Half-year Report

FIRSTGROUP PLC
HALF-YEARLY RESULTS FOR THE SIX MONTHS TO 30 SEPTEMBER 2018

FirstGroup plc, a leading provider of transport services in the UK and North America, reports growth in revenue, adjusted profit and adjusted EPS in the first half of the 2018/19 financial year.

Overview

Matthew Gregory appointed as Chief Executive with immediate effect
First half trading in line with plans outlined at start of the financial year; full year outlook unchanged
Road divisions' constant currency growth +2.0% in revenue and +17.9% in adjusted¹ operating profit
Strong bid season and growth in First Student; First Bus margin improvement continues
Greyhound review complete and plan underway; action taken to address Western Canada
Net cash inflow increased in period; net debt reduced compared to prior year

Adjusted¹	H1 2018 Â£m	H1 2017 Â£m	Change	Change in constant currency²	SWR-adjusted change, in constant currency³
Revenue	3,303.3	2,771.3	+19.2%	+21.6%	+6.0%
Operating profit	92.4	89.4	+3.4%	+9.2%	+19.7%
Operating profit margin	2.8%	3.2%	(40)bps	(30)bps	+40bps
Profit before tax	42.0	30.5	+37.7%	+63.4%
EPS	2.9p	1.9p	+52.6%	+81.3%
Net debt⁴	1,047.7	1,179.9	(11.2)%	(11.6)%

Statutory	H1 2018 Â£m	H1 2017 Â£m	Change
Revenue	3,303.3	2,771.3	+19.2%
Operating profit	46.3	57.4	(19.3)%
Loss before tax	(4.6)	(1.9)	(142.1)%
EPS	(0.6)p	0.2p	n/m⁵

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

Group revenue +6.0% excluding SWR rail franchise that started towards end of comparable period; Group revenue including SWR was +21.6%
Adjusted¹ operating profit +9.2%, with Road divisions +17.9% led by First Student and First Bus partially offset by a decline in Greyhound; the contribution from the Rail division was 5.8% lower, as expected
Adjusted¹ profit before tax +63.4% and adjusted¹ EPS +81.3%, reflecting higher adjusted¹ operating profit, lower finance costs and reduction in US tax rates
Net cash inflow of Â£50.6m (H1 2017: Â£21.9m before working capital inflow from the start of SWR franchise)
Statutory loss before tax of Â£(4.6)m (H1 2017: Â£(1.9)m) and statutory EPS of (0.6)p (H1 2017: 0.2p), reflecting restructuring and reorganisation costs from withdrawal of Greyhound services in Western Canada

Divisional updates

First Student's fleet to grow this year following strong bid season: 92% contract retention and new customer wins, with pricing remaining in excess of the cost inflation from driver shortages
First Transit continues to add to business portfolio; margin stabilising reflecting changing contract mix and non-recurrence of prior year costs
Greyhound improvement plan underway, targeting at least mid-single digit margins in the medium term, including recent withdrawal from Western Canada. Long haul markets in particular remain challenging resulting in like-for-like⁶ revenue (0.7)%
First Bus delivered +1.5% like-for-like⁶ passenger revenue growth and strong margin momentum, underpinned by increased commercial passenger volumes from our focus on making journeys simpler
First Rail like-for-like⁶ passenger revenue +5.5%, with solid financial contribution driven by GWR despite infrastructure issues. SWR has experienced challenging trading with issues relating to infrastructure reliability, industrial relations and the effects of the revenue protection mechanisms included in the franchise. We are working with industry partners to resolve our issues

Outlook unchanged for the full year

Our performance in the first half is encouraging although conditions in our markets remain challenging. We make no change to our full year outlook, and continue to expect broadly stable Group operating earnings in constant currency for the full year, with improvement in the Road divisions and a smaller Rail contribution. We also expect broadly stable free cash generation for the full year.

Commenting, Chief Executive Matthew Gregory said:

"We have made good progress in the first half delivering on our plans to strengthen the Group, generating sustained cash flow to further reduce leverage and deploy to targeted growth. First Student's bid season success will see our largest business return to growth as planned, while maintaining our disciplined approach to pricing. In September, First Bus completed the rollout of contactless payment across the UK on schedule, becoming the first of the UK's principal bus operators to do so. Together with other revenue and cost actions this helped First Bus to achieve strong margin improvement in the period. Meanwhile our First Rail operations continued to focus on improving services for our passengers while maintaining overall profitability in a more challenging industry environment during the period.

"We completed our review of Greyhound and have launched a plan to optimise our smallest business for the challenges it is facing. Having recently addressed our loss-making activities in Western Canada, these further actions will assist in improving Greyhound's performance going forward.

"In summary, we are getting on with delivering our plans to improve performance in our divisions. Although conditions in our markets remain challenging, our performance to date underpins the confidence we have in our unchanged outlook for the full year."

Chairman Wolfhart Hauser said:

"We are implementing clear divisional strategies across our portfolio to mobilise the considerable value inherent in the Group, and I am encouraged by the progress made in the period. I am confident that with Matthew Gregory as Chief Executive, we have the right person to drive forward our plans at pace, and with the appointment of Steve Gunning as an independent non-executive director, we are strengthening the Board further. In addition, we are developing a more agile business, with its emphasis firmly on a divisional framework. This allows us to make the most of our evolving markets and customer requirements, while maintaining strong stewardship and creating more strategic flexibility at the Group level. We are also driving a strong focus on service throughout the Group, ensuring that we continue to create solutions for our customers that reduce complexity, making travel smoother and life easier."

Contacts at FirstGroup:

Faisal Tabbah, Head of Investor Relations

Stuart Butchers, Group Head of Media

Tel: +44 (0) 20 7725 3354

Contacts at Brunswick PR:

Andrew Porter / Alison Lea, Tel: +44 (0) 20 7404 5959

A presentation for investors and analysts will be held at 9:00am today â€“ attendance is by invitation. A live telephone 'listen in' facility is available â€“ for joining details please call +44 (0) 20 7725 3354. A playback facility will be available together with presentation slides and a pdf copy of this report at www.firstgroupplc.com/investors.

Please see the separate announcement released by the Group for further details of the FirstGroup Board changes announced today.

Notes

¹ â€˜Adjustedâ€™ figures throughout this document are before other intangible asset amortisation charges and certain other items as set out in note 3 to the condensed consolidated financial statements.

² Changes 'in constant currency' throughout this document are based on retranslating H1 2017 foreign currency amounts at H1 2018 rates.

³ Growth excluding SWR franchise revenue (which became part of First Rail in August 2017), in constant currency.

⁴ Net debt is stated excluding accrued bond interest, as explained on page 11.

⁵ Not meaningful.

⁶ 'Like-for-like' revenue adjust for certain factors which distort the period-on-period trends in our passenger revenue businesses, as described on page 11. First Rail's like-for-like passenger revenue growth of 5.5% excludes SWR (which was only part of the division for four weeks of the prior period).

Legal Entity Identifier (LEI): 549300DEJZCPWA4HKM93. Classification as per DTR 6 Annex 1R: 1.2.

About FirstGroup

FirstGroup plc (LSE: FGP.L) is a leading provider of transport services in the UK and North America. With Â£6.4 billion in revenue and around 100,000 employees, we transported 2.1 billion passengers last year. Whether for business, education, health, social or recreation â€“ 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 42,500 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 1.6 million passengers a day, and First Rail is one of the country's largest and most experienced rail operators, carrying more than 260 million passengers last year.

Visit our website at www.firstgroupplc.com and follow us @firstgroupplc on Twitter.

Operating and financial review

Group revenue in the first half increased by 19.2%, principally reflecting First Railâ€™s SWR franchise which commenced in August 2017. Group revenue increased by 6.0% in constant currency after adjusting for SWR. In the period revenue in constant currency from the Road divisions increased by 2.0%, principally driven by First Student and First Bus; Greyhound revenues were lower reflecting ongoing challenges in its long haul markets and withdrawal of services in Western Canada. Rail revenue growth of 80.7% was driven by the inclusion of SWR, the planned transition of GWR from premium to subsidy in period, and like-for-like growth.

Group adjusted operating profit in constant currency increased by 9.2% or by 19.7% adjusting for SWR. The Road divisions' contribution to adjusted operating profit increased by 17.9% in constant currency, reflecting progress in First Student, First Transit and First Bus, partly offset by the challenges in Greyhound. The adjusted operating profit contribution from First Rail in the period was lower, as expected. Group adjusted operating profit margin in constant currency decreased by 30bps to 2.8%, reflecting a 40bps increase for the Road divisions and the expected rebasing of the Rail margin. In reported currency, adjusted operating profit increased by 3.4% to Â£92.4m (H1 2017: Â£89.4m).

	6 months to 30 September 2018			6 months to 30 September 2017			Year to 31 March 2018
	Revenue Â£m	Operating profit¹ Â£m	Operating margin¹	Revenue Â£m	Operating profit¹ Â£m	Operating margin¹	Revenue Â£m	Operating profit¹ Â£m	Operating margin¹
First Student	775.2	24.6	3.2	763.1	14.8	1.9	1,771.1	156.5	8.8
First Transit	519.6	24.4	4.7	536.4	20.9	3.9	1,072.7	58.2	5.4
Greyhound	342.6	10.2	3.0	358.8	23.5	6.5	690.2	25.5	3.7
First Bus	433.9	24.8	5.7	428.2	15.8	3.7	879.4	50.2	5.7
Group items²	7.8	(20.9)		7.4	(16.7)		16.2	(31.2)
Road divisions	2,079.1	63.1	3.0	2,093.9	58.3	2.8	4,429.6	259.2	5.9
First Rail	1,224.2	29.3	2.4	677.4	31.1	4.6	1,968.8	57.8	2.9
Total Group	3,303.3	92.4	2.8	2,771.3	89.4	3.2	6,398.4	317.0	5.0
North America in USD	$m	$m	%	$m	$m	%	$m	$m	%
First Student	1,038.5	36.6	3.5	982.8	18.1	1.8	2,350.6	210.4	9.0
First Transit	691.3	32.5	4.7	692.0	26.7	3.9	1,420.4	77.8	5.5
Greyhound	455.4	12.9	2.8	463.0	30.5	6.6	912.7	32.8	3.6
Total North America	2,185.2	82.0	3.8	2,137.8	75.3	3.5	4,683.7	321.0	6.9

¹ Adjusted.

² Tramlink operations, central management and other items.

Net finance costs before adjustments were Â£50.4m (H1 2017: Â£58.9m) with the decrease mainly reflecting the refinancing in March 2018 at lower interest rates. Adjusted profit before tax increased by 37.7% to Â£42.0m (H1 2017: Â£30.5m). Adjusted profit attributable to ordinary shareholders was Â£34.9m (H1 2017: Â£22.4m) with the increase due to the higher adjusted profit before tax together with the lower effective tax rate of 22.5% (H1 2017: 30.0%). Adjusted EPS increased by 52.6% to 2.9p (H1 2017: 1.9p). In constant currency, adjusted EPS increased by 81.3%. EBITDA decreased by 8.3% to Â£255.1m (H1 2017: Â£278.2m), with Road EBITDA increasing by 1.8% in constant currency and Rail EBITDA decreasing by 25.8%.

Statutory operating profit decreased by 19.3% to Â£46.3m (H1 2017: Â£57.4m), principally reflecting restructuring and reorganisation charges relating to Greyhound's withdrawal from Western Canada, net of a Â£0.6m gain on disposal of surplus property in the region, of Â£28.5m (H1 2017: Â£nil). In the period cash restructuring and reorganisation costs of Â£3.7m were incurred and Â£0.8m in surplus property proceeds were received. The Group expects that disposal proceeds from surplus properties in Western Canada will largely offset the cash costs of the restructuring and reorganisation, over time. The statutory loss attributable to equity shareholders was Â£6.9m (H1 2017: profit of Â£2.1m), and statutory EPS decreased to (0.6)p in the period (H1 2017: 0.2p).

The net cash inflow for the period of Â£50.6m (H1 2017: inflow Â£21.9m before the working capital inflow of Â£75.1m from the start of the SWR franchise) represents an improvement of Â£28.7m compared with the prior period. This improvement was driven by timing of certain working capital items in First Rail and lower interest payments as a result of the refinancing in March 2018, partly offset by lower EBITDA in First Rail. The net cash inflow, combined with movements in debt of Â£(26.9)m due to foreign exchange, resulted in a net debt decrease in the first half of Â£22.6m relative to the 31 March 2018 position (H1 2017: decrease of Â£110.0m). As at 30 September 2018, the net debt: EBITDA ratio was 1.6 times (H1 2017: 1.7 times). Adjusting for cash ring-fenced in the First Rail division, net debt: EBITDA was 2.2 times (H1 2017: 2.2 times).

Liquidity within the Group has remained strong; as at 30 September 2018 there was Â£727.3m (H1 2017: Â£844.1m) of committed headroom and free cash, being Â£587.0m (H1 2017: Â£800.0m) of committed headroom and Â£140.3m (H1 2017: Â£44.1m) of free cash. Our average debt maturity was 4.0 years (H1 2017: 3.2 years). In November 2018 the Group agreed to amend and extend our main revolving bank facilities to November 2023.

During the period, gross capital expenditure of Â£269.6m (H1 2017: Â£205.9m) was invested in our business, with the Road divisionsâ€™ capital expenditure being Â£223.3m (H1 2017: Â£149.4m) including operating leases with a capital value of Â£40.2m (H1 2017: Â£nil), and the investment in First Rail being Â£46.3m (H1 2017: Â£56.5m). The increase in the 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.

ROCE was 9.2% (H1 2017: 7.2% at constant exchange rates and 7.9% as reported).

First Student

6 months to 30 September	$m		Â£m		Change in constant currency¹
6 months to 30 September	2018	2017	2018	2017	Change in constant currency¹
Revenue	1,038.5	982.8	775.2	763.1	+5.5%
Adjusted operating profit	36.6	18.1	24.6	14.8	+113.9%
Adjusted operating margin	3.5%	1.8%	3.2%	1.9%	+160bps

¹ Based on retranslating H1 2017 foreign currency amounts at H1 2018 rates.

Following a strong bid season, First Student will be operating a fleet of approximately 42,500 buses for the balance of the school year, growing our fleet for the first time in a number of years. We maintained our consistent bidding discipline, securing average price increases in excess of the employee cost inflation we face, which is due to persistent driver shortages from the strong employment market in parts of the US. We achieved a retention rate of 92% on contracts up for renewal, significantly higher than the previous year's 83%, while remaining focused on only retaining or bidding for contracts at prices that reflect an appropriate return on the capital we invest. Across the entire portfolio of multi-year contracts, retention was 97%. In addition, we exceeded our target for net new business wins, securing contracts representing approximately 1,580 additional buses, mainly from competitors.

First Student's revenue in the first half was $1,038.5m or Â£775.2m (H1 2017: $982.8m or Â£763.1m). Compared with the prior period, revenues principally reflect the net effect of our pricing strategy noted above, additional operating days in the half as anticipated, and additional weather recovery days, reflecting the significant number of school closures due to snowstorms in the last quarter of our previous financial year. Adjusted operating profit was $36.6m or Â£24.6m (H1 2017: $18.1m or Â£14.8m), resulting in an adjusted operating margin of 3.5% (H1 2017: 1.8%). In addition to weather recoveries and additional operating days due to the timing of the school calendar, we benefitted from cost and efficiency savings in maintenance and other management actions to offset the cost inflation associated with driver labour pressures noted previously.

During the period we have continued to build out a pipeline of potential opportunities to grow through 'bolt-on' acquisitions in the highly fragmented home-to-school market, and in August we acquired CG Pearson Bus Lines, an Ontario-based provider of school and charter transportation services. CG Pearson was founded in 1947 and runs almost 60 routes and 70 buses. The transaction extends First Studentâ€™s operations in Ontario, where we currently have more than 30 locations. We continue to roll out our FirstView bus location app, and are developing further offerings to leverage our market leadership and strong customer service credentials.

Following on from First Student's successful bid season, we were pleased that this yearâ€™s school start-up has gone well, with our improved planning and processes ensuring that we maintained our strong customer satisfaction scores from the previous year. First Student's results are always heavily weighted to the second half because of the overlay of our financial year with the North American school calendar, so our performance in the second half as ever remains key. Our strong first half and greater consistency of delivery means that First Student is well positioned to deliver on our strategy for profitable growth for the full year.

First Transit

6 months to 30 September	$m		Â£m		Change in constant currency¹
6 months to 30 September	2018	2017	2018	2017	Change in constant currency¹
Revenue	691.3	692.0	519.6	536.4	-
Adjusted operating profit	32.5	26.7	24.4	20.9	+23.2%
Adjusted operating margin	4.7%	3.9%	4.7%	3.9%	+90bps

¹ Based on retranslating H1 2017 foreign currency amounts at H1 2018 rates.

First Transitâ€™s revenue in the first half was $691.3m or Â£519.6m (H1 2017: $692.0m or Â£536.4m), in line with the prior year in constant currency. Recent contract awards and organic growth were sufficient to offset the end of a number of relatively large contracts in revenue terms, including the previously noted high margin business in the Canadian oil sands region that was not renewed at the end of the last financial year. Adjusted operating profit was $32.5m or Â£24.4m (H1 2017: $26.7m or Â£20.9m), resulting in an adjusted operating margin of 4.7% (H1 2017: 3.9%). Our margin in the period improved in part due to the non-recurrence of impacts such as the hurricane which devastated Puerto Rico in the prior period.

We won 18 new contracts in the period including new fixed route and paratransit business for the city of Visalia, Ca., which includes operation of battery-powered and Compressed Natural Gas (CNG) bus fleets. We also achieved a 96% retention rate in the period, amongst other contracts retaining a major paratransit contract for the Washington DC metropolitan region's transit authority. In the period First Transit also signed five contracts to manage Shared Autonomous Vehicle pilots, as well as extending a number of partnerships with ridesharing providers to enhance our efficiency for customers.

First Transit remains focused on driving growth by responding to new opportunities and adapting our business model in both our core and adjacent markets. For the full year we anticipate First Transit will achieve a broadly similar year-on-year margin performance, with our ongoing productivity and cost efficiency improvements partially offset by the persistently challenging cost environment for drivers in the US and the previously noted changes in contract mix.

Greyhound

6 months to 30 September	$m		Â£m		Change in constant currency¹
6 months to 30 September	2018	2017	2018	2017	Change in constant currency¹
Revenue	455.4	463.0	342.6	358.8	(1.6)%
Adjusted operating profit	12.9	30.5	10.2	23.5	(55.8)%
Adjusted operating margin	2.8%	6.6%	3.0%	6.5%	(360)bps

¹ Based on retranslating H1 2017 foreign currency amounts at H1 2018 rates.

In the period we completed our review of Greyhound's business and prospects. The review concluded that there is considerable value in our nationwide network, and that shrinking the business to focus on certain regions or types of journey would not sustainably enhance Greyhound's overall profit and cash contribution to the Group. While the short and long haul businesses use the same infrastructure, they are subject to different competitive challenges and opportunities, and the review has identified several revenue and cost opportunities to improve overall returns from the current position. We have developed a clear path to turning around Greyhound's financial performance and are targeting at least mid-single digit margins for the division in the medium term, with focused revenue improvement and cost reduction initiatives. This plan is being executed at pace. We are also continuing to invest to enhance our services for customers, principally in a targeted bus refurbishment and purchase programme, as well as in driver training and improving our terminal amenities.

Greyhoundâ€™s revenue was $455.4m or Â£342.6m (H1 2017: $463.0m or Â£358.8m) in the first half. Short haul journeys continue to outperform long haul, where there is more intense competition from the ultra-low cost airlines: our point-to-point Greyhound Express business delivered a like-for-like revenue increase of 2.3% in the period, while like-for-like revenue for the division as a whole decreased by 0.7%. The divisional decline includes some demand reductions in Western Canada in advance of our announced decision to withdraw services in October, as well as the earlier closures of routes in British Columbia effective from 1 June 2018. In the period we reduced mileage modestly in the Greyhound US business to assist in improving load factors and revenue per mile, which increased by 0.4%, and towards the end of the period we commenced further cost saving measures and made management changes as part of our plans to turn around Greyhound's performance. Adjusted operating profit was $12.9m or Â£10.2m (H1 2017: $30.5m or Â£23.5m), or an adjusted operating margin of 2.8% (H1 2017: 6.6%). The margin has been affected by higher maintenance costs as well as fuel price increases, partially offset by a gain on sale of a property of $6.5m or Â£5.0m.

As noted elsewhere, the withdrawal of service in Western Canada resulted in a charge of $37.9m or Â£29.1m for restructuring and reorganisation. In the period we booked a Â£0.6m gain on disposal from the sale of the first surplus property in the disposal programme. The Group estimates that disposal proceeds from surplus properties in Western Canada will largely offset the cash costs of restructuring and reorganisation, over time.

Greyhound's performance in the second half is expected to benefit from the withdrawal from Western Canada, the investment in our bus fleet and our turnaround plan following the review. Although we face significant challenges in the North American coach market, we are confident that Greyhound can deliver a unique and attractive customer proposition, which we will harness to optimise its value.

First Bus

6 months to 30 September	Â£m		Change in constant currency¹
6 months to 30 September	2018	2017	Change in constant currency¹
Revenue	433.9	428.2	+1.3%
Adjusted operating profit	24.8	15.8	+57.0%
Adjusted operating margin	5.7%	3.7%	+200bps

¹ Based on retranslating H1 2017 foreign currency amounts at H1 2018 rates.

First Bus reported revenue of Â£433.9m (H1 2017: Â£428.2m) in the period, with like-for-like passenger revenue increasing by 1.5%. Commercial passenger volumes increased by 0.7% in the period and commercial revenue per mile increased by 5.2%. Although we benefited from an improving overall environment and the more favourable summer weather than the comparative period, demand patterns remain variable amongst our local markets across the country. As previously flagged, retail footfall trends continue to affect passenger numbers in many of our markets, particularly in the North and Scotland, whilst traffic congestion in a number of cities contributes very significantly to operating challenges. Adjusted operating profit was Â£24.8m (H1 2017: Â£15.8m) and adjusted operating margin increased by 200bps to 5.7% (H1 2017: 3.7%), mainly reflecting cost efficiency actions in the current and prior periods. These include continuous review at a local level to optimise our timetables and route provision, standardising our operating procedures and work practices, the introduction of central shared services and a benefit of lower fuel costs, partially offset by inflation. During the first half we also continued to consolidate our depot footprint, closing our Clacton site. After the period end, we announced the closure of our Rusholme depot and the redeployment of some of its routes to other depots in our Manchester operation.

In September, we became the first of the UK's principal bus operators to offer contactless payment for customers on all our networks. Together with mobile ticketing, contactless is pivotal as we continue to make bus travel easier and more convenient for our customers. We have now seen more than ten million contactless transactions since we began roll out in May 2017, and growth in mobile tickets continues to exceed our expectations. Both help us to speed up bus journeys by reducing customer boarding times.

As previously reported, we are focusing our investment in areas where our local authority stakeholders recognise the importance of the bus and we can work together with them to improve congestion, meet air quality targets, support social exclusion agendas, and strengthen local economies. We were delighted that we worked with seven out of the ten city regions in England that were recently shortlisted for a share of the latest Â£840m tranche of public transport funding from the Transforming Cities Fund. For the current year we expect to take delivery of approximately 260 new buses (year to March 2018: 180 buses). Additions during the period include 75 low-emission vehicles for Glasgow, which will all be introduced into service in time for the new city-wide Low Emissions Zone restrictions coming into effect from December. We are also investing in a new employee app to assist in communicating with our driver employees and driver training to improve customer satisfaction.

We are pleased that our focus on delivering a frictionless digital customer offering is driving patronage growth and sustained margin improvement despite relatively challenging industry conditions. Although the market uncertainties are likely to persist, our systematic programme of actions will continue to improve our margin and restore our ability to drive sustainable value creation in First Bus.

First Rail

6 months to 30 September	Â£m		Change
6 months to 30 September	2018	2017	Change
Revenue	1,224.2	677.4	+80.7%
Adjusted operating profit	29.3	31.1	(5.8)%
Adjusted operating margin	2.4%	4.6%	(220)bps

First Rail like-for-like passenger revenue growth was 5.5% for our portfolio excluding SWR (which was only part of the division for four weeks of the prior period). Industry conditions remain very challenging with macroeconomic uncertainty, infrastructure upgrade works across our networks and the industrial action in SWR all affecting our franchise performance levels. Like-for-like passenger volumes decreased by 1.9% in the period, reflecting the transfer of certain of GWR's Thames Valley flows to Transport for London in May 2018. Recent volume trends also reflect changing work patterns resulting in a shift away from season tickets towards pay-as-you-go tickets, an effect which is exaggerated by the way these journeys are recorded in industry volume statistics. Divisional revenues increased to Â£1,224.2m (H1 2017: Â£677.4m), with a full period of operation for our SWR franchise and the planned transition of GWR from premium to subsidy in period due to the cost of new rolling stock. Adjusted operating profit was Â£29.3m (H1 2017: Â£31.1m), with the margin reducing as expected, to 2.4% (H1 2017: 4.6%).

Divisional profitability was driven by GWR, where customers are seeing more capacity and services as a result of the introduction of new trains. Although electrification works by Network Rail have proved to be slower than originally planned which has led to issues with training drivers for the new trains, we are now introducing Hitachi Intercity Express Trains across the network. We also continue to work with our industry partners to reflect the impact of these delays in the level of our franchise commitments and model. Our rail franchises cover a period during which there is significant change (major infrastructure work, electrification and resignalling, and introduction of new trains). These changes require careful planning, management and negotiation with industry partners, in particular where delays can impact the delivery of franchise assumptions. Failure to manage these risks adequately could result in financial and reputational impacts to the Group. After the period end we have also begun the process of transferring the operational aspects of Heathrow Express to GWR, as previously announced.

SWR performance levels remain challenging, reflecting infrastructure issues that began before we took over the franchise. An independent review chaired by Sir Michael Holden has set out a blueprint for Network Rail and SWR to return service to levels that our customers expect. As part of these plans, we are investing Â£5m in performance improvements and next year the first of our Â£895m new suburban fleet will arrive. We are also introducing more convenient ticketing options such as flexible and auto-renewing season tickets. Our SWR customers have also faced considerable disruption to their journeys due to RMTâ€™s ongoing industrial action, which we view as completely unnecessary since no employees will lose their job. In fact we have guaranteed that a guard with safety critical competencies will be rostered on every train, and, given our plans envisage running more services, SWR will want more guards in future not fewer. SWR are focused on delivering a resolution of the industrial dispute in the interests of our passengers.

TPE delivered growth and financial results in line with our revised expectations. Our plans to increase capacity on the network by more than 80% and create a true intercity railway for the North continue with new trains to be introduced in the next few months. Franchise performance at TPE was significantly affected by the timetable changes in May, as challenges experienced by other operators in the region had a knock-on effect on TPEâ€™s punctuality statistics.

Meanwhile our open access operator Hull Trains is performing in line with our expectations despite some challenges due to fleet unavailability. New trains are due to be brought into the fleet next year.

In July, a national rail industry decision was announced to defer this winterâ€™s timetable changes for several train operators, including GWR, SWR and TPE. This deferral is a significant and an unforeseen change, which means we cannot deliver some additional services and other passenger benefits as originally scheduled. In accordance with current franchise agreements, we are engaged in discussions with the DfT to work through potential commercial and contractual amendments, a process that is ongoing. The SWR franchise agreement includes a mechanism to share the Central London Employment (CLE) revenue risk with the DFT. There is uncertainty regarding the outcomes of this mechanism over the remaining franchise term, which has the potential to significantly impact the profitability of the franchise. We are reviewing the effectiveness of this mechanism and whether it is functioning as originally intended by both parties.

As a result of ongoing industry conditions and the tough operational environment our portfolio is experiencing, we continue to expect a smaller year-on-year adjusted operating profit contribution from Rail.

Finance costs and investment income

Net finance costs before adjustments were Â£50.4m (H1 2017: Â£58.9m) with the decrease principally reflecting lower bond interest due to the early bond redemption in March 2018 partly offset by the interest on the new senior unsecured loan notes.

Profit before tax

Adjusted profit before tax as set out in note 3 to the condensed consolidated financial statements was Â£42.0m (H1 2017: Â£30.5m). An overall charge of Â£46.6m (H1 2017: Â£32.4m) for adjustments, reflecting restructuring and reorganisation charges relating to Greyhound's withdrawal from Western Canada of Â£28.5m (H1 2017: Â£nil), net of gains on disposal of surplus property in the region, and other intangible asset amortisation charges of Â£17.6m (H1 2017: Â£32.0m), resulted in a statutory loss before tax of Â£4.6m (H1 2017: loss before tax of Â£1.9m).

Tax

The tax charge, on adjusted profit before tax, for the period was Â£9.4m (H1 2017: Â£9.2m) representing an effective rate of 22.5% (H1 2017: 30.0%). The effective rate is lower due to the reduction in the US corporate income tax rate. There was a tax credit of Â£4.8m (H1 2017: Â£12.1m) relating to other intangible asset amortisation charges and other adjustments. The total tax charge was Â£4.6m (H1 2017: credit of Â£2.9m). The actual tax paid during the period was Â£4.3m (H1 2017: Â£7.1m).

EPS

Adjusted EPS was 2.9p (H1 2017: 1.9p). Basic EPS was (0.6)p (H1 2017: 0.2p).

Shares in issue

As at 30 September 2018 there were 1,205.9m shares in issue (H1 2017: 1,206.4m), excluding treasury shares and own shares held in trust for employees of 6.0m (H1 2017: 2.8m). 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 1,205.0m (H1 2017: 1,206.2m).

Reconciliation to non-GAAP measures and performance

Note 3 to the condensed consolidated financial statements sets out the reconciliations of operating profit and profit before tax to their adjusted equivalents. The principal adjusting items are as follows:

Other intangible asset amortisation charges

The charge for the period was Â£17.6m (H1 2017: Â£32.0m) with the reduction due to a number of customer contract intangibles which have now been fully amortised.

Restructuring and reorganisation costs

There was a charge of Â£28.5m (H1 2017: Â£nil) for restructuring and reorganisation costs relating to Greyhound's withdrawal of services in Western Canada, net of a Â£0.6m gain on disposal relating to the initial property disposals completed in the region.

Notional interest on TPE onerous contract provision

There was a charge of Â£0.5m (H1 2017: Â£nil) in the year for notional interest on the unwinding of the TPE onerous contract provision.

Cash flow

The net cash inflow for the period of Â£50.6m (H1 2017: inflow Â£21.9m before the working capital inflow of Â£75.1m from the start of the SWR franchise) represents an improvement of Â£28.7m compared with the prior period. This improvement was driven by timing of certain working capital items in First Rail and lower interest payments as a result of the refinancing in March 2018, partly offset by lower EBITDA in First Rail. The net cash inflow, combined with movements in debt of Â£(26.9)m due to foreign exchange, resulted in a net debt decrease in the first half of Â£22.6m relative to the 31 March position (H1 2017: decrease of Â£110.0m), as follows:

	6 months to 30 September		Year to 31 March 2018 Â£m
	2018 Â£m	2017 Â£m	Year to 31 March 2018 Â£m
EBITDA	255.1	278.2	690.6
Other non-cash income statement charges	0.9	7.7	17.2
Working capital excluding First Rail start of franchise cash flows	96.3	57.7	36.9
Movement in other provisions	(38.3)	(19.3)	(10.5)
Pension payments in excess of income statement charge	(30.8)	(31.0)	(47.9)
Cash generated by operations excluding First Rail start of franchise cash flows	283.2	293.3	686.3
Capital expenditure and acquisitions	(191.9)	(194.0)	(425.6)
Proceeds from disposal of property, plant and equipment	12.3	7.0	11.4
Interest and tax	(53.6)	(80.0)	(137.6)
Acquisition of non-controlling interest	-	-	(13.8)
Dividends paid to non-controlling minority shareholders	-	-	(1.1)
Other	0.6	(4.4)	(9.1)
Net cash inflow before First Rail start of franchise cash flows	50.6	21.9	110.5
First Rail start of franchise cash flows	-	75.1	88.5
Net cash inflow after First Rail start of franchise cash flows	50.6	97.0	199.0
Foreign exchange movements	(26.9)	13.9	23.2
Other non-cash movements	(1.1)	(0.9)	(2.6)
Movement in net debt in the period	22.6	110.0	219.6

Capital expenditure

Cash capital expenditure was Â£189.6m (H1 2017: Â£191.1m) and comprised First Student Â£101.5m (H1 2017: Â£69.5m), First Transit Â£10.8m (H1 2017: Â£9.2m), Greyhound Â£15.7m (H1 2017: Â£14.4m), First Bus Â£14.8m (H1 2017: Â£39.7m), First Rail Â£46.8m (H1 2017: Â£57.1m) and Group items Â£nil (H1 2017: Â£1.2m). First Rail capital expenditure is typically matched by franchise receipts or other funding. In addition, during the period we entered into operating leases for passenger carrying vehicles with capital values in First Student of Â£7.8m (H1 2017: Â£nil), First Transit of Â£3.4m (H1 2017: Â£nil), Greyhound of Â£10.2m (H1 2017: Â£nil) and First Bus of Â£18.8m (H1 2017: Â£nil).

Gross capital investment (fixed asset and software additions plus the capital value of new operating leases) was Â£269.6m (H1 2017: Â£205.9m) and comprised First Student Â£168.3m (H1 2017: Â£123.8m), First Transit Â£14.2m (H1 2017: Â£9.4m), Greyhound Â£19.3m (H1 2017: Â£11.6m), First Bus Â£21.5m (H1 2017: Â£3.4m), First Rail Â£46.3m (H1 2017: Â£56.5m) and Group items Â£nil (H1 2017: Â£1.2m).

Net debt

The Groupâ€™s net debt at 30 September 2018 was Â£1,047.7m (H1 2017: Â£1,179.9m) and comprised:

Analysis of net debt	30 September 2018 Â£m	30 September 2017 Â£m	31 March 2018 Â£m
Sterling bond (2018)	-	299.3	-
Sterling bond (2019)	249.9	249.8	249.9
Sterling bond (2021)	348.3	348.3	348.3
Sterling bond (2022)	321.6	321.1	321.6
Sterling bond (2024)	199.8	199.6	199.8
Sterling bank loans	167.4	-	197.0
US Dollar bank loans	30.7	-	-
Canadian Dollar bank loans	14.9	-	-
HP contracts and finance leases	90.7	144.2	104.7
Senior unsecured loan notes	210.0	36.9	195.2
Loan notes	9.4	9.5	9.5
Gross debt excluding accrued interest	1,642.7	1,608.7	1,626.0
Cash	(140.3)	(44.1)	(163.4)
First Rail ring-fenced cash and deposits	(453.8)	(383.8)	(391.5)
Other ring-fenced cash and deposits	(0.9)	(0.9)	(0.8)
Net debt excluding accrued interest	1,047.7	1,179.9	1,070.3

Under the terms of the First Rail franchise agreements, cash can only be distributed by the Train Operating Companies (TOCs) either up to the lower amount of their retained profits or the amount determined by prescribed liquidity ratios. The ring-fenced cash represents that which is not available for distribution or the amount required to satisfy the liquidity ratio at the balance sheet date. First Rail ring-fenced cash increased by Â£62.3m in the period principally due to working capital inflows at GWR and SWR.

Funding and risk management

Liquidity within the Group has remained strong. At 30 September 2018, there was Â£727.3m (H1 2017: Â£844.1m) of committed headroom and free cash, being Â£587.0m (H1 2017: Â£800.0m) of committed headroom and Â£140.3m (H1 2017: Â£44.1m) of free cash. Largely due to the seasonality of First Student, committed headroom typically reduces during the financial year up to October and increases thereafter. Treasury policy requires a minimum level of committed headroom is maintained. Our average debt maturity is 4.0 years (H1 2017: 3.2 years). The Groupâ€™s main revolving bank facilities require renewal in November 2023 following a two and a half year amendment and extension agreed in November 2018. The Group does not enter into speculative financial transactions and uses only authorised financial instruments for certain financial risk management purposes.

Balance sheet

Net assets have increased by Â£228.2m since the start of the period. The principal reasons for this are translation reserve movements of Â£172.4m, favourable after tax hedging reserve movements of Â£35.6m and actuarial gains on defined benefit pension schemes (net of deferred tax) of Â£24.9m.

Pensions

We have updated certain of our pension assumptions as at 30 September 2018 for the defined benefit schemes in the UK and North America. The net pension deficit of Â£273.7m at the beginning of the period has decreased to Â£228.8m at the end of the period principally due to release of irrecoverable surplus, additional cash contributions and higher real discount rates in North America partly offset by unfavourable foreign exchange movements. Based on the most recent actuarial valuations, the combined funding deficit of the First Bus and Group defined benefit schemes in the UK, taking into account funding guarantees provided by FirstGroup plc, is approximately Â£200m higher than the balance sheet position on an accounting basis. The main factors that influence the balance sheet position for pensions and the sensitivities to their movement at 30 September 2018 are set out below:

	Movement	Impact
Discount rate	+0.1%	Reduce deficit by Â£30.6m
Inflation	+0.1%	Increase deficit by Â£25.1m

On 26 October 2018 the High Court ruled that guaranteed minimum pensions should be equalised between men and women. As a result pension scheme trustees will be obliged to adjust benefit payments in order that benefits received by male and female members with equivalent age, service and earnings histories are equal. We are working with the trustees of our UK pension schemes and our actuarial and legal advisors to fully understand the extent to which this ruling could crystallise additional liabilities in our UK pension schemes. We estimate that the impact could be significant and we anticipate that any adjustment will be recognised in the second half of the current financial year.

Fuel price risk

We use a progressive forward hedging programme to manage commodity risk. We have hedged 87% of the 'at risk' crude requirements for the current year in the UK (1.9m barrels p.a.) at an average rate of $60 per barrel, 65% of our 'at risk' UK crude requirements for the year to 31 March 2020 at $65 per barrel and 30% of our requirements for the year to 31 March 2021 at $68 per barrel.

In North America, we have hedged 62% of current year 'at risk' crude oil volumes (1.4m barrels p.a.) at an average rate of $58 per barrel, 40% of the volumes for the year to 31 March 2020 at $60 per barrel and 17% of our volumes for the year to 31 March 2021 at $66 per barrel.

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

â€˜Certainâ€™ and â€˜highly probableâ€™ foreign currency transaction exposures 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 period, 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:

	6 months to 30 September 2018		6 months to 30 September 2017		Year to 31 March 2018
	Closing rate	Effective rate	Closing rate	Effective rate	Closing rate	Effective rate
US Dollar	1.30	1.38	1.35	1.27	1.40	1.34
Canadian Dollar	1.68	1.84	1.67	1.96	1.81	1.75

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.

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 Groupâ€™s financial performance, balance sheet and outlook. The Board is not proposing to pay a dividend in respect of the six months to 30 September 2018 but will continue to review the appropriate timing for restarting dividend payments.

Impact of new accounting standards

The new accounting standard, IFRS 16 Leases comes into effect for accounting periods beginning after 1 January 2019, and will be adopted by the Group from 1 April 2019. It eliminates the operating lease classification and leases will be required to be recognised as right of use assets and lease liabilities on the balance sheet.

A project is underway to implement this standard for the year ended 31 March 2020. Until this project is finalised it is not possible to accurately determine the value of right of use assets and lease liabilities that will be recognised on adoption of the standard. In note 34 of the Annual Report and Accounts 2018 the Group disclosed total operating lease commitments of Â£3,622.1m as at 31 March 2018, which represented the gross value before the discounting of lease commitments to their present value required by IFRS 16.

Note 1 provides details on the adoption of IFRS 9 Financial Instruments and IFRS 15 Revenue from contracts with customers, neither of which has had a material impact on the Group. Both standards came into effect for accounting periods beginning after 1 January 2018, and were adopted by the Group from 1 April 2018.

Forward-looking statements

Certain statements included or incorporated by reference within this document may constitute â€˜forward- looking statementsâ€™ 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. 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 six months to 30 September 2018 (the â€˜first halfâ€™, the 'period' or â€˜H1 2018â€™) include the results and financial position of the First Rail business for the period ended 15 September 2018 and the results and financial position of all the other businesses for the 26 weeks ended 29 September 2018. The figures for the six months to 30 September 2017 (the â€˜prior periodâ€™ or â€˜H1 2017â€™) include the results and financial position of First Rail for the period ended 16 September 2017 and the results and financial position of all the other businesses for the 26 weeks ended 23 September 2017. Figures for the year to 31 March 2018 include the results and financial position of the First Rail division for the year ended 31 March 2018 and the results and financial position of all the other businesses for the 53 weeks ended 31 March 2018. Full year results for 2019 will include the results and financial position of First Rail for the year to 31 March 2019 and the results and financial position of all the other businesses for the 52 weeks ended 30 March 2019.

All references to 'adjusted' figures throughout this document are before other intangible asset amortisation charges and certain other items as set out in note 3 to the condensed consolidated financial statements.

â€˜ROCEâ€™ or Return on Capital Employed is a measure of capital efficiency and is calculated by dividing adjusted operating profit after tax by all period end assets and liabilities excluding debt items.

'EBITDAâ€™ 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 â€˜like-for-likeâ€™ revenue adjust for changes in the composition of the divisional portfolio, holiday timing, severe weather and other factors, for example significant engineering possessions in First Rail, that distort the period-on-period trends in our passenger revenue businesses.

Principal risks and uncertainties for the remaining six months of the financial year

There are a number of risks and uncertainties facing the Group in the remaining six months of the financial year. The principal risks and uncertainties, which are the same as set out in detail on pages 34 to 39 of the Annual Report and Accounts 2018, are:

Economic conditions including Brexit implications
Political and regulatory
Contract businesses including rail franchising
Competition and emerging technologies
Information technology (IT)
Data security (including cyber security and GDPR)
Treasury and credit rating
Pension scheme funding
Compliance, litigation and claims, health and safety
Labour costs, employee relations, recruitment and retention
Disruption to infrastructure/operations

Condensed consolidated income statement

Continuing Operations	Notes	Unaudited 6 months to 30 September 2018 Â£m	Unaudited 6 months to 30 September 2017 Â£m	Year to 31 March 2018 Â£m
Revenue	2, 4	3,303.3	2,771.3	6,398.4
Operating costs		(3,257.0)	(2,713.9)	(6,594.6)
Operating profit/(loss)		46.3	57.4	(196.2)
Investment income	5	1.1	0.4	1.3
Finance costs	5	(52.0)	(59.7)	(132.0)
Loss before tax		(4.6)	(1.9)	(326.9)
Tax	6	(4.6)	2.9	36.0
(Loss)/profit for the period		(9.2)	1.0	(290.9)
Attributable to:
Equity holders of the parent		(6.9)	2.1	(296.0)
Non-controlling interests		(2.3)	(1.1)	5.1
		(9.2)	1.0	(290.9)
Earnings per share
Basic	7	(0.6)p	0.2p	(24.6)p
Diluted		(0.6)p	0.2p	(24.2)p
Adjusted results¹
Adjusted operating profit	3	92.4	89.4	317.0
Adjusted profit before tax	3	42.0	30.5	197.0
Adjusted EPS	7	2.9p	1.9p	12.3p

¹ Adjusted for certain items as set out in note 3.

Condensed consolidated statement of comprehensive income

	Unaudited 6 months to 30 September 2018 Â£m	Unaudited 6 months to 30 September 2017 Â£m	Year to 31 March 2018 Â£m
(Loss)/profit for the period	(9.2)	1.0	(290.9)

Items that will not be reclassified subsequently to profit or loss
Actuarial gains on defined benefit pension schemes	29.1	23.6	26.6
Deferred tax on actuarial gains on defined benefit pension schemes	(4.2)	(4.5)	(6.2)
Deferred tax on defined benefit pension schemes due to US tax reform	-	-	(20.4)
	24.9	19.1	-
Items that may be reclassified subsequently to profit or loss
Derivative hedging instrument movements	43.7	22.4	45.1
Deferred tax on derivative hedging instrument movements	(8.1)	(6.1)	(9.3)
Deferred tax on derivative hedging instruments due to US tax reform	-	-	(1.4)
Exchange differences on translation of foreign operations	172.4	(210.0)	(324.9)
	208.0	(193.7)	(290.5)

Other comprehensive income/(loss) for the period	232.9	(174.6)	(290.5)

Total comprehensive income/(loss) for the period	223.7	(173.6)	(581.4)
Attributable to:
Equity holders of the parent	226.0	(172.5)	(586.5)
Non-controlling interests	(2.3)	(1.1)	5.1
	223.7	(173.6)	(581.4)

Condensed consolidated balance sheet

	Note	Unaudited 30 September 2018 Â£m	Unaudited 30 September 2017 Â£m	31 March 2018 Â£m
Non-current assets
Goodwill	8	1,604.2	1,826.7	1,496.8
Other intangible assets	9	80.6	117.2	89.8
Property, plant and equipment	10	2,196.9	2,166.9	2,090.1
Deferred tax assets		25.1	17.6	37.7
Retirement benefit assets	23	51.5	41.8	32.5
Derivative financial instruments	17	41.4	45.5	25.0
Investments		34.8	31.3	31.0
		4,034.5	4,247.0	3,802.9
Current assets
Inventories		61.0	62.2	56.0
Trade and other receivables	12	915.1	780.3	888.0
Current tax assets		5.1	4.1	2.9
Cash and cash equivalents	22	595.0	428.8	555.7
Assets held for sale	11	25.4	3.0	0.9
Derivative financial instruments	17	44.6	4.2	27.3
		1,646.2	1,282.6	1,530.8
Total assets		5,680.7	5,529.6	5,333.7
Current liabilities
Trade and other payables	13	1,589.1	1,283.8	1,437.4
Tax liabilities â€“ Current tax liabilities		2.8	2.1	3.8
â€“ Other tax and social security		41.0	34.4	31.7
Borrowings	14	344.5	432.6	351.5
Derivative financial instruments	17	0.1	13.7	6.7
		1,977.5	1,766.6	1,831.1
Net current liabilities		331.3	484.0	300.3
Non-current liabilities
Borrowings	14	1,350.8	1,246.3	1,339.6
Derivative financial instruments	17	-	4.7	3.0
Retirement benefit liabilities	23	280.3	338.0	306.2
Deferred tax liabilities		24.6	21.0	22.2
Provisions	18	328.7	253.1	341.0
		1,984.4	1,863.1	2,012.0
Total liabilities		3,961.9	3,629.7	3,843.1
Net assets		1,718.8	1,899.9	1,490.6
Equity
Share capital	20	60.6	60.5	60.5
Share premium		682.3	679.9	681.4
Hedging reserve		52.1	(1.6)	16.5
Other reserves		4.6	4.6	4.6
Own shares		(5.2)	(3.3)	(6.3)
Translation reserve		555.9	498.4	383.5
Retained earnings		361.0	642.8	340.6
Equity attributable to equity holders of the parent		1,711.3	1,881.3	1,480.8
Non-controlling interests		7.5	18.6	9.8
Total equity		1,718.8	1,899.9	1,490.6

Condensed consolidated statement of changes in equity

	Share capital Â£m	Share premium Â£m	Hedging reserve Â£m	Other reserves Â£m	Own shares Â£m	Translation reserve Â£m	Retained earnings Â£m	Total Â£m	Non-controlling interests Â£m	Total equity Â£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
Total comprehensive income/(loss) for the period	-	-	35.6	-	-	172.4	18.0	226.0	(2.3)	223.7
Shares issued	0.1	0.9	-	-	-	-	-	1.0	-	1.0
Movement in EBT and treasury shares	-	-	-	-	1.1	-	(2.3)	(1.2)	-	(1.2)
Share-based payments	-	-	-	-	-	-	4.7	4.7	-	4.7
Balance at 30 September 2018 (unaudited)	60.6	682.3	52.1	4.6	(5.2)	555.9	361.0	1,711.3	7.5	1,718.8

Balance at 1 April 2017	60.4	678.9	(17.9)	4.6	(1.2)	708.4	621.9	2,055.1	20.8	2,075.9
Total comprehensive (loss)/income for the period	-	-	16.3	-	-	(210.0)	21.2	(172.5)	(1.1)	(173.6)
Shares issued	0.1	1.0	-	-	-	-	-	1.1	-	1.1
Dividends paid/other	-	-	-	-	-	-	-	-	(1.1)	(1.1)
Movement in EBT and treasury shares	-	-	-	-	(2.1)	-	(4.7)	(6.8)	-	(6.8)
Share-based payments	-	-	-	-	-	-	4.4	4.4	-	4.4
Balance at 30 September 2017 (unaudited)	60.5	679.9	(1.6)	4.6	(3.3)	498.4	642.8	1,881.3	18.6	1,899.9

Balance at 1 April 2017	60.4	678.9	(17.9)	4.6	(1.2)	708.4	621.9	2,055.1	20.8	2,075.9
Total comprehensive (loss)/income for the period	-	-	34.4	-	-	(324.9)	(296.0)	(586.5)	5.1	(581.4)
Acquisition of non-controlling interests	-	-	-	-	-	-	13.8	13.8	(13.8)	-
Shares issued	0.1	2.5	-	-	-	-	-	2.6	-	2.6
Dividends paid/other	-	-	-	-	-	-	-	-	(2.3)	(2.3)
Movement in EBT and treasury shares	-	-	-	-	(5.1)	-	(8.0)	(13.1)	-	(13.1)
Share-based payments	-	-	-	-	-	-	8.9	8.9	-	8.9
Balance at 31 March 2018	60.5	681.4	16.5	4.6	(6.3)	383.5	340.6	1,480.8	9.8	1,490.6

Condensed consolidated cash flow statement

	Note	Unaudited 6 months to 30 September 2018 Â£m	Unaudited 6 months to 30 September 2017 Â£m	Year to 31 March 2018 Â£m
Net cash from operating activities	21	228.6	288.0	636.9

Investing activities
Interest received		1.0	0.4	1.3
Proceeds from disposal of property and plant and equipment		12.3	7.0	11.4
Purchases of property, plant and equipment		(186.0)	(183.9)	(395.9)
Purchases of software		(3.6)	(7.2)	(26.8)
Acquisition of business	19	(2.3)	(2.9)	(2.9)
Acquisition of non-controlling interest		-	-	(13.8)
Net cash used in investing activities		(178.6)	(186.6)	(426.7)
Financing activities
Dividends paid to non-controlling shareholders		-	-	(1.1)
Shares purchased by Employee Benefit Trust		-	(5.2)	(11.2)
Shares issued		0.6	0.8	2.1
Proceeds from senior unsecured loans		-	-	193.3
Repayment of bond		-	-	(300.0)
Repayment of senior unsecured loans		-	(38.7)	(76.5)
Drawdowns from bank facilities		12.5	-	197.0
Repayment of loan notes		(0.1)	-	-
Repayments under HP contracts and finance leases		(20.5)	(30.1)	(62.1)
Fees for bank facility amendments		-	-	(1.0)
Net cash flow used in financing activities		(7.5)	(73.2)	(59.5)
Net increase in cash and cash equivalents before foreign exchange movements		42.5	28.2	150.7
Cash and cash equivalents at beginning of period		555.7	400.9	400.9
Foreign exchange movements		(3.2)	(0.3)	4.1
Cash and cash equivalents at end of period per consolidated balance sheet		595.0	428.8	555.7

Cash and cash equivalents are included within current assets on the condensed consolidated balance sheet. Cash and cash equivalents includes ring-fenced cash of Â£454.7m (H1 2017: Â£384.7m; full year 2018: Â£392.3m).

Note to the condensed consolidated cash flow statement â€“ reconciliation of net cash flow to movement in net debt

	Note	Unaudited 6 months to 30 September 2018 Â£m	Unaudited 6 months to 30 September 2017 Â£m	Year to 31 March 2018 Â£m
Net increase in cash and cash equivalents in period		42.5	28.2	150.7
Decrease in debt and finance leases		8.1	68.8	48.3
Net cash flow		50.6	97.0	199.0
Foreign exchange movements		(26.9)	13.9	23.2
Other non-cash movements in relation to financial instruments		(1.1)	(0.9)	(2.6)
Movement in net debt in period		22.6	110.0	219.6
Net debt at beginning of period		(1,070.3)	(1,289.9)	(1,289.9)
Net debt at end of period	22	(1,047.7)	(1,179.9)	(1,070.3)

Net debt includes the value of derivatives in connection with the bonds maturing in 2019 and 2021 and excludes all accrued interest. These bonds are included in current and non-current liabilities in the condensed consolidated balance sheet.

Notes to the half yearly financial report

1 Basis of preparation

This half-yearly financial report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The statutory accounts for the year ended 31 March 2018 have been delivered to the Registrar of Companies. The auditor reported on those accounts; their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

The figures for the six months to 30 September 2018 include the results and financial position of the First Rail division for the period ended 15 September 2018 and the results and financial position for the other divisions for the 26 weeks ended 29 September 2018. The comparative figures for the six months to 30 September 2017 include the results and financial position of the First Rail division for the period ended 16 September 2017 and the results and financial position of the other divisions for the 26 weeks ended 23 September 2017.

The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with the DTR of the Financial Conduct Authority and International Accounting Standard (IAS) 34, â€˜Interim Financial Reportingâ€™, as adopted by the European Union.

The accounting policies used in this half-yearly financial report are consistent with International Financial Reporting Standards (IFRS) as adopted by the European Union. The accounting policies applied are consistent with those described in the Groupâ€™s latest annual audited financial statements, except for the adoption of new accounting standards noted below which became effective for the financial year beginning on 1 April 2018. There has been no material change as a result of applying these new accounting standards. We have also included certain non-GAAP measures in order to reflect managementâ€™s reported view of financial performance excluding other intangible asset amortisation charges and certain other items.

The Group has applied for the first time IFRS 9 Financial instruments and IFRS 15 Revenue from contracts with customers. As required by IAS 34, the nature and effect of these changes are disclosed below.

IFRS 9 Financial Instruments

This standard replaces IAS 39 with effect from accounting periods commencing 1 January 2018. The new standard covers three distinct areas: the classification and measurement of financial assets and liabilities; the impairment of financial assets; and new hedging requirements designed to give increased flexibility in relation to hedge effectiveness.

IFRS 9 requires a new impairment model with impairment provisions based on expected credit losses rather than incurred credit losses under IAS 39. The simplified approach has been applied to trade and other receivables and we have determined expected credit losses for significant portfolios of receivables. The transitional increase/decrease in the impairment allowance as a result of this change in accounting policy is nil.

In relation to hedge accounting, there has been no impact on the Groupâ€™s financial statements. Our hedging instruments remain effective and the current hedge relationships qualify as continuing hedges under IFRS 9. There will be some increased disclosure requirements under IFRS 9 and these will be reflected in the financial statements for the year ended 31 March 2019.

The Group has applied the new rules prospectively from 1 April 2018. As per above, there is a transitional increase/decrease in the impairment allowance of Â£nil.

IFRS 15 Revenue from contracts with customers

IFRS 15 introduced a new revenue recognition model that recognises revenue either at a point in time or over time. It is based on the principle that revenue is recognised when control of a good or service transfers to the customer and is based on the fulfilment of performance obligations.

The adoption of IFRS 15 has not had a material impact on Group revenue recognition, and there have been no adjustments required to opening retained earnings.

The Group has applied the new rules prospectively from 1 April 2018. Note 4 sets out a numerical disaggregation of revenue in accordance with the disclosure requirements of the new standard, with an explanation of the types of revenue included in the note set out below:

Passenger revenues

Passenger revenues primarily relate to ticket sales through First Bus, First Rail and Greyhound. Passenger revenue is recognised at both a point in time and over time. Ticket sales for journeys of less than one weekâ€™s duration are recognised on the first date of travel. Ticket sales for season tickets and travel cards are initially deferred then recognised over the period covered by the relevant ticket. Concessionary amounts are recognised in the period in which the service is provided.

Contract revenues

Contract revenues mainly relate to First Student school bus contracts and First Transit contracts in North America. Revenues are recognised as the services are provided and in accordance with the terms of the contract.

1 Basis of preparation (continued)

Charter/private hire

Charter and private hire predominantly relates to charter work in First Student for both school districts with extracurricular activities and third parties with general transportation needs. Revenue is recognised over the period in which the charter/private hire is provided to the customer.

Rail franchise subsidy receipts

Revenue in First Rail includes franchise subsidy receipts from the Department for Transport (DfT) and amounts receivable under franchise arrangements, including certain funded operational projects. Revenue is recognised over time.

Other revenues

Other revenues mainly relate to Greyhound Package Express, non-rail subsidies, revenue arising from ancillary services to other rail and road passenger service providers for maintenance, refuelling and other associated services and to sundry third parties for the use of space at terminals and on-board vehicles for other business activities, e.g. retail outlets, taxi ranks, catering and advertising. Other revenues are recognised at both a point in time and over time.

New accounting standards not yet applied

The Group has not yet applied IFRS 16 Leases. It becomes effective for accounting periods beginning after 1 January 2019, and will be adopted by the Group from 1 April 2019.

The new standard eliminates the operating lease classification and therefore on the balance sheet the lessees will be required to recognise right of use assets and lease liabilities for all leases unless they have a lease term of less than twelve months or are of low value. On the income statement, the operating lease expense will be replaced by a combination of depreciation and interest.

A project is underway to implement this standard for the year ended 31 March 2020. Until this project is finalised it is not possible to accurately determine the value of right of use assets and lease liabilities that will be recognised on adoption of the standard. At 31 March 2018, the Group held a significant number of operating leases that are expensed over the lease term. The total commitment at 31 March 2018 was Â£3,622.1m, which represents the gross value and is before the discounting of commitments to their present value required by IFRS 16.

These results are unaudited but have been reviewed by the auditor. The comparative figures for the six months to 30 September 2018 are unaudited and are derived from the half-yearly financial report for that period, which was also reviewed by the auditor.

The Directors have carried out a review of the Groupâ€™s budget for the year to 31 March 2019 and medium term plans, with due regard for the risks and uncertainties to which the Group is exposed, the uncertain economic climate and the impact that this could have on trading performance. Based on this review, the Directors believe that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, the condensed consolidated financial statements have been prepared on the going concern basis in preparing this half-yearly report.

The operating and financial review statement contained in this half-yearly report, including the summarised principal risks and uncertainties, has been prepared by the Directors in good faith based on the information available to them up to the time of their approval of this report solely for the Companyâ€™s shareholders as a body, so as to assist them in assessing the Group's strategies and the potential for those strategies to succeed and accordingly should not be relied on by any other party or for any other purpose and the Company hereby disclaims any liability to any such other party or for reliance on such information for any such other purpose.

The operating and financial review considers the impact of seasonality on the Group and also the principal risks and uncertainties facing it in the remaining six months of the financial year.

This half-yearly report has been prepared in respect of the Group as a whole and accordingly matters identified as being significant or material are so identified in the context of FirstGroup plc and its subsidiary undertakings taken as a whole.

This half-yearly financial report was approved by the Board on 13 November 2018.

2 Revenue

	6 months to 30 September 2018 Â£m	6 months to 30 September 2017 Â£m	Year to 31 March 2018 Â£m
Services rendered (note 4)	3,203.3	2,771.3	6,398.4
First Rail franchise subsidy receipts	100.0	-	-
Revenue	3,303.3	2,771.3	6,398.4
Investment income	1.1	0.4	1.3
Total revenue as defined by IFRS 15	3,304.4	2,771.7	6,399.7

3 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 Groupâ€™s adjusted performance is used to explain year-on-year changes when the effect of certain items are significant, including restructuring and reorganisation costs, property disposals, aged legal and self-insurance claims, onerous contract provisions, impairment charges and pension settlement gains or losses. 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 profit/(loss) to adjusted operating profit	6 months to 30 September 2018 Â£m	6 months to 30 September 2017 Â£m	Year to 31 March 2018 Â£m
Operating profit/(loss)	46.3	57.4	(196.2)
Adjustments for:
Other intangible asset amortisation charges	17.6	32.0	70.9
Greyhound impairment charges	-	-	277.3
TPE onerous contract provision	-	-	106.3
Restructuring and reorganisation costs	28.5	-	26.0
North America insurance reserves	-	-	32.7
Total operating profit adjustments	46.1	32.0	513.2
Adjusted operating profit	92.4	89.4	317.0

Reconciliation of loss before tax to adjusted profit before tax	6 months to 30 September 2018 Â£m	6 months to 30 September 2017 Â£m	Year to 31 March 2018 Â£m
Loss before tax	(4.6)	(1.9)	(326.9)
Operating profit adjustment (see table above)	46.1	32.0	513.2
Notional interest on TPE onerous contract provision	0.5	-	-
Bond â€˜make wholeâ€™ interest cost	-	-	10.7
Ineffectiveness on financial derivatives	-	0.4	-
Adjusted profit before tax	42.0	30.5	197.0
Adjusted tax charge	(9.4)	(9.2)	(44.2)
Non-controlling interests	2.3	1.1	(5.1)
Adjusted earnings	34.9	22.4	147.7

The principal adjusting items are as follows:

Other intangible asset amortisation charges

The charge for the period was Â£17.6m (H1 2017: Â£32.0m) with the reduction due to a number of customer contract intangibles which have now been fully amortised.

Restructuring and reorganisation costs

Notional interest on TPE onerous contract provision

There was a charge of Â£0.5m (H1 2017: Â£nil) in the year for notional interest on the unwinding of the TPE onerous contract provision.

4 Business segments information

The segment results for the six months to 30 September 2018 are as follows:

	First Student Â£m	First Transit Â£m	Greyhound Â£m	First Bus Â£m	First Rail Â£m	Group items¹ Â£m	Total Â£m
Passenger revenues	-	-	300.1	395.0	1,050.0	-	1,745.1
Contract revenues	680.6	458.9	-	31.6	-	7.8	1,178.9
Charter/private hire	87.5	2.7	1.8	2.1	-	-	94.1
Rail franchise subsidy receipts	-	-	-	-	100.0	-	100.0
Other revenues	7.1	58.0	40.7	5.2	74.2	-	185.2
Revenue	775.2	519.6	342.6	433.9	1,224.2	7.8	3,303.3
EBITDA²	111.5	34.2	23.7	52.8	52.6	(19.7)	255.1
Depreciation	(86.9)	(9.8)	(13.8)	(29.0)	(43.9)	(1.2)	(184.6)
Capital grant amortisation	-	-	0.3	1.0	20.6	-	21.9
Segment results	24.6	24.4	10.2	24.8	29.3	(20.9)	92.4
Other intangible asset amortisation charges	(8.4)	(1.1)	(5.9)	(0.1)	(1.8)	(0.3)	(17.6)
Other adjustments (note 3)	-	-	(28.5)	-	-	-	(28.5)
Operating profit/(loss)	16.2	23.3	(24.2)	24.7	27.5	(21.2)	46.3

Balance sheet	Total assets Â£m	Total liabilities Â£m	Net assets/(liabilities) Â£m
First Student	2,772.6	(444.5)	2,328.1
First Transit	581.3	(139.6)	441.7
Greyhound	373.6	(325.2)	48.4
First Bus	724.8	(287.9)	436.9
First Rail	459.5	(963.6)	(504.1)
	4,911.8	(2,160.8)	2,751.0
Group items	143.7	(90.0)	53.7
Net debt	595.0	(1,642.7)	(1,047.7)
Taxation	30.2	(68.4)	(38.2)
Total	5,680.7	(3,961.9)	1,718.8

The segment results for the six months to 30 September 2017 are as follows:

	First Student Â£m	First Transit Â£m	Greyhound Â£m	First Bus Â£m	First Rail Â£m	Group items¹ Â£m	Total Â£m
Passenger revenues	-	-	309.6	388.2	624.1	-	1,321.9
Contract revenues	666.2	472.3	-	31.7	-	7.4	1,177.6
Charter/private hire	89.3	2.5	3.2	1.8	-	-	96.8
Other revenues	7.6	61.6	46.0	6.5	53.3	-	175.0
Revenue	763.1	536.4	358.8	428.2	677.4	7.4	2,771.3
EBITDA²	104.1	31.4	40.1	47.4	70.9	(15.7)	278.2
Depreciation	(89.3)	(10.5)	(16.6)	(31.6)	(43.5)	(1.0)	(192.5)
Capital grant amortisation	-	-	-	-	3.7	-	3.7
Segment results	14.8	20.9	23.5	15.8	31.1	(16.7)	89.4
Other intangible asset amortisation charges	(25.3)	(0.5)	(5.3)	-	(0.9)	-	(32.0)
Operating profit/(loss)	(10.5)	20.4	18.2	15.8	30.2	(16.7)	57.4

¹ Group items comprise Tram operations, central management and other items.

² EBITDA is adjusted operating profit less capital grant amortisation plus depreciation.

Balance sheet	Total assets Â£m	Total liabilities Â£m	Net assets/(liabilities) Â£m
First Student	2,641.9	(400.5)	2,241.4
First Transit	580.6	(137.4)	443.2
Greyhound	636.0	(326.9)	309.1
First Bus	753.9	(306.1)	447.8
First Rail	344.6	(670.8)	(326.2)
	4,957.0	(1,841.7)	3,115.3
Group items	122.1	(121.8)	0.3
Net debt	428.8	(1,608.7)	(1,179.9)
Taxation	21.7	(57.5)	(35.8)
Total	5,529.6	(3,629.7)	1,899.9

4 Business segments information (continued)

The segment results for the year to 31 March 2018 are as follows:

	First Student Â£m	First Transit Â£m	Greyhound Â£m	First Bus Â£m	First Rail Â£m	Group items¹ Â£m	Total Â£m
Passenger revenues	-	-	597.2	795.5	1,825.0	-	3,217.7
Contract revenues	1,604.0	943.7	-	67.3	-	16.2	2,631.2
Charter/private hire	154.6	4.5	5.4	3.2	-	-	167.7
Other revenues	12.5	124.5	87.6	13.4	143.8	-	381.8
Revenue	1,771.1	1,072.7	690.2	879.4	1,968.8	16.2	6,398.4
EBITDA²	335.2	79.8	58.8	116.3	129.4	(28.9)	690.6
Depreciation	(178.7)	(21.6)	(33.3)	(66.1)	(87.6)	(2.3)	(389.6)
Capital grant amortisation	-	-	-	-	16.0	-	16.0
Segment results	156.5	58.2	25.5	50.2	57.8	(31.2)	317.0
Other intangible asset amortisation charges	(54.7)	(2.8)	(11.0)	(0.2)	(2.1)	(0.1)	(70.9)
Other adjustments (note 3)	(13.4)	(21.1)	(280.8)	(20.7)	(106.3)	-	(442.3)
Operating profit/(loss)	88.4	34.3	(266.3)	29.3	(50.6)	(31.3)	(196.2)

¹ Group items comprise Tram operations, central management and other items.

² EBITDA is adjusted operating profit less capital grant amortisation plus depreciation.

Balance sheet	Total assets Â£m	Total liabilities Â£m	Net assets/(liabilities) Â£m
First Student	2,544.1	(376.2)	2,167.9
First Transit	539.4	(140.1)	399.3
Greyhound	365.9	(328.1)	37.8
First Bus	717.0	(296.8)	420.2
First Rail	454.8	(909.0)	(454.2)
	4,621.2	(2,050.2)	2,571.0
Group items	116.2	(109.2)	7.0
Net debt	555.7	(1,626.0)	(1,070.3)
Taxation	40.6	(57.7)	(17.1)
Total	5,333.7	(3,843.1)	1,490.6

5 Investment income and finance costs

	6 months to 30 September 2018 Â£m	6 months to 30 September 2017 Â£m	Year to 31 March 2018 Â£m
Investment income
Bank interest receivable	(1.1)	(0.4)	(1.3)
Finance costs
Bonds	30.2	41.3	84.3
Bank borrowings	5.4	3.3	8.8
Senior unsecured loan notes	4.4	1.0	1.3
Loan notes	0.5	0.5	1.1
Finance charges payable in respect of HP contracts and finance leases	1.5	2.4	4.6
Notional interest on long term provisions	5.6	5.6	11.0
Notional interest on pensions	3.9	5.2	10.2
Finance costs before adjustments	51.5	59.3	121.3
Notional interest on TPE onerous contract provision	0.5	-	-
Bond â€˜make wholeâ€™ cost	-	-	10.7
Hedge ineffectiveness on financial derivatives	-	0.4	-
Net finance costs	52.0	59.7	132.0

Finance costs before adjustments	51.5	59.3	121.3
Investment income	(1.1)	(0.4)	(1.3)
Net finance costs before adjustments	50.4	58.9	120.0

6 Tax on profit on ordinary activities

	6 months to 30 September 2018 Â£m	6 months to 30 September 2017 Â£m	Year to 31 March 2018 Â£m
Current tax charge	1.4	0.8	8.9
Deferred tax charge/(credit)	3.2	(3.7)	(44.9)
Total tax charge/(credit)	4.6	(2.9)	(36.0)

The tax effect of the adjustments disclosed in note 3 was a credit of Â£4.8m (H1 2017: credit of Â£12.1m; full year 2018: credit of Â£55.6m). In the full year 2018 there was also the one-off tax credit of Â£24.6m from the re-measurement of deferred tax balances as a result of the reduction in the US corporate tax rate.

7 Earnings per share (EPS)

EPS is calculated by dividing the loss attributable to equity shareholders of Â£6.9m (H1 2017: profit Â£2.1m; full year 2018: loss Â£296.0m) by the weighted average number of ordinary shares in issue of 1,205.0m (H1 2017: 1,206.2m; full year 2018: 1,205.1m). 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.

	30 September 2018 number	30 September 2017 number	31 March 2018 number
Weighted average number of shares used in basic calculation	1,205.0	1,206.2	1,205.1
Executive share options	12.4	13.0	17.9
Weighted average number of shares used in the diluted calculation	1,217.4	1,219.2	1,223.0

The adjusted EPS is intended to highlight the recurring results of the Group before amortisation charges, ineffectiveness on financial derivatives and certain other adjustments as set out in note 3. A reconciliation is set out below:

	6 months to 30 September 2018		6 months to 30 September 2017		Year to 31 March 2018
	Â£m	EPS (p)	Â£m	EPS (p)	Â£m	EPS (p)
Basic (loss)/profit / EPS	(6.9)	(0.6)	2.1	0.2	(296.0)	(24.6)
Other intangible asset amortisation charges (note 9)	17.6	1.5	32.0	2.7	70.9	5.9
Notional interest on TPE onerous contract provision	0.5	-	-	-	-	-
Ineffectiveness on financial derivatives	-	-	0.4	-	-	-
Bond â€˜make wholeâ€™ cost	-	-	-	-	10.7	0.9
Other adjustments (note 3)	28.5	2.4	-	-	442.3	36.7
Tax effect of above adjustments	(4.8)	(0.4)	(12.1)	(1.0)	(55.6)	(4.6)
Tax effect of change in US tax legislation	-	-	-	-	(24.6)	(2.0)
Adjusted profit / EPS	34.9	2.9	22.4	1.9	147.7	12.3

	6 months to 30 September 2018 pence	6 months to 30 September 2017 pence	Year to 31 March 2018 pence
Diluted EPS	(0.6)	0.2	(24.2)
Adjusted diluted EPS	2.9	1.8	12.1

8 Goodwill and impairment of assets

	Â£m
Cost
At 1 April 2018	1,761.4
Additions (note 19)	0.6
Foreign exchange movements	106.8
At 30 September 2018	1,868.8

Accumulated impairment losses
At 1 April 2018 and 30 September 2018	264.6

Carrying amount
At 30 September 2018	1,604.2
At 31 March 2018	1,496.8
At 30 September 2017	1,826.7

8 Goodwill and impairment of assets (continued)

Disclosures including goodwill by cash generating unit, details of impairment testing and sensitivities thereon are set out on page 121 of the 2018 Annual Report. The projections for First Student assume the incremental benefits of the existing recovery plan, the programme to address contract portfolio pricing together with an economic recovery.

The sensitivity analysis performed at 31 March 2018 indicated that the First Student margin or growth rates would need to fall in excess of 212 or 181 basis points respectively compared to medium term double digit margin expectations for there to be an impairment to the carrying value of net assets in this business. An increase in the discount rate in excess of 160 basis points would have led to the value in use of the division being less than its carrying amount.

In the year to 31 March 2018 there was an impairment charge of Â£277.3m on the Greyhound CGU. This was reflected in the financial statements as an impairment in full of the carrying value of Greyhound goodwill of Â£260.6m, an impairment of Â£12.3m on Greyhound property, plant and equipment, an impairment of Â£2.5m on Greyhound brand and trade name and Â£1.9m on Greyhound software.

The Greyhound business impairment review is sensitive to a change in the assumptions used, most notably to changes in the discount rate, terminal growth rate or terminal margin. A summary of the movements in the impairment charge recorded in the year to 31 March 2018 from a change in these assumptions is as follows:

0.1% movement in the discount rate would have increased or decreased the impairment charge by Â£5.6m
0.1% movement in the terminal growth rate would have increased or decreased the impairment charge by Â£5.3m
0.1% movement in terminal margin would have increased or decreased the impairment charge by Â£9.8m.

We have revisited the Greyhound CGU impairment testing and concluded that no adjustment to the carrying value of the CGU is required at 30 September 2018. Following the strategic review of the business the cash flow forecasts have been extended from a three year period to a five year period.

9 Other intangible assets

	Customer contracts Â£m	Greyhound brand and trade name Â£m	Software Â£m	Total Â£m
Cost
At 1 April 2018	439.7	66.9	63.1	569.7
Acquisitions (note 19)	0.7	-	-	0.7
Additions	-	-	3.6	3.6
Disposals	-	-	(0.1)	(0.1)
Foreign exchange movements	33.2	5.0	4.0	42.2
At 30 September 2018	473.6	71.9	70.6	616.1

Accumulated amortisation and impairment
At 1 April 2018	421.7	37.8	20.4	479.9
Charge for the period	7.4	1.6	8.6	17.6
Impairment	-	-	1.3	1.3
Foreign exchange movements	32.2	2.9	1.6	36.7
At 30 September 2018	461.3	42.3	31.9	535.5

Carrying amount
At 30 September 2018	12.3	29.6	38.7	80.6
At 31 March 2018	18.0	29.1	42.7	89.8
At 30 September 2017	47.4	34.7	35.1	117.2

Intangible assets include customer contracts and the Greyhound brand and trade name which were acquired through the purchases of businesses and subsidiary undertakings and software. These are being amortised on a straight-line basis over their useful lives which are between 3 and 20 years.

10 Property, plant and equipment

	Land and buildings Â£m	Passenger carrying vehicle fleet Â£m	Other plant and equipment Â£m	Total Â£m
Cost
At 1 April 2018	492.8	3,224.6	778.5	4,495.9
Acquisitions (note 19)	-	1.5	-	1.5
Additions	6.7	162.6	55.0	224.3
Disposals	(11.0)	(49.2)	(13.6)	(73.8)
Reclassified as held for sale	(26.7)	(63.9)	-	(90.6)
Foreign exchange movements	21.6	179.5	23.3	224.4
At 30 September 2018	483.4	3,455.1	843.2	4,781.7

Accumulated depreciation and impairment
At 1 April 2018	102.5	1,704.3	599.0	2,405.8
Charge for period	6.0	116.9	61.7	184.6
Disposals	(5.9)	(48.1)	(13.1)	(67.1)
Reclassified as held for sale	(2.8)	(59.4)	-	(62.2)
Impairment	-	0.4	1.0	1.4
Foreign exchange movements	5.4	97.6	19.3	122.3
At 30 September 2018	105.2	1,811.7	667.9	2,584.8

Carrying amount
At 30 September 2018	378.2	1,643.4	175.3	2,196.9
At 31 March 2018	390.3	1,520.3	179.5	2,090.1
At 30 September 2017	403.9	1,593.5	169.5	2,166.9

11 Assets held for sale

	30 September 2018 Â£m	30 September 2017 Â£m	31 March 2018 Â£m
Assets held for sale	25.4	3.0	0.9

These principally comprise of certain North American properties and First Student yellow school buses which are surplus to requirements and are being actively marketed for sale. Gains or losses arising on the disposal of such assets are included in arriving at operating profit in the condensed consolidated income statement.

12 Trade and other receivables

Amounts due within one year	30 September 2018 Â£m	30 September 2017 Â£m	31 March 2018 Â£m
Trade receivables	448.6	420.7	482.2
Provision for doubtful receivables	-	(7.7)	(4.3)
Credit loss allowance	(3.9)	-	-
Other receivables	76.5	70.8	106.8
Other prepayments	140.7	79.3	103.7
Accrued income	253.2	217.2	199.6
	915.1	780.3	888.0

13 Trade and other payables

Amounts falling due within one year	30 September 2018 Â£m	30 September 2017 Â£m	31 March 2018 Â£m
Trade payables	257.9	232.8	248.8
Other payables	273.6	230.7	230.2
Accruals	867.2	675.7	785.6
Deferred income	107.0	62.7	83.6
Season ticket deferred income	83.4	81.9	89.2
	1,589.1	1,283.8	1,437.4

14 Borrowings

	30 September 2018 Â£m	30 September 2017 Â£m	31 March 2018 Â£m
On demand or within 1 year
Finance leases (note 15)	51.1	56.7	47.1
Senior unsecured loan notes	-	36.9	-
Bond 8.125% (repayable 2018)	-	299.6	-
Bond 6.125% (repayable 2019)	263.7	10.4	261.3
Bond 8.75% (repayable 2021)	14.7	14.5	30.1
Bond 5.25% (repayable 2022)	14.6	14.3	5.8
Bond 6.875% (repayable 2024)	0.4	0.2	7.2
Total current liabilities	344.5	432.6	351.5
Within 1 â€“ 2 years
Finance leases (note 15)	39.1	48.2	39.5
Loan notes (note 16)	9.4	9.5	9.5
Bond 6.125% (repayable 2019)	-	264.3	-
	48.5	322.0	49.0
Within 2 â€“ 5 years
Syndicated loan facilities	213.0	-	197.0
Finance leases (note 15)	0.4	39.2	18.0
Bond 8.75% (repayable 2021)	357.4	364.3	358.9
Bond 5.25% (repayable 2022)	321.6	-	321.6
	892.4	403.5	895.5
More than 5 years
Finance leases (note 15)	0.1	0.1	0.1
Senior unsecured loan notes	210.0	-	195.2
Bond 5.25% (repayable 2022)	-	321.1	-
Bond 6.875% (repayable 2024)	199.8	199.6	199.8
	409.9	520.8	395.1

Total non-current liabilities at amortised cost	1,350.8	1,246.3	1,339.6

15 Hire Purchase (HP) contracts and finance leases

The Group had the following obligations under HP contracts and finance leases as at the balance sheet dates:

	30 September 2018		30 September 2017		31 March 2018
	Minimum payments Â£m	Present value of payments Â£m	Minimum payments Â£m	Present value of payments Â£m	Minimum payments Â£m	Present value of payments Â£m
Due within 1 year	52.4	51.1	58.2	56.7	48.3	47.1
Due within 1 â€“ 2 years	41.1	39.1	50.8	48.2	41.6	39.5
Due within 2 â€“ 5 years	0.5	0.4	42.6	39.2	19.6	18.0
Due in more than 5 years	0.1	0.1	0.1	0.1	0.1	0.1
	94.1	90.7	151.7	144.2	109.6	104.7
Less future financing charges	(3.4)	-	(7.5)	-	(4.9)	â€“
	90.7	90.7	144.2	144.2	104.7	104.7

16 Loan notes

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

	30 September 2018 Â£m	30 September 2017 Â£m	31 March 2018 Â£m
Due within 2 â€“ 5 years	9.4	9.5	9.5

17 Derivative financial instruments

	30 September 2018 Â£m	30 September 2017 Â£m	31 March 2018 Â£m
Total derivatives
Total non-current assets	41.4	45.5	25.0
Total current assets	44.6	4.2	27.3
Total assets	86.0	49.7	52.3
Total current liabilities	0.1	13.7	6.7
Total non-current liabilities	-	4.7	3.0
Total liabilities	0.1	18.4	9.7

Derivatives designated and effective as hedging instruments carried at fair value
Non-current assets
Coupon swaps (fair value hedge)	12.2	42.2	17.6
Currency forwards (cash flow hedge)	2.2	-	-
Fuel derivatives (cash flow hedge)	27.0	3.3	7.4
	41.4	45.5	25.0
Current assets
Coupon swaps (fair value hedge)	13.8	-	11.4
Fuel derivatives (cash flow hedge)	27.3	4.2	15.9
Currency forwards (cash flow hedge)	3.5	-	-
	44.6	4.2	27.3
Current liabilities
Fuel derivatives (cash flow hedge)	0.1	9.0	1.4
Currency forwards (cash flow hedge)	-	4.5	5.3
	0.1	13.5	6.7
Non-current liabilities
Fuel derivatives (cash flow hedge)	-	3.5	2.9
Currency forwards (cash flow hedge)	-	1.2	0.1
	-	4.7	3.0
Derivatives classified as held for trading
Current liabilities
Currency forwards	-	0.2	-

The fair value measurements of the financial derivatives held by the Group have been derived based on observable market inputs (as categorised within Level 2 of the fair value hierarchy under IFRS 7 (2009)).

17 Derivative financial instruments (continued)

Fair value of the Groupâ€™s financial assets and financial liabilities that are measured at fair value on a recurring basis:

	30 September 2018
	Fair value				Carrying value Total Â£m
	Level 1 Â£m	Level 2 Â£m	Level 3 Â£m	Total Â£m	Carrying value Total Â£m
Financial assets
Cash and cash equivalents	595.0	-	-	595.0	595.0
Trade and other receivables	-	521.2	-	521.2	521.2
Derivative financial instruments	-	86.0	-	86.0	86.0
Financial liabilities and derivatives
Financial liabilities	213.0	1,561.1	-	1,774.1	1,695.3
Trade and other payables	-	1,589.1	-	1,589.1	1,589.1
Derivative financial instruments	-	0.1	-	0.1	0.1

	30 September 2017
	Fair value				Carrying value Total Â£m
	Level 1 Â£m	Level 2 Â£m	Level 3 Â£m	Total Â£m	Carrying value Total Â£m
Financial assets
Cash and cash equivalents	428.8	-	-	428.8	428.8
Trade and other receivables	-	483.8	-	483.8	483.8
Derivative financial instruments	-	49.7	-	49.7	49.7
Financial liabilities and derivatives
Financial liabilities	-	1,892.0	-	1,892.0	1,678.9
Trade and other payables	-	1,283.8	-	1,283.8	1,283.8
Derivative financial instruments	-	18.4	-	18.4	18.4

	31 March 2018
	Fair value				Carrying value Total Â£m
	Level 1 Â£m	Level 2 Â£m	Level 3 Â£m	Total Â£m	Carrying value Total Â£m
Financial assets
Cash and cash equivalents	555.7	-	-	555.7	555.7
Trade and other receivables	-	584.7	-	584.7	584.7
Derivative financial instruments	-	52.3	-	52.3	52.3
Financial liabilities and derivatives
Financial liabilities	197.0	1,652.1	-	1,849.1	1,691.1
Trade and other payables	-	1,437.4	-	1,437.4	1,437.4
Derivative financial instruments	-	9.7	-	9.7	9.7

Level 1: Quoted prices in active markets for identical assets and liabilities.

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly.

Level 3: Inputs for the asset or liability that are not based on observable market data.

There were no transfers between level 1 and level 2 during the current or prior periods.

Financial assets/(liabilities)	Fair values (Â£m) at			Fair value hierarchy	Valuation technique(s) and key inputs
Financial assets/(liabilities)	30 September 2018	30 September 2017	31 March 2018	Fair value hierarchy	Valuation technique(s) and key inputs
Derivative contracts
1. Interest rate swaps	26.0	42.2	29.0	Level 2	Discounted cash flow; future cash flows are estimated based on forward interest rates and contract interest rates then discounted at a rate that reflects the credit risk of the various counterparties.
2. Fuel derivatives	54.2	(5.0)	21.8	Level 2	Discounted cash flow; future cash flows are estimated based on forward fuel priced and contract rates and then discounted at a rate that reflects the credit risk of the various counterparties.
3. Currency forwards	5.7	(5.9)	(8.2)	Level 2	Discounted cash flow; future cash flows are estimated based on forward exchange rates and contract rates and then discounted at a rate that reflects the credit risk of the various counterparties.
4. Trade and other receivables	521.2	483.8	584.7	Level 2	Carried at amortised cost using the effective interest rate method.
5. Trade and other payables	1,589.1	1,283.8	1,437.4	Level 2	Initially measured at fair value, and are subsequently measured at amortised cost using the effective interest rate method.
6. Borrowings	1,774.1	1,892.0	1,849.1	Level 2	Measured either on an amortised cost basis or at fair value. The fair values are calculated by discounting the future cash flows that will arise under the contracts.

18 Provisions

	30 September 2018 Â£m	30 September 2017 Â£m	31 March 2018 Â£m
Insurance claims	234.9	215.1	231.7
Legal and other	40.6	35.7	28.1
TPE onerous contract	51.3	-	79.2
Pensions	1.9	2.3	2.0
Non-current liabilities	328.7	253.1	341.0

	Insurance claims Â£m	Legal and other Â£m	TPE onerous contract Â£m	Pensions Â£m	Total Â£m
At 1 April 2018	368.8	67.6	106.3	2.0	544.7
Charged to the income statement	84.3	26.3	-	-	110.6
Utilised in the period	(100.7)	(16.6)	(20.7)	(0.1)	(138.1)
Notional interest	5.6	-	0.5	-	6.1
Foreign exchange movements	22.7	1.7	-	-	24.4
At 30 September 2018	380.7	79.0	86.1	1.9	547.7

Current liabilities	145.8	38.4	34.8	-	219.0
Non-current liabilities	234.9	40.6	51.3	1.9	328.7
At 30 September 2018	380.7	79.0	86.1	1.9	547.7

Current liabilities	137.1	39.5	27.1	-	203.7
Non-current liabilities	231.7	28.1	79.2	2.0	341.0
At 31 March 2018	368.8	67.6	106.3	2.0	544.7

Current liabilities	141.5	13.5	-	-	155.0
Non-current liabilities	215.1	35.7	-	2.3	253.1
At 30 September 2017	356.6	49.2	-	2.3	408.1

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 six years although certain liabilities in respect of lifetime obligations of Â£22.8m (H1 2017: Â£21.4m) can extend for up to 30 years. The utilisation of Â£100.7m (H1 2017: Â£93.5m) represents payments made largely against the current liability of the preceding year.

The insurance claims provisions contain Â£15.5m (H1 2017: Â£25.6m) 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 and 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.

The onerous contract provision in respect of TPE has been calculated based on financial forecasts for this franchise until the initial end date of 31 March 2023. The forecasts are based on a number of assumptions, most significantly passenger revenue growth. These are based on economic and other exogenous factors as well as changes in timetables, capacity and rolling stock. Whilst the onerous contract provision is based upon managementâ€™s current best estimate, there can be no certainty that actual results will be consistent with those forecast. The TPE onerous contract provision is sensitive to a change in the assumptions used, most notably to passenger revenue growth. The provisions are expected to be fully utilised within four years.

The pensionâ€™s 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.

19 Acquisition of businesses and subsidiary undertakings

	30 September 2018 Â£m	30 September 2017 Â£m	31 March 2018 Â£m
Provisional fair value of net assets acquired:
Property, plant and equipment	1.5	1.6	1.6
Other intangible assets	0.7	0.7	0.7
Other liabilities	(0.2)	(0.3)	(0.3)
	2.0	2.0	2.0
Goodwill	0.6	1.2	1.2
Satisfied by cash paid and payable	2.6	3.2	3.2

On 1 August 2018, the Group completed the acquisition of CG Pearson Bus Lines, an Ontario-based provider of school and charter transportation services. The Â£2.6m consideration represent Â£2.3m cash paid in the period and Â£0.3m of deferred consideration.

20 Called up share capital

	30 September 2018 Â£m	30 September 2017 Â£m	31 March 2018 Â£m
Allotted, called up and fully paid
1,211.9m ordinary shares of 5p each	60.6	60.5	60.5

The Company has one class of ordinary shares which carries no right to fixed income. The number of ordinary shares of 5p each in issue, excluding treasury shares and shares held in trust for employees, at the end of the period was 1,205.9m (H1 2017: 1,206.4m). At the end of the period 6.0m shares (H1 2017: 2.8m shares) were being held as treasury shares and own shares held in trust for employees.

21 Net cash for operating activities

	30 September 2018 Â£m	30 September 2017 Â£m	31 March 2018 Â£m
Operating profit/(loss)	46.3	57.4	(196.2)
Adjustments for:
Depreciation charges	184.6	192.5	389.6
Capital grant amortisation	(21.9)	(3.7)	(16.0)
Amortisation charges	17.6	32.0	70.9
Impairment charges	2.7	-	284.8
Share-based payments	4.7	4.4	8.9
(Profit)/loss on disposal of property, plant and equipment	(4.4)	3.3	8.3
Operating cash flows before working capital and pensions	229.6	285.9	550.3
(Increase)/decrease in inventories	(2.7)	(0.1)	4.6
Decrease/(increase) in receivables	13.8	(24.8)	(168.7)
Increase in payables	99.3	157.7	341.7
TPE onerous contract provision	(20.1)	-	106.3
Decrease in provisions	(5.9)	(19.3)	(10.5)
Defined benefit pension payments in excess of income statement charge	(30.8)	(31.0)	(47.9)
Cash generated by operations	283.2	368.4	775.8
Tax paid	(4.3)	(7.1)	(12.2)
Interest paid	(48.8)	(70.9)	(122.1)
Interest element of HP contracts and finance leases	(1.5)	(2.4)	(4.6)
Net cash from operating activities	228.6	288.0	636.9

22 Analysis of changes in net debt

	At 1 April 2018 Â£m	Cash flow Â£m	Foreign Exchange Â£m	Other Â£m	At 30 September 2018 Â£m
Components of financing activities:
Bank loans	(197.0)	(12.5)	(3.0)	(0.5)	(213.0)
Bonds	(1,138.6)	-	-	6.7	(1,131.9)
Fair value of interest rate coupon swaps	19.0	-	-	(6.7)	12.3
Senior unsecured loan notes	(195.2)	-	(14.8)	-	(210.0)
Finance lease obligations	(104.7)	20.5	(7.1)	0.6	(90.7)
Other debt	(9.5)	0.1	1.2	(1.2)	(9.4)
Total components of financing activities	(1,626.0)	8.1	(23.7)	(1.1)	(1,642.7)

Cash	163.4	(19.9)	(3.2)	-	140.3
Ring-fenced cash	392.3	62.4	-	-	454.7
Cash and cash equivalents	555.7	42.5	(3.2)	-	595.0

Net debt	(1,070.3)	50.6	(26.9)	(1.1)	(1,047.7)

	At 1 April 2017 Â£m	Cash flow Â£m	Foreign Exchange Â£m	Other Â£m	At 30 September 2017 Â£m
Components of financing activities:
Bonds	(1,458.5)	-	-	9.9	(1,448.6)
Fair value of interest rate coupon swaps	40.9	-	-	(10.4)	30.5
Senior unsecured loan notes	(80.0)	38.7	4.4	-	(36.9)
Finance lease obligations	(183.7)	30.1	11.1	(1.7)	(144.2)
Other debt	(9.5)	-	(1.3)	1.3	(9.5)
Total components of financing activities	(1,690.8)	68.8	14.2	(0.9)	(1,608.7)

Cash	141.1	(96.7)	(0.3)	-	44.1
Ring-fenced cash	259.8	124.9	-	-	384.7
Cash and Cash equivalents	400.9	28.2	(0.3)	-	428.8

Net debt	(1,289.9)	97.0	13.9	(0.9)	(1,179.9)

	At 1 April 2017 Â£m	Cash flow Â£m	Foreign Exchange Â£m	Other Â£m	At 31 March 2018 Â£m
Components of financing activities:
Bank loans	-	(197.0)	-	-	(197.0)
Bonds	(1,458.5)	300.0	-	19.9	(1,138.6)
Fair value of interest rate coupon swaps	40.9	-	-	(21.9)	19.0
Senior unsecured loan notes	(80.0)	(116.8)	0.6	1.0	(195.2)
Finance lease obligations	(183.7)	62.1	15.5	1.4	(104.7)
Other debt	(9.5)	-	3.0	(3.0)	(9.5)
Total components of financing activities	(1,690.8)	48.3	19.1	(2.6)	(1,626.0)

Cash	141.1	18.2	4.1	-	163.4
Ring-fenced cash	259.8	132.5	-	-	392.3
Cash and Cash equivalents	400.9	150.7	4.1	-	555.7

Net debt	(1,289.9)	199.0	23.2	(2.6)	(1,070.3)

All values above exclude accrued interest.

23 Retirement benefit schemes

The Group operates or participates in a number of defined benefit pension schemes which cover the majority of UK employees and certain North American employees. The scheme details are described on pages 143 to 144 of the Annual Report and Accounts for the year ended 31 March 2018.

The Group currently sponsors six sections of the RPS, relating to its franchising obligations for its TOCs, and for Hull Trains, its Open Access operator. The RPS is governed by the Railways Pension Trustee Company Limited, and is subject to regulation from the Pensions Regulator and relevant UK legislation. The RPS is a shared cost arrangement. All costs, and any deficit or surplus, are shared 60% by the employer and 40% by the members. For the TOC sections, under the franchising obligations, the employerâ€™s responsibility is to pay the contributions requested by the Trustee, whilst it operates the franchise. There is no residual liability or asset for any deficit, or surplus, which remains at the end of the franchise period.

Since the contributions being paid to each TOC section are lower than the share of the service cost that would normally be calculated under IAS19, the Group does not make any contribution towards the sectionsâ€™ deficits. Therefore, the Group does not need to reflect any deficit on its balance sheet. A franchise adjustment (asset) exists that exactly offsets any section deficit that would otherwise remain after reflecting the cost sharing with the members.

The market value of the assets at 30 September 2018 for all defined benefit schemes totalled Â£5,275m (H1 2017: Â£4,994m; full year 2018: Â£4,943m).

Contributions are paid to all defined benefit pension schemes in accordance with rates recommended by the schemesâ€™ actuaries. The valuations are made using the Projected Unit Credit Method.

The key assumptions were as follows:

		30 September 2018			30 September 2017			31 March 2018
	First Bus		First Rail	North America	First Bus	First Rail	North America	First Bus	First Rail	North America
Key assumptions used:
Discount rate	2.85		2.85	4.10	2.85	2.85	3.45	2.70	2.70	3.80
Expected rate of salary increases	2.20		3.45	2.50	3.55	3.55	2.50	2.05	3.30	2.50
Inflation â€“ CPI	2.20		2.20	2.00	1.95	1.95	2.00	2.05	2.05	2.00
Future pension increases	2.20		2.20	-	1.95	1.95	-	2.05	2.05	-

Amounts (charged)/credited to the condensed consolidated income statement in respect of these defined benefit schemes are as follows:

6 months to 30 September 2018	First Bus Â£m	North America Â£m	Total non-rail Â£m	First Rail Â£m	Total Â£m
Current service cost	(5.3)	(4.4)	(9.7)	(42.9)	(52.6)
Impact of franchise adjustment on operating cost	-	-	-	25.5	25.5
Net interest cost	(0.8)	(3.1)	(3.9)	(8.5)	(12.4)
Impact of franchise adjustment on net interest cost	-	-	-	8.5	8.5
	(6.1)	(7.5)	(13.6)	(17.4)	(31.0)

6 months to 30 September 2017	First Bus Â£m	North America Â£m	Total non-rail Â£m	First Rail Â£m	Total Â£m
Current service cost	(10.2)	(5.3)	(15.5)	(29.1)	(44.6)
Impact of franchise adjustment on operating cost	-	-	-	17.9	17.9
Net interest cost	(1.6)	(3.6)	(5.2)	(4.7)	(9.9)
Impact of franchise adjustment on net interest cost	-	-	-	4.7	4.7
	(11.8)	(8.9)	(20.7)	(11.2)	(31.9)

Year to 31 March 2018	First Bus Â£m	North America Â£m	Total non-rail Â£m	First Rail Â£m	Total Â£m
Current service cost	(21.5)	(10.0)	(31.5)	(72.5)	(104.0)
Impact of franchise adjustment on operating cost	â€“	â€“	â€“	40.7	40.7
Past service gain on TOC schemes	â€“	(0.3)	(0.3)	â€“	(0.3)
Net interest cost	(3.0)	(7.1)	(10.1)	(11.4)	(21.5)
Impact of franchise adjustment on net interest cost	â€“	â€“	â€“	11.4	11.4
	(24.5)	(17.4)	(41.9)	(31.8)	(73.7)

23 Retirement benefit schemes (continued)

Actuarial gains and losses have been reported in the condensed consolidated statement of comprehensive income.

The amounts included in the condensed consolidated balance sheet arising from the Groupâ€™s obligations in respect of its defined benefit pension schemes are as follows:

As at 30 September 2018	First Bus Â£m	North America Â£m	Total non-rail Â£m	First Rail Â£m	Total Â£m
Fair value of schemes' assets	2,645.8	486.0	3,131.8	2,143.2	5,275.0
Present value of defined benefit obligations	(2,548.0)	(626.2)	(3,174.2)	(3,027.5)	(6,201.7)
Surplus/(deficit) before adjustments	97.8	(140.2)	(42.4)	(884.3)	(926.7)
Adjustment for irrecoverable surplus¹	(184.0)	-	(184.0)	-	(184.0)
First Rail franchise adjustment (60%)	-	-	-	528.2	528.2
Adjustment for employee share of RPS deficits (40%)	-	-	-	353.7	353.7
Liability recognised in the condensed consolidated balance sheet	(86.2)	(140.2)	(226.4)	(2.4)	(228.8)
The amount is presented in the condensed consolidated balance sheet as follows:
Non-current assets	51.5	-	51.5	-	51.5
Non-current liabilities	(137.7)	(140.2)	(277.9)	(2.4)	(280.3)
	(86.2)	(140.2)	(226.4)	(2.4)	(228.8)

As at 30 September 2017	First Bus Â£m	North America Â£m	Total non-rail Â£m	First Rail Â£m	Total Â£m
Fair value of schemes' assets	2,595.4	489.8	3,085.2	1,909.2	4,994.4
Present value of defined benefit obligations	(2,525.5)	(675.4)	(3,200.9)	(2,721.8)	(5,922.7)
Deficit before adjustments	69.9	(185.6)	(115.7)	(812.6)	(928.3)
Adjustment for irrecoverable surplus¹	(178.5)	-	(178.5)	-	(178.5)
First Rail franchise adjustment (60%)	-	-	-	485.6	485.6
Adjustment for employee share of RPS deficits (40%)	-	-	-	325.0	325.0
Liability recognised in the condensed consolidated balance sheet	(108.6)	(185.6)	(294.2)	(2.0)	(296.2)
The amount is presented in the condensed consolidated balance sheet as follows:
Non-current assets	41.8	-	41.8	-	41.8
Non-current liabilities	(150.4)	(185.6)	(336.0)	(2.0)	(338.0)
	(108.6)	(185.6)	(294.2)	(2.0)	(296.2)

As at 31 March 2018	First Bus Â£m	North America Â£m	Total non-rail Â£m	First Rail Â£m	Total Â£m
Fair value of schemes' assets	2,622.6	454.8	3,077.4	1,866.0	4,943.4
Present value of defined benefit obligations	(2,570.6)	(617.5)	(3,188.1)	(2,951.1)	(6,139.2)
Surplus/(deficit) before adjustments	52.0	(162.7)	(110.7)	(1,085.1)	(1,195.8)
Adjustment for irrecoverable surplus¹	(160.4)	â€“	(160.4)	â€“	(160.4)
First Rail franchise adjustment (60%)	â€“	â€“	â€“	648.4	648.4
Adjustment for employee share of RPS deficits (40%)	â€“	â€“	â€“	434.1	434.1
Liability recognised in the condensed consolidated balance sheet	(108.4)	(162.7)	(271.1)	(2.6)	(273.7)
The amount is presented in the condensed consolidated balance sheet as follows:
Non-current assets	32.5	â€“	32.5	â€“	32.5
Non-current liabilities	(140.9)	(162.7)	(303.6)	(2.6)	(306.2)
	(108.4)	(162.7)	(271.1)	(2.6)	(273.7)

¹The irrecoverable surplus represents the amount of the surplus that the Group could not recover through reducing future company contributions to Local LGPS.

24 Contingent liabilities

Investigations into the Croydon tram incident are ongoing and it is uncertain when they will be concluded. The tram was operated by Tram Operations Limited (TOL), a subsidiary of the Company, under a contract with a 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. No proceedings have been commenced and, as such, it is not possible to assess whether any financial penalties or related costs could be incurred.

To support subsidiary undertakings in their normal course of business, the Company and certain subsidiaries have indemnified certain banks and insurance companies who have issued performance bonds for Â£796.3m (September 2017: Â£759.6m, March 2018: Â£783.1m) and letters of credit for Â£352.3m (September 2017: Â£343.5m, March 2018: Â£327.7m). The performance bonds relate to the North American businesses of Â£557.8m (September 2017: Â£524.4m, March 2018: Â£544.6m) and the First Rail franchise operations of Â£238.5m (September 2017: Â£235.2m, March 2018: Â£238.5m). The letters of credit relate substantially to insurance arrangements in the UK and North America. The parent company has committed further support facilities of up to Â£145.2m to First Rail Train Operating Companies.

24 Contingent liabilities (continued)

The Company is party to certain unsecured guarantees granted to banks for overdraft and cash management facilities provided to itself and subsidiary undertakings. The Company has given certain unsecured guarantees for the liabilities of its subsidiary undertakings arising under certain loan notes, HP contracts, finance leases, operating leases and certain pension scheme arrangements. It also provides unsecured cross guarantees to certain subsidiary undertakings as required by VAT legislation. First Bus subsidiaries have provided unsecured guarantees on a joint and several basis to the Trustees of the First Bus Pension Scheme.

The Group is party to legal proceedings and claims which arise in the normal course of business, including but not limited to employment and safety claims. The Group takes legal advice as to the likelihood of success of claims and counterclaims. No provision is made where due to inherent uncertainties, no accurate quantification of any cost, or timing of such cost, which may arise from any of the legal proceedings can be determined.

In its normal course of business First Rail has ongoing contractual negotiations with government and other organisations.

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 a noise abatement notice in respect of the operations at the Reading railway depot. The serving of the notice has been appealed and the related court hearing is currently scheduled to take place in late 2019 (unless the matter is settled between the parties before that date). It is not possible at this stage to quantify the implications for the GWR operations, if any, if they are not ultimately successful with respect to this appeal.

Responsibility statement

Each of the Directors confirms that to the best of his/her knowledge:

The condensed set of financial statements, which has been prepared in accordance with IAS 34 â€œInterim Financial Reportingâ€ as adopted by the European Union, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the issuer, or the undertakings included in the consolidation as a whole as required by DTR 4.2.4R;
The interim management report includes a fair review of the information required by DTR 4.2.7R; and
The interim management report includes a fair review of the information required by DTR 4.2.8R.

The Directors of FirstGroup plc are listed on the Group's website at www.firstgroupplc.com.

Wolfhart Hauser Matthew Gregory

Director Director

13 November 2018 13 November 2018

Independent review report to FirstGroup plc

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2018 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated balance sheet, the condensed consolidated statement of changes in equity, the condensed consolidated cash flow statement and related notes 1 to 24. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 â€œReview of Interim Financial Information Performed by the Independent Auditor of the Entityâ€ issued by the Financial Reporting Council. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

Directorsâ€™ responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdomâ€™s Financial Conduct Authority.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 â€œInterim Financial Reportingâ€ as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 â€œReview of Interim Financial Information Performed by the Independent Auditor of the Entityâ€ issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2018 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdomâ€™s Financial Conduct Authority.

Deloitte LLP
Statutory Auditor
London, United Kingdom

13 November 2018

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FirstGroup (FGP)

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