.5) (96.7) (3.3) (125.5) Foreign exchange movements 12.7 89.6 10.7 113.0 At 31 March 2013 484.6 2,769.3 756.2 4,010.1 Additions in the year 15.4 259.1 106.5 381.0 Disposals (10.1) (98.0) (16.9) (125.0) Reclassified as held for sale (10.2) (69.2) - (79.4) Foreign exchange movements (27.8) (204.9) (20.4) (253.1) At 31 March 2014 451.9 2,656.3 825.4 3,933.6 Accumulated depreciation and impairment At 1 April 2012 83.5 1,293.7 413.8 1,791.0 Charge for year 11.3 217.9 135.5 364.7 Disposals (2.7) (92.8) (17.3) (112.8) Reclassified as held for sale (4.7) (64.7) (1.8) (71.2) Impairments (recorded in exceptional 5.6 3.7 - 9.3 items) Foreign exchange movements 2.1 42.5 6.9 51.5 At 31 March 2013 95.1 1,400.3 537.1 2,032.5 Charge for year 9.9 209.5 124.8 344.2 Disposals (3.5) (97.2) (15.9) (116.6) Reclassified as held for sale (6.9) (62.0) - (68.9) Foreign exchange movements (5.2) (103.7) (13.6) (122.5) At 31 March 2014 89.4 1,346.9 632.4 2,068.7 Carrying amount At 31 March 2014 362.5 1,309.4 193.0 1,864.9 At 31 March 2013 389.5 1,369.0 219.1 1,977.6 At 31 March 2012 423.8 1,330.0 252.5 2,006.3 8 INVENTORIES 2014 2013 2012 Â£m Â£m Â£m Spare parts and consumables 71.3 79.7 90.6 Property development work in progress 0.1 0.2 0.4 71.4 79.9 91.0 9 TRADE AND OTHER RECEIVABLES 2014 2013 2012 Â£m Â£m Â£m Amounts due within one year Trade receivables 361.9 340.2 299.8 Provision for doubtful receivables (2.9) (3.2) (4.5) Other receivables 54.3 52.4 72.8 Other prepayments 117.6 116.6 112.1 Accrued income 132.7 135.0 121.7 663.6 641.0 601.9 10 TRADE AND OTHER PAYABLES 2014 Restated Restated 2013 2012 Amounts falling due within one year Â£m Â£m Â£m Trade payables 372.3 402.0 397.6 Other payables 212.4 184.3 169.1 Accruals 497.6 515.1 558.0 Deferred income 59.4 82.1 78.7 Season ticket deferred income 78.1 73.2 68.1 1,219.8 1,256.7 1,271.5 11 FINANCIAL LIABILITIES -BORROWING 2014 2013 2012 Â£m Â£m Â£m On demand or within 1 year Short term loans - - 69.3 Finance leases (note 12) 68.9 62.7 52.4 Bond 6.875% (repayable 2013) - 319.8 20.3 Bond 8.125% (repayable 2018) 12.9 12.8 12.9 Bond 6.125% (repayable 2019) 3.0 3.0 3.0 Bond 8.75% (repayable 2021) 30.1 30.1 30.2 Bond 5.25% (repayable 2022) 5.7 5.7 - Bond 6.875% (repayable 2024) 7.2 7.2 7.2 Total Current Liabilities 127.8 441.3 195.3 Within 1- 2 years Syndicated loans - 49.3 46.9 Finance leases (note 12) 70.4 63.3 51.9 Bond 6.875% (repayable 2013) - - 298.5 Loan notes (note 13) 9.7 9.7 9.7 80.1 122.3 407.0 Within 2 - 5 years Syndicated loans - 336.1 379.1 Finance leases (note 12) 159.7 203.3 154.7 Bond 8.125% (repayable 2018) 297.4 - - Bond 6.125% (repayable 2019) 284.5 - - Senior unsecured loan notes 89.9 98.3 31.1 831.5 637.7 564.9 Over 5 years Finance leases (note 12) 45.6 88.9 76.3 Bond 8.125% (repayable 2018) - 297.1 296.7 Bond 6.125% (repayable 2019) - 305.4 299.7 Bond 8.75% (repayable 2021) 347.6 347.4 347.1 Bond 5.25% (repayable 2022) 319.6 319.1 - Bond 6.875% (repayable 2024) 199.5 199.5 199.0 Senior unsecured loan notes - - 62.2 912.3 1,557.4 1,281.0 Total non-current liabilities at 1,823.9 2,317.4 2,252.9 amortised cost 12 HP CONTRACTS AND FINANCE LEASES The Group had the following obligations under HP contracts and finance leases as at the balance sheet dates: 2014 2014 2013 2013 2012 2012 Minimum Present Minimum Present Minimum Present payments value of payments value of payments value of payments payments payments Â£m Â£m Â£m Â£m Â£m Â£m Due in less than one year 70.9 68.9 64.5 62.7 54.0 52.4 Due in more than one year 74.6 70.4 66.9 63.3 54.8 51.9 but not more than two years Due in more than two years 178.9 159.7 226.9 203.3 173.9 154.7 but not more than five years Due in more than five years 55.0 45.6 107.3 88.9 92.6 76.3 379.4 344.6 465.6 418.2 375.3 335.3 Less future financing (34.8) - (47.4) - (40.0) - charges 344.6 344.6 418.2 418.2 335.3 335.3 13 LOAN NOTES The Group had the following loan notes issued as at the balance sheet dates: 2014 2013 2012 Â£m Â£m Â£m Due in more than one year but not more than two 9.7 9.7 9.7 years 14 DERIVATIVE FINANCIAL INSTRUMENTS 2014 2013 2012 Â£m Â£m Â£m Derivatives designated and effective as hedging instruments carried at fair value Non-current assets Cross currency swaps (net investment hedge) - 15.2 23.2 Coupon swaps (fair value hedge) 24.1 45.7 43.8 Fuel derivatives (cash flow hedge) 1.8 2.4 5.6 25.9 63.3 72.6 Current assets Cross currency swaps (net investment hedge) - 3.6 4.3 Coupon swaps (fair value hedge) 11.1 13.2 9.5 Fuel derivatives (cash flow hedge) 6.4 6.5 29.7 17.5 23.3 43.5 Current liabilities Interest rate derivatives (cash flow hedge) - 8.1 8.0 Cross currency swaps (net investment hedge) - 47.6 1.2 Fuel derivatives (cash flow hedge) 5.1 4.8 3.5 5.1 60.5 12.7 Non-current liabilities Interest rate derivatives (cash flow hedge) - 11.8 13.7 Cross currency swaps (net investment hedge) - - 27.1 Fuel derivatives (cash flow hedge) 1.3 0.8 0.9 1.3 12.6 41.7 Derivatives classified as held for trading Current assets Interest rate swaps 8.5 - - Current liabilities Interest rate swaps 12.6 4.2 4.4 Non-current liabilities Interest rate swaps 7.9 9.1 8.4 Total non-current assets 25.9 63.3 72.6 Total current assets 26.0 23.3 43.5 Total assets 51.9 86.6 116.1 Total current liabilities 17.7 64.7 17.1 Total non-current liabilities 9.2 21.7 50.1 Total liabilities 26.9 86.4 67.2 15 DEFERRED TAX The major deferred tax liabilities/(assets) recognised by the Group and movements thereon during the current and prior reporting periods are as follows: Accelerated Retirement Other Tax Total tax benefit temporary losses depreciation schemes differences Â£m Â£m Â£m Â£m Â£m At 1 April 2012 as previously 228.7 (84.2) 90.6 (180.7) 54.4 reported Prior year adjustment - - (2.1) - (2.1) At 1 April 2012 restated 228.7 (84.2) 88.5 (180.7) 52.3 (Credit)/charge to income (60.3) 9.7 (5.2) 21.3 (34.5) Credit to equity - (0.2) (7.6) - (7.8) Foreign exchange movements 7.1 (3.4) 4.3 (9.0) (1.0) At 31 March 2013 175.5 (78.1) 80.0 (168.4) 9.0 (Credit)/charge to income (28.1) 2.1 43.3 (28.3) (11.0) (Credit)/charge to equity - (3.0) 3.9 - 0.9 Foreign exchange movements (11.0) 6.8 (11.4) 17.9 2.3 At 31 March 2014 136.4 (72.2) 115.8 (178.8) 1.2 Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances for financial reporting purposes: 2014 Restated Restated 2013 2012 Â£m Â£m Â£m Deferred tax assets (35.8) (53.2) (43.3) Deferred tax liabilities 37.0 62.2 95.6 1.2 9.0 52.3 No deferred tax asset has been recognised in respect of Â£nil (2013: Â£4m; 2012: Â£5m) of capital losses. 16 PROVISIONS 2014 2013 2012 Â£m Â£m Â£m Insurance claims 191.6 216.2 218.4 Legal and other 29.6 40.8 19.9 Pensions 3.4 3.9 4.2 Non-current liabilities 224.6 260.9 242.5 Insurance Legal and Restated Pensions Restated claims other FGW Total contract provision Â£m Â£m Â£m Â£m Â£m At 1 April 2013 332.6 50.8 39.9 3.9 427.2 Charged/(credited) to 144.5 2.0 (4.6) - 141.9 the income statement Utilised in the year (176.1) (8.8) (35.3) (0.5) (220.7) Notional interest 19.5 - - - 19.5 Foreign exchange (25.7) (4.1) - - (29.8) movements At 31 March 2014 294.8 39.9 - 3.4 338.1 Current liabilities 103.2 10.3 - - 113.5 Non-current liabilities 191.6 29.6 - 3.4 224.6 At 31 March 2014 294.8 39.9 - 3.4 338.1 Current liabilities 116.4 10.0 39.9 - 166.3 Non-current liabilities 216.2 40.8 - 3.9 260.9 At 31 March 2013 332.6 50.8 39.9 3.9 427.2 Current liabilities 117.6 4.2 67.4 - 189.2 Non-current liabilities 218.4 19.9 - 4.2 242.5 At 31 March 2012 336.0 24.1 67.4 4.2 431.7 17 CALLED UP SHARE CAPITAL 2014 2013 2012 Â£m Â£m Â£m Allotted, called up and fully paid 482.1m ordinary shares of 5p each 24.1 24.1 24.1 722.8m new ordinary shares of 5p each issued 36.1 - - 1,204.9m ordinary shares of 5p each 60.2 24.1 24.1 18 NET CASH FROM OPERATING ACTIVITIES 2014 Restated 2013 Â£m Â£m Operating profit 232.2 139.8 Adjustments for: Depreciation charges 344.2 364.7 Capital grant amortisation (32.4) (33.1) Amortisation charges 53.4 52.0 (Gain)/loss on disposal of businesses and (16.5) 8.8 subsidiary undertakings Impairment charges - 13.3 Share-based payments 4.6 5.6 Loss on disposal of property, plant and equipment 3.2 4.0 Operating cash flows before working capital 588.7 555.1 Decrease in inventories 4.8 10.6 Increase in receivables (60.0) (8.2) Decrease in payables (18.2) (32.3) Decrease in provisions (36.1) (12.2) Defined benefit pension payments in excess of (27.7) (34.1) income statement charge Cash generated by operations 451.5 478.9 Tax paid (8.2) (6.3) Interest paid (138.1) (129.0) Interest element of HP contracts and finance (12.9) (10.9) leases Net cash from operating activities 292.3 332.7 Responsibility Statement of the Directors on the Annual Report The directors are responsible for preparing the Annual Results Announcement in accordance with applicable laws and regulations. The responsibility statement below has been prepared in connection with the Company's full Annual Report for the year ended 31 March 2014. Certain points thereof are not included within this Annual Results Announcement. The directors confirm to the best of their knowledge: a. the consolidated financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit and loss of the Company and the undertakings included in the consolidation taken as a whole; and b. the Management Report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face. The directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides information necessary for the shareholders to assess the Company's and the Group's performance, business model and strategy. By order of the Board. Tim O'Toole Chris Surch Chief Executive Group Finance Director 21 May 2014 21 May 2014

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IAG shares take off after news of bumper profits and share buy back and Pearson also gains on earnings plus capital return news, but Morgan Advanced Materials slumps on declining sales outlook.

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