Half-year Report

FIRSTGROUP PLC
HALF-YEARLY RESULTS FOR THE SIX MONTHS TO 30 SEPTEMBER 2020

Resilient H1 performance; positive EBITDA and adjusted¹ op. profit, ahead of expectations earlier in year
Balance sheet reinforced and increased financial flexibility, robust cash flow
Improving visibility for our businesses
Progress in portfolio rationalisation strategy
Confident in our long-term fundamentals

	H1 2020 £m	H1 2019 £m	Change £m	Change excl. Avanti and in constant currency⁴ £m
Revenue	3,101.6	3,531.9	(430.3)	(838.2)
Adjusted¹ operating profit	10.4	88.9	(78.5)	(99.1)
Adjusted¹ operating profit margin	0.3%	2.5%	(220)bps	(280)bps
Adjusted¹ EPS	(5.3)p	1.4p	(6.7)p	(7.3)p
Adjusted cash flow²	231.7	(78.0)	+309.7
Net debt: EBITDA (bank covenant basis)³	1.5x	1.5x	-

Statutory	H1 2020 £m	H1 2019 £m
Revenue	3,101.6	3,531.9
Operating loss	(16.4)	(118.1)
EPS	(8.3)p	(14.3)p
Net cash from operating activities	688.2	331.6

Overview⁵

Resilient performance in seasonally weaker H1 – adjusted operating profit ahead of our expectations earlier in the year driven by proactive revenue recovery and strong cost control:

Substantial reduction in passenger volumes reflecting travel restrictions and other pandemic effects
Revenue of £3,101.6m fell by £838.2m or 23.8%, with reduced passenger activity offset by government procurement of services to enable socially distanced travel, and strong revenue recoveries from North American contract customers
Adjusted operating profit of £10.4m – despite significant fall in revenue, profit reduction held to £99.1m vs prior period through variable cost savings, c.£34m in fixed cost reductions and other management action, including appropriate use of job retention measures

Statutory operating loss of £16.4m (H1 2019: loss of £118.1m) and statutory EPS of (8.3)p (H1 2019: (14.3)p) reflect £(26.8)m of net adjusting items compared with £(207.0)m in H1 2019

Balance sheet reinforced through prudent actions taken at the appropriate times:

Robust adjusted cash flow in period, stronger than expected. Capex reprofiling and timing of working capital in First Student and First Rail also enhanced cash in the period
Comfortably met covenant tests for September 2020, as expected
Enhanced headroom secured as a matter of prudence for 2021 covenant tests

Current liquidity of £805m in free cash and committed undrawn facilities, consistent with average levels since April

Worked with our customers, governments and other stakeholders to ensure continuation of safe public transport, which are critical services for passengers and communities

As announced separately, SWR and Avanti today agreed franchise termination sums of £33.2m and nil respectively with Government; clearer path ahead with National Rail Contracts now being discussed

Progress in strategy to deliver improved shareholder value from all parts of the portfolio:

North American contract businesses: discussions with credible potential buyers who have a long term perspective, which the company and its advisers are exploring and evaluating
First Bus well-placed to play a key role in delivering economic, social and environmental agendas including the transition to a zero-carbon economy
In First Rail the industry’s transition to a simpler, management contract-style model will result in greater focus on passengers and more appropriate balance of risk and reward

Whilst the outlook remains uncertain due to the pandemic, visibility for our businesses is improving based on current government and customer arrangements and the expected trajectory of service restoration, and we are confident in the long-term fundamentals of our businesses

Divisional summary

First Student: 59% of buses currently operating following recent increases in coronavirus cases; currently recovering c.75% of home-to-school revenue pre-pandemic including recoveries from customers not yet operating full service; 87% retention in bid season with major awards in Indianapolis and Charleston, and new contracts including Pennsylvania; strong bolt-on M&A pipeline with acquisition in Canada in the period and another signed this month

First Transit: delivering c.86% of expected revenue pre-pandemic; 91% contract retention year to date including $225m Houston fixed route contract, and new business wins including $88m Atlanta paratransit contract and innovative eBike partnership with Nike and Lyft

Greyhound: operating c.45% of pre-pandemic mileage through rigorous management of service levels to match demand and underpinned by rural intercity bus service grants, currently delivering c.41% of pre-pandemic revenues in US

First Bus: operating near-full service levels to meet passenger demand within social distancing rules under government agreement in place until such time as no longer needed; making plans for transitional period that would follow, including proposal for recovery partnerships between local authorities, DfT and operators. Passenger volumes recovered to c.60% of pre-pandemic levels in some areas prior to second UK lockdown

First Rail: 86% of pre-pandemic services operating currently, under fixed fee emergency arrangements with UK Government; encouraged by today’s steps to conclude termination sum processes with DfT

Commenting, Chief Executive Matthew Gregory said:

“The health and safety of our passengers and employees is our priority and they can be confident that our trains and buses are safe. We have implemented social distancing measures, enhanced cleaning protocols and innovative technology to improve the customer experience. I am very proud of the extraordinary efforts and commitment from all our employees during these challenging times.

“Our services are crucial to local communities on both sides of the Atlantic, and we have worked in partnership with our customers and governments to ensure that they are maintained throughout the pandemic. As society seeks to recover from the present crisis and build back better, we will play a vital role in providing more environmentally sustainable, value for money transport connections.

Whilst the outlook remains uncertain due to the pandemic, we performed ahead of our expectations in the first half, have taken prudent action to reinforce the balance sheet and are confident in the resilience of the Group. Looking ahead, we will continue to work with our customers and communities to deliver safe, reliable and increasingly sustainable transportation as societies begin to look beyond the crisis and passengers return.

“We continue to progress our plans to rationalise the portfolio as the best means to unlock material value for all shareholders. With respect to the divestment of our North American contract businesses, we are in discussions with a number of credible potential buyers who have a long term perspective, which the company and our advisers are exploring and evaluating.”

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

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

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

Notes
¹ ‘Adjusted’ figures throughout this document are before strategy costs, Rail Termination Sums, other intangible asset amortisation charges and certain other items as set out in note 3 in the interim results section.
² ‘Adjusted cash flow’ is described in the table shown on page 17.
³ Net debt: EBITDA on the ‘bank covenant’ basis refers to the methodology relevant for calculating the Group’s compliance with the covenants on its banking facilities.
⁴ Changes 'in constant currency' throughout this document are based on retranslating H1 2019 foreign currency amounts at H1 2020 rates.
⁵ Changes compared with prior period in the overview and divisional summary are shown in constant currency⁴ and exclude the new West Coast Partnership rail contract, comprising Avanti West Coast services and HS2 Shadow Operator (‘Avanti’) which commenced operations in December 2019.

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

FirstGroup plc (LSE: FGP.L) is a leading provider of transport services in the UK and North America. With £7.8 billion in revenue in the year to 31 March 2020 and around 100,000 employees, we transported 2.1 billion passengers. Whether for business, education, health, social or recreation – we get our customers where they want to be, when they want to be there. We create solutions that reduce complexity, making travel smoother and life easier. We provide easy and convenient mobility, improving quality of life by connecting people and communities. Each of our five divisions is a leader in its field: In North America, First Student is the largest provider of home-to-school student transportation with a fleet of 43,000 yellow school buses, First Transit is one of the largest providers of outsourced transit management and contracting services, while Greyhound is the only nationwide operator of scheduled intercity coaches. In the UK, First Bus is one of Britain's largest bus companies with 1.4 million passengers a day in 2020, and First Rail is one of the country's most experienced rail operators, carrying 340 million passengers in the year. Visit our website at www.firstgroupplc.com and follow us @firstgroupplc on Twitter.

Results overview

Protecting our passengers and employees

Since the coronavirus outbreak emerged in the weeks prior to the start of our current financial year, our priority has been the health and safety of the Group’s passengers, employees and communities. We continue to follow all appropriate public health authority guidance, and ensure we have adequate safety and protective equipment in place. We have adopted and also developed best practice in areas such as enhanced cleaning and decontamination of vehicles, depots and terminals. The wellbeing of our colleagues during these difficult times is of paramount importance and we are working hard to support them. Very sadly, we have lost employees as a result of the pandemic and we offer our deepest condolences to their loved ones and colleagues.

We are very proud of all our employees and how they have risen to the challenges of this year. As detailed in our 2020 Annual Report there are countless examples of our colleagues and teams across the Group providing direct assistance and support to those most in need, right at the heart of our communities. Most recently three of our First Bus employees, Aaron Sparks, Chris Koksal and Simon Taylor, were recognised in the Queen’s Birthday Honours for their services to the community during the early months of lockdown.

Adapted services to support our passengers and local economies since the start of the pandemic

As previously noted, by the start of the period the Group had experienced an average passenger volume reduction of c.90%, with international lockdowns in place and all North American schools we serve closed. Since then, passenger activity has increased in all divisions, albeit at differing rates, but remains substantially below pre-pandemic levels. However, many of our customers and government partners recognised the need to adjust services to fit demand, whilst preserving our ability to restore service when required.

We had constructive discussions with our major customers on revenue recovery, including school boards throughout North America, and with local, state and national governments in all our markets. In particular, the UK Government quickly put in place comprehensive emergency measures to procure continuity of critical rail services and to maintain industry-wide bus capacity for key workers. This has subsequently been extended to support socially distanced travel as travel restrictions eased. Meanwhile, the US federal stimulus package (CARES Act) signed in March 2020 provided substantial funding to states, municipal and local authorities, including school boards, to sustain critical transportation and educational services and support businesses and their employees.

Across all divisions we have adapted rapidly, both operationally and commercially, to support our customers and communities. We have reduced our fixed cost base in our Road divisions and have rigorously focused on variable cost control to mitigate the impact of lower revenues. We have sought to safeguard our ability to increase services rapidly as needed, including by maintaining as many of our frontline employees as possible in their roles – and indeed in the UK we are currently providing near-full service levels in order to permit safe, socially distanced travel. Where appropriate we have used wage support or tax credit schemes put in place by governments to sustain jobs.

Progress in strategy to deliver improved shareholder value from all parts of the portfolio

We continue to progress our plans to rationalise the portfolio as the best means to unlock material value for all shareholders. With respect to the divestment of our North American contract businesses, we are in discussions with a number of credible potential buyers who have a long term perspective, which the company and our advisers are exploring and evaluating.

With respect to the sale of Greyhound we remain in discussions, alongside our actions to manage capacity in response to demand and secure further intercity bus funding grants. In the meantime, we continue to rationalise our property portfolio for value, reducing our footprint by moving operations to facilities better tailored to our needs.

Following the North American divestments, the Group will become a more focused UK-based transportation provider with substantial regional bus operations and a significantly de-risked rail business at its core, and a balance sheet which we intend would remain investment grade. In First Bus we will continue to capture the benefits of our strong market positions and digital transformation programme to deliver enhanced performance over the medium term. We are already a leader in the industry for low emission vehicles and we look forward to playing our part in decarbonising the UK economy through our commitments to operate a zero-emission bus fleet in the UK by 2035, and to not purchase any new diesel buses after December 2022. We also see a significant, growing role for public transport to help deliver on national and local governments’ commitments to improve city connectivity and ‘level up’ harder hit parts of the country through improved economic infrastructure and opportunity. The importance of both these agendas to the UK has been clearly reiterated in the Government’s recently announced Spending Review and ‘Green Industrial Revolution’ plan. The fundamentals for a resurgent bus business are sound, and we look forward to playing an important role in a robust, and environmentally sustainable economic recovery. We will use the extensive new passenger data available to us thanks to our digital transformation to rapidly reshape our networks and timetables into a more focused business as commercial service is restored.

First Rail currently operates the largest portfolio of passenger rail services by revenue in the UK. The government is working through the process of transitioning the present revenue forecast risk-based franchising system to a management contract-style structure with a more appropriate balance of risk and reward for all parties. We look forward to playing an important role in delivering a successful railway system that works for passengers while generating more predictable returns for shareholders.

Operational highlights – North America

First Student was successful in negotiating revenue recoveries equivalent to c.55% of pre-pandemic expected revenue in the first quarter of our financial year, as our school district customers recognised the importance of sustaining our ability to restart home-to-school transportation services. With no home-to-school service revenues in July and most of August because of the school summer holidays, our second quarter is always loss-making and was more so this year, with many schools delaying or amending their in-person back-to-school plans in August and September and almost no summer charter activity due to the pandemic. By mid-November two thirds of our fleet were operating home to school services, however with the recent increase in coronavirus cases in the US, this has recently fallen to c.59%. Most of our schools where we are not fully operational are supporting us with agreements to make either full or partial payments to ensure that we are in a position to restart services rapidly when needed. Between services in operation and these agreements with our customers, we are currently securing c.75% of our pre-pandemic home-to-school revenue, with additional negotiations ongoing. Only 14% of our buses are neither running for customers already nor have an agreement for recovering some revenue to support restarting when appropriate. Alongside this activity we also achieved a good outcome to the bid season, with retention rates in line with our expectations of 87% of ‘at risk’ contracts or 95% of the whole contract portfolio. We won major contracts from competitors in Indianapolis and Charleston, a first-time conversion to outsourcing in Pennsylvania, and several new contracts for our Hopewell special education business. Our bolt-on M&A pipeline is strong with a transaction in Canada completed in the period and another signed this month.

Most of First Transit’s contracts are to provide essential services so provision during the period was not reduced as significantly as some other parts of the Group. Where service levels did change we worked closely with clients to agree contractual amendments. While the rate of recovery varies by sub-segment, overall First Transit is now operating c.71% of pre-coronavirus services and recovering c.86% of pre-pandemic revenues. The division’s contract retention rate was 91% in the period including major retentions with long-standing clients in Houston and Hartford (contracts worth $225m and more than $55m in revenue respectively over their base terms). First Transit also delivered a number of new business wins across its traditional markets, including an $88m revenue paratransit contract in Atlanta, as well as continuing to build its capability in new mobility services with several innovative contracts including an eBike maintenance and battery management partnership with Lyft and Nike in the period.

Greyhound passenger volumes have been broadly in line with our cautious assumptions, and we have continued to respond to very challenging conditions through capacity adjustments in line with demand (including the suspension of services in Canada), yield management and more than $30m in fixed cost reductions. Negotiations with state agencies to secure CARES Act emergency intercity bus grants for vital connections have been modestly ahead of our expectations. The division is currently operating c.45% of its pre-pandemic mileage and generating c.41% of pre-pandemic revenue expectations in the US.

Operational highlights – UK

Given the impact of social distancing rules and government travel guidance on passenger volumes, operating our bus and rail networks at scale during the period would have been unviable commercially and many could have ceased. However, recognising the essential nature of public transport connections to local economies, Westminster and the devolved governments have put in place a series of measures to procure crucial transport services.

First Bus and other regional bus operators are effectively providing their assets and expertise to operate a government-funded bus system at present, which will be in place on a rolling basis until such time as it is no longer required. On an operating cashflow basis before capital expenditure, the division was breakeven in the period as a result. We continue to enhance the ease, convenience and value for money of our services through increased digitisation, and our increased capability to analyse and optimise our passenger numbers and routes in real-time will stand us in good stead when restrictions are lifted and the government schemes come to an end. Our plans are well-advanced for the eight-week transitional period that will follow. We are encouraged that passenger volumes recovered to c.60% of pre-pandemic levels in some of our local areas prior to the second UK lockdown this autumn. We support the proposal for ‘recovery partnerships’ to build on the strong and successful collaboration between local authorities, DfT and operators during the pandemic. Such partnerships would be based on tailored local agreements with ring-fenced funding to deliver short term support on key routes as passenger volumes rebuild, together with the rapid deployment of bus priority measures to sustain networks for the longer term. Meanwhile we continue to take the actions necessary to achieve our commitment of a zero-carbon bus fleet by 2035.

In the period our First Rail franchises were operated under the terms of the Emergency Measures Agreements (EMAs) put in place by the UK Government in March. This includes our newest operation, the West Coast Partnership, comprising Avanti West Coast services and HS2 Shadow Operator (‘Avanti’), which began operations in December 2019. Three of the original EMAs were replaced in September by similar arrangements known as Emergency Recovery Measures Agreements (ERMAs) which the Government intends will transition over time to a new model offering a more appropriate balance of risk and reward for rail operators, passengers and the taxpayer. Accordingly, a process is underway to agree the final termination payments with the DfT to terminate the pre-existing franchise contracts by agreement. As announced separately, we have today agreed franchise termination sums with the DfT of £33.2m and nil for South Western Railway (SWR) and Avanti respectively, in line with our expectations. The TransPennine Express (TPE) process has been extended to the end of January 2021 by the DfT. Following agreement of the termination sums, we are now negotiating new directly awarded management contracts with the DfT, which will come into effect at the end of the ERMAs, under which each incumbent operator will deliver passenger rail services. The DfT have indicated that these new National Rail Contracts would last to 1 April 2023 for SWR, and to 1 April 2026 for Avanti, each with extension periods of up to two further years at DfT discretion.

Financial summary: adjusted operating profit ahead of our expectations at the outset of pandemic

Reported Group revenue decreased by 12.2% or £430.3m to £3,101.6m (H1 2019: £3,531.9m). In constant currency and excluding the new Avanti contract, revenue decreased by £838.2m as a result of the pandemic.

Adjusted operating profit reduced by £78.5m to £10.4m (H1 2019: £88.9m), or by £99.1m excluding Avanti and in constant currency. This comprised the drop through of lower revenues offset by reduced variable costs and substantial fixed cost actions. Within our Road divisions adjusted operating profit reduced by £93.9m in constant currency, with the robust contributions from First Transit and First Bus offset by the expected loss in First Student, reflecting its seasonal profile, and from lower activity in Greyhound. First Rail’s adjusted operating profit increased by £10.9m, reflecting the first-time contribution from the new Avanti contract offset by the EMA terms.

The adjusted loss before tax was £73.3m (H1 2019: profit of £19.9m) and adjusted EPS was (5.3)p (H1 2019: £1.4p), reflecting higher net finance costs, principally due to new rolling stock leases in GWR as well as the inclusion of the Avanti franchise’s rolling stock lease liabilities from December 2019.

Statutory operating loss was £(16.4)m (H1 2019: £(118.1)m) and statutory EPS of (8.3)p (H1 2019: (14.3)p) after an overall charge of £26.8m (H1 2019: £207.0m) of net adjusting items, being strategy costs of £6.4m, Rail Termination Sums charge and other amounts payable to the DfT of £18.3m and other intangible asset amortisation charges of £2.1m.

EBITDA of £465.0m (H1 2019: £434.2m) increased by 7.1%, with Road EBITDA decreasing by 43.9% in constant currency and Rail EBITDA increasing by 63.6%, mainly due to the Avanti contract.

Substantial cash flow in period, significantly ahead of expectations

The Road divisions’ adjusted cash inflow of £186.6m (H1 2019: £68.1m) was well ahead of expectations in the period. In part this reflects our actions to focus on cash preservation and is after extensive reprofiling of our capital expenditure budget, focusing on delivering on our commitments for customers while other spending was deferred or converted to lease finance. Of our budgeted Road capital expenditure, c.£176m has been deferred in the first half, of which c.£50m is a permanent reduction. The majority of the net deferral of £126m will be incurred in the 2022 financial year. During the period, cash capital expenditure, excluding right of use assets, of £59.0m (H1 2019: £141.6m) was invested in our Road businesses. Normally the half year represents a low point in the cash flow cycle due to the seasonality of our business, in particular First Student. However, this year First Student’s normal working capital outflow through school start-up has taken place later, due to the delays to school service in many areas. Rail adjusted cash inflow of £153.1m (H1 2019: £(21.3)m) reflects the timing of fully-funded capital expenditure flows and £167.0m of pre-funding of working capital flows in the period under the new ERMA agreements. Overall, the Group’s adjusted cash inflow in the period was £231.7m (H1 2019: outflow of £78.0m).

Stable liquidity maintained since April and balance sheet reinforced

Bonds, bank debt and other debt net of cash before IFRS 16 leases reduced by £246.8m in the period to £815.2m (H1 2019: £1,062.0m). IFRS 16 lease liabilities (which are predominantly Rail rolling stock leases which will expire when the relevant operations cease) increased in the period to £2,140.0m (H1 2019: £1,022.1m), with the majority of the increase relating to the new Avanti contract and new rolling stock leases in GWR. Taken together, reported net debt including IFRS 16 lease liabilities increased to £2,955.2m (H1 2019: £2,084.1m).

Net debt: EBITDA was 1.5 times (H1 2019: 1.5 times) on the basis relevant to the bank covenant tests, ahead of expectations, and comfortably passed the ratio requirement of less than 3.75 times as previously anticipated.

As at 30 September 2020 the Group’s undrawn committed headroom and free cash was £965.6m (March 2020: £585.7m). This reflects the previously disclosed issuance of £300m in commercial paper through the UK Government’s Covid Corporate Financing Facility (CCFF) scheme in April 2020 which was renewed for a further year in December, cash flow in the period and the timing of working capital movements in First Student. Subsequent to the period end, First Student working capital has continued to normalise as higher service levels are run and as at 8 December the Group’s undrawn committed headroom and free cash was £805m, broadly in line with average levels since April.

Improving clarity, more robust financial position in a range of scenarios

The outlook remains uncertain due to the pandemic and both our main markets have experienced significant fluctuations in the number of coronavirus cases in recent months. This has resulted in changes to local guidance and differing views about the most appropriate ways to return to pre-pandemic activities such as education and intercity travel. However, compared with our position in the summer, the Group now has greater clarity about the resilience of our businesses as a result of the arrangements put in place in the UK and the value of the customer relationships we have in North America. Combined with our cash flow profile, additional debt facilities and the enhanced headroom agreed with our lenders with respect to the 2021 covenant tests, the Group is now in a more robust financial position even in a range of potential downside scenarios. Despite the reduction in overall risks identified as part of our full year results in July, the possibility of multiple downside potential risks remains, principally related to lower service levels and the pace at which our markets recover from the pandemic, giving rise to continuing material uncertainty.

Whilst the Board is confident that the balance sheet is robust in a range of downside scenarios, as a matter of prudence the Group secured enhanced financial flexibility from its lenders in November 2020. The Group agreed amendments to the 31 March 2021 and 30 September 2021 covenant tests with both its lending banks and USPP investors on similar terms, as described further in the financial review on page 18.

Divisional review

First Student

Six months to 30 September	$m		£m		£m, change in constant currency¹
Six months to 30 September	2020	2019	2020	2019	£m, change in constant currency¹
Revenue	509.6	1,078.3	404.4	851.6	(448.3)
Adjusted operating profit	(66.7)	24.9	(50.3)	16.8	(71.4)
Adjusted operating margin	(13.1)%	2.3%	(12.4)%	2.0%	(1,490)bps

¹ Based on retranslating H1 2019 foreign currency amounts at H1 2020 rates.

As noted previously, First Student’s financial results are always highly seasonal because of the overlay of our financial year with the North American school calendar, so performance in the second half is always the key driver for the year. This is particularly the case this year, as the limited second quarter revenues normally received in the school summer holidays from summer school and camp charters have been curtailed by the pandemic. In addition, some revenue normally arising in late August and September did not materialise as a result of the delays to the start of the new academic year by many school customers.

First Student revenue was $509.6m or £404.4m (H1 2019: $1,078.3m or £851.6m), a decrease of $568.7m but nonetheless a robust result given the near total closure of schools due to the pandemic prior to the start of the current financial year. The reduction was partially offset by recovery of a substantial proportion of our expected home-to-school revenues from our school board customers. As previously noted, by the end of the 2019/20 spring term, we had agreed full or partial revenue recoveries with customers such that we were recovering c.55% of budgeted home-to-school revenues, or an effective recovery rate of 78% including labour and fuel savings.

Since the start of the 2020/21 academic year, many school districts have continued to review and alter their back to school plans in light of dynamic local conditions, even as the new school term is now well underway. We are advising and supporting each of our 1,100 customers to implement school transportation services in line with their requirements. Managing this process of dynamically restarting at varying levels of service for customers is a more complex exercise than the large-scale shutdown of home-to-school service at the start of the pandemic. Although many schools delayed the start of full in-person teaching this fall, by mid-November two thirds of our fleet was operating home-to-school services either full time or as a mixture of in-person and online teaching. However, with the recent increases in coronavirus cases in the US, this has fallen back to c.59%. The remainder of our school customers are currently operating all online, principally in the larger urban districts which form a relatively significant part of our portfolio. First Student has engaged in productive discussions with all of our school board customers where full transportation is not restored to agree a level of payment to ensure that when required we can restart services rapidly, as was the case for the 2019/20 spring term. We have now agreed full or partial payments in respect of c.69% of those buses where school start was delayed or full service has not yet been restored. Between services in operation and these agreements with our customers, we are currently securing c.75% of pre-pandemic home-to-school revenue, with further negotiations ongoing.

At the adjusted operating level, profit fell by only $91.6m to a loss of $(66.7)m or £(50.3)m (H1 2019: adjusted operating profit of $24.9m or £16.8m), reflecting the agreements with customers noted above and the extensive cost actions we have undertaken to mitigate the reduced activity levels. These include variable cost savings, temporary salary reductions, removing all non-essential contract staff, together with some more permanent reductions in back office headcount where unavoidable. Fixed costs were reduced by $4.5m in the period. Where appropriate, First Student is also making use of employee retention tax credits in the US (and wage subsidies in Canada) available to all businesses whose operations have been disrupted by government order. Where it was not possible to agree terms with customers to keep our drivers in employment they have utilised the emergency federal unemployment schemes. All non-contracted capital expenditure has been reviewed in accordance with customers’ requirements and discretionary expenditure has been deferred, reprofiled or converted to leasing. As a result of the delayed start to the school year for many of our customers, the division’s normal seasonal build-up of working capital has taken place later than normal, which has benefitted cash flow to the period end, but has since begun to normalise. The division reported a statutory loss of £51.8m (H1 2019: loss of £18.7m) after amortisation of intangibles of £1.5m (H1 2019: £1.2 of amortisation of intangibles and £34.3m of other adjustments).

In the bid season for the 2020/21 school year, First Student maintained its leading position in the market and expects to have c.43,000 buses under contract for the remainder of the school year (H1 2019: 43,000). This is supported by our excellent safety record and consistently high customer satisfaction scores, which resulted in a contract retention rate currently in line with our expectations of 87% on contracts up for renewal this season, or 95% across our entire portfolio of multi-year contracts. The market has seen almost no organic route growth in light of the pandemic; however we are pleased to have won several large contracts from competitors, including in Indianapolis, IN, Charleston, SC and Pocono Mountain, PA. In the period we acquired Wubs Transit, extending our school and charter transport services in Ontario, Canada, where we have nearly 40 locations. Our pipeline of potential bolt-on acquisitions remains strong, with a further transaction signed this month. We were also pleased that our Hopewell special education business acquisition won two new contracts in this year’s bid season, demonstrating our growth potential in this area.

Given the immense complexity of school start-up in the pandemic, we are pleased with our performance this autumn. Our driver recruitment, retention and safety programmes are responding well to the challenges the pandemic poses for the school bus industry and its employee dynamic, though we continue to monitor our employee levels closely as activity levels rebuild. We continue to expand provision of our FirstView® bus tracking app, grow our FirstACTS and First Feedback services, and develop and scale-test DriverHub and our driver performance scoring system. We also have a number of electric vehicle pilots now underway, and 6% of our fleet is currently powered by alternative fuels. Operationally we continue to optimise the efficiency of procurement and maintenance practices in particular.

First Student is the clear market leader across 38 US states and seven Canadian provinces in school bus contracting, and a significant provider of charter bus services. The pandemic has demonstrated the resilience of its long-term, trusted relationships and high-quality school client base even in extraordinary circumstances. First Student has substantial scale, best-in-class operating track record, strong customer service and safety credentials and a highly experienced management team, which makes it a strong, resilient and industry-leading platform business with several opportunities in its marketplace to add value for all stakeholders.

First Transit

Six months to 30 September	$m		£m		£m, change in constant currency¹
Six months to 30 September	2020	2019	2020	2019	£m, change in constant currency¹
Revenue	613.9	740.6	484.5	588.7	(99.6)
Adjusted operating profit	17.1	16.2	13.4	12.7	+0.5
Adjusted operating margin	2.8%	2.2%	2.8%	2.2%	+60bps

¹ Based on retranslating H1 2019 foreign currency amounts at H1 2020 rates.

First Transit continued to operate a high level of activity throughout the period, providing essential transport services to passengers needing to travel to work, university, for medical and other essential travel. While passenger ridership volumes were impacted and activity levels were reduced due to the pandemic, the essential nature of our work resulted in the continued and consistent operation of significant levels of service in the communities we serve. First Transit worked closely with a number of clients where service levels did change to make contractual amendments such as additional payments to cover fixed costs or altered productivity requirements. Overall, First Transit’s revenue in the first half was $613.9m or £484.5m (H1 2019: $740.6m or £588.7m), a decrease of 17.0% or £99.6m in constant currency.

While the rate of recovery over the period varies by sub-segment as we work with our clients to adapt to local developments, overall First Transit is currently operating c.71% of pre-coronavirus services compared with c.60% at the low point. Initially our fixed route operations experienced service requirement reductions to c.70% of pre-pandemic levels but are now operating at c.81%. Paratransit operations have seen non-essential trips decline, although the requirement for social distancing has offset this to some extent, with activity levels now c.60% of pre-pandemic levels compared with c.50% at the low point. Shuttle saw service reductions in some airport contracts and many university clients; however current activity levels are now c.64% of pre-pandemic levels in this segment. Vehicle services and transit management contracts have not experienced any significant adverse impacts and are trading broadly in line with pre-pandemic expectations year to date. Overall, net revenue recovery is running at c.86% of pre-pandemic expectations, reflecting the service levels and customer arrangements in place.

Adjusted operating profit was $17.1m or £13.4m (H1 2019: $16.2m or £12.7m), or an increase of $0.9m in the period. This equates to an adjusted operating margin of 2.8% (H1 2019: 2.2%). This performance reflects the contractual variations negotiated with customers noted above, substantial variable cost savings, including temporary furloughing of employees, and salary reductions in the period. Fixed costs were reduced by £4.0m in the period. The division has also made use of fiscal tax credit schemes available to all companies to protect jobs where appropriate. Adjusted operating profit also benefitted from the non-recurrence of prior year legal judgment costs (H1 2019: $3.5m). Statutory profit was £13.4m (H1 2019: loss of £11.4m).

First Transit has continued to build on its portfolio of both existing and emerging mobility services contracts, leveraging its consistently highly rated customer service credentials and reputation for safe, innovative and best value solutions for customers. Our contract retention rate on ‘at risk’ business increased from 89% last financial year to 91% so far this year, including retention of two important multi-year contracts with long term clients. Our Houston, TX fixed route contract for more than 200 buses was renewed for five years, with base term revenues of $225m, while our Hartford, CT contract to operate 120 paratransit vehicles is expected to generate revenue of more than $55m over its three year term.

Despite extended bidding cycles due to the pandemic, First Transit secured new business wins in its traditional sectors such as paratransit with MARTA in Atlanta, GA (worth $88m in revenue over its three year base term) and Met Council in Minneapolis, MN; fixed route and paratransit with Carson City, NV and Hinesville, GA; and in shuttle with the Columbus, OH Regional Airport Authority. We also continue to build our position for the future of mobility services. In the period we started an innovative eBike maintenance contract with battery management in partnership with Nike and Lyft in Portland, OR. Our wheelchair accessible service platform with our TNC partners expanded in several locations. We launched our last mile microtransit service in San Bernardino, CA and our first ‘stackable’ autonomous vehicle partnership at Fort Carson Army Base in Colorado Springs, CO. In the period we were also pleased to launch JAUNT, our Mobility as a Service (MaaS) platform powered by Moovit.

We continue to drive further cost efficiencies from lean maintenance, predictive analytics, procurement, systematic employee engagement/retention programmes and further shared service efficiencies. First Transit is not as capital intensive as some of the Group’s other businesses as for the most part we operate vehicles procured and owned by our customers, but non-essential capital expenditure has been deferred or halted.

Despite the near-term uncertainties, the market for mobility services in North America continues to evolve and we intend to stay at its forefront. By working with both local authority and private sector clients to provide simplified mobility solutions that enhance customers’ lives, First Transit aims to achieve net new business growth at appropriate margins with modest capital investment, as we continue to build our platform in mobility services over time.

Greyhound

Six months to 30 September	$m		£m		£m, change in constant currency¹
Six months to 30 September	2020	2019	2020	2019	£m, change in constant currency¹
Revenue	202.9	422.0	159.8	335.4	(173.5)
Adjusted operating profit	(19.3)	10.1	(15.8)	8.1	(23.8)
Adjusted operating margin	(9.5)%	2.4%	(9.9)%	2.4%	(1,230)bps

¹ Based on retranslating H1 2019 foreign currency amounts at H1 2020 rates.

Greyhound’s revenue was $202.9m or £159.8m (H1 2019: $422.0m or £335.4m) in the period, principally reflecting the effects of the pandemic on demand. US revenues reduced by $195.9m or 49.1% and Canadian revenues were substantially lower, reflecting our decision to suspend operations there in May due to limited demand and the closure of the US border. Like-for-like revenue for the whole division decreased by 52.0% in the period.

As previously noted, during parts of March and April, Greyhound’s overall passenger revenues were c.20% of pre-pandemic levels and passenger volumes were c.15%. At the time, Greyhound was the only major coach operator that continued to provide any service for passengers. Since then US passenger revenue has increased through improved volumes and higher yields, reaching c.45% of pre-pandemic levels by September, but has since flattened out to c.41% with the resurgence of the virus in certain regions and the return of bus competitors to the market. Passenger volumes are currently c.30% of pre-pandemic levels. In the US during the first quarter, Greyhound operated c.45% of its pre-outbreak timetabled mileage, sufficient to maintain the integrity of its US transportation network and provide ongoing service to hundreds of rural communities, many with no other form of intercity transportation. In response to increased demand, Greyhound mileage increased during the summer, but following the recent increases in coronavirus cases in it is currently operating c.42% of pre-outbreak levels. Recent reductions in fuel prices and historically low airline fares have also had an impact on coach passenger demand.

Greyhound rapidly took management action including commercial initiatives, optimising pricing, managing capacity and cost (principally through reduced variable costs, furlough as well as $31.1m in fixed cost reductions) to match lower demand levels, and is utilising employee retention tax credits as appropriate. Greyhound has secured $116.2m (of which, $65.0m was recognised in the reporting period) of the US CARES Act funding made available to state agencies to maintain operation of intercity rural bus services, modestly ahead of our expectations. However the reduction in revenue during the period was not fully offset through these actions and as a result, Greyhound recorded an adjusted operating loss of $(19.3)m or £(15.8)m (H1 2019: profit of $10.1m or £8.1m) in the period. The division reported a statutory loss of £15.9m after amortisation of intangibles of £0.6m and a profit of £0.5m on sale of a property in the period relating to the withdrawal from Western Canada (H1 2019: loss of £127.7m after amortisation of intangibles of £1.6m and £134.2m of other adjustments).

Greyhound continues to rationalise its property footprint by moving operations to intermodal transport hubs or new facilities better tailored to its needs. The division exited six small surplus locations in the period, resulting in profit on certain property sales of $1.6m or £1.3m (H1 2019: $1.8m or £1.5m) in adjusted operating profit in the period, despite a hiatus in commercial property transactions early in the pandemic. A number of other property sales processes are underway.

Greyhound continued to build on its programme of enhancements for passengers including industry-leading Wi-Fi and streaming entertainment on all buses, contactless boarding, and new web and mobile functionality to make bookings and trip management more convenient. Greyhound also continues to focus on operational and maintenance improvement and disciplined fleet management. Taken together these have resulted in positive trends in our already strong safety track record as well as better punctuality, emissions and other non-financial metrics. In light of present demand conditions, new vehicle investment reduced compared with the prior period.

Greyhound has invested in industry-leading enhanced cleaning regimes for its buses and locations, mandated the use of face coverings across all its operations and provided passengers with the latest coach travel safety information, as well as introducing a flexible booking policy to help alleviate passengers’ concerns.

First Bus

Six months to 30 September	£m		£m, change in constant currency¹
Six months to 30 September	2020	2019	£m, change in constant currency¹
Revenue	311.0	424.5	(113.6)
Adjusted operating profit	17.4	21.2	(3.8)
Adjusted operating margin	5.6%	5.0%	+60bps

¹ Based on retranslating H1 2019 foreign currency amounts at H1 2020 rates.

First Bus reported revenue of £311.0m (H1 2019: £424.5m) in the period, with passenger revenue decreasing by 59.5% and commercial passenger volumes decreasing by 72.2%, reflecting government guidance and passenger behaviour in response to the coronavirus pandemic throughout the period.

From the outset of the pandemic, we worked very closely with our partners to meet the requirements of our local communities and ensure that key workers were able to rely on our services for their essential journeys. The UK Government, as well as the Scottish and Welsh Governments, put in place a range of measures to enable us to provide these crucial services. This includes the roll forward of pre-coronavirus initiatives and further arrangements such as the Covid-19 Bus Services Support Grant (CBSSG) from March in England, mirrored by similar arrangements in Scotland and Wales subsequently.

For the duration of the initial three-month lockdown, our mileage was at c.40% of pre-pandemic levels with passenger volumes at just c.10% of normal rates. From late June onwards, we increased UK mileage progressively at government request to the current level of c.95%, with some variation between local markets. Prior to the introduction of the recent series of lockdowns in the autumn, UK passenger volumes had recovered to c.50% of pre-pandemic levels on average and to around 60% in some of our local areas. Following the release of certain restrictions across the UK, volumes are now at c.50% of pre-pandemic levels.

Under the reimbursement schemes, First Bus is paid the costs of operation less revenue received from customers and other public sector monies. A condition of the arrangement is that operators utilise the Government’s Coronavirus Job Retention Scheme for frontline workers, and as a result many First Bus employees were furloughed during the initial lockdown but almost all have now returned to work. Recoverable costs include all reasonable operational costs including depreciation and allocated debt finance together with pension deficit funding. Fixed costs were also reduced by £2.7m in the period. The division reported adjusted operating profit of £17.4m (H1 2019; £21.2m), which is calculated before debt finance costs and pension deficit contributions which pay down the balance sheet deficit. On an operating cashflow basis before capital expenditure, First Bus was breakeven in the period. Reported statutory profit was £17.4m (H1 2019; £15.7m).

Throughout the pandemic ensuring the safety of our customers has been paramount, and we have led the industry with a professional and consistent approach. We introduced several measures including long lasting anti-viral cleaning regimes on buses and seat signage advising customers where they can sit safely to maintain social distancing rules. Additionally, we enhanced our mobile app and websites to support customers as they prepare to make their bus journey. Upgrades include a facility to check the real-time available capacity on an approaching bus, including the wheelchair space. A customer can also look ahead and check how busy their bus is likely to be on any day of the week and time of day. Sales through our mobile app or by other contactless methods have increased significantly and now represent 63% of all ticket transactions. Having successfully introduced daily and weekly contactless fare caps in Aberdeen and Doncaster, this has now been extended to Southampton and Bristol. In September we were the first national bus operator to introduce Express Mode for Apple Pay across all our networks. The First Bus app was named Travel App of the Year in November at the UK App Awards. Punctuality across the division has been maintained at consistently high levels throughout the period as a result of reduced congestion.

Throughout the pandemic we have continuously adjusted our services in consultation with local stakeholders, to ensure we are meeting emerging travel demands. We are able to assess demand through the range of data now available to us following our investments in our digital ticketing systems and GPS functionality. Going forward, this data will be fundamental in enabling us to redesign our networks in response to evolving customer needs while being commercially sustainable.

Our agility and focus in meeting our customer and stakeholder needs allowed us to support continued construction at Somerset’s Hinkley Point Power Station, by providing an additional 50 buses and 90 drivers within 48 hours’ notice. Additionally, over the summer we supported the South West tourism industry with extra services on our seasonal Coasters routes to support high numbers of domestic tourists.

In July we committed to operate a wholly zero-emission bus fleet across the UK by 2035 and not to purchase any new diesel buses after December 2022. This builds on our existing leadership across the industry for low emission vehicles. Recent developments include the start of delivery of the world’s first 15 hydrogen powered double-decker buses in Aberdeen supported by funding from the City Council, the Scottish Government and the EU; 21 electric double-decker buses coming into operation in York which will join 12 electric single-deckers, operating the Park & Ride network in partnership with City of York Council; taking delivery in October of nine electric buses in partnership with West Yorkshire Combined Authority and Leeds City Council; in Glasgow we recently secured funding from Transport Scotland to support the purchase of 22 electric buses; and in the next few weeks we will complete the retrofit of our 1,000^th bus to the Euro VI low-emission standard (c.48% of the fleet will meet this standard by the end of the current financial year).

We are working closely with the UK Government as they look both to the recovery period and to develop a National Bus Strategy for the longer term. We are delighted that the Scottish Government recently launched a Bus Partnership Fund for local authorities and operators to access £500m for ambitious bus priority schemes.

In December Giles Fearnley retired as First Bus Managing Director. Giles has made an immense contribution to First Bus, including a transformation of our customer offering including greater digitisation and development of a strong approach to local partnerships. He is succeeded by Janette Bell, formerly CEO of P&O Ferries, who brings vast experience and a strong track record in creating and delivering successful customer and commercial strategies.

The long-term fundamentals of First Bus, including its position as a market leader, are sound. Our services are vital to the daily lives of millions across the UK and will be key to supporting economic recovery and providing greener and more convenient services in the areas we serve. We will continue to address our cost base through our comprehensive efficiency programmes. As the effects of the pandemic recede, there will be a point at which we can transition away from current funding schemes, and we are using our operational expertise, local knowledge and digital capabilities to optimise our networks as travel patterns evolve.

First Rail

Six months to 30 September	£m		£m, change excl. Avanti
Six months to 30 September	2020	2019	£m, change excl. Avanti
Revenue	1,733.6	1,323.5	(3.3)
Adjusted operating profit	59.4	48.5	(5.3)
Adjusted operating margin	3.4%	3.7%	(40)bps

In line with the wider UK rail industry, passenger volumes in our businesses reduced substantially in the early part of the period with revenue c.90% lower due to travel restrictions as a result of coronavirus. Within a few days of national lockdowns beginning, we operated a reduced timetable similar to weekend service levels. Passenger volumes increased modestly during the summer, but still remain at c.25% of pre-pandemic levels on average. We increased service levels to c.90% of prior levels for early September to support the return to places of work and schools and we continue to work closely with the DfT on service provision as Government guidance changes. In the period First Rail passenger revenue (excluding Avanti) declined by 85.5% (H1 2019: +4.9%). Like-for-like passenger volumes decreased by 80% in the period. Divisional revenue increased to £1,733.6m (H1 2019: £1,323.5m), including £413.4m from Avanti which commenced in December 2019.

The UK Government acted swiftly at the start of the pandemic to secure the continued operation of the country’s vital rail networks through the Emergency Measures Agreements (EMAs) which were in place for the majority of the reporting period. Under these agreements, the Government waived revenue, cost and contingent capital risk and our Train Operating Companies (TOCs) were paid a fixed management fee to continue to operate the rail network at service levels agreed with the government. The fee varied according to each franchise and included the potential for a small performance-based fee. Adjusted operating profit was £59.4m (H1 2019: £48.5m), which reflects the fees paid, including a first-time contribution from Avanti, and the settlement of historical claims mainly in GWR. The division reported a statutory operating profit of £41.1m (H1 2019: £48.4m) including intangible asset amortisation and a £18.3m net charge for Rail Termination Sums and other amounts due to the DfT (see below).

In September, the DfT exercised its option to extend the EMA for GWR until at least 26 June 2021. GWR’s pre-existing direct award contract ends in March 2023, with a possible extension of up to one further year at the DfT’s discretion. For our other three franchises, new Emergency Recovery Measures Agreements (ERMAs) came into force on 20 September. The ERMA for Avanti, which began operations in December 2019 and was performing well prior to the pandemic, is in place to the end of March 2022. The SWR and TPE ERMAs are in place to the end of March 2021, with the potential for the TPE ERMA to be extended to September 2021 in certain circumstances. The ERMAs are similar in operation to the previous EMAs and during their term, the DfT will continue to waive the revenue, cost and contingent capital risk. The ERMAs also make no material changes to the ring-fenced cash or working capital mechanisms in place for these operations. However, both the fixed fee and overall fee potential is lower under the new ERMAs and more heavily weighted to performance delivery. In addition, all three include options to extend their duration by a further half year at the DfT’s discretion.

Each ERMA requires us to agree with the DfT whether, and if so, how much parent company support or other payments are required to terminate the pre-existing franchise agreements. Any such termination sums fall due at the end of the ERMA term, at which point the pre-existing franchise contract would also terminate by agreement. SWR and Avanti have now agreed franchise termination sums of £33.2m and nil respectively with the DfT. The process to agree the TPE termination sum has been extended to the end of January 2021 by the DfT.

Our Hull Trains open access business (less than 0.5% of divisional passenger volume) was not eligible for the EMAs or ERMAs, and as a result the service was temporarily suspended between March and August and again during the second national lockdown in November/early December.

We are taking all necessary steps to ensure our passengers can be confident their journey is safe. This includes running services with more carriages to allow for social distancing, enhanced cleaning and sanitisation of our trains and ensuring more customer-facing employees are available. On some of our longer distance services we introduced mandatory reservations to ensure we offered correct social distancing. We also began a trial where Avanti West Coast customers can use the mobile app to order at-seat catering.

First Rail is now at the forefront of the industry in the use of cloud technology and data analytics. These systems have allowed us to integrate real-time data from several industry systems on to a single platform that enables our controllers and resource teams to monitor all trains and identify and resolve potential future problems before they arise. This platform also provides information to our customers via our website and mobile app channels on the formation and facilities available on each train. During the period we further integrated a variety of customer-facing and back office functions into our shared service centre.

First Rail is working with its partners to reduce carbon emissions, including the introduction of electric trains to replace diesel where possible. This includes future rolling stock for Avanti, the introduction of bi-mode trains by TPE and Hull Trains in the last year which can run on both electrified and non-electrified track, while GWR have recently taken delivery of the UK’s first tri-mode train which can use overhead wires, third rail or diesel power. Our plans to upgrade the SWR fleet continue with new suburban rolling stock starting to enter service next year.

We continue to deliver services in accordance with all of our contractual commitments. The Government intends to transition to new, directly awarded contracts for the longer term, which would come into effect at the end of the ERMAs, as terms are agreed on terminating the pre-existing franchise agreements. We have long advocated for a more sustainable balance of risk and reward for all parties which would underpin a longer-term approach to the railway with passengers at its centre. We look forward to working closely with the Government and our industry partners to bring this to reality.

Financial review

Going concern – basis of preparation

The Board reviewed an updated base case and a severe but plausible downside scenario, taking into account the progress made since the Group’s announcement of its full year results for the year ended 31 March 2020, issued on 8 July, and the potential mitigating actions.

Based on their review of the financial forecasts and having regard to the risks and uncertainties to which the Group is exposed, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the 12 month period from the date on which the financial statements were approved. Accordingly, they continue to adopt a going concern basis of accounting in preparing the condensed consolidated financial statements in this half-yearly report.

Despite the reduction in overall risks identified as part of the full year 2020 results, multiple potential downside risks continue to exist, including:

materially lower service levels and revenue recovery in First Student if the impact of the pandemic is more severe or protracted than assumed;
the impact on future demand for our passenger revenue-based divisions First Bus and Greyhound being worse than anticipated; and
the Group being unable to complete its refinancing arrangements as planned, or the availability of uncommitted facilities (including the renewal of the CCFF to March 2022) and the receipt of covenant waivers if required;

which together give rise to a material uncertainty that could cast significant doubt upon the Group’s ability to continue as a going concern.

In the full year 2020 results we disclosed that the risks and uncertainties then facing the Group indicated that material uncertainty existed that could cast doubt on the Group’s and the Company’s ability to continue as a going concern. The material uncertainty related to:

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

Update since July

As noted in the Results overview and Divisional review, compared with the position in July 2020, we now have substantially greater clarity about the resilience of our businesses as a result of the arrangements in place in the UK and North America and the strength of our customer relationships.

In First Rail, we have been operating since 1 March 2020 initially under EMA and for certain franchises under ERMA contracts since 20 September, with the potential to move to a management contract-style model under which we anticipate the revenue and cost risks would not be borne by the operator. Furthermore, agreement has been reached of the termination sums on SWR and Avanti which has reduced this potential uncertainty with a clear path forward. In First Student and First Transit our confidence is underpinned by long term contractual arrangements that have performed consistently through the pandemic to-date.

In First Bus, the UK Government confirmed on 8 August 2020 that the 12-week rolling CBSSG-Restart programme will continue to apply until such time as social distancing is no longer required after which there will be an eight week transition period during which further funding will be available to allow the industry to adjust to passenger demand and revert to a business as usual model post-pandemic. In Greyhound, we have now formally agreed the majority of CARES Act funding and at a higher level than we had earlier assumed.

In the primarily contract-based businesses First Student, First Transit and First Rail we have a materially higher level of confidence than we did in early July 2020 around future business performance as a result of our experience and contractual changes in Bus and Rail since the start of the pandemic. However, in the short term, the impact of the pandemic at a local level in First Student continues to be disruptive and uncertain as the extent to which schools re-open or adopt remote learning in response to renewed outbreaks of the pandemic within individual school districts, which impacts our service levels and hence potential revenue recovery.

Furthermore, there is still uncertainty regarding the medium- to longer-term impact of the coronavirus pandemic on passenger travel patterns as economies emerge from the crisis. The impact on future demand for our passenger revenue-based divisions First Bus and Greyhound therefore remains uncertain.

The Group’s near-term liquidity position is also significantly better than it was in July with improved cash generation since March 2020 and an additional c.£140m in committed facilities in finance leases and long-term supplier finance. The Group intends to put £200m of new facilities in place before March 2021 in order to fund growth capex, although not included in our model as committed facilities.

The Board also continues to believe that the Group has the ability to draw down on c.£450m of the currently available but uncommitted facilities throughout the going concern period if required, notably the £300m CCFF facility that currently matures in December 2021 that, if still available, we intend to redraw in March 2021 to be then committed to March 2022 under the current rules.

On 9 November 2020, the Group announced that it had agreed covenant amendments for the 31 March 2021 and 30 September 2021 tests with its lending banks and USPP investors. Banking covenants are projected to be met for all testing periods through to March 2022 in our base case scenarios, however the severe but plausible downside model (“severe downside model”) shows the minimum liquidity covenant would be breached at 31 December 2021, before implementing further mitigation actions in reducing costs and capex as the CCFF matures. Although it is the Group’s intention to redraw the CCFF in March 2021, if still available, in order to extend its term until March 2022, that is not modelled in the severe downside model. The downside scenario also assumes that no new finance is raised throughout the going concern assessment period.

Evaluation of going concern

The Board evaluated whether it was appropriate to prepare the condensed consolidated financial statements in this half-yearly report on a going concern basis and in doing so considered whether any material uncertainties exist that cast doubt on the Group’s and the Company’s ability to continue as a going concern over the next 12 months, and in particular whether any of the circumstances giving rise to the material uncertainties at the year-end still existed.

Consistent with prior years, the Board’s going concern assessment is based on a review of future trading projections, including whether the amended banking covenants are likely to be met and whether there is sufficient facility headroom to accommodate future cash flows for the going concern period. During October and November 2020, divisional management teams prepared detailed, bottom-up projections for their businesses reflecting the coronavirus pandemic operating environment, including customer revenue recovery where services had been disrupted and what government or contractual support arrangements were in place.

Base case scenario

These projections were the subject of a series of Executive Management reviews and were used to update the base case scenario that was used for the purposes of the going concern assessment at the 2020 year-end. The updated base case now assumes a gradual recovery in passenger volumes as a result of an anticipated lifting of social distancing and travel restrictions in FY21/22, but that passenger volumes remain below pre-pandemic levels in the going concern assessment period. In the base case, we have now assumed that the Student business remains materially disrupted throughout the remainder of the current school year, assuming recovery to 75% in full-time school at the end of the academic year and with 10% still in full-time home learning, before recovering fully at the start of the next academic year.

The macro projections in the updated base case assume that the UK operates in a post-Brexit coronavirus economy and uses a consensus macro-economic outlook in line with HM Treasury’s Economic Forecast of October 2020. We have not assumed any further North American fiscal support beyond what has already been committed.

Severe, plausible downside scenario

In addition, a severe but plausible downside case was also modelled which assumes a more protracted post-pandemic recovery profile. In this case First Student is assumed to operate at a substantially close to full service from the start of the Fall school term but with continued disruption until the end of the Winter term in FY 21/22, with only 50% in full-time school and 25% hybrid learning in the current academic year, and 10% still full-time home learning in Winter term of FY 21/22, with capex for discretionary acquisitions constrained. In First Transit the model assumes a more protracted recovery in paratransit and university shuttle service levels until April 2021. In Greyhound it assumes slower passenger recovery and weaker revenues with passenger numbers remaining at current levels in H2 FY 20/21 at around 40% of FY 19/20 levels, and slowly recovering to 80% of the prior year levels by the end of H1 FY 21/22. In First Bus it assumes CBSSG-Restart comes to an end two months earlier than in the base case, but stronger revenues in the second half of the year. In First Rail, the model assumes £100m less of ring-fenced cash and higher Termination Sums on expiry of the ERMAs.

Mitigating actions

If the impact on the Group of the pandemic were to be more protracted than assumed in the base case scenarios, or if the Group is unable to raise up to £200m of additional finance facilities by the end of the current fiscal year, the Group would reduce and defer planned growth capex spend over the subsequent 12 months and further reduce costs in line with a lower operating environment to the extent that the essential services we operate are not required to be run for the governments and communities we support.

Based on the scenario modelling undertaken, and the potential mitigating actions referred to above, the Board is confident that the Group’s liquidity over the going concern period is sufficient for the business needs, although as noted above material uncertainty exists.

Group revenue

Group revenue in the first half decreased by 12.2% or £430.3m to £3,101.6m (H1 2019: £3,531.9m). In constant currency and excluding the new Avanti contract that started in December 2019, revenue decreased by £838.2m as a result of the pandemic. The Road divisions’ revenue decreased by 37.9%, and Rail revenue has declined by 0.2% (excluding Avanti). Avanti revenue was £413.4m for the period.

	Six months to 30 September 2020			Six months to 30 September 2019			Year to 31 March 2020
	Revenue £m	Adjusted operating profit¹ £m	Adjusted operating margin¹ %	Revenue £m	Adjusted operating profit¹ £m	Adjusted operating margin¹ %	Revenue £m	Adjusted operating profit¹ £m	Adjusted operating margin¹ %
First Student	404.4	(50.3)	(12.4)	851.6	16.8	2.0	1,940.4	158.8	8.2
First Transit	484.5	13.4	2.8	588.7	12.7	2.2	1,171.4	28.3	2.4
Greyhound	159.8	(15.8)	(9.9)	335.4	8.1	2.4	603.2	(11.6)	(1.9)
First Bus	311.0	17.4	5.6	424.5	21.2	5.0	835.9	46.1	5.5
Group items²	8.3	(13.7)		8.2	(18.4)		17.8	(33.7)
Road divisions	1,368.0	(49.0)	(3.6)	2,208.4	40.4	1.8	4,568.7	187.9	4.1
First Rail	1,733.6	59.4	3.4	1,323.5	48.5	3.7	3,185.9	68.9	2.2
Total Group	3,101.6	10.4	0.3	3,531.9	88.9	2.5	7,754.6	256.8	3.3
North America in USD	$m	$m	%	$m	$m	%	$m	$m	%
First Student	509.6	(66.7)	(13.1)	1,078.3	24.9	2.3	2,474.9	205.9	8.3
First Transit	613.9	17.1	2.8	740.6	16.2	2.2	1,488.3	36.2	2.4
Greyhound	202.9	(19.3)	(9.5)	422.0	10.1	2.4	766.0	(15.3)	(2.0)
Total North America	1,326.4	(68.9)	(5.2)	2,240.9	51.2	2.3	4,729.3	226.8	4.8

^{1 ‘} Adjusted’ figures throughout this document are before strategy costs, Rail Termination Sums, other intangible asset amortisation charges and certain other items as set out in note 3 to the financial statements. The statutory operating loss for the period was £16.4m (H1 2019: loss of £118.1m) as set out in note 4.

² Tramlink operations, central management and other items.

Group adjusted operating performance

Adjusted operating profit decreased by £78.5m to £10.4m (H1 2019: £88.9m) and decreased by £99.1m excluding Avanti and in constant currency. This comprised the drop through of lower revenues offset by reduced variable costs from reduced service levels and substantial fixed cost actions. Note that software amortisation of £6.3m (H1 2019: £8.8m) is no longer classed as a separately disclosed item and has been charged to divisional and Group adjusted results and the prior periods restated accordingly. Adjusted operating profit margin in constant currency decreased by 280bps.

Reconciliation to non-GAAP measures and performance

Note 3 to the financial statements sets out the reconciliations of operating profit/(loss) and loss before tax to their adjusted equivalents. The adjusting items are as follows:

Other intangible asset amortisation charges

The charge for the period was £2.1m (H1 2019: £3.0m).

Strategy costs

There was a charge of £6.9m for legal, professional and other costs associated with the proposed rationalisation of the Group. Partially offsetting this, Greyhound recognised a profit of £0.5m on sale of a property relating to the withdrawal from Western Canada.

Rail Termination Sums

Under the terms of the ERMA agreements the DfT are determining the amount of parent company support and performance bonds that may have been required to be input into the respective franchises based on a pre-covid trajectory financial model and what the net assets are of each franchise as at the point of entering into the EMA (1 March 2020). As announced today, we have agreed the termination sums for SWR and Avanti at £33.2m and £nil respectively. We are continuing to engage with the DfT in determining the termination sum relating to TPE with discussions currently ongoing. Based on discussions with the DfT to date, we have provided for our best expectation of the termination sums due under the terms of the ERMAs for each franchise and this has been recorded as an adjusting item provision in the period that is expected to be paid in March or September 2021 under the respective ERMA durations. As a consequence of the ERMAs, the provisions for impairment on Right of Use assets on rail franchises previously recognised have been released as at the period end which partially offsets our best estimate of the termination sums payable. As a result, there was a net charge of £18.3m to the income statement, which has been treated as an adjusting item that reflects our estimate of concluding the pre-pandemic contingent capital exposure of all franchises and entering into the EMAs and subsequently the ERMAs.

Group statutory operating performance

The statutory operating loss for the period was £(16.4)m (H1 2019: loss of £(118.1)m), reflecting the net adjusting items noted above.

Finance costs and investment income

Net finance costs were £83.7m (H1 2019: £69.0m) with the increase principally due to the increase in lease interest from £17.4m in H1 2019 to £36.7m in H1 2020 in line with the increase in lease liability from £1,022.1m at 30 September 2019 to £2,140.0m at 30 September 2020. This increase was mainly due to the new rolling stock leases in relation to new trains in GWR as well as the inclusion of the Avanti franchise’s rolling stock lease liabilities from December 2019.

Profit before tax

Adjusted loss before tax as set out in note 3 to the condensed consolidated financial statements was £73.3m (H1 2019: profit £19.9m). An overall charge of £26.8m (H1 2019: £207.0m) for adjustments principally reflecting the Greyhound impairment of nil (H1 2019: £124.4m), Rail Termination Sums net charge of £18.3m (H1 2019: nil), North America self-insurance reserve charge of £nil (H1 2019: £59.3m), restructuring and reorganisation charges of £6.4m (H1 2019: £15.4m), a legacy pension settlement of £nil (H1 2019: £4.9m) and other intangible asset amortisation charges of £2.1m (H1 2019: £3.0m), resulted in a statutory loss before tax of £(100.1)m (H1 2019: loss before tax of £(187.1)m).

Tax

The tax credit on adjusted profit before tax, for the period was £13.5m (H1 2019: charge £2.9m). There was a tax charge of £1.8m (H1 2019: credit of £17.1m) relating to other intangible asset amortisation charges and other adjustments. The total statutory tax credit was £11.7m (H1 2019: credit of £14.2m). The actual tax paid during the period was £0.8m (H1 2019: £2.0m).

EPS

Adjusted EPS was (5.3)p (H1 2019: 1.4p). Basic EPS was (8.3)p (H1 2019: (14.3)p).

Shares in issue

As at 30 September 2020 there were 1,204.7m shares in issue (H1 2019: 1,214.0m), excluding treasury shares and own shares held in trust for employees of 16.1m (H1 2019: 1.4m). 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 1,203.3m (H1 2019: 1,211.3m).

Capital expenditure

Road cash capital expenditure was £59.0m (H1 2019: £141.6m) and comprised First Student £28.7m (H1 2019: £81.1m), First Transit £18.6m (H1 2019: £16.4m), Greyhound £0.8m (H1 2019: £28.2m), First Bus £10.2m (H1 2019: £13.9m) and Group items £0.7m (H1 2019: £2.0m). First Rail capital expenditure was £70.4m (H1 2019: £51.9m) and is typically matched by franchise receipts or other funding. In addition, during the period we entered into leases in the Road divisions with capital values in First Student of £24.5m (H1 2019: £48.9m), First Transit of £10.4m (H1 2019: £0.1m), Greyhound of £0.4m (H1 2019: £6.2m) and First Bus of £0.4m (H1 2019: £5.2m) and Group items £0.2m (H1 2019: £0.1m). During the period First Rail entered into leases with a capital value of £54.5m. Of our budgeted Road capital expenditure, c.£176m has been deferred in the first half, of which c.£50m is a permanent reduction. The majority of the net deferral of £126m will be incurred in the 2022 financial year.

Gross capital investment (fixed asset and software additions plus the capital value of new leases) was £286.9m (H1 2019: £371.6m) and comprised First Student £134.5m (H1 2019: £189.4m), First Transit £26.6m (H1 2019: £15.0m), Greyhound £1.8m (H1 2019: £32.8m), First Bus £10.1m (H1 2019: £12.0m), First Rail £113.3m (H1 2019: £120.3m) and Group items £0.6m (H1 2019: £2.1m). The balance between cash capital expenditure and gross capital investment represents new leases and creditor movements in the year.

Adjusted cash flow

The Road divisions’ adjusted cash inflow of £186.6m (H1 2019: £68.1m) was well ahead of expectations in the period. In part this reflects our actions to focus on cash preservation and is after extensive reprofiling of our capital expenditure budget, focusing on delivering on our commitments for customers while other spending was deferred or converted to lease finance. Normally the half year represents a low point in the cash flow cycle due to the seasonality of our business, in particular First Student. However, this year First Student’s normal working capital outflow through school start-up has taken place later, due to the delays to school service in many areas. Rail adjusted cash inflow of £153.1m (H1 2019: £(21.3)m) reflects the timing of fully-funded capital expenditure flows and £167.0m of pre-funding of working capital flows in the period under the new ERMA agreements. Overall, the Group’s adjusted cash inflow in the period was £231.7m (H1 2019: outflow of £78.0m). The cash flow is set out below:

	Six months to 30 Sep 2020 £m	Six months to 30 Sep 2019 £m	Year to 31 Mar 2020 £m
EBITDA	465.0	434.2	1,108.9
Other non-cash income statement charges	7.1	5.1	8.8
Working capital	298.7	(13.0)	72.6
Movement in other provisions	8.8	7.9	(64.5)
Pension payments in excess of income statement charge	(8.0)	(33.3)	(38.8)
Cash generated by operations	771.6	400.9	1,087.0
Capital expenditure and acquisitions	(134.6)	(196.5)	(352.8)
Proceeds from disposal of property, plant and equipment Proceeds from disposal of business	4.4 -	21.2 -	30.5 16.2
Interest and tax	(81.8)	(68.1)	(126.1)
Lease payments now in debt/other	(327.9)	(235.5)	(556.3)
Adjusted cash flow	231.7	(78.0)	98.5
Foreign exchange movements	9.1	(39.2)	(24.1)
Inception of new leases	(150.7)	(130.9)	(1,828.1)
Lease payments now in debt	321.9	236.6	549.2
Other non-cash movements	(89.1)	(1.0)	(2.0)
Adjustment on transition to IFRS 16	-	(1,168.2)	(1,168.2)
Movement in net debt in the period	322.9	(1,180.7)	(2,374.7)

Net debt

The Group’s net debt at 30 September 2020 before the impact of IFRS 16 and the capitalisation of Right of Use Assets was £815.2m (H1 2019: £1,062.0m) and was £2,955.2m (H1 2019: £2,084.1m) after IFRS 16 and comprised:

Analysis of net debt	30 September 2020 £m	30 September 2019 £m	31 March 2020 £m
Sterling bond (2021)	352.7	348.7	348.7
Sterling bond (2022)	322.7	322.1	322.7
Sterling bond (2024)	199.8	199.8	199.8
CCFF	299.0	-	-
Bank loans and overdrafts	655.1	530.5	656.3
Supplier Financing	84.6	-	-
Lease liabilities (pre-IFRS 16)	125.0	93.5	91.2
Senior unsecured loan notes	215.0	222.8	219.8
Loan notes	0.7	9.4	9.4
Gross debt excluding accrued interest (pre-IFRS 16)	2,254.6	1,726.8	1,847.9
Cash	(701.3)	(167.1)	(319.5)
First Rail ring-fenced cash and deposits	(726.0)	(496.8)	(611.9)
Other ring-fenced cash and deposits	(12.1)	(0.9)	(20.3)
Net debt excluding accrued interest (pre-IFRS 16)	815.2	1,062.0	896.2

IFRS 16 lease liabilities – Road	272.1	296.1	283.3
IFRS 16 lease liabilities – Rail	1,867.9	726.0	2,098.6
IFRS 16 lease liabilities – total	2,140.0	1,022.1	2,381.9

Net debt excluding accrued interest (post-IFRS 16)	2,955.2	2,084.1	3,278.1

Under the terms of the First Rail franchise agreements, cash can only be distributed by the TOCs either up to the lower amount of their retained profits or the amount determined by prescribed liquidity ratios. The ring-fenced cash represents that which is not available for distribution or the amount required to satisfy the liquidity ratio at the balance sheet date. First Rail ring-fenced cash increased by £114.1m to £726.0m in the period principally due to the pre-funding of working capital flows noted elsewhere. Net debt excluding Rail ring-fenced cash and deposits increased to £3,681.2m (H1 2019: £2,580.9m).

Total effective net debt before Rail IFRS 16 lease liabilities of £1,093.5m is dollar denominated either directly or through swaps the Group has entered into.

Funding and risk management

Liquidity within the Group has remained strong. At 30 September 2020, there was £965.6m (H1 2019: £496.6m) of undrawn committed headroom and free cash, being £323.9m (H1 2019: £394.4m) of committed headroom and £641.7m (H1 2019: £102.2m) of net free cash after offsetting overdraft positions. This reflects the previously disclosed issuance of £300m in commercial paper through the UK Government’s Covid Corporate Financing Facility (CCFF) scheme in April 2020 which was renewed for a further year in December, cash flow in the period and the timing of working capital movements in First Student. Subsequent to the period end, First Student working capital has continued to normalise as higher service levels are run and as at 8 December the Group’s undrawn committed headroom and free cash was £805m, broadly in line with average levels since April.

In addition to the committed funding and free cash position noted above, the Group’s diversified funding structure also includes undrawn facilities comprising a committed £250m bridging loan entered into in March 2020 for the redemption of the £350m bond that matures in April 2021, an uncommitted £150m accordion facility to the RCF, as well as further lines of uncommitted leasing facilities and more than $195m of committed supplier credit for the procurement of buses. Treasury policy requires a minimum level of committed headroom is maintained. Average maturity of our bond debt, senior unsecured loan notes and bank facilities is 2.8 years (H1 2019: 3.8 years). The Group’s main revolving bank facilities require renewal in November 2023. The Group does not enter into speculative financial transactions and uses only authorised financial instruments for certain financial risk management purposes.

Covenant amendment

In November as a matter of prudence the Group determined that was an appropriate point to secure enhanced financial flexibility from its lenders for the next two covenant testing dates, covering the typical period of 12 months. The Group therefore agreed covenant amendments for the 31 March 2021 and 30 September 2021 tests with its lending banks and USPP investors on similar terms. The net debt:EBITDA covenant was amended to less than 5.5 times and then 4.5 times for the March and September tests respectively (compared to 3.75 times normally). At both testing dates the fixed charge covenant was also amended to greater than 1.0 times (compared to 1.4 times normally). The Group agreed that net debt including rail ring-fenced cash will not exceed £2.0bn and minimum liquidity levels of £150m will be maintained during this period.

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.

Fuel price risk

We use a progressive forward hedging programme to manage commodity risk. As at 30 September 2020, 59% of our ‘at risk’ UK crude requirements for the current year in the UK (1.5m barrels) were hedged at an average rate of $64 per barrel, 37% of our requirements for the year to 31 March 2022 at $64 per barrel, and 6% of our requirements for the year to 31 March 2023 at $56 per barrel.

In North America 73% of 2020/21 ‘at risk’ crude oil volumes (0.6m barrels) were hedged at an average rate of $63 per barrel, 21% of our requirements for the year to 31 March 2022 at $65 per barrel, and 6% of our requirements for the year to 31 March 2023 at $60 per barrel, predominantly in relation to First Student and First Transit. Greyhound’s fuel exposure is largely unhedged because its competitors – passenger cars and the airlines – do not hedge their fuel exposure, so Greyhound’s pricing is responsive to fuel price changes.

Foreign currency risk

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

Foreign exchange

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

	6 months to 30 September 2020		6 months to 30 September 2019		Year to 31 March 2020
	Closing rate	Effective rate	Closing rate	Effective rate	Closing rate	Effective rate
US Dollar	1.27	1.30	1.23	1.34	1.25	1.29
Canadian Dollar	1.71	1.72	1.63	1.84	1.74	1.72

Pensions

We have updated our pension assumptions as at 30 September 2020 for the defined benefit schemes in the UK and North America. The net pension deficit of £313.4m at the beginning of the period has increased to £359.9m at the end of the period principally due to declining yields, partially offset by higher investment returns than expected. The main factors that influence the balance sheet position for pensions and the principal sensitivities to their movement at 30 September 2020 are set out below:

	Movement	Impact
Discount rate	+0.1%	Reduce deficit by £34m
Inflation	+0.1%	Increase deficit by £27m
Life expectancy	+1 year	Increase deficit by £95m

The Trustee and Company have finalised the 2019 funding valuation for the First UK Bus Pension Scheme. Taking into account the parent company guarantee provided by FirstGroup plc, the funding deficit of £271m at the valuation date is lower than that of the previous triennial valuation (£302m as at April 2016), but higher than the balance sheet position on an accounting basis at the relevant date. The funding shortfall is estimated to be c.£150m higher than the IAS19 accounting position at the reporting date.

We are now actively engaging with the Trustee on strategic discussions in relation to a Long-Term Funding Target for the Scheme, including liability management options, covenant, de-risking the investment strategy and securing member benefits. Such a Long-Term Funding Target (often referred to as low dependency or self-sufficiency) is not defined precisely but may be achieved by setting a funding target in line with a discount rate for liabilities in the range of Gilts to Gilts +50bps. In our opinion, funding the Scheme to such a level within a reasonably short time horizon, whilst taking actions to reduce exposure to investment risk, is both realistic and achievable – especially given the rate at which the Scheme is now maturing following closure first to new entrants and then subsequently to ongoing accrual. Such a lower risk, low dependency funding target could be c.£100m higher than the value of liabilities in the funding valuation.

Balance sheet

Net assets have decreased by £160.5m since 31 March 2020 and by £422.2m since 30 September 2019. The principal reasons for the £160.5m decrease since 31 March 2020 are the retained loss for the period of £88.4m, actuarial losses on defined benefit pension schemes (net of deferred tax) of £44.8m, unfavourable translation reserve movements of £38.1m and partly offset by favourable after tax hedging reserve movements of £10.6m.

Balance sheets – Net assets/(liabilities)	As at 30 September 2020 £m	As at 30 September 2019 £m	As at 31 March 2020 £m
First Student	2,228.5	2,453.9	2,447.3
First Transit	323.4	435.9	358.1
Greyhound	(171.0)	(87.1)	(212.3)
First Bus	355.2	288.0	319.4
First Rail	(884.0)	(622.1)	(749.9)
Divisional net assets, with IFRS 16 assets and liabilities allocated	1,852.1	2,468.6	2,162.6
Group items	(17.7)	22.4	(43.9)
Net debt excluding IFRS 16 liabilities	(815.2)	(1,062.0)	(896.2)
Taxation	(3.0)	9.4	(45.8)
Total	1,016.2	1,438.4	1,176.7

Post-balance sheet events

The Group announced on 9 November 2020 that it has agreed covenant amendments for the 31 March 2021 and 30 September 2021 tests with its lending banks and USPP investors on similar terms, as described on page 18.

We have repaid and re-issued £300m of the Bank of England CCFF in December 2020, providing further committed facilities for the next 12 months. The Board believes that this facility will continue to be available for re-draw up to March 2021 as communicated from the Bank of England.

Since 30 September 2020, we have secured $195m of long-term supplier financing for First Student buses.

In November, an annuity buy-in was completed for all the current pensioners in the Aberdeen LGPS. The pensioners represent £240m, or 70%, of our Scotland LGPS pension liabilities, and removing our exposure to that risk represents a material reduction to the Group’s overall ongoing pension risk.

Forward-looking statements

Certain statements included or incorporated by reference within this document may constitute ‘forward-looking statements’ with respect to the business, strategy and plans of the Group and our current goals, assumptions and expectations relating to our future financial condition, performance and results. By their nature, forward-looking statements involve known and unknown risks, assumptions, uncertainties and other factors that cause actual results, performance or achievements of the Group to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. 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 2020 (the ‘first half’, the 'period' or ‘H1 2020’) include the results and financial position of the First Rail business for the period ended 26 September 2020 and the results and financial position of all the other businesses for the 26 weeks ended 26 September 2020. The figures for the six months to 30 September 2019 (the ‘prior period’ or ‘H1 2019’) include the results and financial position of First Rail for the period ended 14 September 2019 and the results and financial position of all the other businesses for the 26 weeks ended 28 September 2019. Figures for the year to 31 March 2020 include the results and financial position of the First Rail division for the year ended 31 March 2020 and the results and financial position of all the other businesses for the 52 weeks ended 28 March 2020. Full year results for 2021 will include the results and financial position of First Rail for the year to 31 March 2021 and the results and financial position of all the other businesses for the 52 weeks ended 27 March 2021.

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

All references to 'adjusted' figures throughout this document are before strategy costs, Rail Termination Sums, other intangible asset amortisation charges and certain other items as set out in note 3 to the financial statements.

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

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

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

Principal risks and uncertainties

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

The most immediate risk facing the Group remains the impact to the Group and each of its businesses from the coronavirus pandemic. We have set out in more detail elsewhere in this document (and previously announced) the measures we have taken and continue to take as a Group and in each of our businesses to mitigate those risks. In our going concern statement we have highlighted continued uncertainties that could, in certain severe downside scenarios, cast significant doubt on the Group’s ability to continue as a going concern.

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

Other material risks include:

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

For a full summary of the Principal Risks and Uncertainties facing the Group, please refer to the Annual Report and Accounts 2020 at https://www.firstgroupplc.com/investors/annual-report-2020.aspx.

Matthew Gregory Ryan Mangold

Chief Executive Chief Financial Officer

10 December 2020 10 December 2020

Condensed consolidated income statement

	Notes	Unaudited 6 months to 30 September 2020 £m	Unaudited 6 months to 30 September 2019 £m	Audited year to 31 March 2020 £m
Revenue	2, 4	3,101.6	3,531.9	7,754.6
Operating costs		(3,118.0)	(3,650.0)	(7,907.3)
Operating loss		(16.4)	(118.1)	(152.7)
Investment income	5	1.6	1.2	2.7
Finance costs	5	(85.3)	(70.2)	(149.6)
Loss before tax		(100.1)	(187.1)	(299.6)
Tax	6	11.7	14.2	(25.0)
Loss for the period		(88.4)	(172.9)	(324.6)
Attributable to:
Equity holders of the parent		(99.3)	(172.9)	(327.2)
Non-controlling interests		10.9	-	2.6
		(88.4)	(172.9)	(324.6)
Earnings per share
Basic	7	(8.3)p	(14.3)p	(27.0)p
Diluted		(8.3)p	(14.3)p	(27.0)p
Adjusted results¹
Adjusted operating profit	3	10.4	88.9	256.8
Adjusted (loss)/profit before tax	3	(73.3)	19.9	109.9
Adjusted EPS	7	(5.3)p	1.4p	6.8p
Adjusted diluted EPS		(5.3)p	1.4p	6.7p

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

Condensed consolidated statement of comprehensive income

	Unaudited 6 months to 30 September 2020 £m	Unaudited 6 months to 30 September 2019 £m	Audited Year to 31 March 2020 £m
Loss for the period	(88.4)	(172.9)	(324.6)

Items that will not be reclassified subsequently to profit or loss
Actuarial losses on defined benefit pension schemes	(54.2)	(42.2)	(29.0)
Deferred tax on actuarial losses on defined benefit pension schemes Writing down previously recognised deferred tax assets on actuarial losses on defined benefit schemes	9.4 -	7.4 -	1.1 (25.7)
	(44.8)	(34.8)	(53.6)
Items that may be reclassified subsequently to profit or loss
Derivative hedging instrument movements	(5.1)	(13.4)	(29.3)
Deferred tax on derivative hedging instrument movements	1.3	2.9	5.9
Exchange differences on translation of foreign operations	(38.1)	142.4	91.3
	(41.9)	131.9	67.9

Other comprehensive (loss)/income for the period	(86.7)	97.1	14.3

Total comprehensive loss for the period	(175.1)	(75.8)	(310.3)
Attributable to:
Equity holders of the parent	(186.0)	(75.8)	(312.9)
Non-controlling interests	10.9	-	2.6
	(175.1)	(75.8)	(310.3)

Condensed consolidated balance sheet

	Note	Unaudited 30 September 2020 £m	Unaudited 30 September 2019 (restated) £m	Audited 31 March 2020 (restated) £m
Non-current assets
Goodwill	8	1,634.3	1,691.3	1,663.2
Other intangible assets	9	47.4	55.0	51.9
Property, plant and equipment	10	4,294.0	3,050.9	4,374.5
Deferred tax assets		41.3	65.7	33.6
Retirement benefit assets	23	52.5	78.0	53.2
Derivative financial instruments	17	0.8	15.0	15.8
Investments		38.0	36.9	32.9
		6,108.3	4,992.8	6,225.1
Current assets
Inventories		55.9	63.3	63.3
Trade and other receivables	12	1,062.5	1,211.4	1,170.6
Current tax assets		5.4	5.0	9.8
Cash and cash equivalents	22	1,439.4	664.8	951.7
Assets held for sale	11	4.2	24.8	1.0
Derivative financial instruments	17	7.4	10.2	4.8
		2,574.8	1,979.5	2,201.2
Total assets		8,683.1	6,972.3	8,426.3
Current liabilities
Trade and other payables	13	1,940.9	1,651.1	1,799.7
Tax liabilities – Current tax liabilities		8.8	3.7	7.5
– Other tax and social security		20.5	46.7	42.9
Borrowings	14	1,372.4	545.9	776.7
Derivative financial instruments	17	28.4	4.3	44.2
Provisions	18	395.1	215.7	232.1
		3,766.1	2,467.4	2,903.1
Net current liabilities		(1,191.3)	(487.9)	(701.9)
Non-current liabilities
Borrowings	14	3,051.8	2,241.0	3,502.9
Derivative financial instruments	17	13.6	8.5	19.2
Retirement benefit liabilities	23	412.4	409.1	366.6
Deferred tax liabilities		20.4	10.9	38.8
Provisions	18	402.6	397.0	419.0
		3,900.8	3,066.5	4,346.5
Total liabilities		7,666.9	5,533.9	7,249.6
Net assets		1,016.2	1,438.4	1,176.7
Equity

Share capital	20	61.1	60.8	61.0
Share premium		689.0	685.2	688.6
Hedging reserve		(25.0)	7.0	(28.3)
Other reserves		4.6	4.6	4.6
Own shares		(9.8)	(1.3)	(10.2)
Translation reserve		604.8	686.7	635.6
Retained earnings		(286.3)	26.6	(141.5)
Equity attributable to equity holders of the parent		1,038.4	1,469.6	1,209.8
Non-controlling interests		(22.2)	(31.2)	(33.1)
Total equity		1,016.2	1,438.4	1,176.7

‘Current borrowings’ and ‘cash and cash equivalents’ have been restated and increased by £64.9m at 30 September 2019 (previously cash and cash equivalents was £599.9m and current borrowings £481.0m) and increased by £82.4m at 31 March 2020 (previously cash and cash equivalents was £869.3m and current borrowings £694.3m), as an overdraft had been set off against the cash balance.

COndensed consolidated statement of changes in equity

	Share capital £m	Share premium £m	Hedging reserve £m	Other reserves £m	Own shares £m	Translation reserve £m	Retained earnings £m	Total £m	Non-controlling interests £m	Total equity £m
Balance at 31 March 2020	61.0	688.6	(28.3)	4.6	(10.2)	635.6	(141.5)	1,209.8	(33.1)	1,176.7
(Loss)/income for the period	-	-	-	-	-	-	(99.3)	(99.3)	10.9	(88.4)
Other comprehensive loss for the period	-	-	(3.8)	-	-	(38.1)	(44.8)	(86.7)	-	(86.7)
Total comprehensive (loss)/income for the period	-	-	(3.8)	-	-	(38.1)	(144.1)	(186.0)	10.9	(175.1)
Shares issued	0.1	0.4	-	-	-	-	-	0.5	-	0.5
Derivative hedging instrument movements transferred to balance sheet (net of tax)	-	-	14.4	-	-	-	-	14.4	-	14.4
Reserves reclassification	-	-	(7.3)	-	-	7.3	-	-	-	-
Movement in EBT and treasury shares	-	-	-	-	0.4	-	(5.3)	(4.9)	-	(4.9)
Share-based payments	-	-	-	-	-	-	4.6	4.6	-	4.6
Balance at 30 September 2020 (unaudited)	61.1	689.0	(25.0)	4.6	(9.8)	604.8	(286.3)	1,038.4	(22.2)	1,016.2

Balance at 1 April 2019 Adjustment on transition to IFRS 16 Balance at 1 April 2019	60.7 - 60.7	684.0 - 684.0	17.5 - 17.5	4.6 - 4.6	(4.7) - (4.7)	544.3 - 544.3	248.1 (15.6) 232.5	1,554.5 (15.6) 1,538.9	(31.2) - (31.2)	1,523.3 (15.6) 1,507.7
Loss for the period	-	-	-	-	-	-	(172.9)	(172.9)	-	(172.9)
Other comprehensive (loss)/ income for the period	-	-	(10.5)	-	-	142.4	(34.8)	97.1	-	97.1
Total comprehensive income/(loss) for the period	-	-	(10.5)	-	-	142.4	(207.7)	(75.8)	-	(75.8)
Shares issued	0.1	1.2	-	-	-	-	-	1.3	-	1.3
Movement in EBT and treasury shares	-	-	-	-	3.4	-	(3.4)	-	-	-
Share-based payments Deferred tax on share-based payments	- -	- -	- -	- -	- -	- -	4.6 0.6	4.6 0.6	- -	4.6 0.6
Balance at 30 September 2019 (unaudited)	60.8	685.2	7.0	4.6	(1.3)	686.7	26.6	1,469.6	(31.2)	1,438.4

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

Condensed consolidated cash flow statement

	Note	Unaudited 6 months to 30 September 2020 £m	Unaudited 6 months to 30 September 2019 £m	Audited Year to 31 March 2020 £m
Net cash from operating activities	21	688.2	331.6	958.2

Investing activities
Interest received		1.6	1.2	2.7
Proceeds from disposal of property and plant and equipment		4.4	21.2	30.5
Purchases of property, plant and equipment		(129.4)	(189.5)	(321.8)
Purchases of software Disposal of business		(3.8) -	(4.0) -	(9.2) 16.2
Acquisition of business	19	(1.4)	(3.0)	(21.8)
Net cash used in investing activities		(128.6)	(174.1)	(303.4)
Financing activities Acquisition of treasury shares		(4.7)	-	(9.8)
Shares issued		-	1.1	4.5
Proceeds from CCFF		299.0	-	-
Proceeds from bank loan facilities and overdrafts		29.5	7.0	122.9
Repayment of loan notes		(8.7)	-	-
Repayments of lease liabilities		(347.5)	(256.8)	(596.5)
Fees for bank facility amendments		(1.4)	-	(2.1)
Net cash flow used in financing activities		(33.8)	(248.7)	(481.0)
Net increase/(decrease) in cash and cash equivalents before foreign exchange movements		525.8	(91.2)	173.8
Cash and cash equivalents at beginning of period		869.3	692.9	692.9
Foreign exchange movements		(15.3)	(1.8)	2.6
Cash and cash equivalents at end of period per consolidated balance sheet		1,379.8	599.9	869.3

Cash and cash equivalents are included within current assets on the condensed consolidated balance sheet. Cash and cash equivalents includes ring-fenced cash of £738.1m in H1 2020 (H1 2019: £497.7m; full year 2020: £632.2m).

Reconciliation to cash flow statement

The cash and cash equivalents in the balance sheet reconcile to the amount of cash shown in the condensed consolidated cash flow statement at the end of each reporting period as follows:

	Note	Unaudited 6 months to 30 September 2020 £m	Unaudited 6 months to 30 September 2019 £m	Audited Year to 31 March 2020 £m
Cash and cash equivalents per the balance sheet		1,439.4	664.8	951.7
Bank overdraft	14	(59.6)	(64.9)	(82.4)
Balances per consolidated cash flow statement		1,379.8	599.9	869.3

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

	Note	Unaudited 6 months to 30 September 2020 £m	Unaudited 6 months to 30 September 2019 £m	Audited Year to 31 March 2020 £m
Net increase/(decrease) in cash and cash equivalents in period		525.8	(91.2)	173.8
(Increase)/decrease in debt and leases excluding leases formerly classified as operating leases		(294.1)	13.2	(75.3)
Adjusted cash flow		231.7	(78.0)	98.5
Payment of lease liabilities		321.9	236.6	549.2
Inception of new leases Fees capitalised against bank facilities and bond issues		(150.7) 0.1	(130.9) -	(1,828.3) 0.7
Foreign exchange movements		9.1	(39.2)	(24.1)
Other non-cash movements		(89.2)	(1.0)	(2.5)
Movement in net debt in period		322.9	(12.5)	(1,206.5)
Adjustment for transition to IFRS 16		-	(1,168.2)	(1,168.2)
Net debt at beginning of period		(3,278.1)	(903.4)	(903.4)
Net debt at end of period	22	(2,955.2)	(2,084.1)	(3,278.1)

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

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 2020 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 2020 include the results and financial position of the First Rail division for the period ended 26 September 2020 and the results and financial position for the other divisions for the 26 weeks ended 26 September 2020. The comparative figures for the six months to 30 September 2019 include the results and financial position of the First Rail division for the period ended 14 September 2019 and the results and financial position of the other divisions for the 26 weeks ended 28 September 2019.

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, ‘Interim Financial Reporting’, 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 and applicable law. The accounting policies applied are consistent with those described in the Group’s latest annual audited financial statements, except for a number of amendments to IFRSs which became effective for the financial years beginning on 1 April 2020 and for income tax which at the interim is based on applying expected full year effective tax rates to the interim results. There has been no material change as a result of applying these amendments. We have also included certain non-GAAP measures in order to reflect management’s reported view of financial performance excluding other intangible asset amortisation charges and certain other items.

These results are unaudited but have been reviewed by the auditor. The comparative figures for the six months to 30 September 2019 are unaudited and are derived from the half-yearly financial report for that period, which was also reviewed by the auditor.

Going concern – basis of preparation

Evaluation of going concern

The Board evaluated whether it was appropriate to prepare the condensed consolidated interim financial statements in this half-yearly report on a going concern basis and in doing so considered whether any material uncertainties exist that cast doubt on the Group’s and the Company’s ability to continue as a going concern over the next 12 months.

Consistent with prior years, the Board’s Going Concern assessment is based on a review of future trading projections, including whether the amended banking covenants are likely to be met and whether there is sufficient facility headroom to accommodate future cash flows for the Going Concern period. During October and November 2020, Divisional management teams prepared detailed, bottom-up projections for their businesses reflecting the COVID19 operating environment, including customer revenue recovery where services had been disrupted and what government or contractual support arrangements were in place. These projections were then subject to a series of Executive management reviews. The Board has considered the period up to March 2022.

Review of trading

Compared with the position in July 2020, we now have substantially greater clarity about the resilience of our businesses as a result of the arrangements in place in the UK and North America and the strength of our customer relationships.

In First Rail we have been operating since 1 March 2020 initially under EMA and for certain franchises under ERMA contracts since 20 September 2020 with the potential to move to management contract-style models under which we anticipate the revenue and cost risks would not be borne by the operator. Furthermore, agreement has been reached of the termination sums on SWR and Avanti which has reduced this potential uncertainty with a clear path forward. In First Student and First Transit our confidence is underpinned by long term contractual arrangements that have performed consistently through the pandemic to-date.

In First Bus, the government confirmed on 8 August 2020 that the 12-week rolling Covid19 Bus Services Support Grant (“CBSSG”) programme will continue to apply until such time as social distancing is no longer required after which there will be an eight-week transition period during which further funding will be available to allow the industry to adjust to passenger demand and revert to a business as usual model post crisis. In Greyhound, we have now formally agreed the majority of the Cares Act 5311 (f) funding and at a higher level than we had earlier assumed.

In the primarily contract-based businesses First Student, First Transit and First Rail we have a materially higher level of confidence than we did in early July 2020 around future business performance as a result of our experience, as well as contractual changes in Bus and Rail since the start of the pandemic. However, in the short term, the impact of the pandemic at a local level in Student continues to be disruptive and uncertain as the extent to which schools re-open or adopt remote learning in response to renewed outbreaks of the pandemic within individual school districts which impacts our service levels and hence potential revenue recovery.

Furthermore, there is still uncertainty regarding the medium to longer-term impact of the COVID19 on passenger travel patterns as economies emerge from the crisis. The impact on future demand for our passenger revenue-based divisions First Bus and Greyhound therefore remains uncertain.

The Group’s near-term liquidity position is also significantly better with improved cash generation since March 2020 and an additional c.£140m in committed facilities in finance leases and long-term supplier finance.

The Board also continues to believe that the Group has the ability to draw down on c.£450m of the currently available but uncommitted facilities throughout the going concern period if required, notably the £300m COVID Corporate Financing Facility (“CCFF”) that currently matures in December 2021 that, if still available, we intend to redraw in March 2021 to be then committed to March 2022, under the current rules.

Base case scenario

The base case assumes a gradual recovery in passenger volumes as a result of an anticipated lifting of social distancing and travel restrictions in FY21/22, but that passenger volumes remain below pre-COVID19 levels in the Going Concern assessment period. In the base case, we have assumed that the Student business remains materially disrupted throughout the remainder of the current school year, assuming recovery to only 75% in full time school at the end of the current academic year with 10% still full time home learning, before recovering fully at the start of the next academic year.

The macro projections in the base case assume that the UK operates in a post-Brexit COVID19 economy and uses a consensus macro-economic outlook in line with HM Treasury’s Economic Forecast of October 2020. We have not assumed any further North American fiscal support beyond what has already been committed.

Severe but plausible downside scenario

In addition, a severe but plausible downside case was modelled (“the severe downside model”) which assumes a more protracted post COVID19 recovery profile. In this case Student is assumed to operate at a substantially close to full service from the start of the Fall school term but with continued disruption until the end of the Winter term in FY21/22, with only 50% in full time school and 25% hybrid learning in the current academic year, and with 10% still full time home learning in the Winter term of FY21/22, with capex for discretionary acquisitions constrained. In Transit the model assumes a more protracted recovery in paratransit and university shuttle service levels until April 2021. In Greyhound it assumes slower passenger recovery and weaker revenues with passenger numbers remaining at current levels in H2 FY20/21 at around 40% of FY 19/20 levels, and slowly recovering to 80% of FY 19/20 levels by the end of H1 FY21/22. In First Bus it assumes CBSSG comes to an end two months earlier than in the base case, but stronger revenues in the second half of the year. In First Rail, the model assumes £100m less of ring-fenced cash and higher Termination sums on expiry of the ERMAs.

On 9 November 2020, the Group announced that it had agreed covenant amendments for the 31 March 2021 and 30 September 2021 tests with its lending banks and USPP investors. Banking covenants are projected to be met for all testing periods through to March 2022 in our base case scenario, however the severe downside model shows the minimum liquidity covenant would be breached at 31 December 2021, before implementing further mitigation actions in reducing costs and capex as the CCFF matures. Although it is the Group’s intention to redraw the CCFF in March 2021, if still available, which should extend its term until March 2022 under the current rules, this is not modelled in the severe downside model. The downside scenario also assumes that no new finance is raised throughout the going concern assessment period.

If the impact on the Group of the pandemic were to be more protracted than assumed in the base case scenarios, or if the Group is unable to raise up to £200m of additional finance facilities by the end of the current fiscal year, the Group would reduce and defer planned growth capex spend over the subsequent twelve months and further reduce costs in line with a lower operating environment to the extent that the essential services we operate are not required to be run for the governments and communities we support.

Conclusion

Based on their review of the financial forecasts and having regard to the risks and uncertainties to which the Group is exposed, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the twelve-month period from the date on which the financial statements were approved. Accordingly, they continue to adopt a going concern basis of accounting in preparing the interim financial statements.

However, as set out above, certain downside risks continue to exist including:

materially lower service levels and revenue recovery in Student if the impact of the pandemic is more severe or protracted than assumed;
the impact on future demand for our passenger revenue-based divisions First Bus and Greyhound being worse than anticipated.

The severe downside model indicates a breach of the minimum liquidity covenant at 31 December 2021 as well as relatively limited net debt: EBITDA covenant headroom at 30 September 2021. The severe downside model also indicates that additional funding may be required in advance of the repayment of the CCFF in December 2021. Such additional funding, whether through drawdown of the group's existing uncommitted facilities or through the group securing new facilities, may not be available at that time. These factors give rise to a material uncertainty that may cast significant doubt upon the Group’s ability to continue as a going concern. No adjustments have been made to the condensed consolidated interim financial statements that would result if the Group were unable to continue as a going concern.

Operating and financial review

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.

Summary of significant events in the Group

Significant events in relation to the change in the financial position and performance of the Group:

Operational highlights – UK

Impact of seasonality on the Group

First Student’s financial results are always highly seasonal because of the overlay of our financial year with the North American school calendar, so performance in the second half is always the key driver for the year. This is particularly the case this year, as the limited second quarter revenues normally received in the school summer holidays from summer school and camp charters have been curtailed by the pandemic. In addition, some revenue normally arising in late August and September did not materialise as a result of the delays to the start of the new academic year by many school customers

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 9 December 2020.

2 Revenue

The principal direct fiscal support recognised during the period comprised £1,314.7m of EMA funding in First Rail, £48.4m of CARES Act 5311(f) funding in Greyhound and £180.4m of CBSSG, concessions and other funding in First Bus. These are recognised within revenue in accordance with IFRS 15 (as per our policy on revenue recognition in the 2020 Annual Accounts), when control of the good or service is transferred to the customer and the group is entitled to the consideration.

Government grants were obtained in the UK and in North America businesses, through the UK furlough scheme and the CARES and CEWS Acts respectively. There was £55.7m of CARES and CEWS Act employee retention credits in First Student, £16.7m in First Transit and £2.6m in Greyhound accounted for through operating costs, as well as furlough support obtained in the UK. These amounts were recognised as an offset to the related costs when conditions were met and expenses were incurred

The main direct fiscal support recognised in revenue over time for each division has been as follows:

Greyhound: Subsidy funding was made available under section 5311(f) of the terms of the US CARES Act. The Act allows Greyhound to claim for losses made from operating intercity bus services in the US after 20 January 2020. The subsidy funding receivable is recognised as other revenue in the period in which the service is provided.

First Bus: A new COVID-19 Bus Service Support Grant (CBSSG) was in place from 17 March 2020 for English bus operators. It is a grant payable to bus operators in respect of commercial services in return for making available sufficient capacity to run an agreed level of commercial miles.

First Rail: The Emergency Measures Agreements (EMAs) transferred all revenue and cost risk to the government and for the majority of the period our First Rail franchises were operated under the terms of these EMAs. Three of the original EMAs were replaced in September by similar arrangements. Under the arrangement, our franchised TOCs are paid a fixed management fee to continue to operate the rail network at a service level agreed with the government. Net EMA funding including the management fee is recognised as revenue in Rail franchise subsidy receipts, in line with the revenue recognition policy for franchise subsidy receipts from the DfT.

Disaggregated revenue by operating segment is set out in note 4.

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 by management in order to eliminate factors which distort year-on-year comparisons. The Group’s adjusted performance is used to explain year-on-year changes when the effect of certain items are significant, including strategic items (material M&A and group restructuring projects), costs of acquisitions including aborted acquisitions and impairment of assets. Other items below £5.0m would not normally be considered as adjusting items unless part of a larger strategic project, but items which distort year-on-year comparisons that exceed this amount could potentially be classified as an adjusting item and are assessed on a case by case basis. Such potential adjusting other items include: restructuring and reorganisation costs, property gains or losses, aged legal and self-insurance claims, movements on insurance discount rates, onerous contract provisions and pension settlement gains or losses. In addition, management assess divisional performance before other intangible asset amortisation charges (excluding software amortisation), 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.

Software amortisation is no longer treated as an adjusting item but as a cost in arriving at operating profit, as this treatment is considered more appropriate. Therefore, during the period to 30 September 2020 software amortisation charges of £6.3m (H1 2019: £8.8m; full year 2020: £16.1m) have been charged to divisional results in arriving at adjusted operating profit. This change in treatment was reflected in the results for the year to 31 March 2020. The prior period to 30 September 2019 has been restated accordingly.

Reconciliation of operating loss to adjusted operating profit	6 months to 30 September 2020 £m	6 months to 30 September 2019 (restated) £m	Year to 31 March 2020 £m
Operating loss	(16.4)	(118.1)	(152.7)
Adjustments for:
Other intangible asset amortisation charges	2.1	3.0	4.9
Greyhound impairment charges	-	124.4	186.9
Rail termination sums net of impairment reversal	18.3	-	-
North America insurance provisions	-	59.3	141.3
Legacy pension settlement	-	4.9	4.9
Gain on disposal of property	-	-	(9.3)
Strategy costs	6.4	15.4	58.2
Fuel over hedge	-	-	7.4
First Student onerous contract provisions	-	-	14.1
Increase in SWR performance bond	-	-	1.1
Total operating profit adjustments	26.8	207.0	409.5
Adjusted operating profit	10.4	88.9	256.8

Reconciliation of loss before tax to adjusted (loss)/profit before tax	6 months to 30 September 2020 £m	6 months to 30 September 2019 (restated) £m	Year to 31 March 2020 £m
Loss before tax	(100.1)	(187.1)	(299.6)
Operating profit adjustment (see table above)	26.8	207.0	409.5
Adjusted (loss)/profit before tax	(73.3)	19.9	109.9
Adjusted tax credit/(charge)	13.5	(2.9)	(24.6)
Non-controlling interests¹	(3.8)	-	(2.6)
Adjusted earnings	(63.6)	17.0	82.7

¹ Excludes the non-controlling interests on SWR adjusting items.

The principal adjusting items are as follows:

Other intangible asset amortisation charges

The charge for the period was £2.1m (H1 2019 restated to £3.0m) with the reduction due to a number of customer contract intangibles which have now been fully amortised.

Rail Termination Sums net of impairment reversal

We are currently engaged with the DfT in determining the termination sums with discussions currently ongoing.

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

Based on discussions with the DfT to date, we have provided for our best estimate of the termination sums due under the terms of the ERMA for each franchise and this is expected to be paid in March or September 2021 under the respective ERMA agreements.

As a consequence of the ERMA’s, the provisions for impairment on Right Of Use assets on Rail franchises previously recognised have been released as at the period end which offsets our best estimate of the termination sums payable (see note 10).

As a result there was a net charge of £18.3m to the income statement which has been treated as an adjusted item.

Strategy costs

The charge of £58.2m in the year to 31 March 2020 comprised mainly £28.0m for a Group-wide initiative to achieve systematic and structured cost savings across the businesses, £25.1m of restructuring cost (legal, professional and other costs) associated with the proposed rationalisation of the Group and the trading losses in the two Manchester depots to the date of disposal).

Reconciliation of constant currency ¹

		6 months to 30 September 2019
	6 months to 30 September 2020 £m	Reported £m	Effect of foreign exchange £m	Constant Currency £m	% change
Revenue	3,101.6	3,531.9	(5.5)	3,526.4	(12.0)%
Operating profit	10.4	88.9	4.5	93.4	(88.9)%
Adjusted (loss)/profit before tax	(73.3)	19.9	4.8	24.7	(396.8)%
Adjusted EPS	(5.3)p	1.4p	0.3p	1.7p	(411.8)%
Net debt	2,955.2	2,084.1	(22.3)	2,061.8	+43.3%

¹ Changes ‘in constant currency’ throughout this document are based on retranslating H1 2019 foreign currency amounts at H1 2020 rates.

4 Business segments information

The segment results for the six months to 30 September 2020 are as follows:

	First Student £m	First Transit £m	Greyhound £m	First Bus £m	First Rail £m	Group items¹ £m	Total £m
Passenger revenues	-	-	89.1	182.2	314.2	-	585.5
Contract revenues	393.2	401.4	-	19.3	-	8.3	822.2
Charter/private hire	5.6	0.3	1.0	-	-	-	6.9
Rail franchise subsidy receipts	-	-	-	-	1,347.3	-	1,347.3
Other revenues ²	5.6	82.8	69.7	109.5	72.1	-	339.7
Revenue	404.4	484.5	159.8	311.0	1,733.6	8.3	3,101.6
EBITDA³	65.0	30.9	(0.9)	48.1	333.8	(11.9)	465.0
Depreciation	(113.6)	(16.3)	(13.4)	(33.7)	(275.6)	(1.5)	(454.1)
Software amortisation	(1.7)	(1.2)	(2.0)	(0.7)	(0.4)	(0.3)	(6.3)
Capital grant amortisation	-	-	0.5	3.7	1.6	-	5.8
Segment results	(50.3)	13.4	(15.8)	17.4	59.4	(13.7)	10.4
Other intangible asset amortisation charges (note 3)	(1.5)	-	(0.6)	-	-	-	(2.1)
Other adjustments (note 3)	-	-	0.5	-	(18.3)	(6.9)	(24.7)
Operating (loss)/profit	(51.8)	13.4	(15.9)	17.4	41.1	(20.6)	(16.4)

Balance sheet	Total assets £m	Total liabilities £m	Net assets/(liabilities) £m
First Student	2,924.7	(590.2)	2,334.5
First Transit	631.7	(272.4)	359.3
Greyhound	272.8	(374.9)	(102.1)
First Bus	746.4	(337.8)	408.6
First Rail	2,533.9	(1,550.0)	983.9
	7,109.5	(3,125.3)	3,984.2
Group items	87.5	(97.3)	(9.8)
Net debt⁴	1,439.4	(4,394.6)	(2,955.2)
Taxation	46.7	(49.7)	(3.0)
Total	8,683.1	(7,666.9)	1,016.2

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

² Other revenue principally includes: First Transit - management revenue, reimbursable costs and some of the COVID-19 relief revenue from customers to cover fixed costs; Greyhound - 48.4m of CARES Act 5311(f) funding; First Bus - £109.5m of CBSSG/CSG funding; First Rail - includes Emergency Measurements Agreement management and performance fees, other industry funded projects and other contractual services with third party rail operators.

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

⁴ Net debt includes lease liabilities recognised under IFRS 16 of £2,140.0m and comprises First Student £105.9m, First Transit £35.9m, Greyhound £68.9m, First Bus £53.4m, First Rail £1,868.0m and Group items £7.9m.

4 Business segments information (continued)

The segment results for the six months to 30 September 2019 are as follows:

	First Student £m	First Transit £m	Greyhound £m	First Bus £m	First Rail £m	Group items¹ £m	Total £m
Passenger revenues	-	-	301.7	388.6	1,095.8	-	1,786.1
Contract revenues	748.2	520.2	-	28.8	-	8.2	1,305.4
Charter/private hire	95.6	2.7	1.7	2.2	-	-	102.2
Rail franchise subsidy receipts	-	-	-	-	123.5	-	123.5
Other revenues	7.8	65.8	32.0	4.9	104.2	-	214.7
Revenue	851.6	588.7	335.4	424.5	1,323.5	8.2	3,531.9
EBITDA²	127.7	29.0	35.2	54.3	204.0	(16.0)	434.2
Depreciation Software amortisation	(109.4) (1.5)	(15.2) (1.1)	(22.3) (5.2)	(33.9) (0.3)	(169.4) (0.4)	(2.1) (0.3)	(352.3) (8.8)
Capital grant amortisation	-	-	0.4	1.1	14.3	-	15.8
Segment results	16.8	12.7	8.1	21.2	48.5	(18.4)	88.9
Other intangible asset amortisation charges (note 3)	(1.2)	-	(1.6)	(0.1)	(0.1)	-	(3.0)
Other adjustments (note 3)	(34.3)	(24.1)	(134.2)	(5.4)	-	(6.0)	(204.0)
Operating (loss)/profit	(18.7)	(11.4)	(127.7)	15.7	48.4	(24.4)	(118.1)

Balance sheet	Total assets (restated) £m	Total liabilities (restated) £m	Net assets/(liabilities) £m
First Student	3,132.1	(574.6)	2,557.5
First Transit	685.6	(220.7)	464.9
Greyhound	339.7	(338.8)	0.9
First Bus	740.0	(385.8)	354.2
First Rail	1,223.4	(1,119.5)	103.9
	6,120.8	(2,639.4)	3,481.4
Group items	116.0	(84.3)	31.7
Net debt³	664.8	(2,748.9)	(2,084.1)
Taxation	70.7	(61.3)	9.4
Total	6,972.3	(5,533.9)	1,438.4

‘Total assets’ and ‘total liabilities’ have been restated by £64.9m at 30 September 2019, as an overdraft had been set off against the cash balance in the prior period.

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

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

³ Net debt includes lease liabilities recognised under IFRS 16 of £1,115.6m and comprises First Student £181.7m, First Transit £29.5m, Greyhound £97.7m, First Bus £71.3m, First Rail £726.1m and Group items £9.3m.

4 Business segments information (continued)

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

	First Student £m	First Transit £m	Greyhound¹ £m	First Bus £m	First Rail £m	Group items² £m	Total £m
Passenger revenues	-	-	532.7	758.2	2,584.1	-	3,875.0
Contract revenues	1,764.9	1,031.9	-	63.5	-	17.8	2,878.1
Charter/private hire	159.4	5.0	3.5	-	-	-	167.9
Rail franchise subsidy receipts	-	-	-	-	369.1	-	369.1
Other revenues	16.1	134.5	67.0	14.2	232.7	-	464.5
Revenue	1,940.4	1,171,4	603.2	835.9	3,185.9	17.8	7,754,6
EBITDA³ Depreciation	387.6 (225.8)	62.9 (32.2)	35.3 (39.7)	113.2 (69.2)	538.6 (518.2)	(28.7) (4.3)	1,108.9 (889.4)
Software amortisation	(3.0)	(2.4)	(8.1)	(0.9)	(1.0)	(0.7)	(16.1)
Capital grant amortisation	-	-	0.9	3.0	49.5	-	53.4
Segment results	158.8	28.3	(11.6)	46.1	68.9	(33.7)	256.8
Other intangible asset amortisation charges (note 3)	(2.4)	-	(2.5)	-	-	-	(4.9)
Other adjustments (note 3)	(67.0)	(50.2)	(239.3)	(13.7)	(1.1)	(33.3)	(404.6)
Operating (loss)/profit	89.4	(21.9)	(253.4)	32.4	67.8	(67.0)	(152.7)

Balance sheet	Total assets £m	Total liabilities £m	Net assets/(liabilities) £m
First Student	3,157.7	(608.5)	2,549.2
First Transit	663.2	(274.0)	389.2
Greyhound	261.4	(392.2)	(130.8)
First Bus	722.8	(343.3)	379.5
First Rail	2,513.6	(1,164.9)	1,348.7
	7,318.7	(2,782.9)	4,535.8
Group items	112.5	(147.7)	(35.2)
Net debt	951.7	(4,229.8)	(3,278.1)
Taxation	43.4	(89.2)	(45.8)
Total	8,426.3	(7,249.6)	1,176.7

‘Total assets’ and ‘total liabilities’ have been restated by £82.4m at 31 March 2020, as an overdraft had been set off against the cash balance in the prior period.

¹ Greyhound segment results contain £8.3m of properties.

² Group items comprise Tram operating profit less capital grant amortisation plus depreciation.

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

5 Investment income and finance costs

	6 months to 30 September 2020 £m	6 months to 30 September 2019 £m	Year to 31 March 2020 £m
Investment income
Bank interest receivable	(1.6)	(1.2)	(2.7)
Finance costs
Bonds	27.5	28.2	56.5
Bank borrowings	9.2	8.7	19.7
Senior unsecured loan notes	4.7	4.7	9.2
CCFF (Commercial Paper)	0.9	-	-
Loan notes	-	0.6	1.2
Interest cost on lease liabilities	36.7	17.4	42.6
Notional interest on long term provisions	2.5	5.9	11.8
Notional interest on pensions	3.8	4.7	8.6
Total finance costs	85.3	70.2	149.6

Total finance costs	85.3	70.2	149.6
Investment income	(1.6)	(1.2)	(2.7)
Net finance costs	83.7	69.0	146.9

6 Tax on profit on ordinary activities

	6 months to 30 September 2020 £m	6 months to 30 September 2019 £m	Year to 31 March 2020 £m
Current tax charge/(credit)	6.6	0.5	0.5
Deferred tax (credit)/charge	(18.3)	(14.7)	24.5
Total tax (credit)/charge	(11.7)	(14.2)	25.0

The tax effect of the adjustments disclosed in note 3 was a charge of £1.8m in H1 2020 (H1 2019: credit of £17.1m; full year 2020: credit of £39.6m).

7 Earnings per share (EPS)

EPS is calculated by dividing the loss attributable to equity shareholders of £99.3m in H1 2020 (H1 2019: loss £172.9m; full year 2020: loss £327.2m) by the weighted average number of ordinary shares in issue of 1,203.3m (H1 2019: 1,211.3m; full year 2020: 1,210.9m). The number of ordinary shares used for the basic and diluted calculations are shown in the table below.

The difference in the number of shares between the basic calculation and the diluted calculation represents the weighted average number of potentially dilutive ordinary share options.

	30 September 2020 number m	30 September 2019 number m	31 March 2020 number m
Weighted average number of shares used in basic calculation	1,203.3	1,211.3	1,210.9
Executive share options	18.6	13.6	14.8
Weighted average number of shares used in the diluted calculation	1,221.9	1,224.9	1,225.7

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 2020		6 months to 30 September 2019		Year to 31 March 2020
	£m	EPS (p)	£m	EPS (p)	£m	EPS (p)
Basic loss / EPS	(99.3)	(8.3)	(172.9)	(14.3)	(327.2)	(27.0)
Other intangible asset amortisation charges (note 9)	2.1	0.2	3.0	0.2	4.9	0.4
Other adjustments (note 3)	24.7	2.1	204.0	16.8	404.6	33.4
Non-controlling interest relating to SWR adjusting items (note 3)	7.1	0.6	-	-	-	-
Tax effect of above adjustments	1.8	0.1	(17.1)	(1.3)	(39.6)	(3.3)
Write-down of previously recognised deferred tax assets	-	-	-	-	40.0	3.3
Adjusted (loss)/profit / EPS	(63.6)	(5.3)	17.0	1.4	82.7	6.8

	6 months to 30 September 2020 pence	6 months to 30 September 2019 pence	Year to 31 March 2020 pence
Diluted EPS	(8.3)	(14.3)	(27.0)
Adjusted diluted EPS	(5.3)	1.4	6.7

8 Goodwill and impairment of assets

	£m
Cost
At 1 April 2020	1,955.3
Foreign exchange movements	(35.4)
At 30 September 2020	1,919.9

Accumulated impairment losses At 1 April 2020 Foreign exchange movements	292.1 (6.5)
At 30 September 2020	285.6

Carrying amount
At 30 September 2020	1,634.3
At 31 March 2020	1,663.2
At 30 September 2019	1,691.3

8 Goodwill and impairment of assets (continued)

Disclosures including goodwill by cash generating unit (CGU), details of impairment testing and sensitivities thereon are set out on pages 163 and 164 of the 2020 Annual Report.

First Student, First Transit, First Bus and First Rail

Financial modelling at 31 March 2020 confirmed that the carrying amount did not exceed their recoverable amounts in respect of the First Transit, First Student and First Bus divisions and accordingly no impairment charge was required at 31 March 2020. The assessment of the value in use of First Rail was dependent on judgements surrounding EMA emergency measures as detailed in note 2 of the 2020 Annual Report.

Management performed sensitivity analysis at 31 March 2020 to assess the impact that a combination of reasonably possible changes in the principal assumptions would have on the recoverable amount in respect of the First Student, First Transit and First Bus divisions.

The scenarios modelled included:

First Student: Reducing the long term growth rate to 2.0% (in line with independent GDP forecasts for North America), maintaining an 8.7% discount rate and adopting a terminal margin at 8.9% in perpetuity (2019/20 reported margin: 8.2%) would lead to an £8.4m impairment on a total carrying value of assets in use of £2,582.3m.
First Transit: Reducing the long term growth rate to 2.0% (in line with independent GDP forecasts for North America), maintaining an 8.7% discount rate and adopting a terminal margin at 2.8% in perpetuity (2019/20 reported margin: 2.4%) would lead to a £14.8m impairment on a total carrying value of assets in use of £423.3m.
First Bus: Reducing the long-term growth rate to 1.7% (in line with independent GDP forecasts for the UK), maintaining an 8.0% discount rate and adopting a terminal margin at 5.6% would lead to no impairment.

At 30 September 2020 we have revisited the First Student, First Transit, First Bus and First Rail CGU impairment testing and concluded there are no indicators of impairment since March 2020. Therefore no adjustment to the carrying value of these CGUs is required at 30 September 2020.

The assessment of the value in use of First Rail was dependent on judgements surrounding EMA emergency measures as detailed in Note 2 of the 2020 Annual Report. Following the introduction of the ERMA's in September 2020, the impairments of RoU assets that arose on transition to IFRS 16 were re-assessed alongside the estimated Termination Payments - see note 3.

Greyhound

For the year ended 31 March 2020 the value of the Greyhound CGU was assessed based on a fair value less costs to sell basis for the purposes of the impairment review. Fair value was assessed on a value in use basis, but recent activity in line with the intention to divest of the business indicated that using a fair value less costs to sell basis would be a more appropriate approach. The CGU valuation on a fair value less costs to sell basis was assessed as a Level 3 fair value in the hierarchy as defined by IFRS 13, assessing the value of a stand-alone Greyhound business using a discounted cash flow approach. A risk adjusted view of the discounted future cash flows for the next three years, including £136.0m of net property disposal proceeds, was prepared to determine the potential value that a market participant may ascribe to the Greyhound CGU. A long-term revenue growth rate of 1.0% (March 2019: 2.8%) and terminal margin of 5.4% on a stand-alone CGU basis (2019/20: -2.0% reported margin) was assumed. Cash flows were discounted using a pre-tax discount rate of 9.7% (March 2019: 8.3% on a value in use basis). The pre-tax discount rates applied were derived from a risked view of a potential market participant’s weighted average cost of capital at 1.0% above the discount rate applied to our other North American CGUs.

For the year ended 31 March 2020 this indicated an impairment of £62.5m in addition to the £124.4m impairment recorded in the first half of the year. The full year impairment for the year ended 31 March 2020 was therefore £186.9m and was applied on a pro-rata basis against the assets of the division excluding owned property. Market valuations in excess of book value suggest no impairment to the carrying value of property. The carrying value of the CGU at 31 March 2020 after recognising the impairment was £215.3m ($268.3m).

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

At 30 September 2020 we have revisited the Greyhound CGU impairment testing and concluded there are no indicators of impairment since March 2020 and there are no indicators that the impairments taken in previous periods should be reversed. Therefore no adjustment to the carrying value of the Greyhound CGU is required at 30 September 2020.

9 Other intangible assets

	Customer contracts £m	Greyhound brand and trade name £m	Software £m	Total £m
Cost
At 1 April 2020	501.8	74.2	87.9	663.9
Acquisitions (note 19)	0.8	-	-	0.8
Additions	-	-	3.8	3.8
Foreign exchange movements	(8.5)	(1.1)	(1.6)	(11.2)
At 30 September 2020	494.1	73.1	90.1	657.3

Accumulated amortisation and impairment
At 1 April 2020	481.3	64.7	66.0	612.0
Charge for the period	1.5	0.6	6.3	8.4
Foreign exchange movements	(8.2)	(1.0)	(1.3)	(10.5)
At 30 September 2020	474.6	64.3	71.0	609.9

Carrying amount
At 30 September 2020	19.5	8.8	19.1	47.4
At 31 March 2020	20.5	9.5	21.9	51.9
At 30 September 2019	11.7	16.0	27.3	55.0

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

Owned assets

	Land and buildings £m	Passenger carrying vehicle fleet £m	Other plant and equipment £m	Total £m
Cost
At 1 April 2020	480.2	3,440.1	876.0	4,796.3
Acquisitions (note 19)	-	0.6	-	0.6
Additions	1.5	124.5	66.0	192.0
Transfers from right of use assets	-	81.1	-	81.1
Transfers to right of use assets	-	(61.5)	-	(61.5)
Disposals	(2.7)	(65.7)	(64.3)	(132.7)
Reclassified as held for sale	(3.6)	(48.6)	-	(52.2)
Foreign exchange movements	(4.7)	(42.9)	(6.9)	(54.5)
At 30 September 2020	470.7	3,427.6	870.8	4,769.1

Accumulated depreciation and impairment
At 1 April 2020	119.9	1,878.6	678.4	2,676.9
Transfers from right of use assets	-	44.9	-	44.9
Transfers to right of use assets	-	(2.8)	-	(2.8)
Charge for period	6.9	113.8	25.1	145.8
Disposals	(0.3)	(51.4)	(64.0)	(115.7)
Reclassified as held for sale	(1.6)	(47.0)	-	(48.6)
Foreign exchange movements	(1.4)	(22.2)	(6.2)	(29.8)
At 30 September 2020	123.5	1,913.9	633.3	2,670.7

Carrying amount
At 30 September 2020	347.2	1,513.7	237.5	2,098.4
At 31 March 2020	360.3	1,561.5	197.6	2,119.4
At 30 September 2019	355.3	1,602.4	206.8	2,164.5

Right of use assets

	Rolling stock £m	Land and buildings £m	Passenger carrying vehicle fleet £m	Other plant and equipment £m	Total £m
Cost
At 1 April 2020	2,541.4	261.3	332.8	6.8	3,142.3
Additions	53.2	27.7	9.3	0.2	90.4
Disposals	-	(3.0)	-	-	(3.0)
Transfer from owned assets	-	-	61.5	-	61.5
Transfer to owned assets	-	-	(81.1)	-	(81.1)
Foreign exchange movements	-	(4.8)	(7.6)	(0.1)	(12.5)
At 30 September 2020	2,594.6	281.2	314.9	6.9	3,197.6

Accumulated depreciation and impairment
At 1 April 2020	652.3	94.0	138.4	2.5	887.2
Transfer from owned assets	-	-	2.8	-	2.8
Transfer to owned assets	-	-	(44.9)	-	(44.9)
Charge for period	261.5	22.9	22.9	1.0	308.3
Disposals	-	0.5	-	-	0.5
Impairment reversal	(146.5)	-	-	-	(146.5)
Foreign exchange movements	-	(2.4)	(3.0)	-	(5.4)
At 30 September 2020	767.3	115.0	116.2	3.5	1,002.0

Carrying amount
At 30 September 2020	1,827.3	166.2	198.7	3.4	2,195.6
At 31 March 2020	1,889.1	167.3	194.4	4.3	2,255.1
At 30 September 2019	514.3	183.2	185.5	3.4	886.4

The impairment reversal comprises the reversal of £168.0m impairment on TPE and SWR, adjusted for the impact on depreciation due to the impairment in H1 of £21.5m. The impairment reversal is included within adjusting items. See Note 3.

10 Property, plant and equipment (continued)

Owned assets and right of use assets

	Rolling stock £m	Land and buildings £m	Passenger carrying vehicle fleet £m	Other plant and equipment £m	Total £m
Carrying amount
At 30 September 2020	1,827.3	513.4	1,712.4	240.9	4,294.0
At 31 March 2020	1,889.1	527.6	1,755.9	201.9	4,374.5
At 30 September 2019	514.3	538.5	1,787.9	210.2	3,050.9

11 Assets held for sale

	30 September 2020 £m	30 September 2019 £m	31 March 2020 £m
Assets held for sale	4.2	24.8	1.0

These primarily relate to the Ottawa property in Greyhound Canada and First Student yellow school buses which are surplus to requirements and are being actively marketed on the internet. Gains or losses arising on the disposal of such assets are included in arriving at operating profit in the income statement. The Group expects to sell such yellow school buses within 12 months of them going onto the ‘for sale’ list. The value at each balance sheet date represents management’s best estimate of their resale value less cost of disposal. There are no liabilities associated with these held for sale assets at the balance sheet date.

12 Trade and other receivables

Amounts due within one year	30 September 2020 £m	30 September 2019 £m	31 March 2020 £m
Trade receivables	369.8	501.3	652.2
Loss allowance	(5.1)	(3.3)	(4.9)
Trade receivables net	364.7	498.0	647.3
Other receivables	177.7	150.2	90.2
Amounts recoverable on contracts	72.4	78.3	91.2
Prepayments	137.5	156.2	90.3
Accrued income	310.2	328.7	251.6
	1,062.5	1,211.4	1,170.6

13 Trade and other payables

Amounts falling due within one year	30 September 2020 £m	30 September 2019 £m	31 March 2020 £m
Trade payables	248.3	330.4	336.9
Other payables	305.5	339.1	385.7
Accruals	1,066.5	740.3	838.5
Deferred income	312.6	157.9	152.3
Season ticket deferred income	8.0	83.4	86.3
	1,940.9	1,651.1	1,799.7

14 Borrowings

	30 September 2020 £m	30 September 2019 (restated) £m	31 March 2020 (restated) £m
On demand or within 1 year
Leases²	631.5	442.7	642.2
Bank overdraft	59.6	64.9	82.4
Loan notes (note 16)	-	8.7	8.7
CCFF	299.0	-	-
Bond 8.75% (repayable 2021)	367.4	14.6	30.4
Bond 5.25% (repayable 2022)¹	14.6	14.6	5.8
Bond 6.875% (repayable 2024)¹	0.3	0.4	7.2
Total current liabilities – borrowings	1,372.4	545.9	776.7
Within 1 – 2 years
Syndicated & other bank loan facilities	60.0	-	-
Leases²	607.6	180.6	587.4
Supplier financing³	84.6	-	-
Loan notes (note 16)	0.7	0.7	0.7
Bond 8.75% (repayable 2021)	-	357.1	355.1
	752.9	538.4	943.2
Within 2 – 5 years
Syndicated & other bank loan facilities	535.5	465.6	573.9
Leases²	871.8	423.7	1,030.3
Bond 5.25% (repayable 2022)	322.7	322.1	322.6
Bond 6.875% (repayable 2024) Senior unsecured loan notes	199.8 78.5	199.8 -	199.8 80.3
	2,008.3	1,411.2	2,206.9
More than 5 years
Leases²	154.1	68.6	213.3
Senior unsecured loan notes	136.5	222.8	139.5
	290.6	291.4	352.8

Total non-current liabilities at amortised cost – borrowings	3,051.8	2,241.0	3,502.9

‘Bank overdraft’ has been restated and increased by £64.9m at 30 September 2019 and increased by £82.4m at 31 March 2020, as an overdraft had been set off against the cash balance in the prior periods.

¹ Relates to accrued interest.

² The right of use assets relating to lease liabilities are shown in note 10. The maturity of lease liabilities is presented in note 15.

³² Certain supplier financing arrangements are interest bearing and considered to be more than normal supplier credit terms and as such are considered to be debt in accordance with IFRS 7.

15 Lease liabilities

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

	30 September 2020 £m	30 September 2019 £m	31 March 2020 £m
Due in less than one year	691.1	488.3	702.4
Due in more than one year but not more than two years	647.5	187.2	632.8
Due in more than two years but not more than five years	916.7	440.7	1,089.3
Due in more than five years	179.2	94.1	240.6
	2,434.5	1,210.3	2,665.1
Less future financing charges	(169.5)	(94.7)	(191.9)
	2,265.0	1,115.6	2,473.2
Comprising:
Lease liabilities - Road	397.1	389.6	374.6
Lease liabilities - Rail	1,867.9	726.0	2,098.6

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

16 Loan notes

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

	30 September 2020 £m	30 September 2019 £m	31 March 2020 £m
Due within 12 months	-	8.7	8.7
Due within 1 – 2 years	0.7	0.7	0.7

17 Financial instruments

	30 September 2020 £m	30 September 2019 £m	31 March 2020 £m
Total derivatives
Total non-current assets	0.8	15.0	15.8
Total current assets	7.4	10.2	4.8
Total assets	8.2	25.2	20.6
Total current liabilities	28.4	4.3	44.2
Total non-current liabilities	13.6	8.5	19.2
Total liabilities	42.0	12.8	63.4

Derivatives designated and effective as hedging instruments carried at fair value
Non-current assets
Coupon swaps (fair value hedge)	-	11.4	13.3
Currency forwards (cash flow hedge)	0.8	3.2	2.5
Fuel derivatives (cash flow hedge)	-	0.4	-
	0.8	15.0	15.8
Current assets
Fuel derivatives (cash flow hedge)	-	2.3	-
Currency forwards (cash flow hedge)	2.3	7.8	4.8
Currency forwards (net investment hedge)	5.1	-	-
	7.4	10.1	4.8
Current liabilities
Fuel derivatives (cash flow hedge) Currency forwards (net investment hedge)	24.0 4.4	4.3 -	32.4 4.4
	28.4	4.3	36.8
Non-current liabilities
Fuel derivatives (cash flow hedge)	13.6	8.5	19.2
	13.6	8.5	19.2

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)).

Derivatives classified as held for trading
Current assets
Currency forwards	-	0.1	-
Current liabilities
Fuel derivatives	-	-	7.4

17 Financial instruments (continued)

Fair value of the Group's financial assets and financial liabilities (including cash, trade and other receivables, trade and other payables):

	30 September 2020
	Fair value				Carrying value Total £m
	Level 1 £m	Level 2 £m	Level 3 £m	Total £m	Carrying value Total £m
Financial assets
Cash and cash equivalents	1,439.4	-	-	1,439.4	1,439.4
Trade and other receivables	-	752.4	-	752.4	752.4
Derivative financial instruments	-	8.2	-	8.2	8.2
Financial liabilities and derivatives
Financial liabilities	1,039.4	3,562.4	-	4,601.8	4,424.2
Trade and other payables	-	1,833.8	-	1,833.8	1,833.8
Derivative financial instruments	-	42.0	-	42.0	42.0

	30 September 2019
	Fair value				Carrying value Total (restated) £m
	Level 1 (restated) £m	Level 2 £m	Level 3 £m	Total (restated) £m	Carrying value Total (restated) £m
Financial assets
Cash and cash equivalents	664.8	-	-	664.8	664.8
Trade and other receivables	-	955.1	-	955.1	955.1
Derivative financial instruments	-	25.2	-	25.2	25.2
Financial liabilities and derivatives
Financial liabilities	530.5	2,369.3	-	2,899.8	2,786.9
Trade and other payables	-	1,535.6	-	1,535.6	1,535.6
Derivative financial instruments	-	12.8	-	12.8	12.8

‘Cash and cash equivalents’ and ‘financial liabilities’ have been restated and increased by £64.9m (was previously £599.9m), as an overdraft had been set off against the cash balance at 30 September 2019.

	31 March 2020
	Fair value				Carrying value Total (restated) £m
	Level 1 (restated) £m	Level 2 £m	Level 3 £m	Total (restated) £m	Carrying value Total (restated) £m
Financial assets
Cash and cash equivalents	951.7	-	-	951.7	951.7
Trade and other receivables	-	995.0	-	995.0	995.0
Derivative financial instruments	-	20.6	-	20.6	20.6
Financial liabilities and derivatives
Financial liabilities	656.3	3,672.9	-	4,329.2	4,279.6
Trade and other payables	-	1,700.7	-	1,700.7	1,700.7
Derivative financial instruments	-	63.4	-	63.4	63.4

‘Cash and cash equivalents’ and ‘financial liabilities’ have been restated and increased by £82.4m (was previously £869.3m), as an overdraft had been set off against the cash balance at 31 March 2020.

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 (£m) at			Fair value hierarchy	Valuation technique(s) and key inputs
Financial assets/(liabilities)	30 September 2020	30 September 2019	31 March 2020	Fair value hierarchy	Valuation technique(s) and key inputs
Derivative contracts
1. Interest rate swaps	-	11.4	13.3	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	(37.6)	(10.1)	(59.0)	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	3.8	11.1	2.9	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.

18 Provisions

	30 September 2020 £m	30 September 2019 £m	31 March 2020 £m
Insurance claims	368.0	354.5	382.8
Legal and other	33.3	40.8	34.6
Pensions	1.3	1.7	1.6
Non-current liabilities	402.6	397.0	419.0

	Insurance claims £m	Legal and other £m	Pensions £m	Total £m
At 1 April 2020	588.9	60.6	1.6	651.1
Charged to the income statement	122.7	182.9	-	305.6
Utilised in the period	(135.3)	(12.6)	(0.3)	(148.2)
Notional interest	2.5	-	-	2.5
Foreign exchange movements	(12.6)	(0.7)	-	(13.3)
At 30 September 2020	566.2	230.2	1.3	797.7

Current liabilities	198.2	196.9	-	395.1
Non-current liabilities	368.0	33.3	1.3	402.6
At 30 September 2020	566.2	230.2	1.3	797.7

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

Current liabilities	186.3	29.4	-	215.7
Non-current liabilities	354.5	40.8	1.7	397.0
At 30 September 2019	540.8	70.2	1.7	612.7

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 £34.0m in H1 2020 (H1 2019: £32.4m, full year 2020: £35.4m) can extend for up to 30 years. The utilisation of £135.3m in H1 2020 (H1 2019: £119.0m, full year 2020: £219.4m) represents payments made largely against the current liability of the preceding year.

The insurance claims provision at H1 2020 by division is as follows:

	30 September 2020 £m	31 March 2020 £m
Student	251.0	262.4
Transit	168.0	179.2
Greyhound	109.5	109.5
Total North America	528.5	551.1
First Bus	33.3	32.9
First Rail	4.4	4.9
Total insurance claims provision	566.2	588.9

The insurance claims provisions contain £21.7m in H1 2020 (H1 2019: £22.8m, full year 2020: £22.1m) 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 rail estimated termination sums relating to the ERMA’s in TPE and SWR, and restructuring costs. The dilapidation provisions are expected to be settled at the end of the respective franchise.

The pension’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 2020 £m	30 September 2019 £m	31 March 2020 £m
Provisional fair value of net assets acquired:
Property, plant and equipment	0.6	2.3	16.2
Other intangible assets	0.9	1.2	11.1
Other liabilities	-	(0.5)	(3.2)
	1.5	3.0	24.1
Goodwill	-	-	1.7
Satisfied by cash paid and payable	1.5	3.0	25.8

On 21 August 2020 the Group completed the acquisition of Wubs Transit, a provider of school and charter transportation services based in Ontario Canada.

20 Called up share capital

	30 September 2020 £m	30 September 2019 £m	31 March 2020 £m
Allotted, called up and fully paid
1,220.9m ordinary shares of 5p each	61.1	60.8	61.0

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 in H1 2020 was 1,204.7m (H1 2019: 1,214.0m). At the end of the period in H1 2020 16.1m shares (H1 2019: 1.4m shares) were being held as treasury shares and own shares held in trust for employees.

21 Net cash for operating activities

	30 September 2020 £m	30 September 2019 £m	31 March 2020 £m
Operating loss	(16.4)	(118.1)	(152.7)
Adjustments for:
Depreciation charges	454.1	352.3	889.4
Capital grant amortisation	(5.8)	(15.8)	(53.4)
Software amortisation charges	6.3	8.9	16.1
Other intangible asset amortisation charges	2.1	2.9	4.9
Impairment charges	-	124.4	189.0
Share-based payments	4.6	4.6	10.3
Loss/(profit) on disposal of property, plant and equipment	2.5	0.9	(12.9)
Operating cash flows before working capital and pensions	447.4	360.1	890.7
Decrease/(increase) in inventories	6.8	(1.1)	(1.7)
Decrease(increase) in receivables	115.9	(33.8)	(9.0)
Increase in payables due within one year	182.4	72.9	169.0
Increase/(decrease) in provisions due within one year	36.7	(7.5)	9.7
(Decrease)/increase in provisions due over one year	(9.6)	43.6	67.1
Defined benefit pension payments in excess of income statement charge	(8.0)	(33.3)	(38.8)
Cash generated by operations	771.6	400.9	1,087.0
Tax paid	(0.8)	(2.0)	(2.9)
Interest paid	(45.9)	(49.9)	(83.3)
Interest element of leases	(36.7)	(17.4)	(42.6)
Net cash from operating activities	688.2	331.6	958.2

22 Analysis of changes in net debt – adjusted cash flow

	At 1 April 2020 (restated) £m	Adjusted cash flow £m	Foreign Exchange £m	Other £m	At 30 September 2020 £m
Components of financing activities:
Bank loans and overdrafts	(656.3)	(6.5)	8.0	(0.3)	(655.1)
Bonds	(877.5)	-	-	2.3	(875.2)
Fair value of interest rate coupon swaps	6.4	-	-	(6.4)	-
Senior unsecured loan notes	(219.8)	-	4.9	(0.1)	(215.0)
CCFF	-	(299.0)	-	-	(299.0)
Supplier Financing¹	-	-	-	(84.6)	(84.6)
Lease liabilities²	(2,473.2)	25.5	11.5	171.2	(2,265.0)
Other debt	(9.4)	8.7	-	-	(0.7)
Total components of financing activities	(4,229.8)	(271.3)	24.4	82.1	(4,394.6)
Cash	319.5	397.1	(15.3)	-	701.3
Ring-fenced cash	632.2	105.9	-	-	738.1
Cash and cash equivalents	951.7	503.0	(15.3)	-	1,439.4

Net debt	(3,278.1)	231.7	9.1	82.1	(2,955.2)

‘Bank loans and overdrafts’ and ‘cash’ have been restated and increased by £82.4m at 1 April 2020, as an overdraft had been set off against the cash balance in prior periods.

Other movement in supplier finance is a non-cash movement.
Lease liabilities ‘Other’ includes £321.9m repayment of lease liabilities formerly classified as operating leases through repayment, net of the £150.7m inception of new leases.

	At 1 April 2019 (restated) £m	IFRS 16 Transitional Adjustment £m	Adjusted cash flow £m	Foreign Exchange £m	Other £m	At 30 September 2019 (restated) £m
Components of financing activities:
Bank loans and overdrafts	(528.6)	-	10.0	(11.5)	(0.4)	(530.5)
Bonds	(879.7)	-	-	-	0.8	(878.9)
Fair value of interest rate coupon swaps	9.4	-	-	-	(1.1)	8.3
Senior unsecured loan notes	(210.0)	-		(12.7)	(0.1)	(222.8)
Lease liabilities¹	(59.9)	(1,168.2)	20.2	(13.2)	105.5	(1,115.6)
Other debt	(9.4)	-	-	-	-	(9.4)
Total components of financing activities	(1,678.2)	(1,168.2)	30.2	(37.4)	104.7	(2,748.9)
Cash	249.2	-	(80.3)	(1.8)	-	167.1
Ring-fenced cash	525.6	-	(27.9)	-	-	497.7
Cash and cash equivalents	774.8	-	(108.2)	(1.8)	-	664.8

Net debt	(903.4)	(1,168.2)	(78.0)	(39.2)	104.7	(2,084.1)

‘Bank loans and overdrafts’ and ‘cash’ have been restated and increased by £81.9m at 1 April 2019 and increased by £64.9m at 30 September 2019, as an overdraft had been set off against the cash balance in prior periods.

Lease liabilities ‘other’ includes £236.6m decrease in leases formerly classified as operating leases net of the £130.9m inception of new leases.

	At 1 April 2019 (restated) £m	IFRS 16 Transitional Adjustment £m	Adjusted cash flow £m	Foreign Exchange £m	Other £m	At 31 March 2020 (restated) £m
Components of financing activities:
Bank loans and overdrafts	(528.6)	-	(123.4)	(4.1)	(0.2)	(656.3)
Bonds	(879.7)	-	-	-	2.2	(877.5)
Fair value of interest rate coupon swaps	9.4	-	-	-	(3.0)	6.4
Senior unsecured loan notes	(210.0)	-		(9.8)	-	(219.8)
Lease liabilities¹	(59.9)	(1,168.2)	47.6	(12.8)	(1,279.9)	(2,473.2)
Other debt	(9.4)	-	-	-	-	(9.4)
Total components of financing activities	(1,678.2)	(1,168.2)	(75.8)	(26.7)	(1,280.9)	(4,229.8)
Cash	249.2	-	67.7	2.6	-	319.5
Ring-fenced cash	525.6	-	106.6	-	-	632.2
Cash and cash equivalents	774.8	-	174.3	2.6	-	951.7

Net debt	(903.4)	(1,168.2)	98.5	(24.1)	(1,280.9)	(3,278.1)

‘Bank loans and overdrafts’ and ‘cash’ have been restated and increased by £81.9m at 1 April 2019 and increased by £82.4m at 31 March 2020, as an overdraft had been set off against the cash balance in prior periods.

Lease liabilities ‘other’ includes £549.2m decrease in leases formerly classified as operating leases, net of £1,828.3m which relates to an increase of £820.9m on commencement of Avanti West Coast, £729.7m on commencement of GWR DA-3, £114.4m in relation to new rolling stock leases in TPE and £32.7m in Hull Trains. The remaining amount is due to modifications to existing leases and new PCV and property leases entered into in UK Bus and North American divisions.

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 190 to 191 of the Annual Report and Accounts for the year ended 31 March 2020.

The Group currently sponsors six sections of the Railways Pension Scheme (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 employer’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 sections’ 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 last signed off valuation for the TOC sections was effective 31 December 2013, and these disclosures reflect a roll-forward of that valuation.

The market value of the assets at 30 September 2020 for all defined benefit schemes totalled £6,442m (H1 2019: £5,601m; full year 2020: £5,790m).

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

The key assumptions were as follows:

		30 September 2020			30 September 2019			31 March 2020
	First Bus %		First Rail %	North America %	First Bus %	First Rail %	North America %	First Bus %	First Rail %	North America %
Key assumptions used:
Discount rate	1.55		1.55	2.38	1.80	1.80	2.95	2.40	2.40	3.30
Expected rate of salary increases	2.00		3.05	2.50	2.05	3.45	2.50	1.80	2.75	2.50
Inflation – CPI	2.00		2.00	2.00	2.05	2.05	2.00	1.80	1.80	2.00
Future pension increases	2.00		2.00	-	2.05	2.05	-	1.80	1.80	-

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

6 months to 30 September 2020	First Bus £m	North America £m	Total non-rail £m	First Rail £m	Total £m
Current service cost	(5.3)	(4.4)	(9.7)	(54.4)	(64.1)
Impact of franchise adjustment on operating cost	-	-	-	28.4	28.4
Net interest cost	(0.8)	(3.0)	(3.8)	(9.5)	(13.3)
Impact of franchise adjustment on net interest cost	-	-	-	9.5	9.5
	(6.1)	(7.4)	(13.5)	(26.0)	(39.5)

6 months to 30 September 2019	First Bus £m	North America £m	Total non-rail £m	First Rail £m	Total £m
Current service cost	(6.4)	(4.5)	(10.9)	(45.6)	(56.5)
Impact of franchise adjustment on operating cost	-	-	-	27.2	27.2
Net interest cost	(1.7)	(2.9)	(4.6)	(8.7)	(13.3)
Impact of franchise adjustment on net interest cost	-	-	-	8.7	8.7
	(8.1)	(7.4)	(15.5)	(18.4)	(33.9)

Year to 31 March 2020	First Bus £m	North America £m	Total non-rail £m	First Rail £m	Total £m
Current service cost	(10.7)	(8.7)	(19.4)	(114.1)	(133.5)
Impact of franchise adjustment on operating cost	-	-	-	68.3	68.3
Net interest cost	(2.9)	(5.7)	(8.6)	(19.4)	(28.0)
Impact of franchise adjustment on net interest cost	-	-	-	19.4	19.4
	(13.6)	(14.4)	(28.0)	(45.8)	(73.8)

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 Group’s obligations in respect of its defined benefit pension schemes are as follows:

As at 30 September 2020	First Bus £m	North America £m	Total non-rail £m	First Rail £m	Total £m
Fair value of schemes' assets	2,872.9	441.0	3,313.9	3,128.3	6,442.2
Present value of defined benefit obligations	(2,825.3)	(677.7)	(3,503.0)	(5,564.4)	(9,067.4)
Surplus/(deficit) before adjustments	47.6	(236.7)	(189.1)	(2,436.1)	(2,625.2)
Adjustment for irrecoverable surplus¹	(166.3)	-	(166.3)	-	(166.3)
First Rail franchise adjustment (60%)	-	-	-	1,457.2	1,457.2
Adjustment for employee share of RPS deficits (40%)	-	-	-	974.4	974.4
Liability recognised in the condensed consolidated balance sheet	(118.7)	(236.7)	(355.4)	(4.5)	(359.9)
The amount is presented in the condensed consolidated balance sheet as follows:
Non-current assets	52.5	-	52.5	-	52.5
Non-current liabilities	(171.2)	(236.7)	(407.9)	(4.5)	(412.4)
	(118.7)	(236.7)	(355.4)	(4.5)	(359.9)

As at 30 September 2019	First Bus £m	North America £m	Total non-rail £m	First Rail £m	Total £m
Fair value of schemes' assets	2,854.4	497.0	3,351.4	2,249.1	5,600.5
Present value of defined benefit obligations	(2,813.5)	(669.5)	(3,483.0)	(3,898.9)	(7,381.9)
Surplus/(deficit) before adjustments	40.9	(172.5)	(131.6)	(1,649.8)	(1,781.4)
Adjustment for irrecoverable surplus¹	(195.7)	-	(195.7)	-	(195.7)
First Rail franchise adjustment (60%)	-	-	-	986.1	986.1
Adjustment for employee share of RPS deficits (40%)	-	-	-	659.9	659.9
Liability recognised in the condensed consolidated balance sheet	(154.8)	(172.5)	(327.3)	(3.8)	(331.1)
The amount is presented in the condensed consolidated balance sheet as follows:
Non-current assets	78.0	-	78.0	-	78.0
Non-current liabilities	(232.8)	(172.5)	(405.3)	(3.8)	(409.1)
	(154.8)	(172.5)	(327.3)	(3.8)	(331.1)

As at 31 March 2020	First Bus £m	North America £m	Total non-rail £m	First Rail £m	Total £m
Fair value of schemes' assets	2,576.2	417.6	2,993.8	2,796.2	5,790.0
Present value of defined benefit obligations	(2,452.2)	(636.1)	(3,088.3)	(4,245.5)	(7,333.8)
Surplus/(deficit) before adjustments	124.0	(218.5)	(94.5)	(1,449.3)	(1,543.8)
Adjustment for irrecoverable surplus¹	(216.6)	-	(216.6)	-	(216.6)
First Rail franchise adjustment (60%)	-	-	-	867.3	867.3
Adjustment for employee share of RPS deficits (40%)	-	-	-	579.7	579.7
Liability recognised in the condensed consolidated balance sheet	(92.6)	(218.5)	(311.1)	(2.3)	(313.4)
The amount is presented in the condensed consolidated balance sheet as follows:
Non-current assets	53.2	-	53.2	-	53.2
Non-current liabilities	(145.8)	(218.5)	(364.3)	(2.3)	(366.6)
	(92.6)	(218.5)	(311.1)	(2.3)	(313.4)

¹ The 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

To support subsidiary undertakings in their normal course of business, the FirstGroup plc and certain subsidiaries have indemnified certain banks and insurance companies who have issued performance bonds for £1,055.5m (H1 2019: £937.6m, March 2020: £990.0m) and letters of credit for £458.3m (H1 2019: £393.3m, March 2020: £393.8m). The performance bonds relate to the North American and First Bus businesses of £753.1m (H1 2019: £652.4m, March 2020: £686.5m) and the First Rail franchise operations of £302.4m (H1 2019: £285.2m, March 2020: £303.5m). 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 £120.2m to First Rail Train Operating Companies of which £49.7m remains undrawn.

The Group 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 Company’s North American subsidiaries participate in a number of multi-employer pension schemes in which their contributions are pooled with the contributions of other contributing employers. The funding of these schemes is therefore reliant on the ongoing participation by third parties.

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

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.

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

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

On 14 November 2017, Reading Borough Council served First Greater Western Limited (GWR), a subsidiary of the Group, and Network Rail Infrastructure Limited (a third party) with noise abatement notices in respect of the operations at the Reading railway depot. The serving of the notices has been appealed and the parties agreed in September 2020 that the related court hearing should be put on hold until 26 June 2021 to allow the Council further time to monitor GWR’s operations at the depot. The parties further agreed that in June 2021 the Council will be obliged to consider whether the 2017 abatement notices should be withdrawn and, if the notices are not withdrawn, the appeal proceedings will restart. It is not possible at this stage to quantify the implications for the GWR operations, if any, if the notices are not withdrawn by the Council or if GWR are not ultimately successful with respect to any appeal.

On 26 February 2019, class action proceedings were commenced in the UK Competition Appeal Tribunal (CAT) against First MTR South Western Trains Limited (SWR). Equivalent claims have been brought against Stagecoach South Western Trains Limited and London & South Eastern Railway. It is alleged that SWR and the other defendants breached their obligations under competition law, by (i) failing to make available, or (ii) restricting the practical availability of, boundary fares for TfL Travelcard holders wishing to travel outside TfL fare zones. The first substantive hearing, at which the CAT will decide whether or not to certify the class action, has been postponed pending the outcome of an appeal to the Supreme Court in a different class action and is therefore unlikely to occur until early 2021 at the earliest. It is not possible at this stage to determine accurately the likelihood or quantum of any damages and costs, or the timing of any such damages or costs, which may arise from the proceedings.

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

25 Related party transactions

There are no related party transactions or changes since the Group’s 2020 Annual Report which could have a material effect on the Group’s financial position or performance of the Group in the six months to 30 September 2020.

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 “Interim Financial Reporting” 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.

Matthew Gregory Ryan Mangold

Director Director

10 December 2020 10 December 2020

Independent review report to FirstGroup plc

Report on the condensed consolidated interim financial statements

Our conclusion

We have reviewed FirstGroup plc’s condensed consolidated interim financial statements (the “interim financial statements”) in the Half-Yearly results of FirstGroup plc for the 6 month period ended 30 September 2020 (the “period”).

Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, ‘Interim Financial Reporting’, as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom’s Financial Conduct Authority.

Emphasis of matter – Going concern

Without modifying our conclusion on the interim financial statements, we have considered the adequacy of the disclosures made in note 1 to the interim financial statements concerning the Group’s ability to continue as a going concern. The Group’s downside model indicates a breach of the minimum liquidity covenant at 31 December 2021 following repayment of the COVID Corporate Financing Facility (‘CCFF’) in December 2021, as well as relatively limited headroom on the covenant test on the net debt to EBITDA ratio at 30 September 2021. The downside model also indicates that additional funding may be required in advance of the repayment of the CCFF in December 2021. Such additional funding, whether through drawdown of the group's existing uncommitted facilities or through the group securing new facilities, may not be available at that time. These factors give rise to a material uncertainty that may cast significant doubt upon the Group’s ability to continue as a going concern. No adjustments have been made to the interim financial statements that would result if the Group were unable to continue as a going concern.

What we have reviewed

The interim financial statements comprise:

the condensed consolidated balance sheet as at 30 September 2020;
the condensed consolidated income statement for the period then ended;
the condensed consolidated statement of comprehensive income for the period then ended;
the condensed consolidated cash flow statement for the period then ended;
the condensed consolidated statement of changes in equity for the period then ended; and
the explanatory notes to the interim financial statements.

The interim financial statements included in the Half-Yearly results of FirstGroup plc have been prepared in accordance with International Accounting Standard 34, ‘Interim Financial Reporting’, as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom’s Financial Conduct Authority.

As disclosed in note 1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The Half-Yearly results, including the interim financial statements, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the Half-Yearly results in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom’s Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the Half-Yearly results based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom’s Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity’ issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, 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.

We have read the other information contained in the Half-Yearly results and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

London

10 December 2020

Companies

FirstGroup (FGP)

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