Final Results
Wednesday 10 June 2015
FIRSTGROUP PLC
PRELIMINARY RESULTS FOR
THE YEAR TO 31 MARCH 2015
Overview:
* Overall trading for the Group in line with management's expectations
* First Student and UK Bus transformations delivered margin improvements, and
First Transit and UK Rail outperformance offset reduced Greyhound demand
* Secured First Great Western until at least March 2019 and an additional
year operating First TransPennine Express
* Further strong progress in non-rail businesses expected in the year ahead
led by momentum in transformations of First Student and UK Bus, largely
offsetting substantially lower UK Rail earnings
* Improved financial performance in the year demonstrates our multi-year
transformation programme is making progress
* Wolfhart Hauser appointed to succeed John McFarlane as Chairman. Group
Finance Director Chris Surch to retire in January 2016
Financial summary:
* Underlying revenue increased by 4.1%. Reported revenue decreased due to
Rail franchise changes, non-recurrence of revenues from UK Bus operations
sold or closed in the prior year and foreign exchange translation
* Adjusted operating profit increased by 13.3% and Group adjusted margin
increased by one percentage point, principally reflecting improvements in
First Student and UK Bus
* Adjusted attributable profit increased by 48.2%, reflecting transformation
plan and lower net finance costs
* Statutory attributable profit increased by 38.7%, with non-recurrence of
the gain on UK Bus disposals in prior year
* Net cash inflow (before UK Rail end of franchise cash outflows of £107.9m)
was ahead of expectations at £39.4m
* Net debt:EBITDA ratio of 2.25 times as expected, due to UK Rail end of
franchise cash outflows and foreign exchange
* Group ROCE of 7.8%, or 8.5% at constant exchange rates (2014: 8.2%)
* Medium term financial targets unchanged
2015 2014 Change
Revenue £6,050.7m £6,717.4m (9.9)%
Adjusted1
- EBITDA2 £624.4m £579.8m +7.7%
- Operating profit £303.6m £268.0m +13.3%
- Profit before tax £163.9m £111.9m +46.5%
- Attributable profit £117.5m £79.3m +48.2%
- EPS3 9.8p 7.5p +30.7%
Statutory
- Operating profit £245.8m £232.2m +5.9%
- Profit before tax £105.8m £58.5m +80.9%
- Attributable profit £75.2m £54.2m +38.7%
- EPS3 6.2p 5.1p +21.6%
Net debt4 £1,407.3m £1,303.8m +7.9%
1 Before amortisation charges and certain other items as set out in note 4
to the financial statements. All references to 'adjusted' figures in this
document are defined in this way.
2 EBITDA is adjusted operating profit less capital grant amortisation plus
depreciation.
3 Change in EPS is less than for attributable profit due to the increased
weighted average number of shares in issue following the rights issue completed
in 2013.
4 Net debt is stated excluding accrued bond interest.
Operating summary:
* First Student - improved margin by one percentage point to 7.5%, benefiting
from average price increases of 4.5% and 90% retention in 2014 bid season,
recovery of operating days lost to severe weather in 2013/14, and $19m of
cost efficiencies, despite higher costs from localised driver shortages
* First Transit - better than anticipated organic growth in year, with 7.1%
margin in line with medium term target
* Greyhound - actively managed cost base to mitigate contraction in passenger
demand from cheaper fuel; yield management implementation on track to
launch towards end of first half of 2015/16, as expected
* UK Bus - improved margin by one percentage point to 5.8% with local
turnaround actions delivering commercial passenger volume growth of 2.6%,
positive yield, and cost efficiencies of £15m
* UK Rail - strong financial performance with like-for-like passenger revenue
growth of 6.7%, underpinned by continued passenger volume growth
Commenting, Chief Executive Tim O'Toole said:
"Overall trading for the year is in line with our expectations and our
transformation plan is beginning to deliver improving financial performance,
though clearly much hard work remains ahead of us.
"The pricing improvements we made in the 2014 bid season together with further
cost savings mean we have made solid margin progress in First Student for the
year, and we are also encouraged by the results achieved at this stage in the
2015 bid season. In UK Bus we continue to deliver passenger volume growth,
positive yield and further cost efficiencies from our locally focused
turnaround actions. Greyhound has flexed mileage, timetables and pricing in
response to the rapid reduction in passenger demand from lower fuel prices, and
is on track with the yield management upgrade programme. Our First Transit and
UK Rail businesses maintained good growth momentum and margins.
"We intend to deliver further progress from our multi-year transformation plans
in our 2015/16 financial year. We currently anticipate strong progression in
our non-rail businesses, driven mainly by the ongoing turnarounds of First
Student and UK Bus, to largely offset the substantially lower contribution from
UK Rail as a result of the end of the First ScotRail and First Capital Connect
franchises.
"We were awarded a contract to operate First Great Western for up to four and a
half more years, and will continue to work closely with the Department for
Transport and Network Rail to deliver the £7.5bn Great Western Mainline
modernisation programme to at least March 2019. We have also signed an
agreement to run First TransPennine Express through to 1 April 2016, and
recently submitted our bid to operate the franchise beyond that date.
"Wolfhart Hauser joined the Board of FirstGroup in May and will become Chairman
following our AGM in July. Wolfhart's track record of sustained value creation
and his experience and counsel will be invaluable as we continue to drive
forward the transformation of the Group.
"Our improved financial performance this year demonstrates that our multi-year
transformation programme is making progress, though we must maintain the
momentum of change to meet our medium term financial targets. Accordingly we
will continue to work hard to deliver the considerable potential of the Group
and return to a consistent profile of cash generation and sustainable value
creation."
For further information please contact:
FirstGroup plc:
Faisal Tabbah, Group Investor Relations Manager
Stuart Butchers, Group Head of Media
Tel: +44 (0) 20 7725 3354
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
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.firstgroupplc.com/investors.aspx
Photos for media are available, please call +44 (0) 20 7725 3354
CHAIRMAN'S STATEMENT
FirstGroup is a very important company to the customers and communities we
serve. Operating in five major divisions, each a leader in its market, we
provide vital transport links for millions of passengers across our core
markets in the UK and North America. We are a significant corporate employer
with around 110,000 staff, and our services make a vital contribution to
linking people together, supporting the economic activity and social well-being
of the communities in which we operate.
Innovative, efficient and customer-focused transport services play an
increasingly important role in responding to the economic and environmental
challenges of continued urbanisation, congestion and demographic change.
FirstGroup's portfolio of leading transport businesses is well positioned to
provide the transport solutions needed, and as such has opportunities for
sustainable growth and good financial returns in all of its markets. All of
this was clear to me when I took on the role of Chairman in January 2014, but
it was also obvious that the Group had not been delivering fully on this
potential for some time. Two divisions in particular, First Student and UK Bus,
were delivering margins well short of their competitors, parts of the business
had suffered from a lack of appropriate investment, and the Group as a whole
was not achieving acceptable returns for shareholders. Turning this situation
round has therefore been the key priority.
The multi-year turnaround programme we are executing is designed to sustainably
improve the financial returns of the Group as a whole, mainly through more
robust decision-making around pricing, productivity and capital allocation.
These areas are of particular importance in First Student and UK Bus, which
together account for around two thirds of our annual capital investment budget
and have underperformed. With the support of shareholders through the 2013
rights issue, the Group has been able to reinvest in its future growth and
commit to ambitious business plans that will deliver sustainable improvements
in performance over the medium term, by addressing the Group's core challenges.
With improved balance sheet stability, and a strong and experienced Board of
Directors providing challenge and support, the executive team have the platform
to make the disciplined, long term decisions necessary to improve the Group's
sustainable returns on capital and cash generation. Over time this will reduce
Group leverage and the associated interest burden towards its optimum long term
level, and increase shareholder returns. As a matter of course, we continue to
review alternative and additional actions to create shareholder value, but
nothing compelling has become evident to date.
During the year the Group has made important progress in several key areas. In
this respect, I would highlight in particular the success of First Student's
contract portfolio pricing strategy, as well as the ongoing execution of the UK
Bus turnaround plan, which has successfully stimulated renewed passenger volume
growth and is beginning to capture yield. Both of these key divisions have
taken important strategic steps to reposition themselves in their markets for
the medium term, while also executing significant cost reduction programmes.
Continued disciplined execution over the coming years will be required to
deliver the full benefits of these important changes, but we are encouraged by
the margin improvements these divisions have delivered in the year. Although
Greyhound's performance this year has been significantly affected by the sharp
fall in fuel prices in the second half, we remain on track with its
transformation into a yield-managed, customer-oriented business, which will
enhance returns from this division in the future, whatever the oil price.
In the year the Department for Transport (DfT) awarded us a contract to
continue operating our largest rail franchise, First Great Western, to at least
March 2019, and a contract to run First TransPennine Express for an additional
year. We were disappointed not to secure the renewal of the First ScotRail
franchise, and were unsuccessful in four other bids but these were awarded at
economic levels that were unacceptable to us. We were and will remain
disciplined in our approach to bidding for these significant contracts.
Overall, the Group is broadly where we expected to be at this stage of the
transformation plan, and has begun to demonstrate the improvements in financial
performance that were clearly required. Underlying Group revenue increased by
4.1%, but more importantly operating profit increased by 13.3%, adjusted profit
before tax improved by 46.5%, and adjusted profit attributable to ordinary
shareholders increased by 48.2%. Adjusted EPS increased by 30.7%, less than
attributable profit because of the increased number of shares following the
rights issue. Group ROCE was 7.8%, or 8.5% at constant exchange rates, a 0.3
percentage point improvement compared with 8.2% in 2013/14. Group cash flow,
though still significantly below our potential, was better than our initial
expectations, and we expect the actions we are taking will increase this
substantially over time. In due course, the Board is confident that the
business plans being executed will return the Group to a sustainable cash
generative position, with the potential to resume payment of a dividend.
However at this stage of the Group's transformation, and having regard to the
commitment to the capital investment programme and the importance of
strengthening the balance sheet further, the Board considers it appropriate to
continue to refrain from reinstating a dividend at this point.
In some respects, the significant improvements in financial results this year
are a reflection of past underperformance, and there remain a number of
headwinds to navigate, but I am confident that we are executing the most
appropriate actions to return the Group to a sustainably stronger long term
position. We have made encouraging progress in the year, and some of the most
important actions have yet to manifest themselves fully in the financial
results. The improving financial results from First Student and UK Bus, our
most capital intensive businesses, reinforce our confidence in the future. With
a continued focus on execution and a commitment to change, I remain confident
that the Group will succeed in turning its attractive portfolio of
market-leading transport businesses into acceptable returns for shareholders as
planned.
Of course all of this progress is only made possible by the continued
commitment of our employees to delivering quality services for our customers
and communities. On behalf of the Board I would like to extend my sincere
gratitude to all our employees for their hard work and dedication.
Chris Surch will be retiring from the role of Group Finance Director on 8
January 2016, following his decision to step down from a full-time executive
role for personal reasons. The Board has commenced a formal search for his
replacement. On behalf of the Board and everyone at FirstGroup I would like to
thank Chris for his commitment to the transformation of the Group over the last
three years. We respect his decision to step down and he will be leaving with
our good wishes for the future.
In May I was pleased to welcome Wolfhart Hauser to the Board as a Non-Executive
Director and Chairman Designate. He has an exemplary track record of sustained
value creation and is a highly experienced Non-Executive Director. It is with
regret that I am required to step down from the Chairmanship of FirstGroup at
the AGM in July, in order to fully dedicate myself to the task of bringing
Barclays to full health. However, with Wolfhart succeeding me as Chairman, I
will be leaving FirstGroup in capable hands. I wish him and all at FirstGroup
well for the future.
John McFarlane
Chairman
10 June 2015
Note: Operating profit referred to throughout this document refers to operating
profit before amortisation charges and certain other items as set out in note 4
to the financial statements. Return on Capital Employed (ROCE) is calculated by
dividing adjusted operating profit after tax by all assets and liabilities
excluding debt items.
CHIEF EXECUTIVE'S REVIEW
In 2013 we put forward a multi-year programme to reposition the Group for
improved financial performance and to restore us to a profile of consistent
financial returns, more reflective of our leading market positions and our
international capabilities. We strengthened the balance sheet to give us the
flexibility to invest in this transformation, and set out detailed medium term
financial targets. We are confident that this programme represents the most
compelling way to drive a sustained improvement in returns for our shareholders
while continuing to deliver for our other stakeholders.
Progress with our transformation plans
I am pleased to say that the Group as a whole has made good progress in our
transformation over the last two years, notwithstanding some unexpected
external challenges since that time. In First Student we continue to make
progress in renewing our contract portfolio at prices more reflective of the
capital we employ whilst delivering significant cost efficiencies, despite the
unusually severe winter in North America in 2013/14. In UK Bus our tailored
market-by-market approach has restored our ability to deliver passenger volume
growth and market-based pricing yields whilst also reducing our cost base. In
Greyhound our programme to adopt yield management and customer relationship
management systems is on track - and the importance of having these tools has
been amply highlighted by the impact of fuel price volatility on passenger
demand this year. We have secured continued operation of First Great Western
until at least March 2019, which provides us with an important foundation to
build on in the UK rail industry. We were disappointed with the outcome of
recent franchise competitions, but we remain confident that our disciplined
bidding process is the most appropriate approach for us. Moreover, our track
record of operational delivery stands us in good stead as the remaining two
thirds of the franchises by value are awarded over the next five years.
Importantly during a period when we have been reinvesting in the business, our
cash generation is ahead of our initial expectations.
As our transformation plans move forward, we will continue to build on the
improvements in our revenue and profitability towards our medium term growth
and margin targets. We expect to continue to invest across the Group at similar
absolute levels for the medium term, with our free cash flow improving over
time as our operating earnings increase. We also expect our financing costs to
continue to reduce, as cash generation increases and our relatively high coupon
bonds mature over time. We continue to target a ROCE of 10-12% and a net debt:
EBITDA ratio of two times in the medium term, and remain committed to
reinstating a sustainable dividend policy at the appropriate time.
We focus on five strategic objectives where our strengths and capabilities
across the Group have the most potential to add value: these are focused and
disciplined bidding in our contract businesses, driving growth through
attractive commercial propositions in our passenger revenue businesses,
continuous improvement in operating and financial performance, prudent
investment in our key assets (fleets, systems and people), and maintaining
responsible partnerships with our customers and communities.
People
In March 2015 we were pleased to announce that Wolfhart Hauser would join the
Board from May, and will become Chairman following our AGM in July. Wolfhart
recently retired after ten years as CEO of Intertek Group plc, the
international quality and safety services provider and FTSE 100 constituent.
Under his leadership, Intertek developed from a medium-sized group of separate
testing businesses into an integrated global organisation with more than 38,000
employees and operations in more than 100 countries. Wolfhart's track record of
sustained value creation and his experience and counsel will be invaluable as
we continue to drive forward the transformation of the Group. On behalf of the
Board and our employees, I would also like to thank John McFarlane for the
important contribution he has made during his tenure as Chairman and we wish
him every success as Chairman of Barclays.
I would like to echo the sentiments of the Chairman in thanking Chris Surch for
his contribution to the Group since he joined in 2012. During this time of
significant transformation he has played a key role in placing the business on
a stronger footing and he will leave with our good wishes in all his future
endeavours.
During the year our former colleagues at First Capital Connect and First
ScotRail transferred into new franchise owners. We worked hard to ensure smooth
transitions and we wish them well for the future.
We continue to invest in our people throughout the Group, giving them the
leadership, professional development and other tools which are strengthening
our ability to deliver our transformation plans and leverage the extraordinary
breadth of expertise across our business.
Outlook
We intend to deliver further progress from our multi-year transformation plans
in our 2015/16 financial year. We currently anticipate strong progression in
our non-rail businesses, driven mainly by the ongoing turnarounds of First
Student and UK Bus, to largely offset the substantially lower contribution from
UK Rail as a result of the end of the First ScotRail and First Capital Connect
franchises.
First Student will continue to seek higher pricing with the resultant risk of
some contract losses during the 2015 bid season, though with just over half of
the negotiations completed so far, we are encouraged by our progress, with
average price increases achieved to date of over 5%. We anticipate this
improvement together with further cost efficiencies to result in further margin
progress for First Student in 2015/16, despite an impact of approximately $17m
to operating profit as a result of the lower number of operating days compared
with the prior year. We expect First Transit to continue to bid for contracts
offering good margins with modest capital investment, though we expect some
reductions in demand for our shuttle services in the Canadian oil sands region
as a result of lower oil prices. In Greyhound we expect our yield management
systems to be operational from the middle of our 2015/16 financial year, with
the financial benefits building over time. If recent oil prices are sustained
throughout the year, we would expect Greyhound passenger demand to remain
relatively muted, and we will continue to manage our variable costs in
response. In UK Bus we will continue to drive overall volume growth and
market-based yield enhancements while targeting further cost efficiencies in
2015/16, tailoring our actions to local conditions in the light of the progress
each market has made through our turnaround plan. UK Rail's contribution to
Group earnings will be substantially lower in 2015/16, as a result of the First
Capital Connect and First ScotRail franchises coming to an end. As previously
indicated, we expect cash flow in our 2015/16 year to be broadly flat before
the remaining UK Rail end of franchise outflows of approximately £30m.
Our improved financial performance this year demonstrates that our multi-year
transformation programme is making progress, though we must maintain the
momentum of change to meet our medium term financial targets. Accordingly we
will continue to work hard to deliver the considerable potential of the Group
and return to a consistent profile of cash generation and sustainable value
creation.
Tim O'Toole
Chief Executive
10 June 2015
OPERATING AND FINANCIAL REVIEW
Reported Group revenue decreased by 9.9% in the year to £6,050.7m (2014: £
6,717.4m), principally reflecting UK Rail franchise changes, non-recurring
revenues from UK Bus operations sold or closed in the prior year and foreign
exchange translation. Excluding these items, revenue increased by 4.1%.
Adjusted Group margin increased to 5.0% (2014: 4.0%). The US Dollar margin of
our largest division First Student improved by 1.0%, reflecting the successful
outcome of the first year of our new contract bidding strategy and no repeat of
the exceptionally severe winter weather conditions in the prior year. The UK
Bus margin also improved by 1.0% as a result of continued progress in our
turnaround programme. During the second half of the year Greyhound margins
deteriorated due to the adverse effect on customer demand from sharply lower
fuel prices, closing the year at 6.9% (2014: 7.4%). UK Rail profitability
improved significantly, reflecting good passenger revenue growth and First
Great Western moving to normal commercial terms part way through last year.
Group adjusted operating profit increased by 13.3% to £303.6m (2014: £268.0m).
Adjusted profit attributable to ordinary shareholders increased by 48.2% to £
117.5m (2014: £79.3m), due to higher adjusted operating profit and lower net
finance costs. Adjusted EPS increased by a lower percentage to 9.8p (2014:
7.5p), due to the increased weighted average number of shares in issue
following the rights issue completed in the prior year. Adjusted EBITDA
increased 7.7% to £624.4m (2014: £579.8m). Statutory operating profit was £
245.8m (2014: £232.2m), reflecting the higher adjusted operating profit partly
offset by the gain on disposal of London operations in UK Bus last year. The
net debt:EBITDA ratio was 2.25 times (2014: 2.25 times), in part reflecting the
UK Rail end of franchise cash outflows in the year and foreign exchange
translation. ROCE was 7.8%, or 8.5% (2014: 8.2%) at constant exchange rates.
All references to 'adjusted' figures throughout this document are before
amortisation charges and certain other items as set out in note 4 to the
financial statements.
The net cash inflow for the year before UK Rail end of franchise cash flows was
£39.4m (2014: £26.9m). This cash inflow, combined with the end of franchise
outflows and movements in debt due to foreign exchange, contributed to an
increase in net debt of £103.5m (2014: decrease of £675.3m, including £584.4m
in net proceeds of the rights issue). The net cash inflow before UK Rail end of
franchise cash flows was slightly higher than the prior year, principally
reflecting stronger cash generation by our operations, lower tax and interest
payments and higher proceeds from disposals of property, plant and equipment,
partly offset by the planned higher capital expenditure and the London disposal
proceeds in UK Bus last year.
Liquidity within the Group has remained strong. At 31 March 2015 there was £
1,023.8m (2014: £988.5m) of committed headroom and free cash, being £800.0m
(2014: £796.2m) of committed headroom and £223.8m (2014: £192.3m) of free cash.
The Group's average debt maturity was 5.2 years (2014: 6.1 years).
During the year gross capital investment of £425.1m (2014: £464.7m) was
invested in our business to continue our transformation programme and help
reposition the Group for future growth. We expect to continue investing
approximately £400m per annum in capital expenditure in our businesses in the
medium term.
Progress with the transformation programme in the year has reinforced our
confidence in delivering our medium term financial objectives, which are as
follows:
* We aim to increase Group revenue (excluding UK Rail) at a faster rate than
the economies we serve, through attractive customer propositions in our
passenger revenue-based services, and disciplined bidding in our
contract-based businesses.
* In First Student and UK Bus we aim to improve margins to double digit
levels through the detailed turnaround plans underway. Greyhound targets a
margin of approximately 12% in part through investment in yield management
systems. In First Transit we will continue our record of growth while
maintaining margins of approximately 7%, and in UK Rail we will maintain
our disciplined approach to bidding in a range of future franchise
competitions where we see an opportunity to deliver ambitious improvements
for passengers and appropriate returns for shareholders, at an acceptable
level of risk.
* Overall our objective is to achieve ROCE in the range of 10% to 12% in the
medium term.
* We also aim to maintain an investment grade credit rating and appropriate
balance sheet liquidity and headroom. In the medium term we are targeting
net debt:EBITDA of approximately two times.
Divisional reviews
Year to 31 March 2015 Year to 31 March 2014
Operating Operating Operating Operating
Revenue profit1 margin1 Revenue profit1 margin1
Divisional £m £m % £m £m %
results
First Student 1,478.8 114.9 7.8% 1,467.4 93.5 6.4%
First Transit 844.8 59.7 7.1% 811.9 60.3 7.4%
Greyhound 609.6 41.7 6.8% 624.6 46.4 7.4%
UK Bus 896.1 51.8 5.8% 930.2 44.4 4.8%
UK Rail 2,207.1 74.1 3.4% 2,870.1 55.2 1.9%
Group2 14.3 (38.6) 13.2 (31.8)
Total Group 6,050.7 303.6 5.0% 6,717.4 268.0 4.0%
North America $m $m % $m $m %
in US
Dollars
First Student 2,368.6 177.3 7.5% 2,339.3 152.8 6.5%
First Transit 1,362.1 96.1 7.1% 1,290.5 95.7 7.4%
Greyhound 986.0 68.5 6.9% 990.6 73.2 7.4%
Total North 4,716.7 341.9 7.2% 4,620.4 321.7 7.0%
America
1Adjusted.
2 Tramlink operations, central management and other items.
First Student
Revenue in our First Student division was $2,368.6m or £1,478.8m (2014:
$2,339.3m or £1,467.4m), 1.3% higher on a US Dollar basis, benefiting from our
successful pricing strategy during the 2014 bid season and modest organic
growth. Operating profit was $177.3m or £114.9m (2014: $152.8m or £93.5m),
resulting in a US Dollar margin of 7.5% (2014: 6.5%). The one percentage point
improvement in margin reflects the benefits of our pricing strategy in respect
of the approximately one third of the portfolio retendered in the 2014 bid
season, recovery of operating days lost to the severe weather in the prior
year, a benefit of $19m in the year from our ongoing $50m per annum cost
efficiency programme, partially offset by continued pockets of driver shortage
in parts of the business and cost inflation running slightly ahead of price
indexation on the bulk of our contracts not yet rebid under our pricing
strategy.
Focused and disciplined bidding
A key element of our turnaround plan in First Student is addressing contract
portfolio pricing on new bids and renewals to ensure that we achieve
appropriate returns on capital on our contract portfolio. As is typical,
approximately one third of our bus portfolio was up for renewal in the 2014 bid
season, and we were pleased to achieve average price increases on these
contracts of approximately 4.5%. Our contract retention rate of 90% on those
contracts up for bid was at the upper end of our range of expectations. As a
result, the proportion of First Student's contract portfolio earning margins
below 5% has reduced from 36% in 2014 to below 30% in the current year. The
level of acceptance of our price increases, together with a third year of
modest organic growth under existing contracts, suggests that market conditions
are continuing to improve. We continue to compete effectively in the conversion
market from in-house to privately operated services, which we believe offers
significantly better value, though at present the number of new outsourcing
opportunities continues to be limited. Together with some 'share shift' wins
from competitors and a small tuck-in acquisition in New York, our overall bus
fleet reduced by around 60 buses, remaining just over 49,000.
Continuous improvement in operating and financial performance
In addition to the pricing strategy, we made good progress on the next phase of
our cost efficiency programme. We are rolling out a programme to address the
recruitment challenges we have faced in some localised parts of our business,
which includes an applicant tracking system developed in our UK divisions, and
further savings continue to be driven by implementing and monitoring compliance
with identified best practice operating procedures throughout our more than 500
locations. This programme has now delivered around $120m in annual cost
efficiencies including $19m in 2014/15 as targeted, and we expect to deliver a
further $30m per annum in savings by the end of the 2016/17 financial year.
Almost three quarters of our engineering locations have achieved silver or gold
'lean' certification. Key areas of opportunity going forward include further
savings from lean engineering and maintenance procedures, employee
productivity, procurement and more efficient use of fuel.
Prudent investment in our key assets
We continue to increase our use of technology to raise customer service levels,
promote environmental benefits and differentiate our services. Our FOCUS GPS
system (which links onboard data to back office systems) is now fitted
throughout the bus fleet, and functions as a platform for additional
improvements. For example, our DriveSMART initiative, which combines driver
training with fuel use data from FOCUS, incrementally saved nearly $6m in fuel
costs in the year. We are also carrying out field trials this year on a system
using FOCUS to give parents the ability to track bus location in real time,
which will be ready for roll out in time for the 2016 bid season. Our
MyFirstPass system continues to be deployed in selected locations, giving
parents and schools timely information on student ridership through swipe card
technology. We invested approximately $280m in new buses, refurbishments and
onboard technology in the year; our average fleet age remained constant at 7.5
years.
We also continue to develop our more structured approach to charter business,
which delivers very strong incremental returns on capital employed as it
utilises the existing bus fleet in between the contracted services at the
beginning and end of the school day. In the year we opened three regional
charter centres, handling almost a third of all our non-school charter work,
which grew by 7% in the year.
Responsible partnerships with our customers and communities
Our services form an integral part of the school experience for the millions of
children in our care each day, and we take our responsibilities to them and to
their parents, schools and communities very seriously. We are pleased to have
achieved a sixth consecutive year of improved customer service scores, and we
had a strong performance in our safety KPIs. Continuous improvement in our
customer service and safety track record is deeply embedded in our values as an
organisation, and is also a competitive advantage.
In addition to cost savings, the 2% improvement in fuel efficiency from our
DriveSMART initiative reduces our environmental impact, and our alternative
fuel fleet continues to grow, increasing by 250 buses in the year.
Future priorities
First Student is a leader in our marketplace, both in terms of our size and the
quality and safety of the services we provide. Through the continuation of our
turnaround plan, we will deliver our medium term target of double digit margins
by ensuring that we continue to bid or renew contracts only at prices that
reflect the quality of service we provide and the capital that we employ. In
addition we continue to implement and monitor best practice policies and
procedures in all key areas throughout our business to reduce cost. In the
longer term, First Student's unique market position, value proposition and
increasing operational efficiency will ensure we are increasingly well placed
to grow through further share shift, tuck-in acquisitions and organic
opportunities.
Outlook
During the 2015 bid season First Student is continuing to seek higher pricing
with the resultant risk of some contract losses. With just over half of the
negotiations completed so far, we are encouraged by our progress, with average
price increases achieved to date of over 5%. We expect this improvement,
together with additional cost efficiencies, to result in further margin
improvement in 2015/16, despite an impact of approximately $17m to operating
profit as a result of fewer operating days due to the timing of Easter and
Labor Day, which will reverse in our 2016/17 financial year.
First Transit
Revenue in our First Transit division was $1,362.1m or £844.8m (2014: $1,290.5m
or £811.9m). US Dollar revenue increased by 5.5%, with revenue growth during
the year in all of our divisional sub-segments, driven by the timing of
contract awards and higher than anticipated organic growth on existing
contracts. Operating profit was $96.1m or £59.7m (2014: $95.7m or £60.3m),
resulting in a margin of 7.1% (2014: 7.4%), which is in line with our
expectations and medium term objectives.
Focused and disciplined bidding
During the year, we continued to maintain our track record of profitable growth
in a range of segments, whilst developing opportunities in new markets. Through
collaborative partnerships with public transit authorities and private
customers, we also generated organic growth on existing contracts at the higher
end of our planning range. Contract retention remained at a high level, as our
customers continued to respond positively to our capabilities and competitive
pricing. As previously indicated two of our larger contracts came to an end
during the second half of the year, including one which was delivering margins
below the divisional average, and few recently awarded contracts started up in
the second half, though we continued to win additional new business that will
commence in 2015/16.
In the year we were awarded new paratransit contracts in Minnesota, Florida and
the San Francisco Bay area; fixed route contracts in Orange County, California
and shuttle bus operations at colleges in New York state and Rhode Island, as
well as a shuttle bus contract at Oklahoma City airport. In addition, we used
expertise from our UK-based divisions and First Transit's existing client
relationships to win business in the rapidly growing North American Bus Rapid
Transit (BRT) market. We continue to see further opportunities to grow our
shuttle business in the years ahead, which is the only part of the division
that requires significant capital investment.
Key contract retentions during the year included our paratransit contract with
Metropolitan Council in Minneapolis, our transit management contract with
Connecticut Transit, and our shuttle bus operations at New Jersey University
and Kennesaw State University. We also extended contracts for one of our fixed
route operations in Denver and our shuttle bus operation at Houston
International Airport.
Continuous improvement in operating and financial performance
First Transit's opportunities continue to arise from successful competitive
bidding, but also through attracting business that is being outsourced to the
private sector for the first time. Our continued service and efficiency
innovations help give us a competitive advantage compared to both public and
private counterparts - in particular, our national service platform, technology
infrastructure and management expertise are important differentiators. We
continue to invest in our industry-leading technology including a suite of
innovative real-time information solutions which will deliver cost efficiencies
and better data for our clients, and improved performance for us.
Prudent investment in our key assets
In First Transit we continue to focus investment spending on three principal
areas: people, technology solutions and on vehicles for the shuttle segment,
where typically we own the fleets and are continuing to invest to grow our
leading university and airport shuttle portfolio.
We maintained our significant investment in recruitment, retention and
continuous training of our people to ensure we have the depth of expertise
required for our bid submissions and for subsequent service delivery that meets
customer expectations. We are introducing an applicant tracking system for
prospective new employees in the year, based on a successful system developed
in our UK divisions.
Last year we initiated the roll out of our upgraded management dashboard,
providing automated operational, maintenance and financial information, which
is delivering cost savings. Our local management and regional support teams are
now better equipped, with rapid and detailed information on their businesses
readily available, increasing their ability to address any issues quickly and
more completely. The dashboard provides a centralised repository of operational
data and the ability to display KPIs in a user-friendly graphical interface,
and allows management to make better and more informed decisions on the
day-to-day operations of their systems, as well as plan for long term
operational improvements. Other initiatives we have progressed through the year
include predictive maintenance analytics and paperless workshop systems using
tablet computers to improve performance.
Responsible partnerships with our customers and communities
Our commitment to safety, technical and operational knowledge and
professionalism is particularly recognised by our customers and our safety KPIs
and customer service trends improved in the year. We are also at the forefront
of the industry in developing mobile apps for our clients, allowing registered
riders to monitor service disruptions, timetables and the location of services
in real time.
We have enhanced our 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
There is continued growth potential in each of our markets, particularly in the
shuttle segment and in paratransit work for larger cities. The outlook for
further outsourcing opportunities is positive and potential opportunities are
also growing in light rail, commuter rail and BRT, where we will seek to
harness the strong expertise in our UK divisions as we examine potential bids
in these areas. The expertise of our people and the quality of our technology
gives First Transit a competitive advantage. We have a track record of
innovation and in delivering cost efficiencies, which in turn ensures that,
despite an increasingly competitive market, we will remain the low cost
supplier of choice for our customers. We continue to anticipate achieving a
margin of approximately 7% in the medium term, which we believe is attractive
in the context of the limited capital employed in the division.
Outlook
The overall pipeline of potential new business remains attractive as local
authorities continue to consider ways to deliver transport services more cost
effectively. Whilst we do anticipate some reductions in our provision of
shuttle services to the Canadian oil sands sector during the year as a result
of the lower oil price, we have a number of new business opportunities to help
offset that impact.
Greyhound
During the year US Dollar revenue decreased by 0.5% to $986.0m or £609.6m
(2014: $990.6m or £624.6m), reflecting the adverse effect on customer demand
from sharply lower fuel prices, which improves the affordability of other forms
of transport for some trips compared with Greyhound. As a result of the more
flexible operating model introduced in recent years, we were able to react
rapidly to the situation, actively managing mileage, timetables and pricing in
response to these changed market conditions. Nevertheless Greyhound's operating
profit was $68.5m or £41.7m (2014: $73.2m or £46.4m), resulting in a US Dollar
margin below the prior year level at 6.9% (2014: 7.4%). Although our
point-to-point brands were also somewhat affected by the sharply lower fuel
prices, Greyhound Express continued to grow profitably, with like-for-like
revenue growth of 3.0% during the year, compared with a like-for-like revenue
decrease of 0.1% for the division as a whole.
Driving growth through attractive commercial propositions
Greyhound is one of the most iconic brands in transport, with a unique national
network giving us a competitive advantage and an established base for future
growth. Passengers from our traditional network, which operates from some 3,800
locations across North America, help us feed our point-to-point brands
including Greyhound Express and BoltBus. Our point-to-point brands have always
operated modern, environmentally friendly buses equipped with features such as
free Wi-Fi, power outlets, leather seats, extra legroom and guaranteed seating,
and some of these amenities are being extended throughout the traditional
network. Last summer we added additional destinations in Texas, Arizona, Nevada
and New Mexico, to take our Greyhound Express footprint to 135 markets.
During the year we updated our Wi-Fi platform allowing passengers to stay
connected throughout their journey, and launched an onboard catalogue of
destination packages that allows them to purchase tickets to theatrical events,
attractions and onward transportation offers, including shuttles and taxis, all
from their seat using their own Wi-Fi enabled devices. We are using learnings
from our point-to-point brands to improve the customer offering in our
traditional business and attract a new demographic to bus travel. As an example
of this, Greyhound's passenger app for smartphone users, which launched this
year and gives access to scheduling information as well as the ability to
purchase tickets and view completed bookings, was based on the BoltBus product.
Similarly the recently launched app for BoltBus drivers, which streamlines
boarding by allowing our drivers to scan tickets and allows us to manage
inventory better, is acting as a test bed for a product which we will launch
across the much larger and more complex traditional Greyhound network in the
coming year.
Continuous improvement in operating and financial performance
We have invested in the quality of our services and have improved our ability
to flex costs in response to changes in demand, although our traditional
network today remains relatively dependent on macro-economic factors such as
fuel prices or employment levels. In response to changes in demand, we were
able to react rapidly to the changed market conditions and manage our variable
costs in order to mitigate the impact on margin performance year on year. We
continue to make progress towards returning Greyhound Canada to profitability
through our ongoing efforts to optimise our network in the country. Our
Greyhound Package Express business, which carries parcels on our buses, is
evolving to adopt more modernised technology and now offers the ability to
track and trace parcels.
Prudent investment in our key assets
Our most important area of investment is a programme to replicate the
successful business model developed in our newer point-to-point services across
the whole Greyhound network. As we have previously indicated, we are equipping
our traditional business with real-time dynamic pricing and yield management
capabilities, together with improved customer relationship management tools.
Amongst other opportunities, these tools will increase our ability to stimulate
demand throughout the macro-economic cycle, and allow us to shift demand to
off-peak times more easily, resulting in better utilisation of existing seat
inventory.
The most time intensive aspect of the project has been to transform Greyhound's
proprietary pricing and routing system into a position where it was able to be
augmented with additional software components. Our bespoke but ageing system,
which had been built over many years to manage the unique challenges of a
network with more than 3,800 destinations and 48,000 routing combinations, has
now been upgraded and transferred to a more robust infrastructure in line with
our plans. The current focus of the project is the complex integration into the
system of software packages similar to those used in aviation, retailing and
other industries. We are also augmenting our commercial team with individuals
experienced in these industries. The programme is on track to be operational
across the network during our 2015/16 financial year. We have already begun
taking pricing and yield management actions in certain regions and gathering
the resulting data, in order to help refine the parameters of the nationwide
systems and processes that are being introduced.
As part of the project we are also making good progress with our plans to
upgrade our retail distribution strategy. Web ticket sales are now a very
important sales channel where we see more than half of our transactions. Within
that, mobile sales are the fastest growing segment accounting for a third of
web sales, and our apps account for 20% of the mobile total. A completely
refreshed Greyhound website with augmented functionality is due to go live in
summer 2015. Increased use of web and mobile sales channels improves our
ability to communicate our prices to customers, making our yield and price
management actions more effective. In addition our customers can more easily
act on the price benefits of advance ticket purchases when they have the
flexibility to do so, which in turn enables us to operate more efficiently as
we have increased visibility of demand. Further customer relationship
management enhancements are also planned for the next year, including upgrading
our customer loyalty programme.
During the year we introduced 100 new vehicles to our fleet, completing the
balance of the large coach order placed in the prior year. We also refurbished
around 70 coaches to the same standard, which means that a substantial majority
of our operational fleet is now either new or recently refurbished.
Responsible partnerships with our customers and communities
The increased customer engagement that our new systems will bring will allow us
to use technology to better understand the needs of our individual passengers.
This will enable us to improve our customer satisfaction scores and better
align our services with the needs of our passengers.
In the year, we were selected by Forbes magazine in its list of top 500
companies to work for in the United States, ranked ahead of hundreds of well
known companies across 25 industries, and Greyhound was the only intercity bus
company to be recognised. More than 20,000 American workers at companies with
at least 2,500 employees were involved in the survey, which asked employees how
likely they would be to recommend their employer to someone else.
During 2014 we celebrated our centenary with a series of events throughout the
year including exhibitions, in-terminal commemorations, employee awards and a
centennial tour which travelled across the US featuring our restored classic
fleet and showcasing the best of today's business. We also increased
traditional marketing efforts in conjunction with the centenary in order to
drive additional interest in our improved offering.
Future priorities
Our efforts to introduce real-time pricing, yield management and customer
relationship management capabilities into the business will give us far greater
visibility and granularity on passenger demand over time, allowing us to
optimise our schedules, assets and pricing to maximise demand for our services.
We will also continue to grow our point-to-point business, although the rate of
growth in new services is likely to slow now that many of the closer cities in
North America are already connected. We remain confident of achieving our 12%
margin target, recognising however that long term oil price trends may impact
the timing.
Outlook
We will continue to actively manage our pricing, frequencies and other variable
costs in response to trends in passenger demand growth, which we anticipate
will remain relatively muted if recent oil price levels are sustained
throughout the year. Meanwhile, we will continue to take actions to return our
Canadian network to profitability. We expect our yield management systems to be
operational from the middle of our 2015/16 financial year, with the financial
benefits building over time as we develop our expertise in analysing and using
the new tools at our disposal, and passengers begin to respond to our actions.
UK Bus
Revenue in our UK Bus division was £896.1m (2014: £930.2m) with like-for-like
passenger revenue increasing by 2.3% excluding the contribution from
discontinued and disposed businesses in the prior year. Responding to the
changes we have made to our fares, networks and service quality, and despite
mixed economic conditions across the division, like-for-like passenger volumes
increased by 1.1% in the year. Within this, commercial passenger volume growth
increased by 2.6% on a like-for-like basis, whilst concession volumes were
modestly lower. In the second half of the year, many parts of our business
reached the anniversary of our fare rebasing actions, and have begun to benefit
from positive yield from periodic price increases in line with the market.
Operating profit increased to £51.8m (2014: £44.4m) and operating margin
increased by one percentage point to 5.8% (2014: 4.8%), reflecting operating
leverage to growth and our ongoing cost efficiency programmes.
Driving growth through attractive commercial propositions
With our initial programme of significant network changes largely completed in
the year, the focus is now on the commercial opportunities that our empowered
local management teams can deliver through deploying their resources and
adjusting networks, timetables and pricing to serve the needs of their markets.
During the year examples included the introduction of a single brand, the Cymru
Clipper, covering all our inter-urban services across South Wales. In both
Bristol and Glasgow we are pleased to be launching routes serving major new
hospitals, whilst in Manchester the acquisition of the Finglands business in
the prior year meant that we were able to launch a second cross-city service
connecting the two major universities in the year. We worked closely with a
number of local authorities to integrate tendered services into commercial
networks in order to meet passenger needs in the face of reduced Government
subsidy. In the year we worked closely with Cornwall County Council to minimise
the impact on customers of the closure of rival operator Western Greyhound.
We have also rebased our fares structures throughout the division, with the
majority of our networks seeing some reductions in prices, particularly of
period ticket products. With rebased pricing and good volume growth, we now
have a platform to consider further periodic price increases in line with the
market across our local networks. Our focus remains on offering attractive
fares products to deliver loyalty and attract new customers.
During the year we acted on our two major fares consultations in Bristol and
the West of England and, as a result of the thousands of comments received from
our customers, the majority of our single fares were reduced and flat fares
were introduced in the area, with consistent child and young person discounts
on all products of 50% and 30% respectively. We have seen strong results with
passenger volumes in Bristol up by 19% year-on-year.
We were pleased with the results of the independent Bus Passenger Survey,
undertaken during the year by Transport Focus, in which we equalled our record
score of 86% for overall customer satisfaction across the country, following a
5 percentage point rise in 2013. Our networks in both York and East Scotland
were amongst the highest scoring of any bus operator, whilst we were
particularly encouraged by our overall value for money score, which has
improved by 17 percentage points over two years and is now above the national
average.
Continuous improvement in operating and financial performance
Operating discipline, cost optimisation and focused investment in our fleets
and our people are improving our service delivery while increasing customer
satisfaction. We delivered cost reductions relating to productivity, fuel
efficiency, procurement, engineering and maintenance of approximately £15m
during the year. Our drive to improve our engineering performance, through
investment in fleet and depot transformation, has led to decreases in both
defects and breakdowns with a corresponding increase in service performance.
However in some areas we have experienced disruption due to road repair
programmes which has affected punctuality. We work hard with local authorities
to overcome these issues, and in many instances we have redeployed fleet and
drivers to help ease the situation.
Prudent investment in our key assets
We successfully bid for a number of shuttle bus contracts, including new Park &
Ride sites in Leeds, Taunton, Portsmouth and in York, where our fleet now
consists of 12 electric buses. In Aberdeen we operate our full complement of
hydrogen vehicles, partnering with numerous organisations including the city
council. During the year we took delivery of more than 270 Wrightbus StreetLite
Micro Hybrid buses, which improve fuel efficiency by up to 30%, and which we
played a large part in developing with the manufacturer. After the year end we
placed a £77.6m order for 385 vehicles for delivery in 2015/16, with more than
90% fitted with Euro 6 engines, the biggest investment in such lower emission
engines in the UK to date. The buses will be fitted with free Wi-Fi and we will
trial USB charging points on some vehicles.
During the year we introduced mobile ticketing onto all of our networks, and
take up of this new sales channel has been encouraging. We are seeing
particularly good growth in student markets, where we invested in promotion at
the beginning of the academic year. The development and marketing of our apps,
with period products enabled, gives us a strong base to offer more ticket
products on this platform.
We are also playing a leading role to deliver the industry commitment to launch
multi-operator smart ticketing across the city regions in England by December
2015. During the year smartcard schemes were launched in West Yorkshire,
Hampshire and Bristol, and these will continue to develop further going
forward.
Responsible partnerships with our customers and communities
We continue to explore opportunities to work in closer partnership with local
authorities in all of our markets, as our objective to get more people onto
buses typically aligns very well with their ambition to reduce congestion and
stimulate economic activity. Our approach complements the Government's
'Northern Powerhouse' agenda, a focus for many of the local markets in which we
operate. Across all our networks we are actively promoting enhanced partnership
arrangements, building on the success we have had in South Yorkshire - where
passenger volumes in both Sheffield and Rotherham have risen strongly since
partnerships were introduced.
We were key transport partners for a number of high profile events during the
year and were particularly delighted to be Official Supporter - Passenger
Transport Services to the Glasgow 2014 Commonwealth Games. We also provided
shuttle buses for the Ryder Cup golf tournament at Gleneagles in September. We
are a sponsor of Bristol European Green Capital 2015, and are partnering with
the city on events and logistics throughout the year while trialling a number
of sustainable technologies and processes.
Future priorities
While there is still some way to go, we are delivering our turnaround plan as
forecasted to restore double digit margins to UK Bus by the end of 2017, which
will be achieved from a continuation of our efforts to drive increased volume,
coupled with market-based yield enhancement and continuing cost efficiencies.
We believe that our strategy, which is based on delivering a competitive
customer proposition coupled with improved operating discipline and strong
partnerships with local authorities, is the most responsive, efficient and
cost-effective way to deliver the outcomes that bus passengers and taxpayers
want and we will continue to promote this strategy going forwards. By tailoring
our actions to local market conditions in the light of the progress each part
of our business has made through our turnaround plan, we will continue to
create a business focused on passenger needs with engaged local management,
delivering increasingly attractive services at competitive prices.
Outlook
We expect our transformation plan to deliver further volume growth in 2015/16,
and now that many parts of our business have passed the anniversary of our fare
rebasing actions, revenue growth is also expected to benefit from positive
yield from periodic price increases in line with the market. Operating leverage
from this growth, coupled with our cost efficiency programmes, are expected to
ensure that we will make further progress during 2015/16 towards our medium
term target of double digit margins.
UK Rail
Our UK Rail division continues to benefit from robust growth in passenger
volumes, with like-for-like passenger revenue increasing by 6.7% during the
year, at the top end of our expectations. On a reported basis revenues declined
to £2,207.1m (2014: £2,870.1m), reflecting a reduction in First ScotRail
subsidy (with a matching reduction in track access charges, so does not affect
operating profit), the end of revenue support arrangements in First Great
Western and First Capital Connect, and the completion of the First Capital
Connect franchise at the end of the first half. Adjusted operating profit was £
74.1m (2014: £55.2m), representing a margin of 3.4% (2014: 1.9%), in part
reflecting First Great Western moving to normal commercial terms part way
through last year. Like-for-like passenger volumes increased by 4.2% in the
year.
Focused and disciplined bidding
During the year the DfT has made progress in line with its UK rail
refranchising timetable originally announced in March 2013 and updated
periodically since then. As part of this timetable, we were pleased to sign two
agreements in March 2015 with the DfT, securing First Great Western for up to
four and a half more years and First TransPennine Express for an additional
year. As a result we will continue to run our largest franchise First Great
Western to at least 1 April 2019, with a further extension of up to one year at
the DfT's discretion. This underscores the DfT's confidence in our ability to
deliver stability, good value and better services for our passengers during the
period in which the Great Western Mainline modernisation programme is being
implemented. The programme involves significant upgrades to infrastructure
including signalling and electrification, which will allow for new or
refurbished trains on every part of the network, resulting in more frequent and
faster journeys and an increase in the number of seats over the period to the
end of the decade. We will also be running First TransPennine Express to the
start of the next competitive franchise, expected on 1 April 2016 (the contract
includes an extension clause of up to 11 months at the DfT's discretion). As
one of three shortlisted bidders for that competition, we submitted our bid
proposal at the end of May. The new franchise is due to be awarded in October
2015.
Naturally we were disappointed not to secure any of the franchise competition
awards announced in the year. As a result two of our franchises ended during
the year, with First Capital Connect and First ScotRail being handed over to
their new operators on 14 September 2014 and 1 April 2015 respectively. Our
approach to bidding for UK rail franchises has been and will continue to be
disciplined, aiming to deliver ambitious improvements for passengers and
appropriate returns for shareholders, at an acceptable level of risk.
Continuous improvement in operating and financial performance
Our operating companies have continued to outperform the industry in delivering
punctuality and customer satisfaction improvements since 2006, despite some
significant infrastructure challenges over that time. We pioneered closer
partnership working with Network Rail and other industry participants to
deliver infrastructure upgrade projects whilst minimising disruption for
passengers, expertise which is increasingly vital as the Government's
reinvestment in the national rail infrastructure continues to increase over the
coming years. One of the largest such programmes is the £7.5bn Great Western
Mainline upgrade, where First Great Western will continue to support the
substantial infrastructure upgrade work taking place throughout the network, as
well as preparations for the introduction of the InterCity Express Programme,
Crossrail and a new fleet of local electric trains. In the year, the £895m
Reading area remodelling project saw the entry into operation of a new viaduct,
substantially increasing capacity at a major network bottleneck, and the
reopening of the upgraded Reading station itself. The overall project remains a
year ahead of schedule thanks in part to excellent partnership working across
the industry. First Capital Connect supported the preparations for the Class
700 train fleet introduction during the year as part of the £6bn Thameslink
Programme. First TransPennine Express began operating new trains and an
upgraded timetable in May 2014, delivering 90,000 extra seats per week,
benefiting from the Government's North of England electrification projects,
part of a national investment of more than £1bn in the North's railways, and
helping central and local government achieve its vision for a 'Northern
Powerhouse'.
Prudent investment in our key assets
We continue to innovate and invest in our service offerings for passengers.
First Great Western has reconfigured its carriages to deliver 3,000 more peak
time standard class seats into Paddington station per day. As part of the
project, the first class experience on First Great Western has been upgraded
and additional Pullman dining services introduced. First Great Western has also
invested in additional customer-facing employees on long distance routes.
During the year we continued to progress the roll out of free Wi-Fi services
both on-train and in-station throughout the First Great Western and First
ScotRail networks, while First Hull Trains won innovation awards for its free
4G single-sign-up Wi-Fi service. First ScotRail has also rolled out smart
ticketing-enabled equipment at more than 300 stations during the year, the
largest such project in the UK, and the experience gained is being used to
determine the most effective approach to similar introductions across our other
franchises. During the year we became the first rail operator to give
passengers the opportunity to earn Nectar loyalty points when booking their
journeys online.
In the year First Great Western and First TransPennine Express became
accredited with Investors in People Gold status, joining First ScotRail in
achieving the UK's most recognised employee investment award.
Responsible partnerships with our customers and communities
In the latest Transport Focus survey (completed during the autumn) First
ScotRail, First Great Western and First Hull Trains achieved year-on-year
improvements in overall customer satisfaction, while First TransPennine Express
saw a decrease related to service issues after introduction of the new
timetable, which have since been rectified.
During the year First TransPennine Express was the first train operating
company to win the British Quality Foundation UK Excellence Award, which
recognises high performing businesses as assessed against the European
Foundation for Quality Management model. First Great Western succeeded First
ScotRail as Rail Business of the Year at the national Rail Business Awards,
while both First Hull Trains and First TransPennine Express were runners-up for
Best Train Operator. First Great Western also received a special award jointly
with Network Rail, recognising their response to the collapse of the sea wall
at Dawlish.
Future priorities
We have been actively involved in the UK rail industry since privatisation and
have a breadth of experience and expertise in running every type of network.
Our management team has been involved in some of the highest profile
infrastructure and rolling stock upgrade programmes of recent years,
experiences that are increasingly important as reinvestment in the national
rail network continues to gather pace over the coming years. Having secured
First Great Western until at least March 2019, we have a strong position in
rail to build on over the medium term. Approximately two thirds of the UK rail
network by passenger revenue is expected to be refranchised over the next five
years, and our approach to these competitions will continue to be disciplined.
We will examine each franchise on its merits and decide whether it presents an
opportunity to deliver ambitious improvements for passengers and appropriate
returns for shareholders, at an acceptable level of risk.
Outlook
In the year ahead we expect our ongoing rail operations (First Great Western,
First TransPennine Express and First Hull Trains) to deliver solid revenue
growth underpinned by continued increases in passenger volumes. However, UK
Rail's contribution to Group earnings will be substantially lower in 2015/16
following the end of the First Capital Connect and First ScotRail franchises.
Having submitted our proposal for the TransPennine Express franchise in May
2015, we look forward to the announcement of the competition winner in October.
We were recently shortlisted for the East Anglia competition, and we will
examine the other upcoming franchise competition opportunities in the DfT's
timetable before determining whether to proceed with a bid.
Group Outlook
We intend to deliver further progress from our multi-year transformation plans
in our 2015/16 financial year. We currently anticipate strong progression in
our non-rail businesses, driven mainly by the ongoing turnarounds of First
Student and UK Bus, to largely offset the substantially lower contribution from
UK Rail as a result of the end of the First ScotRail and First Capital Connect
franchises.
First Student will continue to seek higher pricing with the resultant risk of
some contract losses during the 2015 bid season, though with just over half of
the negotiations completed so far, we are encouraged by our progress, with
average price increases achieved to date of over 5%. We anticipate this
improvement together with further cost efficiencies to result in further margin
progress for First Student in 2015/16, despite an impact of approximately $17m
to operating profit as a result of the lower number of operating days compared
with the prior year. We expect First Transit to continue to bid for contracts
offering good margins with modest capital investment, though we expect some
reductions in demand for our shuttle services in the Canadian oil sands region
as a result of lower oil prices. In Greyhound we expect our yield management
systems to be operational from the middle of our 2015/16 financial year, with
the financial benefits building over time. If recent oil prices are sustained
throughout the year, we would expect Greyhound passenger demand to remain
relatively muted, and we will continue to manage our variable costs in
response. In UK Bus we will continue to drive overall volume growth and
market-based yield enhancements while targeting further cost efficiencies in
2015/16, tailoring our actions to local conditions in the light of the progress
each market has made through our turnaround plan. UK Rail's contribution to
Group earnings will be substantially lower in 2015/16, as a result of the First
Capital Connect and First ScotRail franchises coming to an end. As previously
indicated, we expect cash flow in our 2015/16 year to be broadly flat before
the remaining UK Rail end of franchise outflows of approximately £30m.
Our improved financial performance this year demonstrates that our multi-year
transformation programme is making progress, though we must maintain the
momentum of change to meet our medium term financial targets. Accordingly we
will continue to work hard to deliver the considerable potential of the Group
and return to a consistent profile of cash generation and sustainable value
creation.
Finance costs and investment income
Net finance costs before adjustments were £139.7m (2014: £156.1m) with the
decrease principally reflecting lower debt levels following the rights issue
which completed part way through last year, and lower interest rates as a
result of cancelling certain interest rate swaps and having more floating rate
debt.
Profit before tax
Adjusted profit before tax as set out in note 4 to the financial statements was
£163.9m (2014: £111.9m), with the increase due principally to higher adjusted
operating profit and lower adjusted net finance costs. An overall charge of £
58.1m (2014: £53.4m) for adjustments including amortisation charges of £54.3m
(2014: £53.4m) resulted in statutory profit before tax of £105.8m (2014: £
58.5m).
Tax
The tax charge, on adjusted profit before tax, for the year was £36.1m (2014: £
22.4m) representing an effective rate of 22.0% (2014: 20.0%). There was a tax
credit of £15.8m (2014: credit of £24.9m) relating to amortisation charges and
other adjustments. The total tax charge was £20.3m (2014: credit of £5.7m). The
2014 total tax credit also included a one-off credit adjustment of £3.2m to the
UK deferred tax liability as a result of the reduction in the UK corporation
tax rate from 23% to 20%, which will apply from April 2016. The actual tax paid
during the year was £4.5m (2014: £8.2m).
EPS
Adjusted EPS increased by 30.7% to 9.8p (2014: 7.5p). Basic EPS increased 21.6%
to 6.2p (2014: 5.1p), with both improvements primarily due to higher operating
profit and lower net finance costs.
EBITDA
EBITDA by division is set out below:
Year to 31 March 2015 Year to 31 March 2014
EBITDA EBITDA
Revenue EBITDA1 margin1 Revenue EBITDA1 margin1
Divisional results £m £m % £m £m %
First Student 1,478.8 260.9 17.6% 1,467.4 241.1 16.4%
First Transit 844.8 72.1 8.5% 811.9 72.0 8.9%
Greyhound 609.6 73.1 12.0% 624.6 74.9 12.0%
UK Bus 896.1 118.5 13.2% 930.2 105.9 11.4%
UK Rail 2,207.1 137.8 6.2% 2,870.1 117.1 4.1%
Group 14.3 (38.0) 13.2 (31.2)
Total Group 6,050.7 624.4 10.3% 6,717.4 579.8 8.6%
North America in US $m $m % $m $m %
Dollars
First Student 2,368.6 412.5 17.4% 2,339.3 387.2 16.6%
First Transit 1,362.1 116.1 8.5% 1,290.5 114.4 8.9%
Greyhound 986.0 119.1 12.1% 990.6 118.4 12.0%
Total North America 4,716.7 647.7 13.7% 4,620.4 620.0 13.4%
1Adjusted operating profit less capital grant amortisation plus depreciation.
Reconciliation to non-GAAP measures and performance
Note 4 to the financial statements sets out the reconciliations of operating
profit and profit before tax to their adjusted equivalents. The principal
reconciling items are as follows:
Amortisation charges
The charge for the year was £54.3m (2014: £53.4m).
Gain on disposal of property
A gain on disposal of £25.3m (2014: £nil) was realised on the sale of a
Greyhound garage in Miami. The proceeds of this disposal of £31.6m were
received during the year.
Legal claims
Two separate legal claims that pre-date the Laidlaw acquisition and were
acquired with the former Laidlaw entities had adverse developments during the
year and we now estimate that it will cost significantly more to settle these
cases. As a result there was a charge of £12.2m (2014: £nil).
IT licences
A number of Group IT licences have been written off as the projects to which
they relate will now be achieved in an alternative, less costly and more
appropriate way. The charge for these licences was £8.7m (2014: £nil).
UK Bus depot sales and closures
There was a charge of £7.5m (2014: credit of £13.0m) in the year relating to
operating losses and fixed asset impairments. The credit in 2014 largely
represents the gain on disposal of London operations.
UK Rail First Great Western contract provision
There was a charge of £nil (2014: credit of £4.6m) in the year. The credit in
2014 reflected the fact that losses in the final seven periods of the old
franchise were not as high as initially projected, partly due to contractual
changes agreed with the DfT.
Ineffectiveness on financial derivatives
There was a £0.3m (2014: £17.6m) non-cash charge during the year due to
ineffectiveness on financial derivatives. The principal component of the 2014
charge related to certain US Dollar swaps which were no longer required as the
underlying borrowings were repaid from proceeds of the rights issue.
Cash Flow
The net cash inflow for the year before UK Rail end of franchise cash flows was
£39.4m (2014: £26.9m). This cash inflow combined with the end of franchise
outflows of £107.9m (£58.7m for First Capital Connect and £49.2m for First
ScotRail) and movements in debt due to foreign exchange contributed to a net
debt increase of £103.5m (2014: decrease of £675.3m) as detailed below:
Year to Year to
31 March 31 March
2015 2014
£m £m
EBITDA 624.4 579.8
Other non-cash income statement (credits)/charges (14.0) 7.8
Working capital excluding FGW provision movement and UK (11.6) (37.0)
Rail end of franchise cash flows
Working capital - FGW provision movement (current - (35.3)
liabilities)
Movement in other provisions (27.2) (36.1)
Pension payments in excess of income statement charge (12.3) (27.7)
Cash generated by operations excluding UK Rail end of 559.3 451.5
franchise cash flows
Capital expenditure (428.9) (334.5)
Acquisitions (11.0) -
Proceeds from disposal of property, plant and equipment 47.5 14.1
Interest and tax (124.4) (157.2)
Dividends payable to non-controlling minority (2.0) (21.3)
shareholders
Proceeds from sale of businesses - 76.3
Other (1.1) (2.0)
Net cash inflow before UK Rail end of franchise cash 39.4 26.9
flows
UK Rail end of franchise cash flows (107.9) -
Net proceeds from rights issue - 584.4
Foreign exchange movements (31.7) 68.2
Other non-cash movements in relation to financial (3.3) (4.2)
instruments
Movement in net debt in year (103.5) 675.3
The net cash inflow before UK Rail end of franchise cash flows was slightly
higher than the prior year, principally reflecting stronger cash generation by
operations, lower tax and interest payments and higher proceeds from disposals
of property, plant and equipment, partly offset by the planned higher capital
expenditure and the London disposal proceeds last year.
We expect there will be a further working capital outflow of approximately £30m
in 2015/16 as a result of the end of UK Rail franchises.
Capital Expenditure
As planned we continue to invest in our businesses. Cash capital expenditure
was £428.9m (2014: £334.5m) and comprised First Student £174.9m (2014: £
130.8m), First Transit £21.6m (2014: £18.1m), Greyhound £49.8m (2014: £45.8m),
UK Bus £104.1m (2014: £67.4m), UK Rail £75.0m (2014: £68.5m) and Group items £
3.5m (2014: £3.9m). UK Rail capital expenditure is typically matched by
franchise receipts.
In addition during the year we entered into operating leases for passenger
carrying vehicles with capital values in First Student of £nil (2014: £25.2m),
First Transit of £9.2m (2014: £19.5m), Greyhound of £nil (2014: £14.7m) and UK
Bus of £nil (2014: £24.3m).
Gross capital investment was £425.1m (2014: £464.7m) and comprised First
Student £170.4m (2014: £194.3m), First Transit £30.3m (2014: £37.2m), Greyhound
£50.9m (2014: £60.5m), UK Bus £93.9m (2014: £101.7m), UK Rail £76.1m (2014: £
69.4m) and Group items £3.5m (2014: £1.6m).
Funding and Risk Management
Liquidity within the Group has remained strong. At 31 March 2015 there was £
1,023.8m (2014: £988.5m) of committed headroom and free cash, being £800.0m
(2014: £796.2m) of committed headroom and £223.8m (2014: £192.3m) of free cash.
Largely due to the seasonality of First Student, committed headroom typically
reduces during the financial year up to October and increases thereafter.
Treasury policy requires a minimum of £250m of committed headroom at all times.
Our average debt maturity was 5.2 years (2014: 6.1 years). The Group's main
revolving bank facilities require renewal in June 2019.
The Group does not enter into speculative financial transactions and uses only
authorised financial instruments for certain risk management purposes.
Interest Rate Risk
We reduce our 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
We use a progressive forward hedging programme to manage commodity risk. In
2014/15 in the UK, 93% of our 'at risk' crude requirements (2.2m barrels p.a.)
were hedged at an average rate of $101 per barrel. At year end we had hedged
65% of our 'at risk' UK crude requirements for the year to 31 March 2016 at $97
per barrel and 34% of our requirements for the year to 31 March 2017 at $89 per
barrel.
In North America 81% of 2014/15 'at risk' crude oil volumes (1.5m barrels p.a.)
were hedged at an average rate of $90 per barrel. At year end we had hedged 71%
of the volumes for the year to 31 March 2016 at $86 per barrel and 36% of our
volumes for the year to 31 March 2017 at $83 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 mitigated
by US Dollar denominated costs incurred in the UK, principally UK fuel costs,
US Dollar interest and tax costs.
Net Debt
The Group's net debt at 31 March 2015 was £1,407.3m (2014: £1,303.8m) and
comprised:
31 March 31 March
2015 2014
Fixed Variable Total Total
Analysis of net debt £m £m £m £m
Sterling bond (2018) 297.8 - 297.8 297.5
Sterling bond (2019) - 249.8 249.8 249.5
Sterling bond (2021) - 348.2 348.2 347.5
Sterling bond (2022) 320.0 - 320.0 319.5
Sterling bond (2024) 199.5 - 199.5 199.5
HP contracts and finance leases 276.5 25.7 302.2 344.6
Senior unsecured loan notes 100.6 - 100.6 89.9
Loan notes 8.7 1.0 9.7 9.7
Gross debt excluding accrued interest 1,203.1 624.7 1,827.8 1.857.7
Cash (223.8) (192.3)
UK Rail ring-fenced cash and deposits (196.0) (360.9)
Other ring-fenced cash and deposits (0.7) (0.7)
Net debt excluding accrued interest 1,407.3 1,303.8
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 2015 there were 1,203.7m shares in issue (2014: 1,204.2m),
excluding treasury shares and own shares held in trust for employees of 1.2m
(2014: 0.7m). 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 1,204.0m (2014: 1,059.3m).
BALANCE SHEET
Net assets have increased by £263.2m since the start of the year. The principal
reasons for this are the retained profit for the year of £85.5m, favourable
translation reserve movements of £223.9m and actuarial gains on defined benefit
pension schemes (net of deferred tax) of £27.2m partly offset by unfavourable
after tax hedging reserve movements of £63.3m.
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 31 March
2015 2014
Closing Effective Closing Effective
rate rate rate rate
US Dollar 1.49 1.58 1.66 1.61
Canadian Dollar 1.88 1.83 1.84 1.69
PENSIONS
We have updated our pension assumptions as at 31 March 2015 for the defined
benefit schemes in the UK and North America. The net pension deficit of £260.7m
at the beginning of the year has decreased to £239.4m at the end of the year
principally due to actual returns on assets more than offsetting lower net
discount rates in the UK and North America.
The main factors that influence the balance sheet position for pensions and the
sensitivities to their movement at 31 March 2015 are set out below:
Movement Impact
Discount rate +0.1% Reduce deficit by £32m
Inflation +0.1% Increase deficit by £24m
SEASONALITY
First Student generates lower revenues and profits in the first half of the
financial 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.
Forward looking statements
Certain statements included or incorporated by reference within this document
may constitute "forward-looking statements" with respect to the business,
strategy and plans of the Group and our current goals, assumptions and
expectations relating to our future financial condition, performance and
results.
By their nature, forward-looking statements involve known and unknown risks,
assumptions, uncertainties and other factors which cause actual results,
performance or achievements of the Group to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements.
Shareholders are cautioned not to place undue reliance on the forward-looking
statements. Except as required by the UK Listing Rules and applicable law, the
Group does not undertake any obligation to update or change any forward-looking
statements to reflect events occurring after the date of this document.
Other information
Unless otherwise stated, all financial figures refer to the 12 month period
ended 31 March 2015 (the 'year'), with growth compared to the 12 months to 31
March 2014 (the 'prior year'). No account is taken of foreign exchange
translation effects in the description of divisional performances and outlook.
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 2015 of 5.2 years (2014: 6.1 years) and which is largely represented by
medium term unsecured bank facilities and long term unsecured bond debt. The
Group has an £800m committed revolving banking facility of which £800m (2014:
$1,200m under previous $1,250m facility) was undrawn at the year end. This new
facility 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 2016 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
10 June
2015
10 June 2015
Consolidated income statement
For the year ended 31 March
Notes 2015 2014
£m £m
Revenue 2 6,050.7 6,717.4
Operating costs (5,804.9) (6,485.2)
Operating profit 245.8 232.2
Investment income 1.8 1.7
Finance costs (141.8) (175.4)
Profit before tax 105.8 58.5
Tax (20.3) 5.7
Profit for the year 85.5 64.2
Attributable to:
Equity holders of the parent 75.2 54.2
Non-controlling interests 10.3 10.0
85.5 64.2
Earnings per share
Basic 5 6.2p 5.1p
Diluted 5 6.2p 5.1p
Adjusted results1
Adjusted operating profit 4 303.6 268.0
Adjusted profit before tax 4 163.9 111.9
Adjusted EPS 5 9.8p 7.5p
1 Adjusted for certain items as set out in note 4.
Consolidated statement of comprehensive income
Year ended 31 March
2015 2014
£m £m
Profit for the year 85.5 64.2
Items that will not be reclassified subsequently to profit or
loss
Actuarial gains/(losses) on defined benefit pension schemes 33.9 (33.5)
Deferred tax on actuarial gains/losses on defined benefit (6.7) 3.0
pension schemes
27.2 (30.5)
Items that may be reclassified subsequently to profit or loss
Derivative hedging instrument movements (89.9) 44.3
Deferred tax on derivative hedging instrument movements 26.6 (3.9)
Exchange differences on translation of foreign operations 223.9 (231.1)
160.6 (190.7)
Other comprehensive income/(expense) for the year 187.8 (221.2)
Total comprehensive income/(expense) for the year 273.3 (157.0)
Attributable to:
Equity holders of the parent 263.0 (167.0)
Non-controlling interests 10.3 10.0
273.3 (157.0)
Consolidated balance sheet
Year ended 31 March
Note 2015 2014 2013
£m £m £m
Non-current assets
Goodwill 6 1,659.2 1,509.5 1,665.8
Other intangible assets 7 197.0 217.9 281.8
Property, plant and equipment 8 2,027.1 1,864.9 1,977.6
Deferred tax assets 16 60.5 35.8 53.2
Retirement benefit assets 32.9 29.9 15.4
Derivative financial instruments 15 45.3 25.9 63.3
Investments 3.1 2.8 3.2
4,025.1 3,686.7 4,060.3
Current assets
Inventories 9 69.9 71.4 79.9
Trade and other receivables 10 716.6 663.6 641.0
Cash and cash equivalents 420.5 553.9 682.1
Assets held for sale 1.4 6.2 44.7
Derivative financial instruments 15 15.5 26.0 23.3
1,223.9 1,321.1 1,471.0
Total assets 5,249.0 5,007.8 5,531.3
Current liabilities
Trade and other payables 11 1,139.0 1,219.8 1,256.7
Tax liabilities 35.3 34.2 28.7
Financial liabilities 12 136.0 127.8 441.3
Derivative financial instruments 15 74.5 17.7 64.7
1,384.8 1,399.5 1,791.4
Net current liabilities 160.9 78.4 320.4
Non-current liabilities
Financial liabilities 12 1,805.7 1,823.9 2,317.4
Derivative financial instruments 15 22.6 9.2 21.7
Retirement benefit liabilities 272.3 290.6 263.2
Deferred tax liabilities 16 40.7 37.0 62.2
Provisions 17 236.7 224.6 260.9
2,378.0 2,385.3 2,925.4
Total liabilities 3,762.8 3,784.8 4,716.8
Net assets 1,486.2 1,223.0 814.5
Equity
Share capital 18 60.2 60.2 24.1
Share premium 676.4 676.4 676.4
Hedging reserve (55.5) 7.8 (32.6)
Other reserves 4.6 4.6 4.6
Own shares (1.9) (1.8) (1.1)
Translation reserve 241.7 17.8 248.9
Retained earnings 533.1 446.4 (130.5)
Equity attributable to equity holders of the 1,458.6 1,211.4 789.8
parent
Non-controlling interests 27.6 11.6 24.7
Total equity 1,486.2 1,223.0 814.5
Consolidated statement of changes in equity
Share Share Hedging Other Own Translation Retained Total Non- Total
capital premium reserve reserves shares reserve earnings £m controlling equity
£m £m £m £m £m £m £m interests £m
£m
Balance at 1 April 24.1 676.4 (32.6) 4.6 (1.1) 248.9 (130.5) 789.8 24.7 814.5
2013
Rights issue1 36.1 - - - - - 548.3 584.4 - 584.4
Total comprehensive - - 40.4 - - (231.1) 23.7 (167.0) 10.0 (157.0)
income for the year
Dividends paid - - - - - - - - (23.1) (23.1)
Movement in EBT and - - - - (0.7) - 0.3 (0.4) - (0.4)
treasury shares
Share-based payments - - - - - - 4.6 4.6 - 4.6
Balance at 31 March 60.2 676.4 7.8 4.6 (1.8) 17.8 446.4 1,211.4 11.6 1,223.0
2014
Total comprehensive - - (63.3) - - 223.9 102.4 263.0 10.3 273.3
income for the year
Purchase of - - - - - - (7.0) (7.0) (4.0) (11.0)
non-controlling
interests2
Acquisition of - - - - - - - - 11.7 11.7
non-controlling
interests
Non-controlling - - - - - - (12.8) (12.8) - (12.8)
interests put option3
Dividends paid - - - - - - - - (2.0) (2.0)
Movement in EBT and - - - - (0.1) - (1.0) (1.1) - (1.1)
treasury shares
Share-based payments - - - - - - 5.2 5.2 - 5.2
Deferred tax on - - - - - - (0.1) (0.1) - (0.1)
share-based payments
Balance at 31 March 60.2 676.4 (55.5) 4.6 (1.9) 241.7 533.1 1,458.6 27.6 1,486.2
2015
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.
2 On 14 August 2014, the Group purchased the non-controlling interests share
of Hull Trains Limited for a consideration of £3.0m and on 24 March 2015, the
Group purchased the non-controlling interests share of Cardinal Coach Lines UCL
for a consideration of CAD$17.0m. As both of these represent a transaction with
minority equity owners of the business without a change of control, they have
been recognised as an equity transaction in the Group's reserves and not as a
business combination or investment.
3 On 25 August 2014, the Group completed the acquisition of a 51% share in
Miles Square Transportation, Inc, a school bus transportation company based in
New York. Included within the purchase agreement is a put option for the Group
to purchase the remaining 49% from the non-controlling interest party for
a fixed price of US$19.1m. As the put option is a contract to purchase the
Group's own equity instruments it gives rise to a financial liability for the
fixed price amount in accordance with paragraph 23 in IAS 32. The financial
liability has been recognised in the balance sheet and the initial recognition
is treated as reclassified from equity.
Consolidated cash flow statement
Year ended 31 March
Note 2015 2014
£m £m
Net cash from operating activities 19 325.2 292.3
Investing activities
Interest received 1.8 2.0
Proceeds from disposal of property, plant and equipment 47.5 14.1
Purchases of property, plant and equipment (428.9) (277.0)
Acquisition of subsidiary/business (11.0) -
Disposal of subsidiary/business - 76.3
Net cash used in investing activities (390.6) (184.6)
Financing activities
Dividends paid to non-controlling shareholders (2.0) (21.3)
Shares purchased by Employee Benefit Trust (1.1) (2.0)
Proceeds from rights issue - 614.4
Fees paid on rights issue - (30.0)
Repayment of bonds - (300.0)
Drawdowns from bank facilities - 20.1
Repayment of bank debt - (416.9)
Repayments under HP contracts and finance leases (67.9) (101.8)
Fees for bank facility amendments (4.7) -
Net cash flow from financing activities (75.7) (237.5)
Net decrease in cash and cash equivalents before (141.1) (129.8)
foreign exchange movements
Cash and cash equivalents at beginning of year 553.9 682.1
Foreign exchange movements 7.7 1.6
Cash and cash equivalents at end of year per 420.5 553.9
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
2015 2014
£m £m
Net decrease in cash and cash equivalents in year (141.1) (129.8)
Decrease in debt and finance leases 67.9 798.6
Inception of new HP contracts and finance leases - (57.5)
Fees capitalised against bank facilities 4.7 -
Net cash flow (68.5) 611.3
Foreign exchange movements (31.7) 68.2
Other non-cash movements in relation to financial instruments (3.3) (4.2)
Movement in net debt in year (103.5) 675.3
Net debt at beginning of year (1,303.8) (1,979.1)
Net debt at end of year (1,407.3) (1,303.8)
Net debt excludes all accrued interest.
Notes to the consolidated financial statements
1 General information
The financial information set out above does not constitute the Company's
Statutory Accounts for the year ended 31 March 2015 or 2014, but is derived
from those accounts. Statutory Accounts for 2014 have been delivered to the
Registrar of Companies and those for 2015 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 2014.
Copies of the Statutory Accounts for the year ended 31 March 2015 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 Revenue
2015 2014
£m £m
Services rendered 5,717.4 5,908.3
UK Rail franchise subsidy receipts 333.3 572.1
UK Rail revenue support - 237.0
6,050.7 6,717.4
Finance income 1.8 1.7
Total revenue as defined by IAS 18 6,052.5 6,719.1
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 Strategic report.
The segment results for the year to 31 March 2015 are as follows:
First First Greyhound UK Bus UK Rail Group Total
Student Transit £m £m £m items1 £m
£m £m £m
Revenue 1,478.8 844.8 609.6 896.1 2,207.1 14.3 6,050.7
EBITDA2 260.9 72.1 73.1 118.5 137.8 (38.0) 624.4
Depreciation (146.0) (12.4) (31.4) (66.7) (96.2) (0.6) (353.3)
Capital grant - - - - 32.5 - 32.5
amortisation
Segment results2 114.9 59.7 41.7 51.8 74.1 (38.6) 303.6
Amortisation charges (39.8) (3.4) (2.9) - (8.2) - (54.3)
Other adjustments (12.2) - 25.3 (7.9) - (8.7) (3.5)
Operating profit3 62.9 56.3 64.1 43.9 65.9 (47.3) 245.8
Investment income 1.8
Finance costs (141.5)
Ineffectiveness on (0.3)
financial derivatives
Profit before tax 105.8
Tax (20.3)
Profit after tax 85.5
The segment results for the year to 31 March 2014 are as follows:
First First Greyhound UK Bus UK Rail Group Total
Student Transit £m £m £m items1 £m
£m £m £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)
Other adjustments - - - 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
1 Group items comprise Tram operations, central management and other items.
2 Adjusted.
3 Although the segment results are used by management to measure performance,
statutory operating profit by operating division is also disclosed for
completeness.
4 Reconciliation to non-gaap measures and performance
In measuring the Group adjusted performance, additional financial measures
derived from the reported results have been used in order to eliminate factors
which distort year on year comparisons. The Group's adjusted performance is
used to explain year on year changes when the effect of certain items are
significant, including amortisation, business disposals, aged legal claims and
revisions to onerous contracts, as the Directors consider that this basis more
appropriately reflects operating performance and a better understanding of the
key performance indicators of the business.
Reconciliation of operating profit to adjusted operating profit Year to Year to
31 March 31 March
2015 2014
£m £m
Operating profit 245.8 232.2
Adjustments for:
Amortisation charges 54.3 53.4
Gain on disposal of property (25.3) -
Legal claims 12.2 -
IT licences 8.7 -
UK Bus depot sales and closures 7.5 (13.0)
UK Rail First Great Western contract provision - (4.6)
Other 0.4 -
Adjusted operating profit (note 3) 303.6 268.0
Reconciliation of profit before tax to adjusted profit before Year to Year to
tax 31 March 31 March
2015 2014
£m £m
Profit before tax 105.8 58.5
Adjustments for:
Amortisation charges 54.3 53.4
Gain on disposal of property (25.3) -
Legal claims 12.2 -
IT licences 8.7 -
UK Bus depot sales and closures 7.5 (13.0)
Ineffectiveness on financial derivatives 0.3 17.6
UK Rail First Great Western contract provision - (4.6)
Other 0.4 -
Adjusted profit before tax 163.9 111.9
Adjusted tax charge (36.1) (22.4)
Non-controlling interests (10.3) (10.2)
Adjusted earnings 117.5 79.3
5 Earnings per share (EPS)
EPS is calculated by dividing the profit attributable to equity shareholders of
£75.2m (2014: £54.2m) by the weighted average number of ordinary shares of
1,204.0m (2014: 1,059.3m). The number 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.
2015 2014
Number Number
m m
Weighted average number of shares used in basic calculation 1,204.0 1,059.3
Executive share options 3.6 3.0
Weighted average number of shares used in the diluted 1,207.6 1,062.3
calculation
The adjusted EPS is intended to highlight the recurring results of the Group
before amortisation charges, ineffectiveness on financial derivatives and
certain other adjustments as set out in note 4. A reconciliation is set out
below:
2015 2014
£m EPS (p) £m EPS (p)
Basic profit/EPS 75.2 6.2 54.2 5.1
Amortisation charges¹ 54.3 4.5 53.2 5.0
Ineffectiveness on financial derivatives 0.3 - 17.6 1.7
Other adjustments (note 4) 3.5 0.3 (17.6) (1.7)
Tax effect of above adjustments (15.8) (1.2) (24.9) (2.3)
Deferred tax credit due to change in UK - - (3.2) (0.3)
corporation tax rate
Adjusted profit/EPS 117.5 9.8 79.3 7.5
1 Amortisation charges of £54.3m per note 7 less £nil (2014: £53.4m less £
0.2m) attributable to equity non-controlling interests.
Diluted EPS 2015 2014
pence pence
Basic 6.2 5.1
Adjusted 9.7 7.5
6 Goodwill
2015 2014 2013
£m £m £m
Cost
At 1 April 1,513.5 1,669.8 1,604.3
Additions 1.7 - -
Disposals - (7.7) (11.5)
Foreign exchange movements 148.0 (148.6) 77.0
At 31 March 1,663.2 1,513.5 1,669.8
Accumulated impairment losses
At 1 April 4.0 4.0 5.0
Impairment losses for the year - - 4.0
Disposals - - (5.0)
At 31 March 4.0 4.0 4.0
Carrying amount
At 31 March 1,659.2 1,509.5 1,665.8
7 Other intangible assets
Customer Greyhound Rail Total
contracts brand and franchise £m
£m trade agreements
name £m
£m
Cost
At 1 April 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
Acquisitions 15.8 - - 15.8
Additions 0.3 - - 0.3
Foreign exchange movements 36.5 5.2 - 41.7
At 31 March 2015 414.8 63.3 36.1 514.2
Amortisation
At 1 April 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
Charge for year 43.3 2.9 8.1 54.3
Foreign exchange movements 22.5 1.9 - 24.4
At 31 March 2015 260.3 24.0 32.9 317.2
Carrying amount
At 31 March 2015 154.5 39.3 3.2 197.0
At 31 March 2014 167.7 38.9 11.3 217.9
At 31 March 2013 232.7 46.5 2.6 281.8
8 Property, plant and equipment
Land and Passenger Other Total
buildings carrying plant and £m
£m vehicle equipment
fleet £m £m
Cost
At 1 April 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
Additions in the year 32.0 281.8 102.1 415.9
Acquisitions - 7.8 - 7.8
Disposals (7.4) (99.3) (100.2) (206.9)
Impairment - - (8.7) (8.7)
Reclassified as held for sale - (64.4) - (64.4)
Foreign exchange movements 20.6 196.0 23.8 240.4
At 31 March 2015 497.1 2,978.2 842.4 4,317.7
Accumulated depreciation and impairment
At 1 April 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
Charge for year 12.2 216.1 125.0 353.3
Disposals (1.1) (88.0) (98.6) (187.7)
Reclassified as held for sale - (63.0) - (63.0)
Foreign exchange movements 3.7 98.7 16.9 119.3
At 31 March 2015 104.2 1,510.7 675.7 2,290.6
Carrying amount
At 31 March 2015 392.9 1,467.5 166.7 2,027.1
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
9 Inventories
2015 2014 2013
£m £m £m
Spare parts and consumables 69.8 71.3 79.7
Property development work in progress 0.1 0.1 0.2
69.9 71.4 79.9
10 Trade and other receivables
Amounts due within one year 2015 2014 2013
£m £m £m
Trade receivables 355.3 361.9 340.2
Provision for doubtful receivables (2.3) (2.9) (3.2)
Other receivables 66.3 54.3 52.4
Other prepayments 126.1 117.6 116.6
Accrued income 171.2 132.7 135.0
716.6 663.6 641.0
11 Trade and other payables
Amounts falling due within one year 2015 2014 2013
£m £m £m
Trade payables 248.3 372.3 402.0
Other payables 225.9 212.4 184.3
Accruals 572.1 497.6 515.1
Deferred income 59.3 59.4 82.1
Season ticket deferred income 33.4 78.1 73.2
1,139.0 1,219.8 1,256.7
12 Financial liabilities - borrowings
2015 2014 2013
£m £m £m
On demand or within 1 year
Finance leases (note 13) 77.0 68.9 62.7
Bond 6.875% (repayable 2013) - - 319.8
Bond 8.125% (repayable 2018) 12.9 12.9 12.8
Bond 6.125% (repayable 2019) 3.0 3.0 3.0
Bond 8.75% (repayable 2021) 30.1 30.1 30.1
Bond 5.25% (repayable 2022) 5.8 5.7 5.7
Bond 6.875% (repayable 2024) 7.2 7.2 7.2
Total current liabilities 136.0 127.8 441.3
Within 1 - 2 years
Syndicated loans - - 49.3
Finance leases (note 13) 69.4 70.4 63.3
Loan notes (note 14) 9.7 9.7 9.7
Senior unsecured loan notes 33.5 - -
112.6 80.1 122.3
Within 2 - 5 years
Syndicated loans - - 336.1
Finance leases (note 13) 140.3 159.7 203.3
Bond 8.125% (repayable 2018) 297.8 297.4 -
Bond 6.125% (repayable 2019) 286.3 284.5 -
Senior unsecured loan notes 67.1 89.9 98.3
791.5 831.5 637.7
Over 5 years
Finance leases (note 13) 15.5 45.6 88.9
Bond 8.125% (repayable 2018) - - 297.1
Bond 6.125% (repayable 2019) - - 305.4
Bond 8.75% (repayable 2021) 366.6 347.6 347.4
Bond 5.25% (repayable 2022) 320.0 319.6 319.1
Bond 6.875% (repayable 2024) 199.5 199.5 199.5
901.6 912.3 1,557.4
Total non-current liabilities at amortised cost 1,805.7 1,823.9 2,317.4
13 HP contracts and finance leases
The Group had the following obligations under HP contracts and finance leases
as at the balance sheet dates:
2015 2015 2014 2014 2013 2013
Minimum Present Minimum Present Minimum Present
payments value of payments value of payments value of
£m payments £m payments £m payments
£m £m £m
Due in less than one year 79.2 77.0 70.9 68.9 64.5 62.7
Due in more than one year but not 73.3 69.4 74.6 70.4 66.9 63.3
more than two years
Due in more than two years but not 157.1 140.3 178.9 159.7 226.9 203.3
more than five years
Due in more than five years 18.7 15.5 55.0 45.6 107.3 88.9
328.3 302.2 379.4 344.6 465.6 418.2
Less future financing charges (26.1) - (34.8) - (47.4) -
302.2 302.2 344.6 344.6 418.2 418.2
14 Loan notes
The Group had the following loan notes issued as at the balance sheet dates:
2015 2014 2013
£m £m £m
Due in more than one year but not more than two years 9.7 9.7 9.7
15 Derivative financial instruments
2015 2014 2013
£m £m £m
Total derivatives
Total non-current assets 45.3 25.9 63.3
Total current assets 15.5 26.0 23.3
Total assets 60.8 51.9 86.6
Total current liabilities 74.5 17.7 64.7
Total non-current liabilities 22.6 9.2 21.7
Total liabilities 97.1 26.9 86.4
Derivatives designated and effective as hedging
instruments carried at fair value
Non-current assets
Cross currency swaps (net investment hedge) - - 15.2
Coupon swaps (fair value hedge) 45.3 24.1 45.7
Fuel derivatives (cash flow hedge) - 1.8 2.4
45.3 25.9 63.3
Current assets
Cross currency swaps (net investment hedge) - - 3.6
Coupon swaps (fair value hedge) 15.5 11.1 13.2
Fuel derivatives (cash flow hedge) - 6.4 6.5
15.5 17.5 23.3
Current liabilities
Interest rate derivatives (cash flow hedge) - - 8.1
Cross currency swaps (net investment hedge) - - 47.6
Fuel derivatives (cash flow hedge) 66.9 5.1 4.8
66.9 5.1 60.5
Non-current liabilities
Interest rate derivatives (cash flow hedge) - - 11.8
Fuel derivatives (cash flow hedge) 21.4 1.3 0.8
21.4 1.3 12.6
Derivatives classified as held for trading
Current assets
Interest rate swaps - 8.5 -
Current liabilities
Interest rate swaps 7.6 12.6 4.2
Non-current liabilities
Interest rate swaps 1.2 7.9 9.1
16 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 £m
depreciation schemes differences £m
£m £m £m
At 1 April 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)
Charge/(credit) to other comprehensive - (3.0) 3.9 - 0.9
income
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
Charge/(credit) to income 13.9 3.5 (18.9) 4.1 2.6
(Credit)/charge to other comprehensive - 6.7 (26.6) - (19.9)
income
Charge direct to equity - - 0.1 - 0.1
Acquisition of business/subsidiary - - (0.9) - (0.9)
Foreign exchange movements 12.4 (5.4) 11.1 (21.0) (2.9)
At 31 March 2015 162.7 (67.4) 80.6 (195.7) (19.8)
Certain deferred tax assets and liabilities have been offset. The following is
the analysis of the deferred tax balances for financial reporting purposes:
2015 2014 2013
£m £m £m
Deferred tax assets (60.5) (35.8) (53.2)
Deferred tax liabilities 40.7 37.0 62.2
(19.8) 1.2 9.0
Deferred tax assets of £36.7m (2014: £36.1m) have not been recognised as it is
not considered probable that there will be future profits against which these
assets can be offset. The earliest period in which some of the assets will
expire is year ended 31 March 2027.
No deferred tax asset has been recognised in respect of £nil (2014: £nil; 2013:
£4m) of capital losses.
17 Provisions
2015 2014 2013
£m £m £m
Insurance claims 205.5 191.6 216.2
Legal and other 28.1 29.6 40.8
Pensions 3.1 3.4 3.9
Non-current liabilities 236.7 224.6 260.9
Insurance Legal FGW Pensions Total
claims and contract £m £m
£m other provision
£m £m
At 1 April 2014 294.8 39.9 - 3.4 338.1
Charged to the income statement 142.5 14.8 - - 157.3
Utilised in the year (163.7) (6.2) - (0.3) (170.2)
Notional interest 15.2 - - - 15.2
Foreign exchange movements 27.4 0.9 - - 28.3
At 31 March 2015 316.2 49.4 - 3.1 368.7
Current liabilities 110.7 21.3 - - 132.0
Non-current liabilities 205.5 28.1 - 3.1 236.7
At 31 March 2015 316.2 49.4 - 3.1 368.7
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
18 Called up share capital
2015 2014 2013
£m £m £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 36.1 -
1,204.9m ordinary shares of 5p each 60.2 60.2 24.1
19 Net cash from operating activities
2015 2014
£m £m
Operating profit 245.8 232.2
Adjustments for:
Depreciation charges 353.3 344.2
Capital grant amortisation (32.5) (32.4)
Amortisation charges 54.3 53.4
Gain on disposal of businesses and subsidiary undertakings - (16.5)
Impairment charges 8.7 -
Share-based payments 5.2 4.6
(Profit)/loss on disposal of property, plant and equipment (27.9) 3.2
Operating cash flows before working capital 606.9 588.7
Decrease in inventories 4.5 4.8
Increase in receivables (7.5) (60.0)
Decrease in payables (113.0) (18.2)
Decrease in provisions (27.2) (36.1)
Defined benefit pension payments in excess of income statement (12.3) (27.7)
charge
Cash generated by operations 451.4 451.5
Tax paid (4.5) (8.2)
Interest paid (112.2) (138.1)
Interest element of HP contracts and finance leases (9.5) (12.9)
Net cash from operating activities 325.2 292.3
Responsibility Statement of the Directors on the Annual Report
The responsibility statement below has been prepared in connection with the
Group's full annual report for the year ending 31 March 2015. Certain parts
thereof are not included within the announcement.
We confirm to the best of our knowledge:
* the financial statements, prepared in accordance with the relevant
financial reporting framework, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company and the
undertakings included in the consolidation taken as a whole
* the Management Report, which is incorporated into the Directors' 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 that 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
10 June
2015
10 June 2015