Final Results

FIRSTGROUP PLC
RESULTS FOR THE YEAR TO 31 MARCH 2020

Our first priority is the health and safety of the Group’s passengers and employees. The Board is immensely proud of our people who are working so hard to support our communities during the coronavirus pandemic
Trading trends prior to the pandemic were broadly similar throughout the year – industry cost pressures including labour and insurance costs largely offset by revenue growth in First Student, First Transit and First Bus (excluding disposals) and management actions. A more difficult trading environment for Greyhound was offset by a strong financial performance from GWR and the start of West Coast Partnership in First Rail
The impact of coronavirus in March, traditionally a significant trading period, resulted in average passenger volumes declining by c.90% by month end, with international lockdowns in place and all North American schools we serve closed
Group partially offset this impact through initial cost actions and the start of fiscal and contractual support, but it resulted in a significant effect on revenue and a material impact to adjusted¹ operating profit, which reduced to £256.8m (2019: £314.8m)
Statutory operating loss of £(152.7)m (2019: profit of £9.8m) reflects charges relating to the North American self-insurance provision, Greyhound impairment charges, restructuring and reorganisation costs and coronavirus-related charges
Adjusted cash flow² was ahead of our expectations in the year and net debt: EBITDA on ‘frozen accounting standards’ basis³ was 1.4 times (2019: 1.3 times). Pre-IFRS 16, net debt⁵ was flat year-on-year with reported net debt higher as expected due to the implementation of IFRS 16 (leases) in the year
Liquidity increased to c.£850m in free cash and committed undrawn facilities as at end of June 2020
Generated positive cash from operations before capital expenditure in first quarter of FY21
Swift and comprehensive funding and support measures across all our divisions from governments and customers demonstrate the critical importance of public transportation. As lockdowns ease, our services will play an integral role in the restoration of economic activity as evidenced by additional funding and support, though we recognise there is material uncertainty as to the continuation of these measures
Board is resolutely committed to and engaged in rationalisation of the Group’s portfolio through divestment of the North American businesses

Statutory	Mar 2020 £m	Mar 2019 £m
Revenue	7,754.6	7,126.9
Operating (loss)/profit	(152.7)	9.8
Loss before tax	(299.6)	(97.9)
EPS	(27.0)p	(5.5)p
Net debt⁴	3,278.1	903.4
Of which, bonds, bank and other debt net of cash	896.2	903.4
Of which, IFRS 16 right of use lease liabilities	2,381.9	-

	Mar 2020 £m	Mar 2019 £m	Change	Change in constant currency⁴
Revenue	7,754.6	7,126.9	+8.8%	+7.2%
Adjusted¹ operating profit	256.8	314.8	(18.4)%	(20.1)%
Adjusted¹ operating profit margin	3.3%	4.4%	(110)bps	(110)bps
Adjusted¹ profit before tax	109.9	208.2	(47.2)%	(48.2)%
Adjusted¹ EPS	6.8p	13.3p	(48.9)%	(49.6)%
Adjusted net debt⁶	1,508.1	1,428.1	+5.6%	+3.9%

Financial summary (percentage changes in constant currency⁴ unless otherwise stated)

Group revenue in constant currency⁴ +7.2% or +2.6% excluding the West Coast Partnership franchise (now branded Avanti West Coast) that started in December 2019; reported Group revenue +8.8%
Excluding the coronavirus impact, the Group’s adjusted¹ operating profit performance was broadly comparable to the prior year, with revenue growth, first time contribution of Avanti and management action broadly offsetting labour cost pressures and increases to the self-insurance cost in the North American divisions, two adverse legal judgements in First Transit, Greyhound revenue reductions and cost pressures, and poor UK summer weather and slower cost efficiency programme progress in First Bus
Statutory operating loss of £(152.7)m (2019: profit of £9.8m) and statutory EPS of (27.0)p (2019: (5.5)p) include the Greyhound impairment charge of £186.9m (of which £124.4m was in the first half), North American self-insurance provision of £141.3m, restructuring and reorganisation costs of £58.2m, and coronavirus-related charges of £21.5m
The North American self-insurance provision reflects the hardening motor claims environment impacting historic claims together with a significant change in the market-based discount rate used. The self-insurance charge to operating profit for the year to March 2020 reflects this revised environment and the businesses continue to build the higher costs into their bidding processes and hurdle rates for investment
Adjusted¹ operating profit decline of (20.1)% principally reflects the sudden and substantial reductions in service volumes and revenue due to the coronavirus outbreak in the final weeks of our financial year, which the Group was successful in partially offsetting through initial cost savings and the start of fiscal and contractual support. March is traditionally a significant trading period for the Group
Several of the funding measures with governments were only concluded at the end of the financial year, and in most divisions we continue to negotiate further funding and support from governments or customers
Adjusted¹ profit before tax and adjusted¹ EPS decreased by (48.2)% and (49.6)% respectively, reflecting the lower adjusted¹ operating profit and first-time adoption of IFRS 16 (lease accounting) on finance costs
Pre-IFRS 16 net debt⁵ was essentially flat in the year at £896.2m (2019: £903.4m). As expected, first time adoption of IFRS 16 resulted in £2,381.9m of leased liabilities (mainly Rail rolling stock) being recognised, increasing reported net debt⁵ to £3,278.1m (2019: £903.4m)
Net debt: EBITDA ratio on the ‘frozen accounting standards’ basis³ relevant to the bank covenant requirement of less than 3.75 times was 1.4 times (2019: 1.3 times) at year end. Adjusted net debt⁶: EBITDA (excluding Rail ring-fenced cash and the IFRS 16 leased assets) was 2.4 times (2019: 2.1 times)
Broadly flat net pension deficit £313.4m (2019: £307.2m) reflects actions taken to derisk the scheme and improved investment strategy
As at 31 March 2020 the Group’s undrawn committed headroom and free cash was £585.7m (2019: £520.6m). Subsequent to the year end, the Group issued £300m in commercial paper through the UK Government’s Covid Corporate Financing Facility (CCFF) scheme and entered into a committed £250m undrawn bridging loan for redemption of the £350m bond maturing in April 2021. The Group also has an uncommitted £150m accordion facility to the RCF, as well as further lines of uncommitted leasing facilities and more than $100m of uncommitted supplier credit

Divisional summary

First Student: strong contract retention through excellent customer service, positive pricing and acquisitions underpin market leadership position; despite cost headwinds well positioned to restart at the appropriate time for each of our schools with conversations underway about how and when that will be
First Transit: positive pricing, new contracts, and cost actions only partially offset a number of cost headwinds during the year. Pace of restoration of service will vary by business line but starting to see increases in activity being directed by our transit authority customers
Greyhound: Coronavirus compounded a challenging year with lower immigration-related demand, competition and lower fuel prices resulting in like-for-like⁷ revenue reductions of (5.3)% and an adjusted¹ operating loss in the year; government grants for our national network provide a framework from which to build back up our timetables as passenger demand justifies
First Bus: like-for-like⁷ passenger revenue +0.7% reflects the previously reported poor weather in H1 and the coronavirus outbreak. Fuel and other inflationary pressures during the year were partially offset by initial benefits of cost efficiency programme; new government ‘Restart’ grants in place to enable increased service capacity while maintaining social distancing
First Rail: like-for-like⁷ passenger revenue +0.2%. Strong GWR performance and successful start-up of the West Coast Partnership’s new Avanti franchise were offset by previously reported challenges in TPE and SWR. Secured GWR contract from April 2020 until at least 2023. All franchises underpinned by Emergency Measures Agreements with UK government until at least September

Current trading and outlook

Government and societal responses to the pandemic have had a significant impact on all of our markets, and will continue to do so for some time to come. Travel volumes have reduced very substantially and while guidance to limit travel and socially distance remains in place, this will have a significant impact on our service capacity and financial performance
At the same time, governments and customers recognise the need to maintain our transport services and are enabling this through fiscal, contractual and other support
There are material uncertainties as to how rapidly demand will increase, the rate at which fiscal support tapers and the duration of social distancing rules, as well as the timing of North American schools reopening. Therefore it is currently not possible to provide guidance for the financial year to 31 March 2021
While the Group currently has material fiscal and contractual support for running essential services across the divisions during the pandemic and committed undrawn liquidity of c.£850m as at the end of June, there are material uncertainties as to the future consequences of the coronavirus pandemic. The potential impact of certain scenarios have been highlighted in the going concern statement on page 23
However, based on current government and customer measures, and the cost reductions made in response to lower demand, the Group delivered adjusted¹ operating profit and positive cash from operations before capital expenditure since the start of the current financial year. Recognising the usual seasonality of our First Student business over the school summer holiday period, we would expect this relatively resilient financial performance to persist while these arrangements remain in place

Commenting, Chief Executive Matthew Gregory said:

“The funding and support we have received from governments and our customers to sustain critical transport services is testament to their importance now and for the future. We took rapid action to protect our ability to deliver continuity of the transport services that are so essential to our economies. Our priority since the start of the outbreak has been the health and safety of the Group’s passengers and employees. I am immensely proud of our people who are working so hard to support our communities during the crisis, by maintaining essential transport services and providing direct assistance to those who need it most.

“There is no way of predicting with any certainty how the coronavirus pandemic will continue to affect the public transportation sector and the impact it may have on customer trends longer-term. However, as leading operators in each of our markets we are strongly positioned for a recovery in passenger demand and for the opportunities that may emerge from this exceptional period. This will become ever more pertinent as the focus and drive towards zero-carbon public transportation systems inevitably increases, helping to create a better connected and more sustainable world.

“Despite the near-term uncertainty, the long-term fundamentals of our businesses remain sound. We are resolutely committed to delivering our strategy to unlock material value for all shareholders through the sale of our North American divisions at the earliest appropriate opportunity. The importance of public transport to society has never been more clearly demonstrated, and we will continue to take all necessary measures to enable the Group to emerge from this unprecedented situation in a robust position.”

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

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

A conference call for investors and analysts will be held at 9:00am today – attendance is by invitation. Please email corporate.comms@firstgroup.com in advance of the call to receive joining details. To access the presentation to be discussed on the conference call, together with a pdf copy of this announcement, go to www.firstgroupplc.com/investors. A playback facility will also be available there in due course.

Notes

¹ ‘Adjusted’ figures throughout this document reflect the adoption of IFRS 16 in the period and are before the Greyhound impairment charges, North American self-insurance provisions, restructuring and reorganisation costs, other intangible asset amortisation charges and certain other items as set out in note 4 to the financial statements.

² ‘Adjusted cash flow’ is described in the table shown on page 29.

³ Net debt: EBITDA on the ‘frozen accounting standards’ basis refers to the methodology required for calculating the Group’s compliance with the covenants on its banking facilities.

⁴ Changes 'in constant currency' throughout this document are based on retranslating 2019 foreign currency amounts at 2020 rates.

⁵ Net debt is stated excluding accrued bond interest, as described on page 31.

⁶ Adjusted net debt is stated after excluding cash ring-fenced in the Rail division and IFRS 16 operating leases.

⁷ 'Like-for-like' revenue adjust for certain factors which distort the period-on-period trends in our passenger revenue businesses, described on page 34.

Legal Entity Identifier (LEI): 549300DEJZCPWA4HKM93. Classification as per DTR 6 Annex 1R: 1.1, 2.2. This announcement contains inside information. The person responsible for arranging the release of this announcement on behalf of FirstGroup is Keith Hubber, Group General Counsel and Company Secretary.

FirstGroup plc (LSE: FGP.L) is a leading provider of transport services in the UK and North America. With £7.8 billion in revenue in 2020 and around 100,000 employees, we transported 2.1 billion passengers. Whether for business, education, health, social or recreation – we get our customers where they want to be, when they want to be there. We create solutions that reduce complexity, making travel smoother and life easier. We provide easy and convenient mobility, improving quality of life by connecting people and communities. Each of our five divisions is a leader in its field: In North America, First Student is the largest provider of home-to-school student transportation with a fleet of 43,000 yellow school buses, First Transit is one of the largest providers of outsourced transit management and contracting services, while Greyhound is the only nationwide operator of scheduled intercity coaches. In the UK, First Bus is one of Britain's largest bus companies with 1.4 million passengers a day in 2020, and First Rail is one of the country's most experienced rail operators, carrying 340 million passengers in the year. Visit our website at www.firstgroupplc.com and follow us @firstgroupplc on Twitter.

Chairman’s Statement

I joined as Chairman in August and since then I have spent a great deal of time with our businesses and also met regularly with our major shareholders to develop a full understanding of their range of views and perspectives. It was clear to me that there are limited synergies, particularly between the UK and North American divisions, and significant value to be unlocked by separating them, in addition to improving the performance of our UK businesses.

North American sale processes

Working with management and supported by independent advisers, the Board formally reviewed the various options to maximise value for all shareholders (acknowledging that a sale process for Greyhound was already underway) and formally announced in December 2019 that the Group would explore all options in respect of our North American contract businesses, First Student and First Transit, including a potential disposal. By this point preparatory work had been undertaken, in conjunction with expert third-party consultants and advisers, for a possible carve-out and sale of these businesses, and the team began designing the optimal structure for implementation and compiling the detailed materials and reports necessary for a transaction of this scale. We formally announced the commencement of the sale process in early March 2020 having been encouraged by the significant interest expressed in our North American contract businesses.

The onset of the coronavirus pandemic and all its attendant uncertainties for potential buyers and their finance providers has impacted the speed at which this process can be concluded but it remains the objective. The Board has continued to regularly review all options to deliver value from these assets and continues to believe that the sale of these businesses remains the best way to unlock material value for all FirstGroup shareholders. Clearly the state of financing markets and the availability of capital, as well as greater visibility on the pace and profile of the resumption of services, will be important factors for buyers to be able to make an informed assessment of the divisions' prospects

I believe the management, supported by the current Board, are well placed to deliver this outcome and that execution of this strategy at the right time is still the best route to enhance the long-term value of our businesses, while respecting our commitments to all our stakeholders.

Opportunities for bus and rail

On completion of the North American divestments the Group will become a UK-based transportation provider with bus and rail operations at the core of its business. We will continue to capture the benefits of our strong market positions and build on them to deliver significantly enhanced performance in First Bus over the medium term.

I believe that this is one of the most interesting moments for the bus industry, and for public transport more generally, that I have seen in my career in the sector. There is huge potential to play a key role in delivering the benefits of the UK Government’s announced plans to invest in improving city connectivity, raising air quality and lowering carbon intensity, and ‘levelling up’ harder hit parts of the country through improved economic infrastructure and opportunity. These important issues are arguably even more relevant as the UK emerges from the coronavirus crisis. Public transport can and will be at the heart of all of these agendas.

In addition, we will continue to manage First Rail’s existing portfolio of rail franchises to deliver sustainable benefits for passengers, shareholders and our other stakeholders. Despite some well-trailed challenges in SWR and TPE, First Rail as a whole has continued to deliver positive cash flow. I believe that with the appropriate political will and structural changes to the franchises, rail can deliver significant benefits for passengers and shareholders in and of itself and as part of an integrated transport strategy. We look forward to further clarity around the future shape of the rail industry in the UK in light of the government’s long-awaited review of franchising and the indications of their potential strategy that are implied by more recent contract awards and the structure of the Emergency Measures Agreements currently in place.

Coronavirus

The coronavirus pandemic that has swept through our communities has undoubtedly overshadowed the year and its effects may well be felt for many years to come. The Group has responded quickly to the many issues presented by the pandemic and I am extremely proud of our employees who have more than risen to the challenges of the present situation. We are deeply saddened by the loss of employees in each of our five divisions due to the outbreak. On behalf of the Board and all employees at FirstGroup, I offer our heartfelt condolences and support to their families, friends and colleagues.

I have been very impressed by how quickly and comprehensively our businesses have responded to the unprecedented challenges created by the pandemic. Although passenger volumes decreased very rapidly during the final weeks of the financial year due to the actions taken by governments to control the outbreak, it was vital that we maintained a critical level of service so that people, such as key workers, could continue to travel. Our people, together with our local knowledge and platforms have allowed us to provide much needed services, support and assistance to our communities during this challenging time.

Consistent with our leadership position in our markets, and the trusted role we play for our stakeholders, we also took an active role in engaging with policymakers at all levels of government to ensure that our operations providing essential transportation services were sustained during the crisis. As described in more detail in the Chief Executive’s review and the business reviews, the various forms of funding and support made available amply demonstrate how important the services we provide are to governments and our customers.

In light of the very substantially reduced passenger volumes across all our divisions, the Group also took a series of proactive steps to reduce costs and prioritise cash flow. By their nature, these types of decisions are very difficult but were necessary in order to protect the Group for the long term. Wherever possible we have sought to use the emergency schemes put in place by governments to maintain our people in employment during the crisis, and in several divisions we have now begun to bring employees back to work as activity levels have started to increase. The imperative has been to maintain critical services in the short term and be ready to respond quickly to resume the services that will reconnect people and re-open communities as restrictions are eased.

The fact that all of our businesses are leaders in their markets gives me confidence they are well placed to restore services rapidly when required, and potentially will see new opportunities for us to do more to deliver for all our stakeholders.

Preparing for the future

There are many uncertainties ahead which create a range of potential scenarios for our businesses to consider as our markets on both sides of the Atlantic emerge from the lockdown. The effects potentially will be felt at the macroeconomic level, the level of customer behaviour in our markets, in the level and duration of continued fiscal support provided to our and others’ industries and in other ways we cannot yet predict. The material uncertainties facing the Group and the Board’s consideration of them are discussed in more detail in the going concern section on page 23. However, while the precise timing and details are unclear, I am confident that the underlying demand for children to travel to school, for commuters to get to work, friends and family to visit each other and meet up to socialise, and for people to shop and to do business face to face will return.

Since my appointment in mid-August, I have been actively engaging with our divisions’ commercial plans to stay at the forefront of our markets and I am encouraged by the innovations in customer experience we are delivering. Clearly another key factor, of increasing importance to our customers and communities, is for the public transport industry to make further progress in support of the environmental sustainability agenda. Our Group-wide sustainability framework focuses on innovating for our customers, being a partner of choice for low- and zero-emission transport and supporting our people to help make the transition to greener transportation a reality.

The Board

The Board’s composition, activities and processes have changed and adapted as a result of the events of this year, and have been working well. In addition to my appointment as Chairman, Ryan Mangold joined the Board as Chief Financial Officer while Julia Steyn and Sally Cabrini joined the Board as Non-Executive Directors during the year. I am satisfied that the Board has the appropriate mix of skills, experience and knowledge to provide effective input and oversight to the portfolio rationalisation strategy.

Our people

The dedication and resilience of our more than 100,000 employees has been vividly demonstrated during the coronavirus pandemic and I am extremely proud of all of our employees who have more than risen to the challenges of the present crisis in support of our customers and communities.

Conclusion

Despite near-term uncertainty in the wider markets, there remains a fundamental need for people to travel safely and conveniently for business, education, social or recreational purposes which is essential to sustainable and thriving economies and communities. We are resolutely focused on delivering our plans – including the sale processes for the North American divisions – at the earliest appropriate opportunity and in the best interests of all shareholders. In the year ahead the Board will continue to focus its collective experience and expertise on the task of delivering value for all our stakeholders.

David Martin

Chairman

8 July 2020

Chief Executive’s review

This year will come to be remembered mainly for the rapid escalation of the coronavirus outbreak in our key markets in North America and the UK which took place in the final weeks of the financial year. I would like to echo the Chairman’s remarks in expressing my deepest condolences to the families and loved ones of our employees who have tragically lost their lives as a result of the coronavirus outbreak. We keep all those affected by the global health crisis in our thoughts.

The spread of the virus itself and government decisions to mandate lockdowns or ‘shelter in place’ orders resulted in a very rapid reduction in service volumes for all our businesses. The Group acted quickly and decisively to ensure we could continue to deliver essential services in the midst of the lockdowns and to restore capacity as restrictions on travel start to ease. Our ability to respond was enhanced by the actions we had been taking throughout the year to strengthen our businesses and execute their clear commercial strategies to deliver future progress and growth. While the pandemic has inevitably delayed our plans to rationalise the portfolio as potential buyers and providers of finance assess recent events, we remain committed to delivering this at the earliest appropriate opportunity. We face the future with strong market positions in each of our businesses to build on commercially, substantial liquidity and a clear strategy to reshape the Group’s structure going forward.

Coronavirus response

Our priority since the start of the outbreak has been the health and safety of the Group’s passengers, employees and communities. As the pandemic has progressed, we have worked closely with our suppliers to ensure we have the appropriate equipment in place, and we are following all relevant public health authority guidance for our businesses. The situation continues to evolve but we are following and also developing best practice in areas such as enhanced cleaning and decontamination of vehicles, depots and terminals and operating under social distancing rules.

We noted at our regular trading update in the middle of March that we had seen no significant impact from the coronavirus outbreak at that point and affirmed that the Group’s overall outlook was in line with our expectations. Within days of that update we began to see rapid and unprecedented changes in the market environments for all our businesses. All of our passenger revenue businesses in North America and the UK experienced volume reductions, with Greyhound, First Bus and First Rail patronage reduced by between 80 and 90% compared with pre-pandemic levels. All of the schools served by First Student were closed by the end of March, and First Transit also experienced reduced service requirements. Government advice and policy in our markets has changed rapidly throughout the pandemic, and at an early stage we began very active discussions with many of our customers about future service levels and full or partial payments in lieu of reduced service.

Our customers and government partners recognised the need to rapidly adjust services to fit demand from key workers, whilst preserving our ability to restore service when required. We had productive engagement with our major customers on revenue recovery, including school boards throughout North America, and local, state and national governments in all our markets. In particular, the UK Government quickly put in place comprehensive emergency measures, initially for six months, to maintain continuity of critical rail services and also introduced a package of funding to maintain bus industry capacity for key workers, which has subsequently been extended to support increased capacities with social distancing. Meanwhile, the US federal stimulus package (CARES Act) signed into law on 27 March 2020 provided substantial funding to the states, municipal and local authorities, including school boards, to sustain critical transportation and educational services and support businesses and their employees.

In light of the very substantially reduced passenger volumes across all our divisions, we took immediate and significant management actions to reduce costs and preserve cash. In doing so, our aim has been to protect the Group for the long term, ensuring critical services continued while travel limitations were at their most restrictive in our markets, while retaining the ability to increase capacity rapidly when appropriate. Actions implemented across the Group included reducing operating expenditure, halting discretionary spend and placing future capital expenditure orders on hold whilst managing existing commitments accordingly.

A substantial proportion of our total workforce in North America and the UK were placed on temporary furlough under the emergency job retention schemes put in place by governments in response to the pandemic. In several divisions we have now begun to bring employees back out of the schemes as activity levels have started to increase again. We also introduced hiring freezes and halted consultant and contract labour where possible across the Group. In certain areas it was regrettably necessary to reduce headcount permanently, particularly where customers chose not to support employee retention by maintaining some level of contractual payments during this time. We are also utilising the tax payment holidays and other emergency measures announced by governments to assist companies in managing their costs during this time. Both Ryan Mangold, Chief Financial Officer, and I volunteered to take a 20% reduction in salaries, and the Chairman and non-executive Board directors volunteered a corresponding reduction in their fees. In addition, a wider group of senior employees across the Group have also made voluntary salary reductions and deferrals.

Through our actions we have worked hard to deliver the key services our customers and communities rely on while ensuring that we remain in a position to support an increase in service levels as our economies begin to emerge from the crisis.

Our people

I am proud of our immensely diverse workforce across the UK and North America, which is a strength of our business as we reflect the communities of which we are a part. We are committed to maintaining that diversity, with all the benefits it brings to our communities and the Group. Our businesses are part of the critical infrastructure providing essential transportation services to our communities, which have enabled key workers to travel to their destinations and perform their vitally important roles, and our people have played an important part in delivering these much-needed services. In addition, many of our colleagues and teams across the Group are providing direct assistance right at the heart of their local areas, offering support to those who are most in need. These examples include our drivers delivering food and medical supplies to vulnerable people in the community as well as curriculum support materials to school children; offering free transport to first responders and frontline medical professional volunteers or creating space in our bus terminals and train stations for community initiatives including key worker food collection points. I want to express my gratitude and thanks to all our employees who are working so hard to keep vital services running at this difficult time.

Year in review

As noted, the pandemic inevitably affected our financial results because March is typically a significant trading period for the Group, with all divisions usually operating at near-full capacity throughout the month. The sudden and substantial reductions in service volumes and revenue due to the coronavirus outbreak contributed significantly to a decline of (20.1)% in Group adjusted operating profit to £256.8m (2019: £314.8m), which the Group was successful in partially offsetting through a cost and cash savings programme undertaken as we reacted to the start of the crisis as well as the initial phases of fiscal and contractual support from governments and customers in the period. The coronavirus outbreak reduced revenue significantly and its effect on adjusted operating profit in the final weeks of the year was material. The Group reported a statutory operating loss of £(152.7)m (2019: profit of £9.8m), reflecting the Greyhound impairment charge of £186.9m (of which £124.4m was in the first half), North American self-insurance provision of £141.3m, restructuring and reorganisation costs of £58.2m, and coronavirus-related charges of £21.5m.

Progress was being made in executing our clear commercial strategies for our five divisions during the rest of year, up to the point when the coronavirus outbreak rapidly affected our business.

North American divisions

In particular, we were pleased to have delivered another strong bid season and three complementary acquisitions in our largest business First Student, based in no small part on the strong reputation for customer service and safety we have built up and sustained over many years. First Student’s average customer satisfaction score reached an all-time high this year of 8.93 out of 10, underpinning our success in both retaining business and winning customers over from our competitors. First Transit was also successful in several contract bids which are likely to be of significance in future, including our paratransit partnership with Lyft and a major shuttle contract at Los Angeles airport, albeit the division experienced a number of cost headwinds throughout the year. We were disappointed with the deterioration in the US motor claims environment which, together with lower discount rates, have required an increase in the insurance reserves provided for all of our North American businesses. Greyhound also faced further challenges throughout the year, as a result of the substantial reduction in long-distance passenger numbers from the south western US, fuel prices and increasing competition, particularly in shorter haul routes.

UK divisions

In the UK, First Bus has sought to move to the forefront of the industry in terms of technology and customer experience, bringing to passengers a number of upgrades to our highly regarded passenger app, including becoming the first large operator to add the capability for customers to check in real time how full each bus is, and the availability of wheelchair spaces, helping them to make more informed travel decisions. This innovation was fast-tracked given its particular significance while bus capacity is limited due to social distancing requirements. We were the first major operator to bring contactless payment to the entire fleet; this, together with our mobile app, have become the preferred payment mechanisms for our customers, overtaking cash transactions during the year. Currently only 10% of our customers are paying by cash. A significant change in the political climate for local bus service and innovation funding has also been very welcome. We are focused on First Bus becoming a leader in the transition to a low-carbon future for public transportation. We are committing to operate a zero-emission bus fleet in the UK by 2035, and do not plan to purchase any new diesel buses after December 2022. We look forward to working closely with our supply chain, industry partners and the UK Government to ensure that our shared ambitions can be taken forward following the current crisis. This builds on our investments in buses to help deliver local authorities’ air quality commitments over recent years.

We also continued to actively address the cost base of First Bus through a comprehensive efficiency programme, although the pace of progress has been slower than planned, in part due to the pandemic. This incorporates reviews of our networks using more granular passenger data than ever before thanks to our new digital ticketing systems, as well as changes to our procurement, back office and other functions. All of these actions have been incorporated into our plans for reintroducing service as the coronavirus-related restrictions on travel begin to ease. The announcement last May of our intention to rationalise our portfolio of businesses also enabled us to undertake more detailed engagement in the development of a framework for funding the First Bus pension scheme towards low dependency. Importantly, it is anticipated that this framework should be deliverable in a range of transaction scenarios.

In First Rail we were pleased with the award and subsequent start-up of the West Coast Partnership by our 70:30 rail venture with Trenitalia, which was re-branded Avanti West Coast in December. In addition to Avanti we announced on 30 March 2020 an extension to our GWR contract for an additional three years, extendable by up to a year at the DfT’s discretion. This follows a year when GWR successfully delivered substantial new fleets and the biggest timetable change in a generation, which contributed to a very strong improvement in its passenger satisfaction scores this year. By contrast, TPE experienced difficult operating conditions during the year, with the delayed delivery of new trains and network issues affecting our performance, while SWR’s performance continued to be challenged principally by deep-rooted Network Rail infrastructure problems outside of our control, as well as protracted and unnecessary industrial action by the RMT. We remain resolved to finding a solution that will be of benefit to everyone involved with SWR. There is considerable uncertainty about the level of future rail passenger demand and hence the risk and reward balance for operators under existing contracts when the present emergency measures in place across the rail industry end in September or later. Notwithstanding these issues, we continue to work with our industry partners to deliver better customer experiences at all our train operating companies.

The future

Continuity of transport has been essential to governments, local communities and many of our customers throughout the coronavirus crisis, and it will also be critical to the restoration of economic growth when the present uncertain and difficult situation is overcome. The funding and support advanced by governments and customers to sustain these critical transport services is testament to their importance now and in the future.

Our businesses have always been proud of the role they play as part of the critical infrastructure of society, crucial to our local economies and their environmental impact, and today our teams are playing a vital role in helping communities to reopen safely and in accordance with local regulations and advice. At the same time, the world has had no experience of a similar pandemic in recent times, so there is no way of predicting with any certainty how the crisis will continue to evolve, nor the long-term effect coronavirus will have on demand for our services, with the possibility that working and hence commuting patterns may change or more shopping may move online, for example. Travel restrictions and social distancing are likely to remain in place for some time to come and there is uncertainty as to what the medium-term funding models from governments may be in that context, as well as their impact on consumer behaviour.

However, we are market leaders in all of our businesses, and are well positioned to assist customers if smaller operators are unable or less willing to do so, and we are already seeing an increase in potential acquisition or new business opportunities in some of our markets as a consequence. Whilst the coronavirus pandemic has been a huge challenge to our societies and economies, it has also shown what life with far fewer cars on the road is like. This has not only meant benefits in terms of reduced emissions and improved air quality, but it has led to less congested roads, and hence faster, more reliable and safer journeys by other means as well. It has long been clear that public transport is a vital part of the solution in achieving radical decarbonisation, and the present emergency ought to hasten the transition to a vibrant zero-carbon public transportation system, fully playing its part in creating a better connected and healthier world. Our Group-wide sustainability framework, which focuses on innovating for our customers, being a partner of choice for low- and zero-emission transport and supporting our people, sets out how we aim to help make this transition a reality. Ultimately there are significant gains for governments, society and our businesses if long-term modal shift to public transport from the car is one of the consequences of the present emergency. Our zero-emission commitment in First Bus, together with the innovative work we are doing to support autonomous vehicle programmes and developing Mobility as a Service (MaaS) business models will ensure we remain at the forefront of developments as transportation continues to change.

Our strategy

Despite the near-term uncertainty, the long-term fundamentals of our businesses are sound and we remain committed to our strategy to rationalise our portfolio, with the sale of our North American businesses remaining the best means to realise value. This is most likely to be delivered when there is sufficient clarity on the pace and profile of service resumption (including on schools reopening in North America), to allow potential buyers to make an informed assessment of the divisions’ value, supported by fully functioning leveraged finance markets. Meanwhile we will continue to progress a range of value-creating business opportunities for these divisions, in accordance with their commercial strategies.

We took immediate action as soon as we began to see the pandemic’s effects and will continue to do all that is necessary to ensure the Group emerges from this exceptional situation in the most robust position possible to deliver on our strategic plans.

Current trading and outlook

The coronavirus pandemic and actions taken by governments and society in response to it have had a significant impact on all of our markets, and will continue to do so for some time to come. Travel volumes on all of our services have reduced very substantially and while guidance to limit travel and socially distance from other travellers remains in place, this will have a significant impact on our service capacity and hence financial performance. At the same time, governments and customers have recognised the critical necessity that we maintain a level of capacity for our transport services and are enabling us to do that through fiscal support, contractual and other means. Given the material uncertainties as to how rapidly demand will increase, the rate at which current fiscal support measures are tapered and the duration of social distancing measures, as well as the timing of schools reopening in North America, it is currently not possible to provide guidance on the outturn for the financial year to 31 March 2021. While the Group currently has material fiscal and contractual support for running essential services across the divisions during the pandemic and committed undrawn liquidity of c.£850m as at the end of June, there are material uncertainties as to the future consequences of the coronavirus pandemic. The potential impact of certain scenarios have been highlighted in the going concern statement on page 23. However, based on current government and customer measures, and the cost reductions made in response to lower demand, the Group delivered adjusted operating profit and positive cash from operations before capital expenditure since the start of the current financial year. Recognising the usual seasonality of our First Student business over the school summer holiday period, we would expect this relatively resilient financial performance to persist while these arrangements remain in place.

Matthew Gregory

Chief Executive

8 July 2020

Operating and financial review

The Group has received contractual and direct fiscal support as a result of the coronavirus pandemic. The basis of preparation of the financial statements is that this support will continue to be provided to the Road Divisions until passenger volumes and operated service activities return towards pre-coronavirus pandemic levels. In addition it is assumed that Emergency Measures Agreements (EMA) or similar arrangements will exist for the duration of our existing First Rail franchises. Further details are set out in the Going Concern statement on page 23. During the year the principal contractual and direct fiscal support recognised comprised £131.8m of EMA funding in First Rail, £48.2m of coronavirus recoveries and £10.4m of CARES Act employee retention credits in First Student, £6.6m of CARES Act 5311(f) funding in Greyhound, £7.4m of CBSSG and other funding in First Bus and £1.6m of coronavirus recoveries in First Transit.

Group revenue in the year increased by 8.8%. In constant currency, revenue increased by 7.2%, or by 2.6% excluding the initial contribution of the Avanti rail franchise. This principally reflects growth in First Student, First Transit and First Rail; like-for-like passenger revenue growth in First Bus was offset by disposals while Greyhound experienced like-for-like passenger revenue declines compared with the prior year and the effect of the withdrawal from loss-making routes in Western Canada. The coronavirus outbreak and the measures taken by authorities to control its spread in the final weeks of the year significantly affected revenue in all divisions.

Group adjusted operating profit decreased by (20.1)% in constant currency, or by (24.5)% adjusting for Avanti, reflecting a material impact from the coronavirus outbreak in the period comprising drop through of lower revenues offset by lower variable costs from reduced service levels, limited initial customer support and government funding and commencement of cost actions in the final week. The Road divisions' contribution to adjusted operating profit decreased by (25.4)% in constant currency, reflecting the impact of the coronavirus outbreak, £29.4m ($36.8m) increase in insurance costs for the year reflecting the continued hardening of the North American insurance market, labour cost pressures in the US, two adverse legal judgements in First Transit, Greyhound revenue reductions, and poorer UK summer weather compared with prior year and slower cost efficiency programme progress in First Bus, partially offset by the First Student, First Transit and First Rail revenue growth noted above and management actions. Software amortisation in the year of £16.1m (2019: £18.1m) has been charged to divisional results in arriving at adjusted operating profit and prior year Group and divisional adjusted operating profit has been restated accordingly. In prior years this was separately disclosed as an adjusting item. In the year, Greyhound recorded a £8.3m profit (2019: £8.4m) on sale of real estate. The adjusted operating profit contribution from First Rail in the year was flat, with the impact of the coronavirus outbreak and moving to the Emergency Measures Agreements from 1 March largely offset by the first-time contribution from Avanti. Group adjusted operating profit margin in constant currency decreased by (110)bps. In reported currency, adjusted operating profit decreased by (18.4)% to £256.8m (2019: £314.8m).

	Year to 31 March 2020			Year to 31 March 2019
	Revenue £m	Adjusted operating profit¹ £m	Adjusted operating margin¹ %	Revenue £m	Adjusted operating profit¹ £m	Adjusted operating margin¹ %
First Student	1.940.4	158.8	8.2	1,845.9	171.2	9.3
First Transit	1,171.4	28.3	2.4	1,075.8	49.3	4.6
Greyhound	603.2	(11.6)	(1.9)	645.1	2.6	0.4
First Bus	835.9	46.1	5.5	876.1	65.1	7.4
Group items²	17.8	(33.7)		17.3	(42.2)
Road divisions	4,568.7	187.9	4.1	4,460.2	246.0	5.5
First Rail	3,185.9	68.9	2.2	2,666.7	68.8	2.6
Total Group	7,754.6	256.8	3.3	7,126.9	314.8	4.4
North America in USD	$m	$m	%	$m	$m	%
First Student	2,474.9	205.9	8.3	2,424.9	227.1	9.4
First Transit	1,488.3	36.2	2.4	1,411.4	64.8	4.6
Greyhound	766.0	(15.3)	(2.0)	846.7	2.7	0.3
Total North America	4,729.3	226.8	4.8	4,683.0	294.6	6.3

^{1 ‘}Adjusted’ figures throughout this document reflect the adoption of IFRS 16 in the period and are before the Greyhound impairment charges, North American self-insurance provisions, restructuring and reorganisation costs, other intangible asset amortisation charges and certain other items as set out in note 4 to the financial statements. The statutory operating loss for the year was £(152.7)m (2019: profit of £9.8m) as set out in note 4.

² Tramlink operations, central management and other items.

The statutory operating loss for the year was £(152.7)m (2019: profit of £9.8m), reflecting a total of £409.5m in costs and charges that have been excluded from the adjusted operating profit measure. This includes the Greyhound impairment charge of £186.9m of which £124.4m was taken in the first half, £141.3m in relation to the North American self-insurance provision reflecting historic claims experience in the insurance market and lower discount rates at the balance sheet date, restructuring and reorganisation costs of £58.2m, £21.5m in coronavirus-related charges (comprising a First Student onerous contract provision of £14.1m and a fuel over hedge charge of £7.4m due to lower than forecast fuel utilisation), and £8.0m of profit on sale of real estate in First Student.

Net finance costs were £146.9m (2019: £106.6m) with the increase mainly reflecting the transition to IFRS 16, resulting in adjusted profit before tax of £109.9m (2019: £208.2m). Adjusted earnings were £82.7m (2019: £159.8m) with the decrease due to the lower adjusted profit before tax together with higher non-controlling interests while the effective tax rate was stable at 22.4% (2019: 22.4%). Adjusted EPS was 6.8p (2019: 13.3p). In constant currency, adjusted EPS decreased by 49.6%, or by 33.3% excluding the net effect of implementing IFRS 16. EBITDA was £1,108.9m (2019: £670.3m); excluding the effect of adopting IFRS 16, EBITDA was £619.2m, a decrease of (9.4)% over the prior year, with Road EBITDA decreasing by (13.2)% in constant currency and Rail EBITDA increasing by 7.1%, benefiting from Avanti.

The statutory loss attributable to equity shareholders was £(327.2)m (2019: £(66.9)m), and statutory EPS was (27.0)p in the year (2019: (5.5)p).

The pre-IFRS 16 adjusted cash inflow of £98.5m (2019: £197.3m) includes a Rail net cash inflow of £90.6m (2019: inflow of £172.7m). This includes a net £67.3m of capital expenditure for which funding was received in prior periods and a £106.8m outflow for the utilisation of onerous contract provisions at SWR and TPE. Rail ring-fenced cash increased by £87.2m to £611.9m (2019: £524.7m) including the start-up of Avanti. Under the Emergency Measure Agreements, the working capital requirements for each of our TOCs are being provided by the DfT. The Road divisions’ cash inflow of £7.9m (2019: £24.6m) was after capital expenditure of £283.4m as our targeted fleet investment programmes continued during the year.

Pre-IFRS 16 net debt was flat at £896.2m (2019: £903.4m). Net debt: EBITDA on the ‘frozen accounting standards’ basis relevant to the Group’s banking covenants was broadly flat at 1.4 times (2019: 1.3 times) and Rail ring-fenced cash adjusted net debt: EBITDA on the same basis was 2.4 times (2019: 2.1 times).

Liquidity within the Group increased compared with the prior year; as at 31 March 2020 the Group’s undrawn committed headroom and free cash was £585.7m (2019: £520.6m), comprising £237.1m (2019: £167.3m) in free cash and £348.6m (2019: £353.3m) of undrawn committed bank revolving credit facilities. Subsequent to the year end, the Group was confirmed as an eligible issuer for the UK Government’s Covid Corporate Financing Facility (CCFF) scheme, with an issuer limit of £300m based on its credit ratings under the terms of the scheme as published by the Bank of England. On 27 April 2020 the Group issued £300m in commercial paper through the scheme to further enhance liquidity levels. The Group’s diversified funding structure also includes undrawn facilities comprising a committed £250m bridging loan entered into in March 2020 for the redemption of the £350m bond that matures in April 2021, an uncommitted £150m accordion facility to the RCF, as well as further lines of uncommitted leasing facilities and more than $100m of uncommitted supplier credit for the procurement of buses. Average maturity of bond debt, senior unsecured loan notes and bank facilities was 3.3 years (2019: 4.3 years). As at the end of June 2020 the Group had c.£850m in free cash (before Rail ring-fenced cash) and committed undrawn revolving banking facilities. The level of free cash and undrawn committed revolving banking facilities has increased over the past two months and is anticipated to decline with the normal seasonal decline in revenues in First Student when schools are closed for the summer and due to working capital requirements as the business prepares for school start-up during August.

During the year, gross capital expenditure, excluding right of use assets, of £489.8m (2019: £444.0m) was invested in our business, with the Road divisions’ capital expenditure being £366.7m (2019: £459.1m). Road divisions' gross capital expenditure was driven principally by the higher retention rates and new business wins achieved in First Student's recent bid season and targeted investment in our other fleets in Greyhound and First Bus during the year. ROCE pre-IFRS 16 was 8.2% (2019: 10.5%), or 4.4% following the addition of right of use assets to capital employed under IFRS 16.

While the Group currently has material fiscal and contractual support for running essential services across the divisions during the pandemic and committed undrawn liquidity of c.£850m as at the end of June, there are material uncertainties as to the future consequences of the coronavirus pandemic. The potential impact of certain scenarios have been highlighted in the going concern statement on page 23.

Impact of new accounting standards (IFRS 16)

The new accounting standard, IFRS 16 (Leases) came into effect on 1 January 2019, and was adopted by the Group from 1 April 2019. The new standard eliminates the operating lease classification and therefore on the balance sheet the lessees are required to recognise an asset (the right to use the leased item) and lease liabilities for all leases unless they have a remaining term of less than 12 months or are of low value. On the income statement, the operating lease expense are replaced by a combination of depreciation and interest.

IFRS 16 has been adopted in the period using the modified retrospective method. This resulted in a right of use asset of £1,140.4m and a lease liability of £1,168.2m recognised on 1 April 2019. The transition method has not required the balance sheet comparatives to be restated. All statutory and adjusted figures for the year to 31 March 2020 throughout this document are reported under IFRS 16 unless otherwise stated.

The impact of IFRS 16 is detailed further in note 1, and is summarised below:

	Year to 31 March 2020			Year to 31 March 2019
	Per IAS 17 accounting treatment £m	Impact of IFRS 16 £m	Per IFRS 16 accounting treatment £m	Per IAS 17 accounting treatment £m
EBITDA	619.2	+489.7	1,108.9	670.3
Adjusted operating profit	250.4	+6.4	256.8	314.8
Net finance costs	(106.7)	(40.2)	(146.9)	(106.6)
Adjusted profit before tax	143.7	(33.8)	109.9	208.2
Adjusted EPS	9.0p	(2.2)p	6.8p	13.3p
Net debt	896.2	+2,381.9	3,278.1	903.4

In accordance with IAS 36 (impairment of assets) the opening onerous contract provision for SWR of £145.9m was reclassified as an impairment on right of use assets (ROUA) on adoption of IFRS 16. Similarly, £62.7m of the opening TPE onerous contract provision was reclassified as an opening impairment on ROUA with the remaining balance of £44.2m being reclassified as impairment on ROUA additions in the year.

The adoption of IFRS 16 has impacted the Rail division’s results more significantly than the Road divisions, reflecting the high value of rolling stock leases as well as the change in accounting for onerous contract provisions. To aid understanding, set out overleaf are the impacts by division on adjusted operating profit and EBITDA:

	Pre-IFRS 16 basis
Year to 31 March 2020	Revenue £m	Adjusted op. profit £m	Adjusted margin %	EBITDA £m	EBITDA margin %
First Student	1,940.4	158.0	8.1	350.2	18.0
First Transit	1,171.4	28.1	2.4	51.3	4.4
Greyhound	603.2	(16.3)	(2.7)	15.7	2.6
First Bus	835.9	44.6	5.3	95.9	11.5
Group items	17.8	(33.8)		(30.4)
Road divisions	4,568.7	180.6	4.0	482.7	10.6
First Rail	3,185.9	69.8	2.2	136.5	4.3
Total Group	7,754.6	250.4	3.2	619.2	8.0
North America in USD	$m	$m	%	$m	%
First Student	2,474.9	204.8	8.3	449.1	18.1
First Transit	1,488.4	35.9	2.4	65.3	4.4
Greyhound	766.0	(21.3)	(2.8)	19.1	2.5
Total North America	4,729.3	219.4	4.6	533.5	11.3

	IFRS 16 impact
Year to 31 March 2020		Adjusted op. profit £m	EBITDA £m
First Student		+0.8	+37.4
First Transit		+0.2	+11.6
Greyhound		+4.7	+19.6
First Bus		+1.5	+17.3
Group items		+0.1	+1.7
Road divisions		+7.3	+87.6
First Rail		(0.9)	+402.1
Total Group		+6.4	+489.7
North America in USD		$m	$m
First Student		+1.1	+47.6
First Transit		+0.3	+14.7
Greyhound		+6.0	+24.9
Total North America		+7.4	+87.2

	Post IFRS 16 basis
Year to 31 March 2020	Revenue £m	Adjusted op. profit £m	Adjusted margin %	EBITDA £m	EBITDA margin %
First Student	1,940.4	158.8	8.2	387.6	20.0
First Transit	1,171.4	28.3	2.4	62.9	5.4
Greyhound	603.2	(11.6)	(1.9)	35.3	5.9
First Bus	835.9	46.1	5.5	113.2	13.5
Group items	17.8	(33.7)		(28.7)
Road divisions	4,568.7	187.9	4.1	570.3	12.5
First Rail	3,185.9	68.9	2.2	538.6	16.9
Total Group	7,754.6	256.8	3.3	1,108.9	14.3
North America in USD	$m	$m	%	$m	%
First Student	2,474.9	205.9	8.3	496.7	20.1
First Transit	1,488.4	36.2	2.4	80.0	5.4
Greyhound	766.0	(15.3)	(2.0)	44.0	5.7
Total North America	4,729.3	226.8	4.8	620.7	13.1

First Student

Year to 31 March	$m		£m		Change in constant currency¹
Year to 31 March	2020	2019	2020	2019	Change in constant currency¹
Revenue	2,474.9	2,424.9	1,940.4	1,845.9	+2.2%
Adjusted operating profit	205.9	227.1	158.8	171.2	(9.4)%
Adjusted operating margin	8.3%	9.4%	8.2%	9.3%	(100)bps

¹ Based on retranslating 2019 foreign currency amounts at 2020 rates.

First Student revenue was $2,474.9m or £1,940,4m (2019: $2,424.9m or £1,845.9m), representing growth in constant currency of 2.2%. This comprised growth of 4.1% in constant currency to the end of February 2020, benefiting from the pricing and contract wins we achieved in the summer 2019 bid season as well as from acquisitions made in the year. This was partially offset in March when substantially all North American schools had closed by the end of month due to the coronavirus pandemic, albeit we continued to recover a proportion of our expected home-to-school revenue from school board customers as noted below.

Adjusted operating profit was $205.9m or £158.8m (2019: $227.1m or £171.2m), representing an adjusted operating profit margin of 8.3% (2019: 9.4%). Prior to the effect of the outbreak, net growth, management efficiencies and continued contract pricing discipline were largely offsetting the wage inflation from the tight US employment market experienced during the year and higher self-insurance costs. The division reported a statutory profit of £89.4m (2019: £115.3m) including the amortisation of intangibles, and after First Student’s £52.5m portion of the North American self-insurance charge and profit on sale of property of £8.0m in the year).

Year in review

Following another strong bid season over the summer of 2019, First Student grew our already market leading school bus fleet and market share for the second year in a row; we have contracts to operate c.43,000 buses at year end (2019: 42,500) with strong pricing accompanying this growth. Our operational excellence drove record high customer satisfaction scores which underpinned our contract retention rate of 88% (2019: 92%) on business up for renewal, which was ahead of our expectations. Across our entire portfolio of multi-year relationships, retention was 96% (2019: 97%). This was notwithstanding the pricing requirements we had to seek from our customers due to the tight US employment market last year and resulting persistent driver shortages as well as higher self-insurance costs. We attribute this continuing retention success to our excellent safety track record and consistent focus on building sustained customer relationships over many years, resulting in this year’s record-breaking willingness to recommend and satisfaction scores, which saw fully 75% of our customers rating us nine or ten on a ten-point scale for overall satisfaction.

Our retention success was supplemented with organic growth, continuing conversions from in-house to private provision and good net market share gains from our larger competitors, in several cases at higher pricing than proposed by the incumbent.

We also continued to build out our ability to supplement growth and expand our addressable market via acquisitions in this fragmented segment of the mobility services industry. Since the start of the financial year we have closed three transactions adding a total of 850 buses. The most notable was Hopewell Transportation, a leading provider of transportation for students with special needs in the Chicago, Illinois area, utilising smaller ‘vans’. Special needs transportation is a faster growing part of the overall student transportation market. This is also a segment where specialised training for frontline employees is especially valuable, which is an area where Hopewell Transportation has always been strong, and plays to our longstanding goal to recruit, train and retain the safest and best driver population in the industry. We assess all of our transaction opportunities on the same returns criteria as any other avenue for growth. Since the start of the coronavirus pandemic, we have begun to see fewer participants in bids due to capital constraints, and situations where incumbents have withdrawn from their contract obligations for the next school year. Additionally, some operators have become more willing to discuss acquisitions.

We further grew our market-leading school bus charter business by redesigning the consumer experience of finding our services, getting quotes, and booking trips despite the impact of the pandemic. In the year, charter generated revenues of $204.7m (2019: $203.6m) or 8% of divisional revenues.

Throughout the year we have worked to improve the efficiency of our procurement, maintenance and operational practices as well as investing in innovations to enhance the quality of our services for our school board customers, student passengers and their parents. In addition to the continued expansion of our FirstView^® bus tracking app, this year we have been developing and scale-testing our tablet-based driver workflow system DriverHub, which provides real-time navigation assistance, provides data links into our operations and maintenance systems and enables us to monitor and coach our drivers’ on-road performance individually, further enhancing our focus on safety.

We are also actively exploring opportunities at the frontier of the transition to alternative fuel-powered school bus services, with a number of electric vehicle pilots now underway and 6% of our fleet currently powered by alternative fuels. School start-up last autumn went well, and we are confident that our playbook is in good shape to restore service at the right time for each of our customers whenever they need it in the months ahead.

Coronavirus response

All schools served by First Student in North America were closed by the end of March as federal, state and local authorities responded to the coronavirus pandemic. The school closures also resulted in the cancellation of school charter trips and we have also seen a significant decline in the demand for external charters. While we have already restarted some school routes in Quebec and British Columbia the majority of our school board customers are not anticipating restarting school activities again before the end of the summer holidays. Although some of our 1,100 contracts include guaranteed minimum revenue commitments (mainly in Canada), the majority do not. First Student therefore rapidly began very active and productive discussions with all of our school board customers on a contract-by-contract basis to agree a level of payment to ensure we retain the capability to restart services when each school takes the decision to reopen. As the leader in the industry, we have reinforced the importance of maintaining the driver and operational capability for our customers through the current situation by engaging with industry bodies and the sector. It should be noted that most school districts remain fully funded to continue to provide education, school transportation and other services, and received additional funding to do so under the CARES Act and subsequent coronavirus response spending. To date First Student has agreed terms to receive either full or partial payment from customers representing c.74% of our bus fleet, based on which we have been recovering c.52% of the home-to-school revenue expected prior to the crisis. A number of customers have reduced the amount of revenue reimbursement to reflect our ability to mitigate certain labour and fuel-related costs while no services are running. Adjusting for this, our effective recovery rate is c.61% of our pre-crisis expectations, based on the agreements reached with customers since March.

Key cost actions to mitigate the reduced service activities include the temporary furloughing of employees, insurance savings, salary deferrals and reductions, the ending of all non-essential contract staff, together with some more permanent reductions in headcount where unavoidable. In some cases, the terms of the Federal Pandemic Unemployment Compensation programme meant it was more appropriate to assist our people to use this scheme temporarily than to maintain their employment. First Student is also making use of the CARES Act employee retention tax credit for companies whose business has been disrupted by government order, as well as other government tax deferral and other schemes to the extent possible. All non-essential capital expenditure has been reviewed in accordance with customers’ requirements and some discretionary spend has been deferred, reprofiled or converted to leasing.

During the coronavirus crisis we have been very proud of the hundreds of First Student locations that have been actively supporting school districts with a variety of services. Our drivers have delivered more than 1.4 million meals and counting to students across North America, as well as instructional materials, including books and laptops. Many First Student locations have provided transportation shuttles for healthcare workers and others on the frontline of the pandemic, while First Transportation Solutions has also supported more than 25 school districts with the logistics and planning of their own meal and school supply deliveries.

We are in active discussions with our stakeholders about how we will support restarting schools safely and efficiently at the appropriate time, in accordance with their local requirements. We have set up a cross-functional team of experts to establish guidelines for leading our business and our stakeholders through the changes to our services that will be required to do so, including maintaining social distancing (which may require more buses or potentially split shift school days), protective personal equipment (PPE), enhanced bus and location cleaning and disinfection regimes, potential testing and screening protocols and additional driver training. Initial indications suggest that driver recruitment is likely to be less of a challenge in some regions than in previous years.

Current trading and the future

While some school districts may start earlier or later and with potentially varying approaches to maintaining social distancing, we are currently preparing for the majority to restart in August and early September, at the end of the summer holidays. We are not anticipating that summer school activities will take place this year, and are assuming at present that discretionary charter services will take longer to be restored than home-to-school services. First Student is always a highly seasonal business, with much lower activity levels over the school summer holiday period contributing to a significant weighting to the second half of our financial year in terms of profitability.

First Student is the clear market leader in the provision of contracted public transportation services across 40 US states and seven Canadian provinces, as well as a significant provider of charter bus services. The business has long-term, trusted relationships with a high-quality client base of schools across the continent, generating stable predictable revenues. The business benefits from its substantial scale, best-in-class operating track record, renowned customer service and strong safety expertise, which are testament to the long-term strategy of the highly experienced management team. We are confident that this is a very strong, resilient platform with several opportunities in its marketplace to add value for all stakeholders.

First Transit

Year to 31 March	$m		£m		Change in constant currency¹
Year to 31 March	2020	2019	2020	2019	Change in constant currency¹
Revenue	1,488.4	1,411.4	1,171.4	1,075.8	+5.6%
Adjusted operating profit	36.2	64.8	28.3	49.3	(44.7)%
Adjusted operating margin	2.4%	4.6%	2.4%	4.6%	(220)bps

¹ Based on retranslating 2019 foreign currency amounts at 2020 rates.

First Transit’s revenue was $1,488.4m or £1,171.4m (2019: $1,411.4m or £1,075.8m), an increase of 5.6% in constant currency. This comprised growth of 6.6% in constant currency to the end of February, reflecting positive pricing, new contract opportunities throughout the portfolio and some pass-through revenue, followed by a meaningful reduction in activity levels during March with the start of the coronavirus pandemic.

Adjusted operating profit was $36.2m or £28.3m (2019: $64.8m or £49.3m), representing an adjusted operating margin of 2.4% (2019: 4.6%). Prior to the outbreak the division was experiencing a number of cost headwinds, principally higher self-insurance and legal costs, driver shortages in certain areas, changing business mix and the two adverse legal judgments in the first half of the year, which were being partially offset by pricing, net growth and cost efficiencies. The abrupt impact of the pandemic on revenue during the final month of the financial year was partially offset through variable cost reductions, but nevertheless had a meaningful impact. The division reported a statutory loss of £(21.9)m (2019: profit of £23.1m) including the amortisation of intangibles, the division’s £43.5m portion of the North American self-insurance adjusting item charge, a legacy pension settlement, which are disclosed separately from adjusted operating profit.

Year in review

In the year First Transit continued to build its broad portfolio of both existing and emerging multi-year mobility services contracts, benefiting from consistently highly rated customer service credentials and its reputation for safe, innovative and best value solutions to customers. We were pleased with fixed route and paratransit wins in Merced, Arlington and San Bernardino from two of our largest competitors, along with securing the shuttle contract between airport terminals and the new taxi/Transportation Network Company (TNC) passenger waiting lots at Los Angeles airport. Additionally we were pleased to expand our largest paratransit contract which operates in the greater Chicago area.

In emerging mobility services, our partnership with Lyft to provide wheelchair accessible and other paratransit services has been extended to several more US cities. We have continued to position ourselves as a leader in the maintenance and operation of both autonomous vehicles (AV) and electric vehicles (EV) with recent wins in Houston and Colorado. After the year end we were awarded a contract on a US military base to be the maintenance and operations partner for an innovative ‘stackable’ AV pilot – using AV technology that has been retrofitted to traditional manned vehicles.

Our contract retention rate on ‘at risk’ contracts was flat at 89% (2019: 89%), despite the loss of the two relatively large underperforming contracts mentioned at the half year stage. Since the start of the coronavirus pandemic, we have seen some commercial bidding processes slow down given the current uncertainties about the pace of emergence from current travel restrictions; in several cases our customers have proposed extensions to existing contracts that were approaching their end dates. We continue to assess all commercial opportunities on a rigorous risk-adjusted return on investment basis, using our broad-based expertise and leading operational and maintenance delivery platforms.

Throughout the year we continued to drive through further cost efficiencies and operational improvement from investments in lean maintenance, predictive analytics, procurement, systematic employee engagement/ retention programmes and further back office alignment with First Student where value-adding, in order to help mitigate the cost headwinds we face. Although for the most part we operate vehicles procured and owned by our customers, wherever possible we continue to roll out the DriveCam safety system, which complements our safety standards and procedures and our behavioural change programme.

Coronavirus response

Clearly the onset of the coronavirus outbreak and government actions to control its spread toward the end of the last financial year will have a significant impact on the coming year. The majority of First Transit’s contracts reflect payment for making services available over agreed time periods, with the principal exception being in paratransit where the revenue is driven more by the volume of trips undertaken by the business. Our fixed route operations are largely classed as essential services so, despite a significant reduction in ridership and increasing orders to ‘shelter in place’ by the majority of US states, we saw service requirements reduce by only c.30% overall. Paratransit operations are seeing non-essential trips decline, although the requirement for social distancing has offset this to some extent, with overall activity levels down c.50%. Shuttle operations are seeing service reductions in certain airport contracts and all university clients have now reduced service requirements significantly to holiday timetables and/or engaged e-learning protocols. Overall the division has on average experienced a reduction of c.35% in its activity levels.

While many of our drivers and other employees have continued to maintain the essential transport links that our customers rely on, they have also been delivering food supplies across our communities to vulnerable members of the community.

The CARES Act made available $25bn for “the operating expenses of transit agencies related to the response to a coronavirus public health emergency” which has been helpful for many of our transit agency customers, although it does have a complex interplay with other aspects of the Act most notably the short-term funding made available to workers under the Federal Pandemic Unemployment Compensation programme. Since the onset of the outbreak we have maintained an active dialogue with our customers regarding payment through any reductions in service to ensure the operations are in a position to restore normal levels of operation efficiently at the appropriate time. Of those contracts with a material reduction in service, we have agreed terms to date with the result that we are currently recovering the equivalent of 79% of the divisional revenue expected prior to the crisis.

Key cost actions to mitigate the reduced service activities include the temporary furloughing of employees under the various emergency schemes put in place to support workers through the crisis, salary deferrals and reductions, the ending of all non-essential contract staff, together with some more permanent reductions in headcount where unavoidable. We have also utilised government tax deferral and other schemes to the extent possible. First Transit is not as capital intensive as some of the Group’s other businesses, but all non-essential capital expenditure has been deferred or halted.

Current trading and the future

We continue to plan for a range of potential scenarios, but it is likely that customers in different regions and sub-segments of the division seek to raise service levels from their current provision at varying rates. Based on such decisions made so far and the latest discussions with our customers, our overall expectation is that revenues will only gradually improve from their present levels over the summer, and will begin to step up further from September.

Notwithstanding the near-term uncertainties, the market for mobility services in North America continues to evolve and we are embracing the disruption. We aim to stay at the forefront of the changes, providing simplified mobility solutions that enhance our customers’ lives. Our services are a compelling option for both local authorities and private customers to outsource their transportation management needs. We remain focused on bids that provide good value to clients while achieving appropriate margins with modest capital investment, as we continue to build our platform in mobility services over time.

Greyhound

Year to 31 March	$m		£m		Change in constant currency¹
Year to 31 March	2020	2019	2020	2019	Change in constant currency¹
Revenue	766.0	846.7	603.2	645.1	(9.4)%
Adjusted operating profit	(15.3)	2.7	(11.6)	2.6	Not meaningful
Adjusted operating margin	(2.0)%	0.3%	(1.9)%	0.4%	(240)bps

¹ Based on retranslating 2019 foreign currency amounts at 2020 rates.

Greyhound’s revenue was $766.0m or £603.2m (2019: $846.7m or £645.1m), reflecting an increasingly challenging trading environment throughout the year. Lower fuel prices which typically make travel by car more cost-competitive, continuing reductions in immigration-related demand in the southern border states and intensifying competition in several markets from both coach and low-cost airline operators all contributed to a (3.5)% reduction in like-for-like revenues to the end of February, which was then compounded by a further reduction in passenger demand in March with the onset of the coronavirus pandemic. Greyhound total revenue for the full year reduced by (9.4)% in constant currency, representing a reduction of (5.7)% in the US and a (45.3)% reduction in Canada, due to our decision to withdraw from significant parts of that business during the prior year.

Despite further management action including commercial initiatives, mileage reductions, profit on certain property sales of $10.6m or £8.3m (2019: $10.8m or £8.4m) and the withdrawal from Western Canada, the reduction in revenue during the year and higher-self-insurance costs were not fully offset and as a result, Greyhound’s adjusted operating loss was $(15.3)m or £(11.6)m (2019: profit of $2.7m or £2.6m). The division reported a statutory loss of £ (253.4) m (2019: loss of £33.8m) reflecting restructuring and reorganisation costs associated with the withdrawal from Western Canada, Greyhound’s £45.3m share of the North American self-insurance adjusting item charge, and the £186.9m of impairments in the carrying value of the assets, partially offset by property disposals. Following the further impairment and the effects of IFRS 16, Greyhound is carried at a cash generating unit value of £188.7m ($235.2m). The net book value of £(156.3)m ($(194.7)m) is stated after £172.4m ($214.8m) for pensions deficits under IAS19 and £111.4m ($138.8m) relating to the self-insurance reserve provision. The impairment has been recognised in the results on a pro-rata basis against the assets of the division excluding property. The valuations in excess of book value suggest no impairment to the carrying value of Greyhound’s property.

Year in review

During the year Greyhound sought to build on its iconic brand and unique scale by continuing to transform all areas of its customer experience and cost efficiency through investment in technology. During the year the business has delivered further enhancements to its website, mobile app, customer call handling, revenue management and digital ticketing systems while completing the roll out of the new on-board entertainment platform to the entire US active fleet. These developments, coupled with disciplined fleet investments and several maintenance, procurement and operational projects during the year will deliver recurring savings over time. Meanwhile these improvements also resulted in improved customer perceptions, increased punctuality and lower emissions. At 33.6g CO₂(e) per passenger km, intercity travel by Greyhound already offers the lowest per-passenger carbon emissions of modal alternatives – around 87% lower emissions than an equivalent domestic passenger plane journey and 81% lower than the average US passenger car.

We continue to review our terminal footprint, looking for opportunities to move to intermodal transport hubs or new facilities better tailored to our needs. In addition to a number of smaller terminal changes, this year we completed the sale of Richmond, VA, with the gain on sale of $6.1m or £4.8m included in adjusted operating profit.

Greyhound has been actively responding to the changes in demand throughout the year with tactical commercial initiatives to target overall revenue per mile growth, by optimising pricing and capacity allocation across our different markets and adjusting mileage in response to demand changes.

Coronavirus response

The pricing, mileage and capacity optimisation activity was stepped up as the coronavirus outbreak and government advice developed in March, with Greyhound revenues initially reducing by c.80%, compounded by border closures between the US and Canada. Greyhound rapidly reduced capacity and cost (principally through reduced variable costs, furlough and permanent headcount reductions) to match lower demand levels, including through the temporary cessation of the entirety of its Canadian services from 13 May 2020, and is utilising government tax deferral and other schemes as appropriate. In the US during the first quarter of the current year, Greyhound operated c.40% of its pre-outbreak timetabled mileage, sufficient to ensure that the community-critical transportation network that it provides is maintained. Almost all of its main coach competitors have not been operating during this period.

As the only national intercity bus operator, Greyhound urgently sought federal and state assistance to sustain its network through the present crisis, and also sought to obtain relief on rents and fees for intermodal facilities from government transportation agencies. Following these efforts, the emergency federal appropriations bill (the ‘CARES Act’) signed into law on 27 March 2020 specifically allocated $326m in funds to US states to fund continued intercity bus transportation via Title 49 section 5311(f) of the US Code. The CARES Act also waived normal requirements for matching state funds. Given its scale as the only provider of a national network of coach services across 44 US states, Greyhound anticipates being a major recipient of this funding. Greyhound continues to work through the processes to access the CARES Act funding for services in each state where it operates. A number of these states already have pre-existing arrangements where minor amendments to contracts are required before Greyhound’s submissions can be processed. Where new or additional arrangements are required, Greyhound is working to expedite securing contracts and commencing billing.

Greyhound has deferred or halted all non-essential capital expenditure, and has improved the cost per mile, operational performance and customer perception of its active fleet by primarily operating its newest and most efficient buses. Greyhound has invested in industry-leading enhanced cleaning regimes for its buses and locations, mandated the use of face coverings on all its operations across the country and actively led the industry in providing prospective passengers with the latest coach travel safety information, as well as instituting a flexible booking policy to ease passengers’ concerns.

Greyhound has been supporting our communities during the outbreak by providing free transport to first responder and frontline medical professional volunteers travelling to another town or city to provide assistance, and is also delivering vital medical supplies and safety equipment in partnership with the American Red Cross.

Current trading and the future

Greyhound’s current focus is on continuing to secure support for its community-critical services from the CARES Act funding via state agencies, while very actively managing service levels and cost to match observed demand. As certain states have begun to ease ‘shelter in place’ restrictions and government advice has evolved, we are beginning to experience an incremental increase in passenger volumes, to c.70% below pre-pandemic levels in June compared with c.85% below in March/April. Revenue is currently c.60% below pre-pandemic levels, reflecting increased yields. As volumes increase, we are focused on delivering a safe, punctual service for our passengers while maintaining our discipline around incremental cost and agreeing further intercity bus funding contracts with the states we operate in.

A sale process in respect of Greyhound is ongoing and we will update the market as appropriate.

First Bus

Year to 31 March	£m		Change in constant currency¹
Year to 31 March	2020	2019	Change in constant currency¹
Revenue	835.9	876.1	(4.6)%
Adjusted operating profit	46.1	65.1	(29.2)%
Adjusted operating margin	5.5%	7.4%	(190)bps

¹ Based on retranslating 2019 foreign currency amounts at 2020 rates.

First Bus reported revenue of £835.9m (2019: £876.1m), in part reflecting the sale of two operating depots during the year. Adjusting for this and other factors, like-for-like passenger revenue increased by +0.7%, with commercial passenger volumes decreasing by(4.3)% including the effects of coronavirus. The role of buses has been increasingly recognised during the year, highlighted in particular by significant and high profile commitments to invest in the industry’s future by the UK Government. First Bus delivered like-for-like passenger revenue growth of 1.8% to the end of February, with the local operations experiencing varying demand patterns due to changing retail footfall, challenging congestion issues and differing local economic conditions. Clearly the imposition of government guidelines to avoid all but essential travel in early March to check the spread of coronavirus meant passenger volumes and revenues were significantly affected from that point, as discussed further below.

Adjusted operating profit was £46.1m (2019: £65.1m) and adjusted operating margin was 5.5% (2019: 7.4%), mainly reflecting the substantial reduction in passenger demand in March which was difficult in the short term to offset through cost reductions. The division also experienced poorer weather in the previous summer which capped like-for-like growth and higher hedged fuel prices and other inflation, which was not fully offset by continued cost efficiencies and the actions we have been taking to improve the passenger experience. The division reported a statutory operating profit of £32.4m (2019: £27.4m) as a result of restructuring and reorganisation costs and trading losses up to the point of disposal of the two depots sold in Manchester.

Year in review

We are creating a better offering to our passengers, designed and delivered around their needs and aspirations, with a particular focus on easy, innovative and convenient ticketing. We were the first major bus operator to offer contactless payment on every bus, which simplifies payment, enhances convenience and speeds up journeys by reducing boarding time. We have made regular upgrades to our highly regarded passenger app which reached 1m monthly active users during the year, including in recent months being the first large operator to bring to our app the capability for passengers to check in real time how full each bus is, including for wheelchair spaces, helping them to make more informed travel decisions. This exciting development was delivered in just two weeks given buses’ reduced capacity under social distancing rules. Contactless and our mobile app have become the preferred payment mechanisms for our passengers, overtaking cash and now accounting for more than half of all commercial revenue. We have introduced capped fares via contactless payments in Aberdeen and Doncaster, representing a price promise to customers as well as significantly faster boarding times, and are developing plans for further roll out. We are working alongside other companies in developing similar multi-operator products.

We have continued to take action to improve our efficiency, including by continuously optimising networks to both meet existing and stimulate new demand for our services, deploying our resources accordingly. We can now do this in much finer detail than ever before by interrogating the much richer data sets we have available to us as a result of the GPS-enabled ticketing system rolled out in previous years, enabling us to identify significant efficiencies by matching timetables with actual running times. We are also implementing improvements to our back office procedures, for example by redesigning engineering practices to be leaner and more agile.

Our capital investment this year was focused on areas where we work closely with stakeholders to progress our shared ambitions to deliver thriving and sustainable bus services, with investment in Leeds, Glasgow, Norfolk, Portsmouth and Bristol. Buses have a huge role to play in creating a connected and healthy world by contributing to local prosperity and growth and there is growing recognition of this by all stakeholders. In February we welcomed the UK Government’s announcement of a new £5bn, five-year funding package for buses, cycling and walking which will include support for simpler fares, thousands of new green buses, improved routes and higher frequencies across England. The Scottish Government has also announced more than £500m in investments for infrastructure, including new bus priority routes and other schemes to encourage more people to use public transport and reduce congestion across the country. Across all our networks we work very closely with all our stakeholders, including local authorities, to determine the most effective application of these monies to improve the passenger offering. The landmark West Yorkshire bus alliance has made good progress in delivering bus priority measures during the year. In March the UK Government committed to significant Transforming Cities Fund spending on bus priority in Leicester, Southampton, South Yorkshire and West Yorkshire with DfT negotiating further settlements for Norwich, Portsmouth/Solent and Stoke at year end. An outline Bus Deal has been agreed with Bristol, and discussions are continuing on a Bus Deal for Glasgow.

We are a leader in the industry for low emission buses and our vehicles play a key role in helping reduce congestion on the roads, improving air quality and lowering carbon emissions. We are focused on First Bus becoming a leader in the transition to a low-carbon future for public transportation, and are committing to operate a zero-emission bus fleet by 2035, and do not plan to purchase any new diesel buses after December 2022. We look forward to working closely with our supply chain, industry partners and the UK Government to ensure that our shared ambitions can be taken forward following the current crisis. We are already pioneers in the use of various alternative fuel buses, and over the last two years we have made considerable progress in downsizing the diesel fleet and securing clean air compliance. 35% of our fleet is now comprised of either Euro VI-compliant diesels or gas, electric or fuel cell vehicles. In the year we introduced 193 new Euro VI or better buses, including 74 methane gas powered ‘bio-buses’ for Bristol and currently have 30 electric vehicles on order – including 21 double-decker buses for the York Park & Ride network and nine single decks for Leeds. We have also taken delivery of two single deck electric buses, funded by SP Energy Networks, for Glasgow. We continue to bring hydrogen-powered buses into use in Aberdeen, preparing to launch 15 double-deckers in the city with funding assistance from the City Council, the EU and the Scottish Government. The coronavirus pandemic has led to temporary deferrals in our fleet investment for 2020/21; future investment will be focused on our environmental and partnership commitments, while improving operating costs.

During the year we successfully launched our Bright Bus tour services in Edinburgh, which competed well against the market leader. We took on full responsibility for services to Swansea’s Park & Ride site, integrating it into our core network and increasing the destinations offered. We upgraded our services to Glasgow airport through investments in high-specification double-deckers, significantly increasing capacity.

Following a review of our Manchester operations in anticipation of changes proposed to the structure of that market we completed the sales of our Queen’s Road and Bolton depots during the first half of the year. We continue to operate from Oldham and on the award-winning Vantage guided bus route.

Coronavirus response

When the coronavirus pandemic began to escalate in the UK in the second half of March, within days First Bus experienced c.90% declines in fare-paying passenger revenue and concessionary volumes. Across all our networks we rapidly reduced service levels in consultation with our local authority partners and were able to do so following relaxation of usual notice periods, which was granted by the Traffic Commissioners. On the back of funding grants we initially reduced service levels to c.40% of normal capacity, with a corresponding mileage reduction, in order to continue to transport healthcare and other key workers. The business furloughed c.55% of its workforce under the UK Government’s job retention scheme in this period. Working with our industry partners and CPT, we engaged with the government to agree an initial three-month industry-wide funding agreement for crucial services provided by regional bus operators in England. This funding totalled £167m across the industry and completed a package of measures to maintain vital bus services and networks committed by the DfT, Scottish and Welsh Governments to continue to (either themselves or by directing local authorities to) fund the Bus Service Operators Grant, concessionary fares and contracts for tendered services at levels prior to the pandemic.

At the end of May, a further COVID-19 Bus Service Support Grant (CBSSG) Restart programme for England was announced, which built on the previous funding arrangements. Under the new scheme regional bus services in England have initially been allocated £254m in additional funding by DfT allowing us to increase bus service capacity as government guidance on travel restrictions eases, supporting the restart of our local economies and getting people back to work. Within four days of this funding being confirmed, we had increased services to c.80% of pre-pandemic levels, passenger volumes have begun to increase and the majority of our furloughed employees had returned to work. The funding, which runs for an initial 12 week period backdated to 12 May, is designed to support the industry while social distancing guidelines require buses to run substantially below their potential capacity, and will be kept under review. Bus operators will be able to claim funding for the difference between their revenue from passenger and other non-tendered contractual sources and the costs of operating services. Recoverable costs include all reasonable operational costs as well as depreciation, pension funding and debt finance costs reasonably allocated to English local bus services. In June, the Scottish Government announced their intention to put in place a similar system, and discussions are ongoing with the Welsh Government to secure the additional funding necessary to support increases in service capacity there through the recovery period.

Our bus services perform a vital service and are a critical piece of the daily lives of many people in communities across the country. Our team has offered additional support and assistance to these communities during the pandemic, including making space available at our bus terminals for community initiatives, and drivers volunteering to complete additional training in order to drive local authority vehicles.

Current trading and the future

Our current priority is to ensure First Bus is able to support increases in passenger demand in an effective and efficient way, under the terms of the government funding schemes noted above while achieving a stronger bus division for the future for all of our stakeholders. We will continue to actively address our cost base through our comprehensive efficiency programme, the benefits of which we expect will be more evident once the effects of the coronavirus pandemic begin to subside.

Uncertainty remains about near-term customer demand due to coronavirus. While local economic activity is weak and social distancing guidelines require buses to run substantially below their potential capacity, a degree of funding will remain critical to our ability to sustain service levels. However, the fundamentals of First Bus are sound and coronavirus does not change the principles of what we are doing nor that bus travel will play a critical role in restoring the economies of the local communities in which we operate. We will lead the way on sustainability including delivering a zero-emission fleet by 2035. Being the partner of choice for public authorities and the travel preference of our passengers will enable us to deliver an improved and sustainable business in future.

First Rail

Year to 31 March	£m		Change
Year to 31 March	2020	2019	Change
Revenue	3,185.9	2,666.7	+19.5%
Adjusted operating profit	68.9	68.8	+0.1%
Adjusted operating margin	2.2%	2.6%	(40)bps

First Rail revenue increased to £3,185.9m (2019: £2,666.7m), principally reflecting the inclusion of the West Coast Partnership’s Avanti West Coast franchise from December 2019 and passenger revenue growth, higher subsidy receipts and final settlement of certain GWR contractual amendments. Excluding Avanti, like-for-like passenger revenue growth was 0.2% with passenger volume decreasing by (1.3)% reflecting changing work patterns and lifestyles resulting in a shift away from season tickets towards pay-as-you-go offerings as well as the coronavirus impact. Operational conditions across the industry this year were challenging with infrastructure upgrade works across our networks and the industrial action in SWR affecting our franchise performance levels. UK macroeconomic uncertainty also weighed on passenger revenue in the year and the effect of coronavirus is likely to prolong this uncertainty.

Adjusted operating profit was £68.9m (2019: £68.8m) with a margin of 2.2% (2019: 2.6%). Divisional profitability was driven by the additional capacity and services as a result of the introduction of new trains by GWR, the inclusion of Avanti, offset by the impact of the coronavirus outbreak and moving to the Emergency Measures Agreements from 1 March, while the expected effect of first time adoption of IFRS 16 on First Rail’s adjusted operating profit was less than expected. The division reported a statutory operating profit of £67.8m (2019: £27.4m).

Year in review

In August 2019 we were pleased that our 70:30 rail venture with Trenitalia was awarded the West Coast Partnership contract to operate existing InterCity services on the West Coast Mainline, and to help deliver High Speed 2 (HS2). After a successful mobilisation and a constructive handover period with the previous operators we launched the operation with the new brand of Avanti West Coast in December 2019. Since launch, Avanti performed in line with our expectations until the final weeks of March. Our future plans for new, greener electric and bi-mode trains, more services and new destinations will significantly enhance the quality of rail journeys for our customers on Avanti, and we look forward to performing the role of 'Shadow Operator' to the HS2 programme.

GWR’s new environmentally-friendly fleets of commuter Electrostar trains and bi-mode InterCity Express Trains (IETs) have delivered more seats and increased levels of punctuality. The new trains, in turn, allowed us to redeploy the rolling stock previously used in London and the Thames Valley to enhance capacity on routes in the South West. The largest timetable change since the 1970s was successfully introduced in December 2019, taking advantage of the new trains to offer faster journey times and more frequent services to key locations. All of these changes led to the highest levels of customer satisfaction GWR has recorded and a significant improvement in its independent National Rail Passenger Survey (NRPS) score in the period. During the period GWR also took over the operational aspects of Heathrow Express and is working closely with contractor Heathrow Airport on further improvements to the service. In the period the Group signed a direct award agreement with the DfT to continue operating GWR until March 2023, with a possible extension of up to one further year at the DfT’s discretion. Our experience of managing the route over many years will be crucial to facilitating the ongoing transformation of GWR through the biggest changes to the network in a generation. In the near term the structure is superseded by the Emergency Measures Agreements put in place across the industry by the UK Government as discussed below, but at the conclusion of the Emergency Measures Agreement period, GWR will operate services as a franchise with revenue risk shared with the DfT through a Forecast Revenue Mechanism (FRM), which also makes provision for a revenue rebasing exercise for GWR as required.

SWR’s performance was principally challenged in the year to March 2020 by industrial action by the RMT trade union which caused significant issues for our passengers throughout the year, including an unwarranted month-long strike in December 2019. We are committed to delivering a resolution to this dispute which remains ongoing despite our offer of an agreement that means no one loses their jobs and a guard is kept on every train. We are resolved to finding a solution that will be of benefit to everyone involved with SWR, in particular our customers. Ongoing Network Rail infrastructure problems outside of our control have also continued to have an impact on our performance and we continue to work with them to mitigate these. In the meantime, we are focused on delivering improvements to the passenger experience and as part of this we introduced refurbished trains to the Portsmouth-London line in late 2019, with new suburban rolling stock due in the next few months. Timetable changes in May and December 2019 added more than 350 new services per week and we also announced a package of investment for the Isle of Wight’s railway.

Our long-term ambition for our TPE franchise is for it to continue evolving into the true intercity network for the North. To that end, capacity is being significantly increased and we began to introduce the first of 220 new carriages from late 2019, comprising Hitachi IET-type trains and a further intercity fleet from CAF. Although TPE delivered growth and traded ahead of expectations during the first half of the year, in the second half the franchise experienced difficult operating conditions due to the delayed delivery of these new train sets and infrastructure issues affecting our performance. We were able to meet a major commitment by introducing a new direct Liverpool-Glasgow service in December, although further key changes which were included in the original bid have not yet taken place due to industry-wide decisions not to alter timetables at the scale originally envisaged. Our revised plans for transforming the franchise are continuing and all of our new trains are now expected to be in service within the next twelve months.

In December 2019 our open access operator Hull Trains began operating a new leased fleet, which significantly improved the passenger experience on what was already a successful route, and removed some of the performance uncertainty that the previous fleet was causing. We are carefully considering our plans for a second open access operation on the East Coast mainline in light of the current demand environment.

We were pleased that in the autumn 2019 NRPS, all of the rail operations we controlled in the period achieved year-on-year improvements in overall satisfaction, with GWR being a standout performer having fully delivered new trains into operation. All of our rail companies have further plans to improve the passenger experience, principally by delivering new trains along some or all of their routes. Customers will see benefits including more seats and space, better Wi-Fi and on-board entertainment options and several other fleets are being completely refurbished to provide customers with similar amenities. Our franchises are also working to introduce convenient types of ticket including smartcards, barcodes and auto-renewing or flexible season tickets.

First Rail and our partners are industry leaders in reducing carbon emissions. This includes the introduction of bi-mode diesel and overhead electric powered trains enabling us to make use of electrification where available, whilst still being able to operate on shorter sections of non-electrified track. We are signatories to the UK Government’s challenge to take all diesel-only trains out of service by 2040 and this progress will be made easier as the UK power grid further decarbonises and our rail network is progressively electrified.

Coronavirus response

In line with the wider UK rail industry, passenger volumes in our businesses reduced substantially from the second half of March 2020 as government advice and regulations changed, with revenue c.95% lower. Following consultation with the DfT, the industry began operating a reduced timetable from 23 March. Services are gradually being restored beginning with the 2020 timetable change on 18 May although demand remains at unprecedentedly low levels. To try and ensure current social distancing can be maintained in line with government advice, some of our rail businesses introduced demand management measures such as limiting the number of advance tickets on sale for certain services, and we worked with our partners to ensure our customers could use stations safely.

The UK Government acted swiftly to sustain the country’s vital rail networks during the pandemic, ensuring services could continue to be operated for essential workers to travel by rail to perform their vital roles. In March all of the Group’s rail franchises entered into Emergency Measures Agreements with the UK Government which will last until September, or longer if required, and which provide continuity and certainty. For the duration of these agreements, the government will waive our revenue, cost and contingent capital risk and pay our train operating companies a fixed management fee, which varies according to the individual profile of the franchise. There is also the potential for an additional performance-based fee. In preparing the accounts the Directors have assumed that the Emergency Measures Agreements or a similar structure remain in place until the end of their respective franchises. Hull Trains was not eligible for the Emergency Measures Agreement system and as a result we announced on 29 March that our Hull Trains open access business would suspend operations for a period.

Our First Rail teams are also using their unique position as part of the essential fabric of the communities in which they operate to deliver support and assistance during this challenging time. We are responsible partners with our customers and communities and we work with community organisations across the network. In particular, we were pleased the Rail to Refuge scheme with Women’s Aid, which offers free rail travel to those fleeing domestic violence, went nationwide during the lockdown period following a successful trial in GWR. Where we have a catering offer, our rail companies have been donating food from on-board shops to NHS teams and charities.

Current trading and the future

First Rail is currently operating in accordance with the terms of the Emergency Measures Agreements in place. There is uncertainty about the level of future passenger demand and revenue growth in the light of the challenging circumstances of coronavirus. Throughout the pandemic we have been in discussions with the DfT concerning the commercial effects on our train operating companies, and what continuing support or contractual variations may be needed in due course. Those discussions are continuing. In preparing the accounts the Directors have assumed that the Emergency Measures Agreements or a similar structure remain in place until the end of their respective franchises.

Over time our rail portfolio has generated good returns overall despite challenging recent industry conditions. The UK’s rail franchising system is currently undergoing a major review of the most appropriate commercial model to deliver services in future, and we look forward to the outcome of the Williams Review in order to understand the balance of risks and rewards on offer for future UK rail opportunities. Notwithstanding these issues, we are focused on working with our industry partners to deliver better customer experiences at all our train operating companies, which will in turn result in passengers returning to the railway over time.

Going concern assessment

The Group has a strong balanced portfolio of businesses that provide essential services to the communities we serve.

Continuity of transport is proving essential to governments, local communities and many of our customers throughout the coronavirus pandemic and it will also be critical to the restoration of normal life when the present uncertain and extremely difficult situation is overcome. The funding to sustain services that we have received from governments and our customers is testament to the importance of our offering to those we serve.

Both governments and our key contracted customers recognised the need to stop or significantly reduce services as passenger demand declined rapidly when the lockdowns and ‘shelter in place’ orders were made. They also recognised that it was critical to maintain essential services for key workers to get to their place of work, and to preserve the ability to restore services quickly when required. Throughout the crisis, all our businesses had productive engagement with major customers on revenue recovery, including school district boards throughout North America, and local, state and national governments in all of the markets served by the Group.

Details of the revenue protection measures and government funding and other support are set out in the Chief Executive’s review and the operating and financial review.

The impact of coronavirus on our business, and the support being provided by customers and government, will continue to evolve throughout the coming months. Despite these support measures, it is uncertain how and when these support measures will be withdrawn and, if the crisis persists for a much longer period, the extent to which governments and customers will continue to have the ability to provide fiscal and contractual support.

It is difficult to assess with any degree of certainty what effect the continued impact of the coronavirus crisis might have on the wider economy and the transport sector in the markets in which the Group operates. It is therefore highly uncertain what impact there might be on the Group’s future trading performance and financial position.

Going concern assessment

The Directors used the financial forecasts prepared for business modelling and liquidity purposes, as the basis for their assessment of the Group’s ability to continue as a going concern for the 12 months from the date of the financial statements. Those forecasts were prepared using ‘bottom up’ Divisional projections which were then subject to a series of Executive Management reviews and subject to a Group risk overlay to produce a risked outlook. This risked outlook formed the base case which was overlaid with a reasonable downside scenario in order to stress test the adequacy of facility headroom and provide assurance in relation to the risk of breaching financial covenants.

The major assumptions and key areas of judgement taken into account in the modelling included:

the likelihood of coronavirus restrictions in the UK and North America remaining in place for the balance of the fiscal year;
the possible continuation of Rail Emergency Measures Agreement support beyond September 2020;
a possible further extension of the CBSSG Restart regime in Bus;
the potential impacts on financial and trading performance without current levels of customer and government support currently being provided;
whether covenant waivers will be required under the Group’s banking facilities;
the timing of working capital flows;
the ongoing availability of bank finance facilities, including the Bank of England CCFF; and
the impact on the triennial valuations for UK pensions that were completed in 2019.

The risked outlook used for assessing going concern assumes continued fiscal and contractual support broadly at the levels currently in place and the businesses starting a gradual return to pre-crisis levels during the second half of the financial year. Given the extent to which that fiscal and contractual measures underpins the businesses to support current levels of passenger demand under social distancing and the fact that that support is being provided by governments and contract partners to allow the Group to continue to run the diverse essential services, it was not felt necessary to run alternative reverse stress tests.

Base Case: The key assumptions used in the Base Case were:

First Student: All schools return in August 2020 at normal operational levels, but with Charter recovering fully by April 2021.
First Transit: All segments substantially back to normal operational levels by September 2020.
Greyhound: Passenger volumes remain subdued until October 2020, improving gradually thereafter and to near pre-crisis levels by March 2022. Operated miles increase broadly in line with increased demand. Fiscal support until January 2021.
First Bus: Operated miles increase significantly with CBSSG Restart support, but that support assumed to cease in March 2021 with network miles dropping back to circa 70-80% of pre-crisis levels in FY21/22.
First Rail: All franchised TOCs continue under management contract for the life of the existing franchise agreements. Hull Trains recommences operations in September 2020.
Brexit: Projections assume UK operates in a post-Brexit, post-crisis economy with consensus macro-economic outlook in accordance with HM Treasury Economic Forecast of April 2020.
UK Pensions: the agreed deficit repair commitments relating to the 2019 triennial valuations continue to be made as planned.

Reasonable downside scenario: This assumed a delayed operational restart in North America / part repayment of Rail ring-fenced cash. The key underlying assumptions used in this case were:

First Student: significant proportion of schools do not restart until January 2021 (but capex kept at the same as Base Case levels).
First Transit: University start delayed to January and slower recovery in Paratransit.
Greyhound: Slower passenger volume/yield recovery during FY22. Lower than anticipated 5311(f) CARES Act funding received.
First Bus: as Base Case.
First Rail: Ring-fenced cash reduced by £200m at September 2020 and continues at this lower level.

As noted on page 4, it remains the Group’s core strategic aim to complete the disposal of First Student and First Transit at the earliest appropriate opportunity. However, for the purpose of going concern testing, the disposal is assumed not to complete in the going concern period. Should the disposals complete in this period, the likely sales proceeds would allow the full repayment of all debt at that point. Nevertheless, should the disposals not be completed by March 2022, for viability testing purposes the Base Case in the years beyond the going concern period includes a number of potential refinancing options to replace maturing drawn facilities, including a £400m bond, a £150m equity raise, and £300m USPP and/or bank debt, that might be required in those years.

Liquidity

The Group has a diversified funding structure with average debt duration at 31 March 2020 of 3.3 years (2019: 4.3 years) and which is largely represented by medium-term unsecured committed bank facilities and long-term unsecured bond and private placement debt, and includes £250m undrawn committed bridging loan entered into in March 2020 for the redemption of the £350m bond that matures in April 2021.

As at 31 March 2020, the Group’s undrawn committed headroom under the bank revolving credit facility and free cash (before Rail ringfenced cash) was £586m.

In April and May a number of actions were taken to improve the Group’s liquidity, including participating in and drawing down £300m under the UK Government Covid Corporate Finance Facility (CCFF).

As at end of June, the Group’s undrawn committed headroom under the bank revolving credit facility and free cash (before Rail ringfenced cash) was c.£850m.

Overall, the Group currently has access to over £1.4bn of cash and facilities as at end of June of which £850m is fully committed during the entirety of the going concern period and a further c.£550m is either currently available but not committed or committed and currently available but not committed for the entirety of the going concern period.

On 1 April 2020 Fitch Ratings confirmed that it had maintained its long-term Issuer Default Rating (IDR) for the Group at BBB- while changing its outlook to negative from stable. On 4 May S&P Global Ratings also affirmed its long-term issuer credit rating on the Group at BBB- and also changed its outlook from stable to negative.

Liquidity headroom

Subject to the continued availability of Bank of England CCFF and uncommitted facilities, positive liquidity headroom remains throughout the going concern period under both the Base Case and the reasonable downside scenario. Liquidity headroom in the Base Case includes £300m under the Bank of England CCFF committed to March 2021 but is assumed to be extended, £150m Accordion uncommitted facility to the RCF and £16m of other uncommitted overdraft facilities together with $230m of the Daimler facility (current maturity in June 2021) and further leasing facilities.

While the Bank of England CCFF facility is uncommitted after March 2021, the Directors believe that the removal by the Bank of England of the ability to redraw in March 2021 for another 364 days is remote. In addition, the Directors believe that the Accordion and Daimler facilities are unlikely to be withdrawn in the short term given the commercial arrangements that are in place.

Covenant testing

Certain of the Group’s borrowing facilities are subject to ongoing covenant testing. Covenants are measured twice a year, at full year and half year and are measured under frozen accounting standards and therefore exclude the effects of IFRS 16.

All banking covenants tests were met at the last testing point on 31 March 2020. The Base Case forecast indicates that banking covenants will be met throughout going concern period but with limited headroom at the September 2020 and March 2021 test dates.

Under the reasonable downside scenario covenant compliance is still projected to be achieved at 30 September 2020, although with much less certainty and more limited headroom. The modelling also suggests that there could be marginal fails on all covenants at 31 March 2021 under this downside scenario before implementing any of the mitigating actions. Accordingly, there may be a requirement to approach lenders for a covenant waiver should the outturn assumed in the September 2020 and March 2021 downside scenarios begin to look likely. The reasonable downside scenario does not take account of the potential mitigating actions set out below.

Mitigating actions

If there are materially different outcomes to the Base Case and reasonable downside scenario that have a materially adverse impact on the Group, the continued impact of these events could result in a reduction in liquidity and/or a longer period of lower EBITDA which in turn risks debt covenant breaches. In that event the Group may choose to implement further cost reduction measures, and/or further reductions or deferrals to capital investment plans in First Student, First Transit and First Bus, and/or seek a short-term covenant waiver from its banks.

Separately, the Group might also raise additional finance or refinance maturing facilities by undertaking one or more of the following:

the sale or sale and leaseback of existing First Student buses (where the vast majority of these assets are unencumbered)
the sale or sale and leaseback of part of Greyhound’s remaining property portfolio;
additional new PCV lease financing;
raising equity through a placing; or
the issuance of new longer-term debt.

The Group has also assumed that in its risked outlook it will continue to have access to debt markets and if the sale of First Student and First Transit is significantly delayed, the Group may also choose to refinance maturing facilities during this period through:

the issue of further long-term debt;
obtaining further short-term bank financing;
entering into a sale and lease back of property or First Student buses;
issue additional equity through a placing; or
a combination of these alternatives.

Significant judgements

In using these financial forecasts for the going concern assessment, the Directors recognise that significant judgements had to be made in deciding what assumptions to make regarding how the impact of the coronavirus pandemic might evolve in the coming months and what impact that will have on the ability of each of the business divisions to resume near normal levels of service. Many of those judgements are, by their nature, highly subjective and the modelled outcomes depend to a significant degree on how the coronavirus pandemic evolves during the rest of the year. There is therefore a much higher degree of uncertainty than would usually be the case in making the key judgements and assumptions that underpin the financial forecasts.

The coronavirus pandemic is unprecedented, so there is no way of predicting with certainty how the crisis will continue to evolve, nor what the long-term effect the coronavirus pandemic will have on the wider economy or demand for our services.

Material Uncertainty as to going concern

The Directors noted that the risks set out below indicate that a material uncertainty exists that may cast significant doubt on the Group’s and the Company’s ability to continue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business.

Material uncertainty relates to:

the uncertainty regarding the levels of fiscal financial and contractual support which may be provided beyond the period for which that funding and contractual support is currently being provided;
whether passenger volumes recover to the levels necessary to sustain the business without the current fiscal financial and contractual support;
the ability of the Group to obtain covenant waivers from debt providers if required;
the ability of the Group to draw down on c. £550m of the currently available but uncommitted facilities throughout the going concern period if required; and
the timing of cash flows, including movements in working capital and the timing of receipts of contractual and fiscal support that may impact debt levels at covenant test dates.

Going Concern statement

Based on their review of the financial forecasts and having regard to the risks and uncertainties to which the Group is exposed, (including the material uncertainty referred to above) the Directors believe that the Company and the Group have adequate resources to continue in operational existence for the twelve-month period from the date on which the financial statements were approved. Accordingly, the financial statements have been prepared on a going concern basis.

Reconciliation to non-GAAP measures and performance

In measuring the Group and Divisional adjusted operating 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 restructuring and reorganisation costs, material property gains or losses, aged legal and self-insurance claims, significant adverse development factors on insurance provisions, significant movements on discount rates used to discount insurance reserves, onerous contracts, impairment charges and pension settlement gains or losses. Note 4 to the financial statements sets out the reconciliations of operating (loss)/profit and loss before tax to their adjusted equivalents. The adjusting items are as follows:

Other intangible asset amortisation charges

The charge for the year was £4.9m (2019: £11.8m) with the reduction due to a number of customer contract intangibles which have now been fully amortised with the remainder mainly relating to brand amortisation in Greyhound.

Greyhound impairment charges

We have assessed the value of Greyhound under a Fair Value Less Cost To Sell (FVLCTS) approach, rather than the IAS36 Value-in-Use method applied to our other trading Divisions and in the prior year. This approach considers the value that a potential Market Participant may ascribe to Greyhound, including recognition of significant unrealised property values in the Greyhound portfolio.

In the second half we have recorded a further impairment charge of £62.5m to reflect poor business performance and an increase in the discount rate used to value the future cash flows. As a result the total impairment charge for Greyhound for the year was £186.9m (2019: £nil).

Both impairments have been recognised in the results on a pro-rata basis against the assets of the division excluding property. Valuations in excess of book value suggest no impairment to the carrying value of property.

North America insurance provisions

FirstGroup North American insurance arrangements involve retaining the working loss layers in a captive and insuring against the higher losses. Based on our actuaries’ recommendation and a second additional, independent actuarial review, last year we increased our reserve to $533m. During this financial year we have continued to see a deteriorating claims environment with legal judgements increasingly in favour of plaintiffs and punitive in certain regions. In this hardening motor claims environment, we have seen further significant new adverse settlements and developments on a number of aged insurance claims, and as a result our actuaries have increased their expectation of the reserve required on historical claims.

In addition, there has been a significant change in the market-based discount rate used in the actuarial calculation from 2.7% to 0.8%, creating the requirement to increase the provision. This is the first time that a movement in the discount rate has been treated as an adjusting item. Management consider that this treatment is appropriate due to the size of the financial impact. In other recent years movements in discount rates have not been significant and the financial impact has been included in operating results.

In light of the continued change in claims environment we have increased the provision to provide more protection for historical claims, and the resulting self-insurance reserve level is above the midpoint of the actuarial range. These changes in accounting estimates combined with the discount rate movement has resulted in the Group recording an additional charge of $175.2m or £141.3m (2019: $125.0m or £94.8m); $149.5m or £120.5m relating to losses from historical claims and $25.7m or £20.7m relating to the change in the discount rate. It is expected that the majority of these claims will be settled over the next five years. Following these charges, the provision at 31 March 2020 stands at $657m (2019: $533m) compared with the actuarial range of $551m to $683m (2019: $447m to $572m).

The charge to the adjusted operating profit for the current period reflects this revised environment and the businesses continue to build the higher insurance costs into their bidding processes and hurdle rates for investment. The Group also actively evaluates alternatives to reduce insurance risk and ongoing expense, and has made improvements to claims management processes during the second half. It is anticipated that the Group would extinguish the relevant self-insurance provisions as part of the sale processes for the North American divisions.

The Group has a strong focus on safety and risk management. In First Student for example, the culture of safety we have built and continue to foster has resulted in four consecutive years of reduced injuries, down 34% over that period. We continue to maintain high standards and levels of investment in safety and this will continue to be a key area of focus for the Group.

Restructuring and reorganisation costs

There was a charge of £58.2m (2019: £24.1m) for restructuring and reorganisation costs of which a large part relates to a Group-wide initiative to achieve systematic and structured cost savings across the businesses with the assistance of a market leading organisation in this field. Although this assistance has now ended, the programme has shown some benefits in the year just ended prior to the coronavirus pandemic and is anticipated to have further benefits in future years. Restructuring costs also include legal, professional and other costs associated with the proposed rationalisation of the Group. In addition, trading losses in the two Manchester depots to the date of disposal have been included.

Fuel over hedge

There was a charge of £7.4m (2019: £nil) relating to ineffectiveness on fuel hedges as a result of dramatically lower than forecast volumes due to the short-term reduction in services levels as a result of the coronavirus pandemic, particularly in First Bus and First Student.

First Student onerous contract provision

As a result of the coronavirus pandemic, a significant number of school bus contracts which have either been lost or were up for rebid at the balance sheet date, will incur unavoidable losses from the start of the new financial year until the end of the school year. The total charge for unavoidable losses on these contracts was £14.1m (2019: £nil).

Legacy pension settlement

This relates to a legacy pension liability from a business disposal which First Transit made in 2013.

Property profits

First Student recognised a profit of £8.0m on sale of property in the year. Greyhound recognised a profit of £1.3m on sales of property, principally relating to the withdrawal from Western Canada.

Finance costs and investment income

Net finance costs were £146.9m (2019: £106.6m) with the increase principally reflecting the additional interest charges under IFRS 16. Finance costs pre-IFRS 16 were £106.7m (2019: £106.6m) reflecting largely stable debt levels relative to prior year.

Profit before tax

Adjusted profit before tax as set out in note 4 to the consolidated financial statements was £109.9m (2019: £208.2m). An overall charge of £409.5m (2019: £305.0m) for adjustments principally reflecting the Greyhound impairment of £186.9m (2019: nil), North America self-insurance reserve charge of £141.3m (2019: £94.8m), restructuring and reorganisation charges of £58.2m (2019: £24.1m), a legacy pension settlement in First Transit of £4.9m (2019: £nil) and other intangible asset amortisation charges of £4.9m (2019: £11.8m), resulted in a statutory loss before tax of £299.6m (2019: loss before tax of £97.9m).

Tax

The tax charge, on adjusted profit before tax, for the year was £24.6m (2019: £46.6m) representing an effective tax rate of 22.4% (2019: 22.4%). There was a tax credit of £39.6m (2019: a tax credit of £36.5m) relating to other intangible asset amortisation charges and other adjustments, partly offset by the write down of previously recognised deferred tax assets of £40.0m (2019: nil). The total statutory tax charge was £25.0m (2019: £10.1m) representing an effective tax rate on the statutory loss before tax of (8.3)% (2019: (10.3)%). This rate is different from the effective tax rate on adjusted profits primarily because the potential tax credit on the impairment in Greyhound is not recognised and the write down of deferred tax assets. The Group’s effective tax rate is sensitive to the geographic mix of profits including tax rates in the US and Canada (including state taxes) that are higher than in the UK and to changes in tax law and rates in the jurisdictions in which it operates.

The actual tax paid during the year was £2.9m (2019: £7.5m) and differs from the tax charge of £25.0m primarily because of the write down of deferred tax assets, partly offset by capital allowances in excess of depreciation and the utilisation of carried forward tax assets.

EPS

Adjusted EPS was 6.8p (2019: 13.3p). Basic EPS was (27.0)p (2019: (5.5)p).

Shares in issue

As at 31 March 2020 there were 1,210.8m shares in issue (2019: 1,208.6m), excluding treasury shares and own shares held in trust for employees of 8.7m (2019: 5.3m). The weighted average number of shares in issue for the purpose of basic EPS calculations (excluding treasury shares and own shares held in trust for employees) was 1,210.9m (2019: 1,205.9m).

Cash flow

The pre-IFRS 16 adjusted cash inflow was £98.5m (2019: £197.3m). This includes a £106.8m outflow for the utilisation of onerous contract provisions at SWR and TPE. Rail ring-fenced cash increased by £87.2m to £611.9m (2019: £524.7m) reflecting the start-up of Avanti. The Road divisions’ cash inflow of £7.9m was after £283.4m capital expenditure as our targeted fleet investment programmes continued during the financial year.

Net debt increased in the period to £3,278.1m (2019: £903.4m). The increase is principally due to a £1,168.2m adjustment on transition to IFRS 16 and inception of new leases of £1,750.8m, primarily due to the commencement of Avanti and the award of DA3 in GWR. The cash flow on a pre- and post-IFRS 16 basis is set out below:

	Year to 31 March 2020			Year to 31 Mar 2019 £m
	Pre- IFRS 16 £m	IFRS 16 impact £m	Post- IFRS 16 £m	Year to 31 Mar 2019 £m
EBITDA	619.2	489.7	1,108.9	670.3
Other non-cash income statement charges	(1.4)	-	(1.4)	3.7
Working capital	79.7	(7.1)	72.6	53.8
Movement in other provisions	(171.3)	106.8	(64.5)	(24.8)
Pension payments in excess of income statement charge	(38.8)	-	(38.8)	(47.8)
Cash generated by operations	487.4	589.4	1,076.8	655.2
Capital expenditure and acquisitions	(352.8)	-	(352.8)	(432.5)
Proceeds from disposal of property, plant and equipment	30.5	-	30.5	63.5
Proceeds from disposal of business	16.2	-	16.2	-
Interest and tax	(85.9)	(40.2)	(126.1)	(88.8)
Operating lease payments now in debt/other	3.1	(549.2)	(546.1)	(0.1)
Adjusted cash flow	98.5	-	98.5	197.3
Foreign exchange movements	(12.0)	(12.1)	(24.1)	(28.3)
Inception of new leases	(77.3)	(1,750.8)	(1,828.1)	-
Operating lease payments now in debt	-	549.2	549.2	-
Other non-cash movements	(2.0)	-	(2.0)	(2.1)
Adjustment on transition to IFRS 16	-	(1,168.2)	(1,168.2)	-
Movement in net debt in the period	7.2	(2,381.9)	(2,374.7)	166.9

Capital expenditure

Road cash capital expenditure was £283.4m (2019: £322.3m) and comprised First Student £193.0m (2019: £232.3m), First Transit £18.8m (2019: £32.2m), Greyhound £38.8m (2019: £31.7m), First Bus £30.1m (2019: £25.1m) and Group items £2.7m (2019: £1.0m). First Rail capital expenditure was £115.7m (2019: £110.2m) and is typically matched by franchise receipts or other funding. In addition, during the period we entered into leases in the Road divisions with capital values in First Student of £75.1m (2019: £27.0m), First Transit of £13.8m (2019: £3.4m), Greyhound of £21.3m (2019: £34.8m) and First Bus of £6.3m (2019: £61.9m). During the period First Rail entered into leases with a discounted present value of £1,719.8m, being mainly for rolling stock.

Gross capital investment (fixed asset and software additions plus the capital value of new leases) was £2,326.5m (2019: £571.1m) and comprised First Student £331.9m (2019: £284.8m), First Transit £30.5m (2019: £30.7m), Greyhound £65.4m (2019: £62.8m), First Bus £52.6m (2019: £79.8m), First Rail £1,842.9m (2019: £112.0m) and Group items £3.2m (2019: £1.0m). The balance between cash capital expenditure and gross capital investment represents new leases and creditor movements in the year.

Balance sheet

Net assets have decreased by £346.6m since the start of the year. The principal reasons for this are the retained loss for the year of £327.2m, unfavourable hedging reserve movements of £45.8m, actuarial losses on defined benefit pension schemes including deferred tax of £53.6m partly offset by favourable translation reserve movements of £91.3m.

CGU carrying value

Other than Greyhound, the carrying value (net assets including goodwill but excluding intercompany balances) of each cash generating unit (CGU) was tested for impairment during the year by reference to their projected value in use and following their review of these projections, the Directors concluded that there continues to be adequate headroom in First Student, First Transit, First Bus and First Rail. Details of sensitivities to reasonably possible changes in the assumptions for these CGUs is set out in note 8.

We assessed the value of Greyhound under a Fair Value Less Cost To Sell (“FVLCTS”) approach, rather than the IAS36 Value-in-Use method applied to our other trading Divisions and in the prior year. For Greyhound the carrying value was assessed to be in excess of the Fair Value Less Cost To Sell for this business due to poor business performance and an increase in the rate used to discount the future cash flows. A further impairment charge of £62.5m was recorded in the second half of the year which, together with the £124.4m impairment charge recorded in the first half of the year, brought the full year impairment charge to £186.9m.

Fuel price risk

We use a progressive forward hedging programme to manage commodity risk. In 2019/20 in the UK, 90% of our ‘at risk’ crude requirements (1.7m barrels p.a.) were hedged at an average rate of $65 per barrel. We have hedged 63% of our ‘at risk’ UK crude requirements for the year to 31 March 2021 at $64 per barrel and 41% of our requirements for the year to 31 March 2022 at $64 per barrel.

In North America 60% of 2019/20 ‘at risk’ crude oil volumes (1.3m barrels p.a.) were hedged at an average rate of $62 per barrel. We have hedged 58% of the volumes for the year to 31 March 2021 at $63 per barrel and 20% of our volumes for the year to 31 March 2022 at $65 per barrel, predominantly in relation to First Student and First Transit. Greyhound’s fuel exposure is largely unhedged because its competitors – passenger cars and the airlines – have no hedging on their exposures, so Greyhound’s pricing is responsive to fuel price changes.

Funding and risk management

Liquidity within the Group increased compared with the prior year; as at 31 March 2020 the Group’s undrawn committed headroom and free cash was £585.7m (2019: £520.6m, comprising £237.1m (2019: £167.3m) in free cash (before Rail ring-fenced cash) and £348.6m (2019: £353.3m) of undrawn committed bank revolving credit facilities. The level of free cash and undrawn committed revolving banking facilities has increased over the past two months and is anticipated to decline with the normal seasonal decline in revenues in First Student when schools are closed for the summer and due to working capital requirements as the business prepares for the school start-up during August. Treasury policy requires a minimum level of committed headroom is maintained.

Subsequent to the year end, the Group was confirmed as an eligible issuer for the UK Government’s Covid Corporate Financing Facility (CCFF) scheme, with an issuer limit of £300m based on its credit ratings under the terms of the scheme as published by the Bank of England. On 27 April 2020 the Group issued £300m in commercial paper through the scheme to further enhance liquidity levels. As at the end of June 2020 the Group had c.£850m in free cash (before Rail ring-fenced cash) and committed undrawn revolving banking facilities.

The Group’s diversified funding structure also includes undrawn facilities comprising a committed £250m undrawn bridging loan entered into in March 2020 for the redemption of the £350m bond that matures in April 2021, an uncommitted £150m accordion facility to the RCF, as well as further lines of uncommitted leasing facilities and more than $100m of uncommitted supplier credit for the procurement of buses.

Average maturity of our bond debt, senior unsecured loan notes and bank facilities is 3.3 years (2019: 4.3 years). The Group’s main revolving bank facilities of £800m require renewal in November 2023. The Group does not enter into speculative financial transactions and uses only authorised financial instruments for certain financial risk management purposes.

Interest rate risk

We seek to 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 at least 50% of net debt.

Foreign currency risk

‘Certain’ and ‘highly probable’ foreign currency transaction exposures including fuel purchases for the UK divisions may be hedged at the time the exposure arises for up to two years at specified levels, or longer if there is a very high degree of certainty. The Group does not hedge the translation of earnings into the Group reporting currency (pounds Sterling) but accepts that reported Group earnings will fluctuate as exchange rates against pounds Sterling fluctuate for the currencies in which the Group does business. During the year, the net cash generated in each currency may be converted by Group Treasury into pounds Sterling by way of spot transactions in order to keep the currency composition of net debt broadly constant.

Foreign exchange

The most significant exchange rates to pounds Sterling for the Group are as follows:

	Year to 31 March 2020		Year to 31 March 2019
	Closing rate	Effective rate		Closing rate	Effective rate
US Dollar	$1.25	$1.29		$1.30	$1.32
Canadian Dollar	$1.74	$1.72		$1.74	$1.74

Net debt

The Group’s net debt at 31 March 2020 was £3,278.1m (2019: £903.4m) including first time recognition of £1,168.2m in operating leases under IFRS 16 as well as new operating leases under IFRS 16 relating to AWC of £820.9m and DA3 award in GWR of £729.7m, and comprised:

	31 March 2020			31 March 2019
Analysis of net debt	Fixed £m	Variable £m	Total £m	Total £m
Sterling bond (2021)	-	348.7	348.7	348.4
Sterling bond (2022)	322.7	-	322.7	322.1
Sterling bond (2024)	199.8	-	199.8	199.8
Bank loans	-	574.0	574.0	446.7
Lease liabilities	2,473.0	-	2,473.0	59.9
Senior unsecured loan notes	219.8	-	219.8	210.0
Loan notes	8.7	0.7	9.4	9.4
Gross debt excluding accrued interest	3,224.0	923.4	4,147.4	1,596.3
Cash			(237.1)	(167.3)
First Rail ring-fenced cash and deposits			(611.9)	(524.7)
Other ring-fenced cash and deposits			(20.3)	(0.9)
Net debt excluding accrued interest			3,278.1	903.4

First Rail ring-fenced cash increased by £87.2m in the period principally due to start-up of Avanti and working capital movements. Net debt excluding Rail ring-fenced cash and IFRS 16 operating leases was £1,508.1m (2019: £1,428.1m).

Pensions

We have updated our pension assumptions as at 31 March 2020 for the defined benefit schemes in the UK and North America. The net pension deficit of £307.2m at the beginning of the period has increased to £313.4m at the end of the period. Assets performed well over the period to 29 February, although the fall in global markets during March as a result of the coronavirus pandemic reduced the value of some of our pension scheme assets. Diversification and timely de-risking actions mitigated the impact of falling equity prices. The value placed on liabilities has decreased due to changes in financial conditions, especially lower levels of market implied inflation. This was partially offset by changes in demographic assumptions and exchange rate movements. The main factors that influence the balance sheet position for pensions and the principal sensitivities to their movement at 31 March 2020 are set out below:

	Movement	Impact
Discount rate	+0.1%	Reduce deficit by £28m
Inflation	+0.1%	Increase deficit by £23m
Life expectancy	+1 year	Increase deficit by £63m

The Trustee and Group have agreed the results of the 2019 funding valuation for the First UK Bus Pension Scheme, and are currently finalising the documentation. The funding deficit as at the valuation date (April 2019) had reduced compared with the previous triennial valuation (April 2016), and the Trustee and Group have agreed a significantly shorter recovery period within which contributions will be paid to repair the deficit.

Additionally, the Trustee and Group are in the final stages of agreeing an updated long-term funding plan for the First UK Bus Pension Scheme. This plan will work towards a funding target that is well aligned to the long-term targets articulated in the Pension Regulator’s recently announced draft Funding Code. Central to this plan is reducing the level of asset risk, and the Group is making good progress with collaborative discussions with the trustees on reducing the exposure to investment risk within the scheme in a reasonably short time horizon.

The 2019 funding valuation for the Greater Manchester Pension Fund was completed during the financial year, and it showed an improvement in funding position compared to the previous valuation. This has allowed the Group to stop paying additional secondary contributions to the Fund from the end of the 2020-21 financial year, and also enabled the Group to agree a significant level of asset de-risking during the financial year. This has reduced the exposure to assets that are primarily return-seeking (and therefore risk bearing), such as equities, from c.32% to c.19%. The result of this funding valuation has therefore been an immediate reduced cash requirement for the Group, and reduced risk of continued cash requirements in the future.

Following on from the consolidation of the various LGPS plans in England during the previous financial year, the Group has completed a rationalisation of their LGPS plans in Scotland during the year to 31 March 2020. The merger of the Strathclyde fund into the Aberdeen fund has improved the funding position in the Aberdeen plan, and has also facilitated reduction of the relative asset risk across these obligations.

During the financial year the Group has taken over the West Coast Partnership rail franchise, and therefore the pension obligations have been brought onto the balance sheet. The risks associated with pensions costs have been suitably reflected in the overall contract, meaning the Group considers that it is sufficiently well protected against any adverse movements in scheme funding levels and cash contribution levels. These protections are also reflected within the agreement to continue operating the Great Western franchise. The low exposure to pensions risk across the rail franchises is reflected in the treatment on the Group balance sheet, which reflects a zero surplus/deficit position for all franchises currently operated by the Group.

Dividends

The Board recognises that dividends are an important component of total shareholder return for many investors and remains committed to reinstating a sustainable dividend at the appropriate time, having regard to the Group’s financial performance, balance sheet and outlook. The Board is not proposing to pay a dividend in FirstGroup plc for the year to 31 March 2020 but will continue to review the appropriate timing for restarting dividend payments.

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.

Contingent liabilities

The Group’s operations are required to comply with a wide range of regulations, including environmental and emissions regulations. Failure to comply with a particular regulation could result in a fine or penalty being imposed on that business, as well as potential ancillary claims rooted in non-compliance.

While the British Transport Police have now concluded their investigations into the Croydon tram incident in November 2016 without bringing any charges, the Office of Rail & Road (ORR) investigations are ongoing and it is uncertain when they will be concluded. The tram was operated by Tram Operations Limited (TOL), a subsidiary of the Group, under a contract with a Transport for London (TfL) subsidiary. TOL provides the drivers and management to operate the tram services, whereas the infrastructure and trams are owned and maintained by a TfL subsidiary. Management continue to monitor developments. To date, no ORR proceedings have been commenced and, as such, it is not possible to assess whether any financial penalties or related costs could be incurred.

On 14 November 2017, Reading Borough Council served First Greater Western Limited (GWR), a subsidiary of the Group, and Network Rail Infrastructure Limited (a third party) with noise abatement notices in respect of the operations at the Reading railway depot. The serving of the notices has been appealed and the parties agreed in principle in June 2020 that the related court hearing should be put on hold until 31 May 2021 to allow the Council further time to monitor GWR’s operations at the depot. The parties further agreed that in May 2021 the Council will be obliged to consider whether the 2017 abatement notices should be withdrawn and, if the notices are not withdrawn, the appeal proceedings will restart. The precise wording and mechanisms to achieve this in principle agreement are currently being negotiated by the parties – if it is not possible to agree this, a further court hearing has been listed for 4 September 2020 at which the court will decide how the appeal proceedings should be taken forward. As a result it is not possible at this stage to quantify the implications for the GWR operations, if any, if the notices are not withdrawn by the Council or if GWR are not ultimately successful with respect to any appeal.

On 26 February 2019, collective proceedings were commenced in the UK Competition Appeal Tribunal (CAT) against First MTR South Western Trains Limited (SWR). Equivalent claims have been brought against Stagecoach South Western Trains Limited and London & South Eastern Railway. It is alleged that SWR and the other defendants breached their obligations under competition law, by (i) failing to make available, or (ii) restricting the practical availability of, boundary fares for TfL Travelcard holders wishing to travel outside TfL fare zones. The first substantive hearing, at which the CAT will decide whether or not to certify the collective proceedings, has been postponed pending the outcome of an appeal to the Supreme Court in a different collective proceedings action and is therefore unlikely to occur until late 2020 at the earliest. It is not possible at this stage to determine accurately the likelihood or quantum of any damages and costs, or the timing of any such damages or costs, which may arise from the proceedings.

The Pensions Regulator (TPR) has been in discussion with the Railways Pension Scheme (the Scheme) regarding the long-term funding strategy of the Scheme. The Scheme is an industry-wide arrangement, and the Group, together with other owning groups, has been participating in a review of scheme funding led by the Rail Delivery Group. Whilst the review is still ongoing, changes to the current funding strategy are not expected in the short term. Whilst TPR believes that a higher level of funding is required in the long term, it is not possible at this stage to determine the impact to ongoing contribution requirements.

Post-balance sheet events

The impact of the coronavirus pandemic on the Group’s operations is discussed in the Chief Executive’s review and the operating and financial review as well as set out within note 1 to the financial statements which summarises the coronavirus scenarios modelled by the Group.

Subsequent to the balance sheet date, the Group has monitored the business performance, internal actions, as well as other relevant external factors (such as changes in any of the government restrictions and policy guidance). No adjustments to the key estimates and judgements that impact the balance sheet as at 31 March 2020 have been identified.

The following non-adjusting events have occurred since 31 March 2020:

Use of the UK government’s Coronavirus Job Retention Scheme for furloughed staff as required under the Covid-19 Bus Service Support Grant in England and support in Scotland and Wales
Use of the CARES Act support for our North American businesses for the Employee Retention Credits
Contracted with six states with 5311 (f) subsidy funding in Greyhound and continued to progress agreements with other states we operate in
Signed a DA3 award for GWR for a further three years plus one at the DfT’s option
The Group received confirmation from the Bank of England that it was an eligible issuer under the UK government’s Covid Corporate Financing Facility (CCFF) and allocated an issuer limit of £300m and issued £300m in commercial paper on 27 April.
Continued to progress contractual support arrangements in First Student and First Transit
Agreed CBSSG Restart in England and agreed fiscal support in Scotland for increased bus service levels

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 that 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. As noted on page 26 the Directors recognise that significant judgements had to be made in deciding what assumptions to make regarding how the impact of the coronavirus pandemic might evolve in the coming months and what impact that will have on the ability of each of the business divisions to resume near normal levels of service. Many of those judgements are, by their nature, highly subjective and the modelled outcomes depend to a significant degree on how the coronavirus pandemic evolves during the rest of the year. There is therefore a much higher degree of uncertainty than would usually be the case in making the key judgements and assumptions that underpin the financial forecasts. 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.

Definitions

Unless otherwise stated, all financial figures for the year to 31 March 2020 include the results and financial position of the First Rail business for the year ended 31 March 2020 and the results and financial position of all the other businesses for the 52 weeks ended 28 March 2020. Figures for the year to 31 March 2019 include the results and financial position of the First Rail division for the year ended 31 March 2019 and the results and financial position of all the other businesses for the 52 weeks ended 30 March 2019.

References to the 'Road' divisions combine First Student, First Transit, Greyhound, First Bus and Group items.

All references to 'adjusted' figures throughout this document reflect the adoption of IFRS 16 in the period and are before the Greyhound impairment, North American self-insurance charge, restructuring and reorganisation costs, other intangible asset amortisation charges and certain other items as set out in note 3 to the financial statements.

‘ROCE’ or Return on Capital Employed is a measure of capital efficiency and is calculated by dividing adjusted operating profit after tax by all year end assets and liabilities excluding debt items.

'EBITDA’ is adjusted operating profit less capital grant amortisation plus depreciation.

'Net debt' is the value of Group external borrowings excluding the fair value adjustment for coupon swaps designated against certain bonds, excluding accrued interest, less cash balances.

References to ‘like-for-like’ revenue adjust for changes in the composition of the divisional portfolio, holiday timing, severe weather and other factors, for example engineering possessions in First Rail, that distort the period-on-period trends in our passenger revenue businesses.

Principal risks and uncertainties

The Board has conducted a thorough assessment of the principal risks facing the Group during the year, including those that would threaten the successful and timely delivery of its strategic priorities, future performance, solvency and liquidity.

The most immediate risk currently facing the Group is the impact to the Group and each of its businesses from the coronavirus pandemic. We have set out in more detail elsewhere in this document the measures we are taking as a Group and in each of our businesses to mitigate those risks. In our going concern statement we have highlighted material uncertainties around passenger demand and the continuation of fiscal support.

Other material risks include:

Climate change – many jurisdictions in which the Group operates have introduced decarbonisation plans, which set ambitious targets for the reduction of transport-related emissions. These may result in structural market changes or impact the Group’s operations in terms of reduced profitability, increased costs and/or a reduction in operational flexibility or efficiency.
Economic environment including Brexit – the less certain economic outlook, together with the on-going restrictions imposed as a result of the coronavirus, and a disruptive exit from the EU, could have a negative impact on our businesses in terms of reduced demand and reduced opportunities for growth.
Compliance, litigation, claims, health and safety – the Group’s operations are subject to a wide range of legislation and regulation. A higher volume of litigation and claims can lead to increased costs, reduced availability of insurance cover, and/or reputational impact. Increased frequency of accidents, clusters of higher severity losses, a large single claim, or a large number of smaller claims may negatively affect profitability and cash flow.
Disruption to infrastructure/operations – the Group’s operations, and the infrastructure on which they depend, can be affected by a number of different external factors, including terrorism and adverse weather events. An attack, or threat of attack, could lead to reduced confidence in public transportation and/or the Group’s security record, and could reduce demand for our services, increase costs and cause operational disruption. Greater and more frequent adverse weather increases the risk of service disruption and reduced customer demand with consequential financial impact.

A summary of the Principal Risks and Uncertainties will be set out in the Annual Report and Accounts.

Matthew Gregory Ryan Mangold
Chief Executive Chief Financial Officer
8 July 2020 8 July 2020

Consolidated income statement

For the year ended 31 March

Continuing operations	Notes	2020 £m	2019 £m
Revenue	2	7,754.6	7,126.9
Operating costs		(7,907.3)	(7,117.1)
Operating (loss)/profit		(152.7)	9.8
Investment income	5	2.7	2.7
Finance costs	5	(149.6)	(110.4)
Loss before tax		(299.6)	(97.9)
Tax	6	(25.0)	(10.1)
Loss for the year		(324.6)	(108.0)
Attributable to:
Equity holders of the parent		(327.2)	(66.9)
Non-controlling interests		2.6	(41.1)
		(324.6)	(108.0)
Earnings per share
Basic	7	(27.0)p	(5.5)p
Diluted	7	(27.0)p	(5.5)p
Adjusted results¹			Restated²
Adjusted operating profit	4	256.8	314.8
Adjusted profit before tax	4	109.9	208.2
Adjusted EPS	7	6.8p	13.3p
Adjusted diluted EPS	7	6.7p	13.2p

Adjusted for certain items as set out in note 4.
Restated to charge £18.1m of software amortisation to divisional results in arriving at adjusted operating profits.

The accompanying notes form an integral part of this consolidated income statement.

Consolidated statement of comprehensive income

Year ended 31 March

	2020 £m	2019 £m
Loss for the year	(324.6)	(108.0)

Items that will not be reclassified subsequently to profit or loss
Actuarial losses on defined benefit pension schemes	(29.0)	(38.7)
Deferred tax on actuarial losses on defined benefit pension schemes	1.1	7.1
Writing down previously recognised deferred tax assets on actuarial losses on defined benefit schemes	(25.7)	-
	(53.6)	(31.6)
Items that may be reclassified subsequently to profit or loss
Derivative hedging instrument movements	(29.3)	23.5
Deferred tax on derivative hedging instrument movements	5.9	(4.1)
Exchange differences on translation of foreign operations	91.3	160.8
	67.9	180.2

Other comprehensive income for the year	14.3	148.6

Total comprehensive (loss)/income for the year	(310.3)	40.6
Attributable to:
Equity holders of the parent	(312.9)	81.7
Non-controlling interests	2.6	(41.1)
	(310.3)	40.6

The accompanying notes form an integral part of this consolidated statement of comprehensive income.

Consolidated balance sheet

As at 31 March

	Note	2020 £m	2019 £m
Non-current assets
Goodwill	8	1,663.2	1,598.1
Other intangible assets	9	51.9	75.1
Property, plant and equipment	10	4,374.5	2,165.9
Deferred tax assets	18	33.6	40.6
Retirement benefit assets		53.2	69.2
Derivative financial instruments	17	15.8	20.5
Investments		32.9	34.1
		6,225.1	4,003.5
Current assets
Inventories	11	63.3	60.2
Trade and other receivables	12	1,170.6	1,141.4
Current tax assets		9.8	3.4
Cash and cash equivalents		869.3	692.9
Assets held for sale		1.0	31.7
Derivative financial instruments	17	4.8	15.5
		2,118.8	1,945.1
Total assets		8,343.9	5,948.6
Current liabilities
Trade and other payables	13	1,799.7	1,547.3
Tax liabilities – Current tax liabilities		7.5	3.9
– Other tax and social security		42.9	29.0
Borrowings	14	694.3	84.9
Derivative financial instruments	17	44.2	3.4
Provisions	19	232.1	265.9
		2,820.7	1,934.4
Net current (liabilities)/assets		(701.9)	10.7
Non-current liabilities
Borrowings	14	3,502.9	1,564.1
Derivative financial instruments	17	19.2	1.9
Retirement benefit liabilities		366.6	376.4
Deferred tax liabilities	18	38.8	16.5
Provisions	19	419.0	532.0
		4,346.5	2,490.9
Total liabilities		7,167.2	4,425.3
Net assets		1,176.7	1,523.3
Equity
Share capital	20	61.0	60.7
Share premium		688.6	684.0
Hedging reserve		(28.3)	17.5
Other reserves		4.6	4.6
Own shares		(10.2)	(4.7)
Translation reserve		635.6	544.3
Retained earnings		(141.5)	248.1
Equity attributable to equity holders of the parent		1,209.8	1,554.5
Non-controlling interests		(33.1)	(31.2)
Total equity		1,176.7	1,523.3

The accompanying notes form an integral part of this consolidated balance sheet.

Ryan Mangold
Chief Financial Officer
8 July 2020

Consolidated statement of changes in equity

Year ended 31 March

	Share capital £m	Share premium m	Hedging reserve m	Other reserves £m	Own shares £m	Translation reserve £m	Retained earnings £m	Total £m	Non- controlling interests £m	Total equity £m
Balance at 1 April 2018	60.5	681.4	16.5	4.6	(6.3)	383.5	340.6	1,480.8	9.8	1,490.6
Loss for the year	–	–	–	–	–	–	(66.9)	(66.9)	(41.1)	(108.0)
Other comprehensive /income/(loss) for the year	–	–	19.4	–	–	160.8	(31.6)	148.6	–	148.6
Total comprehensive income/(loss) for the year	–	–	19.4	–	–	160.8	(98.5)	81.7	(41.1)	40.6
Shares issued	0.2	2.6	–	–	–	–	–	2.8	–	2.8
Derivative hedging instrument movements transferred to balance sheet (net of tax)	–	–	(18.4)	–	–	–	–	(18.4)	–	(18.4)
Dividends paid/other	–	–	–	–	–	–	–	–	0.1	0.1
Movement in EBT and treasury shares	–	–	–	–	1.6	–	(3.1)	(1.5)	–	(1.5)
Share-based payments	–	–	–	–	–	–	9.1	9.1	–	9.1
Balance at 31 March 2019	60.7	684.0	17.5	4.6	(4.7)	544.3	248.1	1,554.5	(31.2)	1,523.3

Balance at 1 April 2019	60.7	684.0	17.5	4.6	(4.7)	544.3	248.1	1,554.5	(31.2)	1,523.3
Adjustment on transition to IFRS 16	–	–	–	–	–	–	(15.6)	(15.6)	–	(15.6)
Balance at 1 April 2019	60.7	684.0	17.5	4.6	(4.7)	544.3	232.5	1,538.9	(31.2)	1,507.7
Loss for the year	–	–	–	–	–	–	(327.2)	(327.2)	2.6	(324.6)
Other comprehensive income/(loss) for the year	–	–	(23.4)	–	–	91.3	(53.6)	14.3	–	14.3
Total comprehensive (loss)/income for the year	–	–	(23.4)	–	–	91.3	(380.8)	(312.9)	2.6	(310.3)
Shares issued	0.3	4.6	–	–	–	–	–	4.9	–	4.9
Derivative hedging instrument movements transferred to balance sheet (net of tax)	–	–	(22.4)	–	–	–	–	(22.4)	–	(22.4)
Dividends paid/other	–	–	–	–	–	–	0.7	0.7	(4.5)	(3.8)
Movement in EBT and treasury shares	–	–	–	–	(5.5)	–	(4.2)	(9.7)	–	(9.7)
Share-based payments	–	–	–	–	–	–	10.3	10.3	–	10.3
Balance at 31 March 2020	61.0	688.6	(28.3)	4.6	(10.2)	635.6	(141.5)	1,209.8	(33.1)	1,176.7

The accompanying notes form an integral part of this consolidated statement of changes in equity.

Consolidated cash flow statement

Year ended 31 March

	Note		2020 £m	2019 £m
Net cash from operating activities		21	958.2	563.7

Investing activities
Interest received			2.7	2.7
Proceeds from disposal of property, plant and equipment			30.5	63.5
Purchases of property, plant and equipment			(321.8)	(421.3)
Purchases of software			(9.2)	(8.9)
Disposal of business			16.2	–
Acquisition of businesses			(21.8)	(2.3)
Net cash used in investing activities			(303.4)	(366.3)
Financing activities
Shares purchased by Employee Benefit Trust			(9.8)	–
Shares issued			4.5	2.1
Repayment of bond			–	(250.0)
Drawdowns from bank facilities			122.9	255.0
Repayment of loan notes			–	(0.1)
Repayments of lease liabilities			(596.5)	(53.1)
Fees for finance facilities			(2.1)	(2.2)
Net cash flow used in financing activities			(481.0)	(48.3)
Net increase in cash and cash equivalents before foreign exchange movements			173.8	149.1
Cash and cash equivalents at beginning of year			692.9	555.7
Foreign exchange movements			2.6	(11.9)
Cash and cash equivalents at end of year per consolidated balance sheet			869.3	692.9

Cash and cash equivalents are included within current assets on the consolidated balance sheet. Cash and cash equivalents includes ring-fenced cash of £632.2m at March 2020 (March 2019: £525.6m).

Note to the consolidated cash flow statement –
reconciliation of net cash flow to movement in net debt

	2020 £m	2019 £m
Net increase in cash and cash equivalents in year	173.8	149.1
(Increase)/decrease in debt and leases excluding leases formerly classified as operating leases	(75.3)	48.2
Adjusted cash flow	98.5	197.3
Payment of lease liabilities	549.2	–
Inception of new leases	(1,828.3)	–
Fees capitalised against bank facilities and bond issues	0.7	–
Foreign exchange movements	(24.1)	(28.3)
Other non-cash movements	(2.5)	(2.1)
Movement in net debt in year	(1,206.5)	166.9
Adjustment for transition to IFRS 16	(1,168.2)	–
Net debt at beginning of year	(903.4)	(1,070.3)
Net debt at end of year	(3,278.1)	(903.4)

Adjusted cash flow is stated prior to cash flows in relation to debt and finance leases.

Net debt includes the value of derivatives in connection with the bond maturing 2021 and excludes all accrued interest. These bonds are included in current and non-current liabilities in the condensed consolidated balance sheet.

The accompanying notes form an integral part of this consolidated cash flow statement.

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 2020 or 2019, but is derived from those accounts. Statutory Accounts for 2019 have been delivered to the Registrar of Companies and those for 2020 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) or (3) 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 Company expects to publish full financial statements that comply with IFRSs in July 2020. Copies of the Statutory Accounts for the year ended 31 March 2020 will be available to all shareholders in July and will also be available thereafter at the Registered Office of the Company at 395 King Street, Aberdeen, AB24 5RP.

Basis of accounting

The financial statements have been prepared in accordance with IFRSs adopted and endorsed for use in the European Union and therefore comply with Article 4 of the EU IAS Regulation.

The financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments, and on a going concern basis as described in the going concern statement within the Operating and Financial Review on page 23.

For the reasons set out in the going concern statement on pages 23 to 26 the Directors noted that the risks set out there indicate that a material uncertainty exists that may cast significant doubt on the Group’s and the Company’s ability to continue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business.

Material uncertainty relates to:

the uncertainty regarding the levels of fiscal financial and contractual support which may be provided beyond the period for which that funding and contractual support is currently being provided;
whether passenger volumes recover to the levels necessary to sustain the business without the current fiscal financial and contractual support;
the ability of the Group to obtain covenant waivers from debt providers if required;
the ability of the Group to draw down on c.£550m of the currently available but uncommitted facilities throughout the going concern period if required; and
the timing of cash flows, including movements in working capital and the timing of receipts of contractual and fiscal support that may impact debt levels at covenant test dates.

As set out on pages 23 to 26, the Group has undertaken detailed reviews of the potential impact of COVID-19 using financial outlook modelling. Based on their review of the financial forecasts and having regard to the risks and uncertainties to which the Group is exposed, (including the material uncertainty referred to above) the Directors believe that the Company and the Group have adequate resources to continue in operational existence for the twelve-month period from the date on which the financial statements were approved. Accordingly, the financial statements have been prepared on a going concern basis.

The financial statements for the year ended 31 March 2020, include the results and financial position of the First Rail business for the year ended 31 March 2020 and the results and financial position of all the other businesses for the 52 weeks ended 28 March 2020. The financial statements for the year ended 31 March 2019 include the results and financial position of the First Rail businesses for the year ended 31 March 2019 and the results and financial position of all the other businesses for the 52 weeks ended 30 March 2019.

Adoption of new and revised standards

The accounting policies adopted are consistent with those of the previous financial year except for the changes arising from new standards and amendments to existing Standards which have been adopted in the current year.

IFRS 16 came into effect on 1 January 2018 and have been applied by the Group for the first time in the current year. The nature and effect of the changes from adopting these new accounting standards are described below.

Several other amendments and interpretations apply for the first time in the current year, but their adoption has not had any significant impact on the amounts reported in these financial statements.

IFRS 16 Leases

The Group has applied for the first time IFRS 16 Leases. As required by IAS 34, the nature and effect of these changes are disclosed below.

IFRS 16 Leases replaces IAS 17 Leases and three interpretations (IFRIC 4 Determining whether an Arrangement contains a lease, SIC 15 Operating Leases – Incentives and SIC 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease). On transition the Group has applied IFRS 16 using the modified retrospective approach, with the cumulative effect on adoption being recognised as an adjustment to opening retained earnings. Prior periods have not been restated.

Prior to the adoption of IFRS 16, leases were either classified as operating or finance leases. Payments made in respect of operating leases were charged to the income statement on a straight line basis over the duration of the lease. Finance leases were recognised on the balance sheet with depreciation and interest being charged to the income statement.

For leases previously classified as finance leases, the Group has recognised the carrying amount of the finance lease asset and liability under IAS 17 as at 31 March 2019 as the carrying amount of the right of use asset and the lease liability under IFRS 16 at 1 April 2019.

The Group has elected not to include initial direct costs in the measurement of the right of use asset for operating leases in existence at the date of transition. At this date, the Group has also elected to measure the right of use assets at an amount equal to the lease liability adjusted for any prepaid or accrued lease payments that existed at the date of transition.

On transition, for leases previously accounted for as operating leases with a remaining lease term of less than 12 months and for leases of low value assets the Group has applied the available practical expedients, therefore these have not been recognised as right of use assets but have been accounted for as a lease expense on a straight line basis over the remaining lease term.

1 General Information (continued)

On transition to IFRS 16 the weighted average incremental borrowing rate applied to lease liabilities recognised under IFRS 16 was 3.21%.

	As previously reported at 31 March 2019 £m	Impact of IFRS 16 £m	Restated at 1 April 2019 £m
Assets
Property, plant and equipment cost	2,165.9	1,140.4	3,306.3
Property, plant and equipment impairment	-	(208.6)	(208.6)
Trade and other receivables	1,141.4	(3.8)	1,137.6
Deferred tax assets	40.6	1.4	42.0
Other assets not impacted by IFRS 16	2,600.7	-	2,600.7
Total assets / impact on assets	5,948.6	929.4	6,878.0

Liabilities
Trade and other payables	1,547.3	(11.3)	1,536.0
Borrowings	1,649.0	(59.9)	1,589.1
Lease liabilities^{1, 2}	-	1,228.1	1,228.1
Deferred tax liabilities	16.5	(3.3)	13.2
Provisions	797.9	(208.6)	589.3
Other liabilities not impacted by IFRS 16	414.6	-	414.6
Total liabilities / impact on liabilities	4,425.3	945.0	5,370.3
Net assets / impact on net assets	1,523.3	(15.6)	1,507.7

Equity
Retained earnings	248.1	(15.6)	232.5
Other equity not impacted by IFRS 16	1,275.2	-	1,275.2
Total equity / impact on equity	1,523.3	(15.6)	1,507.7

¹ Lease liabilities are included within borrowings on the condensed consolidated balance sheet.

² As at 1 April 2019, lease liabilities due within one year were £549.7m. Lease liabilities due after one year were £678.4m.

Right of use assets of £1,140.4m were recognised at 1 April 2019, £829.4m related to rolling stock, £217.2m related to leases of land and property, £89.5m related to PCV’s and £4.3m related to the lease of other assets.

The lease liabilities as at 1 April 2019 can be reconciled to the opening lease commitments as at 31 March 2019 as follows:

	£m
Operating lease commitments at 31 March 2019	2,952.8
Short term and low value lease commitments straight line expensed under IFRS 16	(36.5)
First Rail charges for track, station and depot access³	(997.0)
Leases entered into where the commencement date falls after 31 March 2019	(496.6)
IAS 17 lease commitments which do not meet the definition of a lease under IFRS 16⁴	(183.1)
Other	30.0
Effect of discounting using incremental borrowing rates	(101.4)
Finance lease liabilities recognised under IAS 17 at 31 March 2019	59.9
Lease liabilities recognised at 1 April 2019	1,228.1

³ Within First Rail, £1.0bn relates to track, station and depot access charges which do not meet the definition of a lease under IFRS 16. This reflects the fact that either no identified asset exists or that the Group does not have the right to obtain substantially all of the economic benefits from the use of the assets throughout the period of use, or that Network Rail, not the Group, directs how and for what purpose the assets are used.

⁴ IAS 17 lease commitments for ongoing rolling stock maintenance costs which comprise of non-lease components and do not meet the definition of a lease under IFRS 16.

In respect of the income statement impact, the application of IFRS 16 resulted in a decrease in other operating expenses and an increase in depreciation and interest expense compared to IAS 17. During the year ended 31 March 2020, the impact of IFRS 16 resulted in the Group recognising the following amounts in the consolidated income statement:

	£m
Depreciation	483.2
Interest expense	40.2
Short term and low value lease expense	35.1

1 General Information (continued)

The Group’s ongoing accounting treatment per IFRS 16

Lease identification

At inception of a contract, the Group shall assess whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

Right of use asset (ROUA)

At the commencement date, the right of use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, less any incentives received, plus any initial direct costs incurred and an estimate of costs to be incurred by the Group to dismantle and remove the underlying asset or restore the underlying asset or the site on which it is located.

The right of use asset is depreciated on a straight line basis over the shorter of the estimated useful life of the asset or the lease term. In addition, the right of use asset is periodically reduced by impairment losses, if applicable, and adjusted for certain remeasurements of the lease liability.

Lease liability

At the commencement date of the lease, the lease liability is initially measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid by the Group under residual value guarantees. The lease payments also include the exercise price of a purchase option if the Group is reasonably certain to exercise that option. Payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate the lease, are also included. The payments are discounted at the incremental borrowing rate since the rates implicit in the leases cannot be readily determined.

The lease liability is measured by increasing the carrying amount to reflect the interest on the lease liability and reducing the carrying amount to reflect the lease payments made. The carrying value is re-measured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, or if the Group changes its assessment of whether it will exercise a purchase, extension or termination option.

In accordance with IAS 36 Impairment of assets the opening onerous contract provision for SWR of £145.9m was reclassified as an impairment on ROUA on adoption of IFRS 16. Similarly, £62.7m of the opening TPE onerous contract provision was reclassified as an opening impairment on ROUA with the remaining balance of £44.2m being reclassified as impairment on ROUA additions in the period.

Short-term leases and leases of low-value assets

The Group applies the short-term lease recognition exemption to selected leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option and where it is not reasonably certain that the lease term will be extended. It also applies the low-value assets recognition exemption to leases of assets of low value based on the value of the asset when it is new, regardless of the age of the asset being leased. Lease payments on short-term leases and leases of low-value assets are recognised as an expense on a straight-line basis over the lease term.

On the balance sheet, right of use assets have been included in property, plant and equipment and lease liabilities have been included in borrowings.

The accounting policy for leasing for the year ended 31 March 2019 was as follows:

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases and the rental charges are charged against income on a straight-line basis over the life of the lease.

Assets held under hire purchase contracts and finance leases are recognised as assets of the Group at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group’s general policy on borrowing costs (see below).

Benefits received and receivable as an incentive to enter into an operating lease are spread on a straight-line basis over the lease term.

2 Revenue

	2020 £m	2019 £m
Services rendered	7,380.2	6,933.1
First Rail franchise subsidy receipts Other income	369.1 5.3	193.8 –
Revenue	7,754.6	7,126.9

3 Business segments and geographical information

The segment results for the year to 31 March 2020 are as follows:

	First Student £m	First Transit £m	Greyhound¹ £m	First Bus £m	First Rail £m	Group items² £m	Total £m
Passenger revenue	–	–	532.7	758.2	2,584.1	–	3,875.0
Contract revenue	1,764.9	1,031.9	–	63.5	–	17.8	2,878.1
Charter/private hire	159.4	5.0	3.5	–	–	–	167.9
Rail franchise subsidy receipts	–	–	–	–	369.1	–	369.1
Other	16.1	134.5	67.0	14.2	232.7	–	464.5
Revenue	1,940.4	1,171.4	603.2	835.9	3,185.9	17.8	7,754.6
EBITDA³	387.6	62.9	35.3	113.2	538.6	(28.7)	1,108.9
Depreciation	(225.8)	(32.2)	(39.7)	(69.2)	(518.2)	(4.3)	(889.4)
Software amortisation	(3.0)	(2.4)	(8.1)	(0.9)	(1.0)	(0.7)	(16.1)
Capital grant amortisation	–	–	0.9	3.0	49.5	–	53.4
Segment results	158.8	28.3	(11.6)	46.1	68.9	(33.7)	256.8
Other intangible asset amortisation charges	(2.4)	–	(2.5)	–	–	–	(4.9)
Other adjustments (note 4)	(67.0)	(50.2)	(239.3)	(13.7)	(1.1)	(33.3)	(404.6)
Operating (loss)/profit⁴	89.4	(21.9)	(253.4)	32.4	67.8	(67.0)	(152.7)
Investment income							2.7
Finance costs							(149.6)
Loss before tax							(299.6)
Tax							(25.0)
Loss after tax							(324.6)

1 Greyhound segment results contains £8.3m of property gains on the disposal of properties.

2 Group items comprise Tram operations, central management and other items.

3 EBITDA is adjusted operating profit less capital grant amortisation plus depreciation.

4 Although the segment results are used by management to measure performance, statutory operating (loss)/profit by operating division is also disclosed for completeness.

3 Business segments and geographical information (continued)

The segment results for the year to 31 March 2019 are as follows:

	First Student £m	First Transit £m	Greyhound¹ £m	First Bus £m	First Rail £m	Group Items² £m	Total £m
Passenger revenue	–	–	571.3	796.3	2,300.0	–	3,667.6
Contract revenue	1,680.0	947.7	–	68.3	–	17.1	2,713.1
Charter/private hire	153.2	4.9	3.3	–	–	–	161.4
Rail franchise subsidy receipts	–	–	–	–	193.8	–	193.8
Other	12.7	123.2	70.5	11.5	172.9	0.2	391.0
Revenue	1,845.9	1,075.8	645.1	876.1	2,666.7	17.3	7,126.9
EBITDA³	352.3	71.4	38.6	119.7	127.4	(39.1)	670.3
Depreciation Software amortisation	(178.8) (2.3)	(19.9) (2.2)	(27.7) (8.8)	(56.1) (0.7)	(81.0) (3.5)	(2.5) (0.6)	(366.0) (18.1)
Capital grant amortisation	–	–	0.5	2.2	25.9	–	28.6
Segment results⁵	171.2	49.3	2.6	65.1	68.8	(42.2)	314.8
Other intangible asset amortisation charges	(8.6)	–	(3.2)	–	–	–	(11.8)
Other adjustments (note 4)	(47.3)	(26.2)	(33.2)	(37.7)	(145.9)	(2.9)	(293.2)
Operating profit/(loss)⁴	115.3	23.1	(33.8)	27.4	(77.1)	(45.1)	9.8
Investment income							2.7
Finance costs							(110.4)
Loss before tax							(97.9)
Tax							(10.1)
Loss after tax							(108.0)

1 Greyhound segment results contains £8.4m of property gains on the disposal of properties.

2 Group items comprise Tram operations, central management and other items.

3 EBITDA is adjusted operating profit less capital grant amortisation plus depreciation.

4 Although the segment results are used by management to measure performance, statutory operating (loss)/profit by operating division is also disclosed for completeness.

5 Restated to charge £18.1m of software amortisation to divisional results in arriving at adjusted operating profit.

4 Reconciliation to non-GAAP measures and performance

In measuring the Group and divisional adjusted operating 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 restructuring and reorganisation costs, material property gains or losses, aged legal and self-insurance claims, significant adverse development factors on insurance provisions, onerous contract provisions, impairment charges and pension settlement gains or losses including GMP equalisation. In addition, management assess divisional performance before other intangible asset amortisation charges as these are typically a result of Group decisions and therefore the divisions have little or no control over these charges. Management consider that this overall basis more appropriately reflects operating performance and provides a better understanding of the key performance indicators of the business.

Reconciliation of operating (loss)/profit to adjusted operating profit	Year to 31 March 2020 £m	Year to 31 March 2019 £m
Operating (loss)/profit	(152.7)	9.8
Adjustments for:
Greyhound impairment charges	186.9	–
North America insurance provisions	141.3	94.8
Restructuring and reorganisation costs	58.2	24.1
Other intangible asset amortisation charges	4.9	11.8
Gain on disposal of properties	(9.3)	(9.3)
Fuel over hedge	7.4	–
Legacy pension settlement	4.9	–
First Student onerous contract provision	14.1	–
Increase in SWR performance bond	1.1	–
SWR onerous contract provision	–	145.9
Guaranteed minimum pensions charge	–	21.5
Loss on disposal/impairment charges	–	16.2
Total operating profit adjustments	409.5	305.0
Adjusted operating profit (note 3)	256.8	314.8

4 Reconciliation to non-GAAP measures and performance (continued)

Reconciliation of loss before tax to adjusted profit before tax and adjusted earnings	Year to 31 March 2020 £m	Year to 31 March 2019 £m
Loss before tax	(299.6)	(97.9)
Operating profit adjustments (see table above)	409.5	305.0
Notional interest on TPE onerous contract provision	–	1.1
Adjusted profit before tax	109.9	208.2
Adjusted tax charge (see below)	(24.6)	(46.6)
Non-controlling interests¹	(2.6)	(1.8)
Adjusted earnings	82.7	159.8

1 Statutory non-controlling interest of £2.5m comprises a charge in respect of the results for Avanti West Coast.

Reconciliation of tax charge to adjusted tax charge	Year to 31 March 2020 £m	Year to 31 March 2019 £m
Tax charge (note 6)	25.0	10.1
Tax effect of adjusting items (note 7)	39.6	36.5
Write-down of previously recognised deferred tax assets	(40.0)	–
Adjusted tax charge	24.6	46.6

The adjusting items are as follows:

Greyhound impairment charges

We have assessed the value of Greyhound under a Fair Value Less Cost Of Disposal approach, rather than the IAS36 Value-in-Use method applied to our other trading Divisions and in the prior year. This approach considers the value that a potential Market Participant may ascribe to Greyhound, including recognition of significant unrealised property values in the Greyhound portfolio.

In the second half we have recorded a further impairment charge of £62.5m to reflect poor business performance and an increase in the rate used to discount the future cash flows. As a result the total impairment charge for Greyhound for the year was £186.9m (2019: £nil).

North America Insurance provisions

In addition, there has been a significant change in the market based discount rate used in the actuarial calculation from 2.7% to 0.8%, creating the requirement to increase the provision. This is the first time that a movement in the discount rate has been treated as an adjusting item. Management consider that this treatment is appropriate due to the size of the financial impact. In other recent years movements in discount rates have not been significant and the financial impact has been included in operating results

In light of the continued change in claims environment we have increased the provision to provide more protection for prior year claims, and the resulting self-insurance reserve level is above the midpoint of the actuarial range. These changes in accounting estimates combined with the discount rate movement has resulted in the Group recording an additional charge of $175.2m or £141.3m (2019: $125.0m or £94.8m); $149.5m or £120.5m relating to the prior year settlements and $25.7m or £20.7m relating to the change in the discount rate. It is expected that the majority of these claims will be settled over the next five years. The charge to the operating profit for the current period reflects this revised environment and the businesses continue to build the higher insurance costs into their bidding processes and hurdle rates for investment. The Group also actively evaluates alternatives to reduce insurance risk and ongoing expense, and has made improvements to claims management processes during the second half. Following these charges, the provision at 31 March 2020 stands at $657m (2019: $533m) compared with the actuarial range of $551m to $683m (2019: $447m to $572m).

4 Reconciliation to non-GAAP measures and performance (continued)

Restructuring and reorganisation costs

There was a charge of £58.2m (2019: £24.1m) for restructuring and reorganisation costs of which a large part relates to a Group-wide initiative to achieve systematic and structured cost savings across the businesses with the assistance of a market leading organisation in this field. Although this assistance has now ended, the programhas shown some benefits in the year just ended prior to the coronavirus pandemic and is anticipated to have further benefits in future years. Restructuring costs also include legal, professional and other costs associated with the proposed rationalisation of the Group. In addition, trading losses in the two Manchester depots to the date of disposal have been included. The two Manchester depots were disposed of in the financial year for £16.2m. The net book value of the assets sold totalled £15.1m, resulting in a gain on sale of £1.1m which is included in the operating loss.

Other intangible asset amortisation charges

The amortisation charge for the year was £4.9m (2019: £11.8m) with the reduction due to a number of customer contract intangibles which have now been fully amortised with the remainder mainly relating to brand amortisation in Greyhound.

Gain on disposal of properties

First Student recognised a profit of £8.0m on sale of property in the year. Greyhound recognised a profit of £1.3m on sales of property, principally relating to the withdrawal from Western Canada. (2019: £9.3m).

Fuel over hedge

Legacy pension settlement

This relates to a legacy pension liability from a business disposal which First Transit made in 2013.

First Student onerous contract provision

As a result of COVID-19, a significant number of school bus contracts which have either been lost or were up for bid at the balance sheet date, will incur unavoidable losses from the start of the new financial year until the end of the school year. The total charge for unavoidable losses on these contracts was £14.1m (2019: £nil).

Increase in SWR performance bond

The SWR Performance bond renewed in October 2019, 6 months before expiry. On renewal the cost of the bond took into account increases in RPI and increased from £15.0m to £16.1m.

Reconciliation of underlying¹ adjusted²

Year to 31 March 2020

Restated⁴
Year to 31 March 2019

Reported
£m

Avanti franchise
£m

Avanti
Adjusted
£m

Reported
£m

Effect of foreign exchange
£m

Adjusted Constant Currency
£m

% change

Revenue

7,754.6

(331.2)

7,423.4

7,126.9

107.7

7,234.6

+2.6%

Operating profit

256.8

(14.3)

242.5

314.8

6.5

321.3

(24.5)%

		Restated⁴ Year to 31 March 2019
Reconciliation of constant currency³	Year to 31 March 2020 £m	Reported £m	Effect of foreign exchange £m	Constant Currency £m	% change
Revenue	7,754.6	7,126.9	107.7	7,234.6	+7.2%
Operating profit	256.8	314.8	6.5	321.3	(20.1)%
Adjusted profit before tax	109.9	208.2	4.0	212.2	(48.2)%
Adjusted EPS	6.8p	13.3p	0.2p	13.5p	(49.6)%
Net debt	3,278.1	903.4	23.3	926.7	+253.7%

¹ Growth excluding Avanti franchise (which became part of First Rail in December 2019) in constant currency.

² ‘Adjusted’ figures throughout this document are before self-insurance reserve charge, the SWR onerous contract provision, restructuring and reorganisation costs, other intangible asset amortisation charges and certain other items as set out in note 4.

³ Changes 'in constant currency' throughout this document are based on retranslating 2019 foreign currency amounts at 2020 rates.

⁴ Restated to charge £18.1m of software amortisation to divisional results in arriving at adjusted operating profits

5 Investment income and finance costs

	2020 £m	2019 £m
Investment income
Bank interest receivable	(2.7)	(2.7)
Finance costs
Bonds	56.3	59.9
Bank borrowings	19.6	14.0
Senior unsecured loan notes	9.2	8.9
Loan notes	1.2	1.1
Finance charges payable in respect of leases	2.4	2.7
Interest cost on right of use assets	40.2	–
Notional interest on long term provisions	12.0	14.6
Notional interest on pensions	8.7	8.1
Finance costs before adjustments	149.6	109.3
Notional interest on TPE onerous contract provision	–	1.1
Total finance costs	149.6	110.4

Finance costs before adjustments	149.6	109.3
Investment income	(2.7)	(2.7)
Net finance cost before adjustments	146.9	106.6

6 Tax on loss on ordinary activities

	2020 £m	2019 £m
Current tax	(0.7)	8.1
Adjustments with respect to prior years	1.2	0.1
Total current tax charge	0.5	8.2

Origination and reversal of temporary differences	(14.1)	4.8
Adjustments with respect to prior years	1.4	(2.9)
Adjustments attributable to changes in tax rates and laws	(2.8)	–
Writing down of previously recognised deferred tax assets	40.0	–
Total deferred tax charge (note 18)	24.5	1.9
Total tax charge	25.0	10.1

7 Earnings per share (EPS)

EPS is calculated by dividing the loss attributable to equity shareholders of £327.2m (2019: £66.9m) by the weighted average number of ordinary shares of 1,210.9m (2019: 1,205.9m). 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.

	2020 Number m	2019 Number m
Weighted average number of shares used in basic calculation	1,210.9	1,205.9
Executive share options	14.8	8.1
Weighted average number of shares used in the diluted calculation	1,225.7	1,214.0

The adjusted EPS is intended to highlight the recurring operating results of the Group before amortisation charges and certain other adjustments as set out in note 4. A reconciliation is set out below:

		2020		2019
	£m	EPS (p)	£m	EPS (p)
Basic loss/EPS	(327.2)	(27.0)	(66.9)	(5.5)
Other intangible asset amortisation charges (note 4)	4.9	0.4	11.8	1.0
Notional interest on TPE onerous contract provision	–	–	1.1	0.1
Other adjustments (note 4)	404.6	33.4	293.2	24.3
Non-controlling interest share of the SWR onerous contract provision	–	–	(42.9)	(3.6)
Tax effect of above adjustments	(39.6)	(3.3)	(36.5)	(3.0)
Write-down of previously recognised deferred tax assets	40.0	3.3	–	–
Adjusted profit/EPS	82.7	6.8	159.8	13.3

	2020 pence	2019 pence
Diluted EPS	(27.0)	(5.5)
Adjusted diluted EPS	6.7	13.2

8 Goodwill

	2020 £m	2019 £m
Cost
At 1 April 2019	1,862.7	1,761.4
Additions	1.7	0.6
Foreign exchange movements	90.9	100.7
At 31 March 2020	1,955.3	1,862.7
Accumulated impairment losses
At 1 April 2019	264.6	264.6
Foreign exchange movements	27.5	-
At 31 March 2020	292.1	264.6
Carrying amount
At 31 March 2020	1,663.2	1,598.1

Goodwill acquired in a business combination is allocated, at acquisition, to the CGUs that are expected to benefit from that business combination. The carrying amount of goodwill has been allocated as follows:

	2020 £m	2019 £m
Carrying amount
First Student	1,269.4	1,218.5
First Transit	309.8	296.1
First Bus	78.4	77.9
First Rail	5.6	5.6
	1,663.2	1,598.1

8 Goodwill (continued)

Impairment testing

At the year end the carrying value of goodwill was reviewed for impairment in accordance with IAS 36 Impairment of Assets. For the purposes of this impairment review goodwill has been tested for impairment on the basis of discounted future cash flows arising in each relevant CGU.

The Group prepares cash flow forecasts derived from the Three Year Plan for 2020/21 to 2022/23 which takes account of both past performance and expectations for future developments. Cash flows beyond the plan period are extrapolated using estimated long term growth rates which do not exceed the long term average growth rate for the market. Cash flows are discounted using a pre-tax discount rate derived from a market participant’s weighted average cost of capital, benchmarked to externally available data.

The long term average growth rate and pre-tax discount rate assumption applied to each CGU are as follows:

	Pre-tax discount rate applied to cash flow projections			Growth rate used to extrapolate cash flows beyond three-year period of management plan
		2020	2019		2020	2019
First Student		8.7%	8.3%		2.8%	2.8%
First Transit		8.7%	8.3%		2.6%	2.8%
First Bus		8.0%	7.8%		2.3%	2.5%
First Rail		3.2%	7.8%		2.5%	2.5%

The discount rate applied in First Rail reflects the significant level of IFRS16 Right of Use asset funding within the First Rail CGU, principally in respect of franchise rolling stock agreements.

Financial modelling adopting the assumptions outlined above confirms that the carrying amount of the CGUs does not exceed their recoverable amount in respect of the First Transit, First Student and First Bus divisions, and accordingly no impairment charge is required for these CGUs. The assessment of the value in use of First Rail is dependent on judgements surrounding EMA emergency measures as detained in Note 2 under key sources of estimation uncertainty.

As detailed in Note 2 under key sources of estimation uncertainty, the cash flow forecasts include significant judgement in deciding what assumption to make regarding how the impact of the COVID-19 pandemic might evolve over the coming months in our First Student, First Transit and First Bus divisions. This is covered in further detail in the Going Concern Statement at page 23 including the key assumptions and judgements made in the base case forecasts for each CGU.

The calculation of value in use for each CGU is most sensitive to the principal assumptions of discount rate, growth rates and margins achievable. The table below summarises the % change in the principal assumptions which would erode the headroom to zero: First

	First Bus	First Student	First Transit
Discount Rate	12.0%	10.0%	13.8%
Long Term Growth Rate	-2.4%	1.4%	-3.5%
Terminal Margin	5.0%	7.8%	2.5%

Management have performed sensitivity analysis to assess the impact that a combination of reasonably possible changes in the principal assumptions would have on the recoverable amount in respect of the First Student, First Transit and First Bus divisions.

The scenarios modelled include:

First Student: Reducing the long term growth rate to 2.0% (in line with independent GDP forecasts for North America), maintaining an 8.7% discount rate and adopting a terminal margin at 8.9% in perpetuity (2019/20 reported margin: 8.2%) would lead to an £8.4m impairment on a total carrying value of assets in use of £2,582.3m.

First Transit: Reducing the long term growth rate to 2.0% (in line with independent GDP forecasts for North America), maintaining an 8.7% discount rate and adopting a terminal margin at 2.8% in perpetuity (2019/20 reported margin: 2.4%) would lead to a £14.8m impairment on a total carrying value of assets in use of £423.3m.

First Bus: Reducing the long term growth rate to 1.7% (in line with independent GDP forecasts for the UK), maintaining an 8.0% discount rate and adopting a terminal margin at 5.6% in perpetuity (2019/20 reported margin: 5.5%) would lead to a £16.5m impairment on a total carrying value of assets in use of £577.6m.

Hull Trains

The carrying value of non-current assets of the Group includes £32.5m in respect of our Hull Trains operation, which does not benefit from the EMA mechanism that supports our Franchised TOC portfolio. The impact of COVID 19 represents an indication of potential impairment on Hull Trains and we have separately tested this CGU for impairment at 31 March 2020.

The Group prepares cash flow forecasts Hull Trains through to the end of the current open access agreement in December 2029. These forecasts take into account past performance and expectations for future developments. In order to test for impairment, the cash flows are discounted using a pre-tax discount rate derived from the IFRS16 Right of Use leases agreements, which are the principle non-current assets of the business.

Cash flows have been projected forward beyond 2021/22 using an average annual revenue growth rate of 7.0%, an operating cost growth rate of 2.9% and is discounted using a 3.4% pre-tax discount rate assumption. On this basis the value in use of Hull Trains exceeds its carrying value by £18.4m

The calculation of value in use for Hull Trains is most sensitive to the principal revenue and operating cost growth rate assumptions. A reduction in the average annual revenue growth rate to 5.7% from 2021/22 or an increase in the annual operating cost growth rate to 4.6% would reduce the value in use headroom to nil.

Management have performed sensitivity analysis to assess the impact that a reasonably possible change to these principal assumptions would have on the recoverable amount. This analysis highlights that under a scenario where annual revenues are assumed to recover to pre-COVID19 levels of £30.9m in 2021/22 (2019/20: £30.9m) followed by average annual revenue and operating cost growth of 1.7% thereafter (in line with independent GDP forecasts for the UK) the CGU assets would be impaired by £20.6m

Greyhound

At 31 March 2019 the carrying value of the Greyhound CGU was reviewed for impairment in accordance with IAS 36 Impairment of Assets. For the purposes of this impairment the carrying value was tested for impairment on the basis of discounted future cash flows arising. As at 31 March 2019 the calculated value in use of the Greyhound division exceeded its carrying amount of £295.4m by £85.2m. Following their review at 31 March 2019, the Directors concluded that there should be no impairment in Greyhound.

An impairment charge of £124.4m was recorded in the first half of the year on our Greyhound business largely as a result of a decline in immigration flows on the Southern US border and increased competition on some routes leading the Group to lower it’s short to medium term financial projections for this business. This impairment has been recognised in the results and apportioned on a pro-rata basis against the tangible and intangible assets of the division excluding owned property. Market valuations in excess of book value suggest no impairment to the carrying value of property. Note that the carrying value of Goodwill Is zero, having been fully impaired in previous years.

For the year ended 31 March 2020 we have assessed the value of the Greyhound CGU on a fair value less cost of disposal basis for the purposes of the impairment review.. Fair value has also been assessed on a value in use basis, but recent activity in line with the intention to divest of the business indicated that using a fair value less cost of disposal basis would be a more appropriate approach The CGU valuation on a fair value less cost of disposal basis has been assessed as a Level 3 fair value in the hierarchy as defined by IFRS13, assessing the value of a stand-alone Greyhound business using a discounted cash flow approach. A risk adjusted view of the discounted future cash flows for the next three years, including £136.0m of net property disposal proceeds, was prepared to determine the potential value that a market participant may ascribe to the Greyhound CGU. A long-term revenue growth rate of 1.0% (March 2019: 2.8%) and terminal margin of 5.4% on a stand-alone CGU basis (2019/20: -2.0% reported margin) has been assumed. Cash flows are discounted using a pre-tax discount rate of 9.7% (March 2019: 8.3% on a value in use basis). The pre-tax discount rates applied are derived from a risked view of a potential market participant’s weighted average cost of capital at 1.0% above the discount rate applied to our other North American CGUs.

This indicated an impairment of £62.5m in addition to the £124.4m impairment recorded in the first half of the year. The full year impairment is therefore £186.9m and has been applied on a pro-rata basis against the assets of the division excluding owned property. Market valuations in excess of book value suggest no impairment to the carrying value of property. The carrying value of the CGU after recognising the impairment is £215.3m ($268.3m).

The Greyhound impairment is sensitive to a change in the assumptions used, most notably to changes in the discount rate, terminal growth rate or terminal margin. Applying a 15.7% discount rate, a -6.0% terminal growth rate or a 3.3% terminal margin would reduce the fair value less cost of disposal to £110.7m ($137.9m), being the carrying value of Greyhound owned property at 31 March 2020.

9 Other intangible assets

	Customer contracts £m	Greyhound brand and trade name £m	Software £m	Total £m
Cost
At 1 April 2018	439.7	66.9	63.1	569.7
Acquisitions	0.7	–	–	0.7
Additions Transfers	– –	– –	8.9 1.9	8.9 1.9
Disposals	–	–	(1.6)	(1.6)
Foreign exchange movements	31.0	4.6	3.9	39.5
At 31 March 2019	471.4	71.5	76.2	619.1
Acquisitions	11.1	–	–	11.1
Additions	–	–	9.2	9.2
Transfers	–	–	(0.2)	(0.2)
Disposals	–	–	–	–
Foreign exchange movements	19.3	2.7	2.7	24.7
At 31 March 2020	501.8	74.2	87.9	663.9
Accumulated amortisation and impairment
At 1 April 2018	421.7	37.8	20.4	479.9
Charge for year	8.6	3.2	18.1	29.9
Transfers	–	–	0.1	0.1
Foreign exchange movements	30.0	2.7	1.4	34.1
At 31 March 2019	460.3	43.7	40.0	544.0
Charge for year	2.4	2.5	17.0	21.9
Transfers Impairment	– –	– 16.7	0.9 6.3	0.9 23.0
Foreign exchange movements	18.6	1.8	1.8	22.2
At 31 March 2020	481.3	64.7	66.0	612.0

Carrying amount
At 31 March 2020	20.5	9.5	21.9	51.9
At 31 March 2019	11.1	27.8	36.2	75.1

10 Property, plant and equipment

Owned assets	Land and buildings £m	Passenger carrying vehicle fleet m	Other plant and equipment £m	Total £m
Cost
At 1 April 2018	492.8	3,224.6	778.5	4,495.9
Acquisitions (note 30)	–	1.5	–	1.5
Additions in the year Transfers	13.8 –	283.2 –	136.0 (1.9)	433.0 (1.9)
Disposals	(39.8)	(87.9)	(58.9)	(186.6)
Reclassified as held for sale	(22.4)	(202.1)	(8.8)	(233.3)
Foreign exchange movements	19.5	165.3	22.0	206.8
At 31 March 2019	463.9	3,384.6	866.9	4,715.4
Adjustments on transition to IFRS 16	–	(167.6)	–	(167.6)
At 1 April 2019	463.9	3,217.0	866.9	4,547.8
Acquisitions (note 30)	–	16.2	–	16.2
Additions in the year	10.1	294.0	149.1	453.2
Transfers from right of use assets/assets held for sale	34.9	22.3	-	57.2
Disposals	(15.6)	(90.4)	(161.4)	(267.4)
Reclassified as held for sale	(24.4)	(122.9)	7.1	(140.2)
Foreign exchange movements	11.3	103.9	14.3	129.5
At 31 March 2020	480.2	3,440.1	876.0	4,796.3

Accumulated depreciation and impairment
At 1 April 2018	102.5	1,704.3	599.0	2,405.8
Charge for year Transfers	15.4 –	235.8 –	114.8 (0.1)	366.0 (0.1)
Disposals	(12.8)	(82.5)	(57.8)	(153.1)
Impairment¹	–	10.7	2.3	13.0
Reclassified as held for sale	(8.8)	(176.0)	(7.9)	(192.7)
Foreign exchange movements	4.7	87.7	18.2	110.6
At 31 March 2019	101.0	1,780.0	668.5	2,549.5
Adjustments on transition to IFRS 16	–	(93.2)	–	(93.2)
At 1 April 2019	101.0	1,686.8	668.5	2,456.3
Charge for year	15.0	234.7	143.3	393.0
Transfers from right of use assets/assets held for sale	8.4	7.7	–	16.1
Disposals	(4.9)	(93.4)	(160.5)	(258.8)
Impairment²	–	108.4	8.4	116.8
Reclassified as held for sale	(2.8)	(121.5)	6.4	(117.9)
Foreign exchange movements	3.2	55.9	12.3	71.4
At 31 March 2020	119.9	1,878.6	678.4	2,676.9

Carrying amount
At 31 March 2020	360.3	1,561.5	197.6	2,119.4
At 31 March 2019	362.9	1,604.6	198.4	2,165.9

1 The impairment charge of £13.0m in 2019 relates to assets associated with First Bus (£10.3m) and Greyhound (£2.7m).

2 The impairment charge of £116.8m in 2020 relates to assets associated with Greyhound.

10 Property, plant and equipment (continued)

Right of use assets

	Rolling stock £m	Land and buildings £m	Passenger carrying vehicle fleet £m	Other plant and equipment £m	Total £m
Cost
At 31 March 2019	-	-	-	-	-
Adjustment on transition to IFRS 16	829.4	217.2	257.1	4.3	1,308.0
At 1 April 2019	829.4	217.2	257.1	4.3	1,308.0
Additions	1,712.0	36.8	85.6	2.3	1,836.7
Transfer to owned assets	-	-	(22.3)	-	(22.3)
Foreign exchange movements	-	7.3	12.4	0.2	19.9
At 31 March 2020	2,541.4	261.3	332.8	6.8	3,142.3

Accumulated depreciation and impairment
At 31 March 2019	-	-	-	-	-
Adjustment on transition to IFRS 16	208.6	-	93.2	-	301.8
At 1 April 2019	208.6	-	93.2	-	301.8
Transfer from onerous contract provision	44.2	-	-	-	44.2
Transfer to owned assets	-	-	(7.7)	-	(7.7)
Charge for period	399.5	59.4	35.0	2.5	496.4
Impairment	-	33.8	13.0	-	46.8
Foreign exchange movements	-	0.8	4.9	-	5.7
At 31 March 2020	652.3	94.0	138.4	2.5	887.2

Carrying amount
At 31 March 2020	1,889.1	167.3	194.4	4.3	2,255.1
At 31 March 2019	-	-	-	-	-

The impairment charge of £46.8m relates to Greyhound.

The discounted lease liability relating to the right of use assets included above are shown in note 14.

Owned assets and right of use assets

	Rolling stock £m	Land and buildings £m	Passenger carrying vehicle fleet £m	Other plant and equipment £m	Total £m
Carrying amount
At 31 March 2020	1,889.1	527.6	1,755.9	201.9	4,374.5
At 31 March 2019	-	362.9	1,604.6	198.4	2,165.9

The maturity analysis of lease liabilities Is presented in note 15.

Amounts recognised in income statement	2020 £m	2019 £m
Depreciation expense on right of use assets	496.4	-
Interest expense on lease liabilities	42.6	2.7
Expense relating to short term liabilities	31.7	-
Expense relating to leases of low value assets	3.4	-
Expense relating to variable lease payments not included in the measurement of the lease liability	-	-
	574.1	2.7

The total cash outflow for the leases recorded in the above amounted to £646.6m (2019: £53.1m).

11 Inventories

	2020 £m	2019 £m
Spare parts and consumables	63.3	60.2

In the opinion of the Directors there is no material difference between the balance sheet value of inventories and their replacement cost. There was no material write-down of inventories during the current or prior year.

12 Trade and other receivables

Amounts due within one year	2020 £m	2019 £m
Trade receivables	652.2	617.9
Loss allowance	(4.9)	(3.6)
Trade receivables net	647.3	614.3
Other receivables	90.2	84.9
Amounts recoverable on contracts	91.2	43.3
Prepayments	90.3	164.0
Accrued income	251.6	234.9
	1,1170.6	1,141.4

13 Trade and other payables

Amounts falling due within one year	2020 £m	2019 m
Trade payables	336.9	278.7
Other payables	385.7	299.8
Accruals	838.5	710.3
Deferred income	152.3	167.8
Season ticket deferred income	86.3	90.7
	1,799.7	1,547.3

14 Borrowings

	2020 £m	2019 £m
On demand or within 1 year
Leases (note 15) ²	642.2	41.5
Loan notes (note 16)	8.7	–
Bond 8.75% (repayable 2021)¹	30.4	30.4
Bond 5.25% (repayable 2022)¹	5.8	5.8
Bond 6.875% (repayable 2024)¹	7.2	7.2
Total current liabilities	694.3	84.9
Within 1-2 years
Leases (note 15) ²	587.4	18.1
Loan notes (note 16)	0.7	9.4
Bond 8.75% (repayable 2021)	355.1	–
	943.2	27.5
Within 2-5 years
Syndicated loan facilities	573.9	446.7
Leases (note 15) ²	1,030.3	0.2
Bond 8.75% (repayable 2021)	–	357.7
Bond 5.25% (repayable 2022)	322.6	322.1
Bond 6.875% (repayable 2024)	199.8	–
Senior unsecured loan notes	80.3	–
	2,206.9	1,126.7
Over 5 years
Leases (note 15) ²	213.3	0.1
Senior unsecured loan notes	139.5	210.0
Bond 6.875% (repayable 2024)	–	199.8
	352.8	409.9

Total non-current liabilities at amortised cost	3,502.9	1,564.1

Relates to accrued interest.
The right of use assets relating to lease liabilities are shown in note 10. The maturity analysis of lease liabilities Is presented in note 15.

15 Lease liabilities

The Group had the following lease liabilities at the balance sheet dates:

	2020 £m	2019 £m
Due in less than one year	702.4	42.7
Due in more than one year but not more than two years	632.8	19.0
Due in more than two years but not more than five years	1,089.3	0.3
Due in more than five years	240.6	0.1
	2,665.1	62.1
Less future financing charges	(191.9)	(2.2)
	2,473.2	59.9

The right of use assets relating to the lease liabilities is presented in Note 10

16 Loan notes

The Group had the following loan notes issued as at the balance sheet dates:

	2020 £m	2019 £m
Due in less than 1 year Due in more than one year but not more than two years	8.7 0.7	– 9.4
	9.4	9.4

17 Financial instruments

	2020 m	2019 £m
Total derivatives
Total non-current assets	15.8	20.5
Total current assets	4.8	15.5
Total assets	20.6	36.0
Total current liabilities	44.2	3.4
Total non-current liabilities	19.2	1.9
Total liabilities	63.4	5.3

Derivatives designated and effective as hedging instruments carried at fair value
Non-current assets
Coupon swaps (fair value hedge)	13.3	16.2
Fuel derivatives (cash flow hedge)	–	2.7
Currency forwards (cash flow hedge)	2.5	1.6
	15.8	20.5
Current assets
Fuel derivatives (cash flow hedge)	–	11.3
Currency forwards (cash flow hedge)	4.8	4.2
	4.8	15.5
Current liabilities
Fuel derivatives (cash flow hedge)	32.4	3.4
Currency forwards (net investment hedge)	4.4	–
	36.8	3.4
Non-current liabilities
Fuel derivatives (cash flow hedge)	19.2	1.9
	19.2	1.9

Derivatives designated classified as held for trading
Current liability
Fuel derivatives	7.4	–
	7.4	–

18 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 tax depreciation £m	Retirement benefit schemes £m	Other temporary differences m	Tax losses m	Total £m
At 1 April 2018	174.4	(53.8)	85.9	(222.0)	(15.5)
Charge/(credit) to income statement	2.8	3.5	10.3	(14.7)	1.9
Credit to other comprehensive income	–	(7.1)	(0.6)	–	(7.7)
Foreign exchange and other movements	11.7	(2.6)	7.1	(19.0)	(2.8)
At 31 March 2019	188.9	(60.0)	102.7	(255.7)	(24.1)
Impact of adoption of IFRS 16	–	–	(4.7)	–	(4.7)
At 1 April 2019	188.9	(60.0)	98.0	(255.7)	(28.8)
Charge to income statement	10.5	6.4	0.5	7.1	24.5
Charge/(credit) to other comprehensive income and equity	–	24.6	(11.8)	–	12.8
Foreign exchange and other movements	7.9	(1.6)	5.0	(14.6)	(3.3)
At 31 March 2020	207.3	(30.6)	91.7	(263.2)	5.2

Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances for financial reporting purposes:

	2020 £m	2019 £m
Deferred tax assets	(33.6)	(40.6)
Deferred tax liabilities	38.8	16.5
	5.2	(24.1)

19 Provisions

	2020 £m	2019 £m
Insurance claims	382.8	292.7
Legal and other	34.6	35.5
TPE onerous contract	–	76.6
SWR onerous contract	–	125.5
Pensions	1.6	1.7
Non-current liabilities	419.0	532.0

	Insurance claims £m	Legal and other m	TPE onerous contract m	SWR onerous contract £m	Pensions £m	Total £m
At 1 April 2019	471.8	71.6	106.9	145.9	1.7	797.9
Adjustment to transition to IFRS 16	–	–	(62.7)	(145.9)	–	(208.6)
Charged to the income statement	309.5	15.1	–	–	–	324.6
Impairment of right of use asset additions	–	–	(44.2)	–	–	(44.2)
Utilised in the year	(219.4)	(28.0)	–	–	(0.1)	(247.5)
Notional interest	11.8	–	–	–	–	11.8
Foreign exchange movements	15.2	1.9	–	–	–	17.1
At 31 March 2020	588.9	60.6	–	–	1.6	651.1

Current liabilities	206.1	26.0	–	–	–	232.1
Non-current liabilities	382.8	34.6	–	–	1.6	419.0
At 31 March 2020	588.9	60.6	–	–	1.6	651.1

Current liabilities	179.1	36.1	30.3	20.4	–	265.9
Non-current liabilities	292.7	35.5	76.6	125.5	1.7	532.0
At 31 March 2019	471.8	71.6	106.9	145.9	1.7	797.9

The current liabilities above are included within accruals in note 13.

The insurance claims provision arises from estimated exposures for incidents occurring prior to the balance sheet date. It is anticipated that the majority of such claims will be settled within the next five years although certain liabilities in respect of lifetime obligations of £35.4m (2019: £27.9m) can extend for up to 30 years. The utilisation of £219.4m (2019: £210.0m) represents payments made against the current liability of the preceding year as well as the settlement of certain large aged claims.

The insurance claims provision contains £22.1m (2019: £21.5m) which is recoverable from insurance companies and is included within other receivables in note 12.

Legal and other provisions relate to estimated exposures for cases filed or thought highly likely to be filed for incidents that occurred prior to the balance sheet date. It is anticipated that most of these items will be settled within 10 years. Also included are provisions in respect of costs anticipated on the exit of surplus properties which are expected to be settled over the remaining terms of the respective leases and dilapidation, other provisions in respect of contractual obligations under rail franchises and restructuring costs. The dilapidation provisions are expected to be settled at the end of the respective franchise.

In accordance with IAS 36 Impairment of assets the opening onerous contract provision for SWR of £145.9m was reclassified as an impairment on ROUA on adoption of IFRS 16. Similarly, £62.7m of the opening TPE onerous contract provision was reclassified as an opening impairment on ROUA with the remaining balance of £44.2m being reclassified as impairment on ROUA additions in the period

The pensions provision relates to unfunded obligations that arose on the acquisition of certain First Bus companies. It is anticipated that this will be utilised over approximately five years.

20 Called up share capital

	2020 £m	2019 £m
Allotted, called up and fully paid
1,219.5m (2019: 1,213.9m) ordinary shares of 5p each	61.0	60.7

The Company has one class of ordinary shares which carries no right to fixed income.

During the year 5.6m shares were issued to satisfy principally SAYE exercises.

21 Net cash from operating activities

	2020 £m	2019 £m
Operating (loss)/profit	(152.7)	9.8
Adjustments for:
Depreciation charges	889.4	366.0
Capital grant amortisation	(53.4)	(28.6)
Software amortisation charges	16.1	18.1
Other intangible asset amortisation charges	4.9	11.8
Impairment charges	189.0	13.0
Share-based payments	10.3	9.1
Profit on disposal of property, plant and equipment	(12.9)	(23.5)
Operating cash flows before working capital and pensions	890.7	375.7
Increase in inventories	(1.7)	(2.0)
Increase in receivables	(9.0)	(209.4)
Increase in payables due within one year	169.0	279.4
Increase in provisions due within one year	9.7	53.1
Increase in provisions due over one year	67.1	37.3
SWR onerous contract provision	–	145.9
TPE onerous contract provision	–	(0.5)
Defined benefit pension payments in excess of income statement charge	(38.8)	(24.3)
Cash generated by operations	1,087.0	655.2
Tax paid	(2.9)	(7.5)
Interest paid	(83.3)	(81.3)
Interest element of leases	(42.6)	(2.7)
Net cash from operating activities¹	958.2	563.7

1 Net cash from operating activities is stated after an inflow of £13.2m (2019: inflow of £40.0m) in relation to financial derivative settlements.

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 2020. 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 financial statements, taken as a whole, are fair, balanced and understandable and provide information necessary for the shareholders to assess the Company’s and the Group’s position and performance, business model and strategy.

This responsibility statement was approved by the Board of Directors and is signed on its behalf by:

Ryan Mangold
Chief Financial Officer
8 July 2020

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