Half-yearly Report
Embargoed until 07:00hrs on Wednesday 7 November 2007
FIRSTGROUP PLC
HALF-YEARLY RESULTS
FOR THE SIX MONTHS TO 30 SEPTEMBER 2007
* STRONG START TO YEAR - DELIVERING ON CLEAR STRATEGY OF PROFITABLE GROWTH IN
CORE MARKETS
+ Market leadership positions established in UK and North America
+ Revenue up by 3.1% and adjusted operating profit up 11.8%
+ Group operating margin1 increased
+ Strong EBITDA2 growth - £170.9m up 10.6%
+ Adjusted basic EPS - 11.1p up 9.9%
+ Continued commitment to 10% dividend growth
* UK BUS - REVENUE GROWTH INITIATIVES AND RIGOROUS CONTROL DELIVERING MARGIN
IMPROVEMENT
+ Margin increased by over 1%
+ Good passenger revenue and volume growth
+ Focused investment in people and vehicles delivering results
+ Strong focus on operational performance - lowest lost mileage recorded
* NORTH AMERICA - EXCITING GROWTH OPPORTUNITIES IN LARGE, FRAGMENTED MARKET
+ First Student - margin stability, focus on service quality, costs and
productivity
* First Transit - margin increase and successful contract bidding season
* First Services - new fleet business won, focus on margin improvement
* UK RAIL - INVESTMENT IN SERVICE AND PERFORMANCE DELIVERING GROWTH
+ Investment delivering improved performance and passenger growth
+ Strong revenue growth across all of our Train Operating Companies
+ Further growth opportunity through investment in fleet and capacity and
revenue protection
+ Continued growth opportunities - new Anglo Scottish routes for FTPE
* ACQUISITION OF LAIDLAW - SIGNIFICANT VALUE ENHANCING OPPORTUNITIES FROM
TRANSFORMATIONAL DEAL
+ Completed Laidlaw acquisition on 1 October 2007
+ Established strong, experienced management team for combined business
+ Implementing integration plans
+ Confident of synergy opportunities
FINANCIAL SUMMARY
* Revenue £1,768.9m (2006: £1,715.7m)
* Adjusted operating profit1 £103.1m (2006: £92.2m)
* Operating profit £99.9m (2006: £72.0m)
* Adjusted profit before taxation1 £74.5m (2006: £59.9m)
* Profit before taxation £71.3m (2006: £39.7m)
* Adjusted basic earnings per share 11.1p (2006: 10.1p)
* Basic earnings per share 12.9p (2006: 6.3p)
* Adjusted EBITDA2 £170.9m (2006: £154.5m)
* Adjusted EBITDA:interest cover3 6.0x (2006: 4.8x)
* Interim dividend per share up 10% to 5.5p (2006: 5.0p)
1Before intangible asset amortisation, non-recurring bid costs, other
non-recurring items and profit on disposal of properties, as shown in the
consolidated income statement on page 18.
2Adjusted operating profit as defined plus depreciation.
3Calculated as adjusted EBITDA divided by net finance costs.
Commenting, FirstGroup's Chief Executive, Moir Lockhead said:
"This is a very exciting time for the Group. We have now established leadership
positions in the UK and North America. The completion of our Laidlaw
acquisition on 1 October 2007 provides a step-change in the shape of our
business and gives us the scale and opportunities to generate increased value
and returns and a robust platform for future growth in the large North American
market.
"Across our UK businesses we are seeing the results of our investment in
quality and operational performance. In UK Rail our programme of investment in
capacity, service quality and performance, together with the national appetite
for rail travel, continues to drive growth. In UK Bus our programme of
investment in people and vehicles, coupled with rigorous control of costs and
operating performance delivered revenue growth and an increase of over 1.0% in
the operating margin. In North America our focus is to continue to deliver a
high quality of service together with measures to control costs and increase
productivity. Looking ahead, the scale and resources of our enlarged business
will enable us to make a compelling service and product offering to new and
existing customers.
"These excellent results demonstrate the strength of the Group. We are
delivering on our clear strategy to achieve profitable growth in our core
markets and increase value for shareholders. The Board's confidence in the
Group's future prospects and ability to continue to generate strong operating
cash flows is reflected in the ongoing commitment to at least 10% annual
dividend growth for at least the next three years. Trading in the second half
of the year has started well and is in line with our expectations."
Enquiries FirstGroup plc :
Moir Lockhead, Chief Executive Tel: 020 7291 0512
Nick Chevis, Acting Finance Director Tel: 020 7291 0512
Rachael Borthwick, Corporate Communications Director Tel: 020 7291 0508
PHOTOGRAPHS FOR THE MEDIA ARE AVAILABLE AT WWW.NEWSCAST.CO.UK
NOTES TO EDITORS:
FirstGroup plc is now the world's leading transport company with revenues of
over £5 billion a year. We employ over 135,000 staff throughout the UK and
North America and transport more than 2.5 billion passengers a year.
* The Group is Britain's largest bus operator running more than one in five
of all local bus services. A fleet of nearly 9,000 buses carries 3 million
passengers a day in more than 40 major towns and cities.
* The Group is the UK's largest rail operator with four passenger franchises
- First Capital Connect, First Great Western, First ScotRail and First
TransPennine Express - and one open access operator, Hull Trains.
* The Group operates one quarter of the UK passenger rail network, with a
balanced portfolio of intercity, commuter and regional services, carrying
almost 270m passengers per annum.
* The Group operates rail freight services through FirstGBRf.
* The Group operates the Croydon Tramlink network on behalf of Transport for
London carrying almost 25 million passengers a year.
* On 1 October 2007 the Group completed the acquisition of Laidlaw
International, Inc. the leading operator of school and intercity bus
transportation, a supplier of public transit services and Greyhound, the
only national provider of intercity bus operations in North America.
* In North America the Group has four operating divisions: Yellow School
Buses (First Student), Transit Contracting and Management Services (First
Transit), Vehicle Fleet Maintenance and Support Services (First Services)
and intercity bus services (Greyhound). Headquartered in Cincinnati,
FirstGroup America Inc. operates across the US and Canada.
* First Student is the largest provider of student transportation in North
America with a fleet of approximately 62,000 yellow school buses, carrying
nearly 3 million students every day across the US and Canada.
* First Transit is one of the largest private sector providers of transit
management and contracting, managing public transport systems on behalf of
transit authorities in cities such as Los Angeles, Houston and Denver. It
is one of the largest providers of airport shuttle bus services in the US
and also manages call centres, paratransit operations and other light
transit activities.
* First Services is the largest private sector provider of vehicle
maintenance and ancillary support services in the US. It provides fleet
maintenance for public sector customers such as the Federal Government,
cities and fire and police departments. It also provides a range of support
services including vehicle maintenance, logistics support and facilities
management to public and private sector clients including the US Navy and
US Air Force.
* Greyhound is the only national provider of scheduled intercity bus
transportation services in the US and Canada. Based in Dallas, Greyhound
provides scheduled passenger services to approximately 3,100 destinations
throughout the US and Canada carrying approximately 24 million passengers
annually.
Chairman's statement
I am delighted to report an excellent start to this financial year in which the
Group strengthened its position in the UK and became the leading provider of
transportation in North America. We are successfully delivering on our clear
strategy to profitably grow in our core markets and create further value for
shareholders. Our focus remains to provide safe, high quality and reliable
services and the safety and security of our passengers and employees is our
highest priority. We continue to lead the industry in this area and strive to
achieve the highest possible standards throughout the Group.
Across the Group trading has been strong and produced an excellent set of
financial results for the first half of this year. Adjusted basic earnings per
share increased by 9.9% to 11.1p (2006: 10.1p). The Board has proposed an
interim dividend of 5.5p (2006: 5.0p) an increase of 10%. It will be paid on 6
February 2008 to shareholders on the register on 11 January 2008.
On 1 October 2007 we announced the completion of the acquisition of Laidlaw
International, Inc. This transformational and significantly value enhancing
acquisition gives us the leading position in the large, fragmented North
American transportation market. Our focus is to integrate the businesses as
quickly and efficiently as possible. We will continue to deliver safe, high
quality services to our customers, leverage value through scale and improve our
product offering to existing and new customers and drive out the substantial
synergies that we expect to achieve through combining the two operations.
Looking ahead more than half of the Group's revenue and adjusted operating
profit will be generated from our North American business. The combined
business provides a solid platform for further profitable growth in the large
North American market and presents significant opportunities for the Group and
its employees.
Our employees are our greatest asset and we recognise and appreciate the vital
role they play in the success of our business. On behalf of the Board I would
like to take this opportunity to thank all of our staff for their continued
hard work and commitment in delivering another set of strong results for the
Group. I would also like to extend a warm welcome to those new employees who
have joined our businesses in North America and in the UK.
This has been an extremely busy and exciting period for the Group. I am
delighted with the progress we have made in establishing leading positions in
our primary markets. We are delivering on our clear strategy to create
shareholder value by sustainable, profitable growth in our core businesses.
While we have expanded our operations in North America we have also continued
to invest in our UK businesses to ensure that we deliver the highest level of
service to our customers. As a result we continue to see improved operating
performance and revenue growth in our UK businesses. The Board's commitment to
grow dividends by at least 10% per annum, for at least three years, reflects
our confidence in the Group's strong cash flows and prospects for further
profitable growth.
Martin Gilbert
Chairman
6 November 2007
*Operating profit, margin and EBITDA referred to throughout this document are
stated before intangible asset amortisation, non-recurring bid costs, other
non-recurring items and profit on disposal of properties.
Chief Executive's operating review
OVERVIEW
Safety
We are focused on providing safe and secure services for our passengers and
staff. We constantly seek to advance a culture of safety throughout our
business and relentlessly apply a `zero tolerance' approach to unsafe acts and
practices. Although we have made great strides in improving working practices
and procedures and in monitoring our performance in this area, we are never
complacent. Our aim is to deliver the highest possible standards of safety for
our passengers and staff. We continue to lead in this area for example, our
Injury Prevention Programme (IPP) is not only innovative but unprecedented in
our industry. IPP is designed to engage all of our staff to encourage good
safety practices and to embed a safety culture in all of our operations.
Through our acquisition of Laidlaw we will seek to harness best practice from
both businesses and further enhance our safety procedures throughout the
enlarged Group. I am pleased to report that IPP is being rolled out across all
of our newly acquired North American operations as an early priority.
Results
I am pleased with the performance of the Group which has delivered a strong
start to the year. Group revenue increased by 3.1% to £1,768.9m (2006: £
1,715.7m). Operating profit was £103.1m (2006: £92.2m) an increase of 11.8% and
the Group operating margin increased to 5.8% (2006: 5.4%). Strong cash
generation is a feature of this business and I am pleased to report strong
EBITDA growth that rose by 10.6% to £170.9m (2006: £154.5m), enabling us to
continue to invest in the business as well as increase the interim dividend by
10%.
UK BUS
The Group is the largest bus operator in the UK with a market share of
approximately 23%. Our fleet of almost 9,000 buses carries 3 million passengers
every day.
Results
Our UK Bus division has delivered a strong performance during the period. Total
revenue rose by 3.5% to £540.1m (2006: £521.9m) as a result of volume growth,
including concessions, and pricing. Passenger revenue increased by over 5% and
we saw continued passenger volume growth. Operating profit increased by 20.5%
to £47.6m (2006: £39.5m). EBITDA growth was strong and increased by 11.9% to £
83.5m (2006: £74.6m).
We are pleased that our continued focus on improving service quality and our
investment in people and vehicles is attracting new customers onto our buses.
This increase in passenger volumes, our revenue growth initiatives and the
successful implementation of our turnaround strategy in rural areas, together
with our close management of controllable costs across the division, is driving
improved profitability and our operating margin has increased by over 1.0%.
Revenue growth continues to be strongest in high density areas and town and
city centre locations, especially where we are working closely in partnership
with local authorities to deliver higher quality public transport and better
traffic management. Buses are the quickest, cheapest and most effective way of
delivering the Government's objectives for improving local public transport and
tackling the twin challenges of traffic congestion in our towns and cities and
climate change.
We therefore welcome the Government's proposals in the draft Local Transport
Bill to strengthen voluntary partnership agreements between operators and local
authorities. We also welcome moves to improve the way competition is managed
and approve of the development of a new performance framework for local
authorities and operators towards better punctuality. However we remain
concerned that the proposals for Quality Contract schemes are an unnecessary
distraction and are not in the best interests of passengers.
In recent years we have made significant investment to improve our engineering
and maintenance processes and we have implemented initiatives to raise our
service quality and operational performance, including Punctuality Improvement
Partnerships and publishing performance data. In the period we operated over
99% of registered mileage, despite torrential rain and severe flooding
affecting operations in Yorkshire and Worcestershire during the summer. Driver
turnover remains low and we continue to recruit drivers from Eastern Europe to
supplement recruitment and retention initiatives such as our partnership with
JobCentre Plus. We are committed to the development of our staff and have
rolled out a training programme using the Smith System of Advanced Driver
Training which has proved very successful in our North American business.
Our operations outside London, which represent almost 80% of UK Bus turnover,
continue to see revenue and volume growth with concessions, vehicle investment,
improving service delivery and strong promotion of marketing and fares
initiatives all contributing to the increase. We continue to focus our efforts
on working in partnership with local authorities in the Metropolitan areas and
major towns and cities to tackle congestion hotspots and deliver priority
measures. As traffic congestion worsens there is a real opportunity to attract
people out of their cars and onto buses. Ensuring bus services are punctual and
reliable will give people confidence to leave their cars at home and encourage
new customers to our services.
In partnership with Local Authorities and Passenger Transport Executives we
continue to develop plans for improved bus services for customers. In June we
launched a groundbreaking Route Development Plan to improve bus services across
the Greater Glasgow network. The plan examines bus network changes in the
context of wider developments such as major new housing schemes, work, leisure
and shopping facilities. The plan fully complements the award-winning £30m
Streamline Partnership, which is delivering Real Time Passenger Information and
better bus priorities along eight quality bus corridors into Glasgow, and our
growth and stability pact with the City Council and Strathclyde Partnership for
Transport.
As a key member of the Greater Manchester Bus Operators' Association (GMBOA) we
were pleased to present plans to support the area's Transport Innovation Fund
bid and move towards a road pricing scheme. The GMBOA proposals would deliver
minimum frequencies on key corridors, improved punctuality and reliability,
better ticketing, particularly for multi-modal journeys and a simpler fares
structure. Under the GMBOA proposals Greater Manchester Passenger Transport
Executive and the Metropolitan Borough Councils would deliver more extensive
bus priority measures and enforcement of bus lanes and parking restrictions.
In London, we are committed to improving our performance and are pleased that
our operations in East London are currently top of the league tables issued by
Transport for London. We are improving driver standards and continue to
implement new initiatives such as the trial of DriveCam, which records
exceptional events such as hard braking for investigation and driver training
purposes.
Capital expenditure has been focused on areas where there is the potential for
high passenger growth. During the period, £28m was spent on low floor, easy
access buses for towns and cities including Bradford, Leeds, Glasgow and
Manchester. Our investment included 20 new vehicles for the relaunch of the X78
service between Sheffield, Rotherham and Doncaster which is demonstrating a 9%
increase in passenger journeys. In July we announced a further investment of £
35m in 210 new buses as part of our commitment to deliver a better bus service
to the people of Greater Manchester. This brings our total investment in new
buses in Manchester over the last three years to almost £80m. We are also
introducing 42 new vehicles for the second Showcase route in Bristol. The
average age of our UK Bus fleet is under 8 years which is ahead of industry
targets.
We continue to look at new opportunities for growth in our UK Bus division and
in July launched the 747 Air Link to Glasgow International Airport. This
initiative follows the success of our new dedicated airport links such as York
AirCoach and more established services such as the Bristol Flyer and RailAir
between Reading station and Heathrow Airport. In August we officially launched
the ftr service in Leeds with a formal agreement with Leeds City Council and
Metro which includes local authority investment in highway infrastructure
improvements. We are encouraged by a 10% increase in passenger journeys on our
ftr service in Leeds since the full service went live in June and we continue
to receive very positive customer feedback for the original ftr service in
York.
NORTH AMERICA
The Group is now the leading provider of transportation services in North
America. First Student is the largest provider of student transportation with
approximately 62,000 yellow school buses operating every day across the US and
Canada. We operate a transit contracting and management business in North
America, a vehicle fleet maintenance and support services division and
Greyhound, the only national provider of intercity bus services in the US and
Canada.
Results
The acquisition of Laidlaw International, Inc. has been a key focus for the
business during the period. We received the necessary Antitrust approvals and
announced the completion of the acquisition on 1 October 2007, and therefore,
Laidlaw operations do not contribute to these results. This transformational
acquisition underpins our future profitable growth in the large, fragmented
North American transport market.
Revenue from our three businesses of Student, Transit and Services, grew by 4%
in US Dollar terms to $717.2m or £358.5m (2006: $689.3m or £372.0m). Operating
profit was $34.1m or £17.2m (2006: $33.2m or £17.9m) representing an increase
of 2.7% at constant exchange rates.
First Student
US Dollar revenue increased by 3.5% and operating profit by 3.3%. Within our
school bus business we continue to focus on delivering safe, high quality
services and implement initiatives to tightly control the cost base and
increase productivity. I am pleased to report that during the period we
continued to see the positive impact of these initiatives that enabled us to
maintain the operating margin despite some fuel cost pressure. We made good
progress with our programme to install GPS equipment to our existing school bus
fleet that will delivery safety improvements and increased efficiencies, with
`Zonar' equipment fitted to 50% of our First Student school bus fleet. In
Massachusetts we were pleased to be selected to take part in a pilot study
conducted with Massachusetts Institute of Technology to fit a number of our
yellow school buses with equipment to reduce diesel particulates.
As part of our focus on delivering high quality services to customers we
continue to invest in new vehicles and technology. During the period we
invested £52.3m ($106.1m) in approximately 1,600 new yellow school buses to
increase quality and support future growth.
We were pleased to retain a number of contracts in states including California,
Connecticut, Rhode Island and Illinois. In addition we won new contracts in Del
Paso and San Francisco, California. As we anticipated, we experienced some
contract attrition due to the acquisition of Laidlaw. The current aggregated
impact of both the contract attrition and the forced divestment, as a result of
the Antitrust review process in the US, represents 3% of the school bus fleet
of the combined business. The overall financial impact is significantly less
onerous than the original assumptions made by us at the time of the acquisition
announcement in February 2007.
First Transit
First Transit had another successful period with US Dollar revenue increased by
9.2% and operating profit by 28.1%. We have successfully implemented a
significant cost control and efficiencies programme throughout the division,
which has delivered good results and further margin increase during the period.
We continued to grow our share of the market with the award of new business
including paratransit contracts in Florida and Colorado and a call centre
management contract in Oregon. We were also awarded new transit management and
contracting business through contracts won in Arizona, California, Maryland,
New York and Wisconsin. We were delighted to renew a number of important
contracts including Houston in Texas and Jackson in Tennessee and the contract
to provide shuttle bus services to Miami International Airport.
We have successfully integrated the Cognisa acquisition with our operations
which has strengthened our position in the growing, higher margin, shuttle bus
market. Through this acquisition our expertise in the market has grown and we
have successfully bid and won a number of new contracts making us the market
leader in private shuttle bus services at airports and at colleges and
universities.
We are integrating Laidlaw Transit Services into our existing First Transit
operation. The combination of these two businesses will further strengthen our
market position, particularly in the faster growing light transit market
including paratransit, shuttle bus services and call centre management in which
we have successfully grown our presence.
First Services
Earlier this year First Services, which provides a range of outsourced vehicle
maintenance, operations and support services in the private and public sectors,
renewed a significant contract within the large, federal market. US Dollar
revenue and profitability was reduced as a result of the new contract, with
revenues of over $450m over the ten-year term, being re-bid at lower margins.
Since the contract was renewed we have won further add-on work to provide
logistic support services at the customer's facility. Our vehicle fleet
maintenance business continues to grow with new business won in Georgia and a
contract to provide and install specialist mobile communications equipment in
Virginia and for Kansas Highway Patrol.
Acquisition of Laidlaw
We are delighted to have received the necessary Antitrust approvals to enable
us to complete the acquisition of Laidlaw. This acquisition transforms our
business and provides considerable prospects for value creation. The
combination of businesses gives us a leading position in the North American
transportation market enabling us to provide a compelling service proposition
to new and existing customers and generate increased value and returns for
shareholders.
In bringing together FirstGroup America and Laidlaw we will create a stronger,
more robust business in a highly fragmented market. We aim to leverage value
through scale and grow earnings through improved operating efficiencies and
extraction of substantial synergies. This acquisition will provide a strong
platform for us to improve our offering to customers bringing further
operational and cost efficiencies, economies of scale and a greater range of
services. We have established a strong, experienced management team for the
enlarged business harnessing the best talent from within both companies. We are
making good progress with the implementation of the integration plans and are
confident of the substantial synergy opportunities against the backdrop of fuel
cost pressure and any further contract attrition. We have committed to carrying
out a strategic review of Greyhound and now that we have closed the acquisition
we have full access to the business to enable that review to be completed.
UK RAIL
The UK Rail division operates passenger and freight services. Passenger rail
franchises consist of First Great Western, First Capital Connect, First
TransPennine Express and First ScotRail. We also operate Hull Trains, a
non-franchised open access intercity passenger train operator, and we provide
rail freight services through FirstGBRf. We are the UK's largest rail operator
carrying nearly 270 million passengers per annum.
Results
I am pleased by the continued success demonstrated by our UK Rail division in
the first six months of the year. Revenue increased by 5.6% to £863.6m (2006: £
817.6m) reflecting strong growth across all of our franchises, particularly in
the second quarter. Operating profit increased by 9.8% to £48.2m (2006: £
43.9m). Our established rail franchises, First ScotRail and First TransPennine
Express, continue to deliver improved performance and sustained growth. Our
programme of investment and initiatives at our newer franchises has led to
improved performance and passenger growth at First Capital Connect and
stabilised performance at First Great Western. Across our portfolio, our focus
on improved performance and service quality, revenue protection measures and
passengers' strong appetite for rail travel continue to drive growth.
First TransPennine Express
Our First TransPennine Express franchise goes from strength to strength with
good passenger and revenue growth in the period. Improving operating
performance and customer service continue to drive strong demand for rail
services across the region. We were very pleased with the results of the
National Passenger Survey published in June showed that 89% of passengers
expressed satisfaction with the service, an increase for the fourth year
running, with particularly high scores for the new Pennine Class 185 fleet of
trains and station improvements. We are delighted that First TransPennine
Express won the Chartered Institute of Logistics and Transport's Award for
Excellence in the Passenger Transport category.
In the first six months of the year the company's Public Performance Measure
(PPM) was consistently over 93% but heavy flooding in June affected performance
and disrupted services for customers. I would like to thank the many First
TransPennine Express staff who went above and beyond the call of duty to assist
passengers in particularly difficult circumstances. In July the First
TransPennine Express control team moved into a new integrated control centre in
Manchester and working with Network Rail we continue to focus on raising
performance across the region. We are delighted that new services from
Manchester Airport to Glasgow and Edinburgh will commence in December creating
new journey opportunities for our customers. The new services will contribute
around £10m in additional revenues per annum.
First ScotRail
In October First ScotRail celebrated the third anniversary of our franchise
which provides 95% of Scotland's train services. In July and August performance
reached a record high with a PPM of over 93%, the best in eight years. Delays
caused by First ScotRail have reduced by some 43%, compared with our franchise
commitment of 2% per annum. We continue to invest in improving rail travel in
Scotland. Our £1m investment in refurbishing the Caledonian Sleeper is
progressing well and will provide new seating in the lounge cars and new
facilities in the berths and carriages.
Working with Transport Scotland and the Highlands and Islands Transport
Partnership, a major refurbishment of Fort William station has been completed.
Transport Scotland also supported our refurbishment of trains operating on
routes in the north of Scotland, on the West Highland line and on south west
routes. We continue to support Scotland's bid for the 2014 Commonwealth Games
to be held in Glasgow and delivered excellent services for some major events in
Scotland this summer with the UEFA Cup Final at Hampden Park in May, the Open
at Carnoustie in July and as the official public transport provider for the
Edinburgh Festival.
First Great Western
First Great Western's operational performance stabilised during the first six
months of the year however, deep-rooted performance issues continue to impact
the business and regrettably affect our customers. Some services were badly
affected by major floods in the region in July and I would like to thank the
many First Great Western employees who assisted customers in very difficult
circumstances. We are working with Network Rail to improve operational
performance and deliver higher levels of punctuality and reliability to our
customers. Network Rail is investing some £750m in the infrastructure of the
region and, coupled with our £200m investment in fleet, stations and customer
service, we expect operational performance and the customer experience to
improve from current levels.
We are making good progress in our programme to refurbish the entire First
Great Western High Speed Train (HST) fleet with new, more reliable and
environmentally friendly engines and a complete overhaul of the interior of the
carriages to provide more seats, improved comfort and a better travelling
environment. To date 84 of the new engines and 33 of the refreshed HST carriage
sets are in service. We are on course to complete the refurbishment programme
by the end of this financial year. We are making technical improvements to
increase the reliability of our London and Thames Valley Turbo fleet and a
refresh programme for our West fleet is also underway with a major engineering
overhaul and new interiors and livery to improve performance and reliability as
well as providing an enhanced environment for both passengers and staff.
Following extensive consultation with stakeholders and considerable feedback
from customers, we will introduce a new timetable in December to create
significant new capacity in the London and Thames Valley and Greater Bristol
areas and new journey opportunities for many customers. In addition, extending
the use of refreshed HSTs across key services around the Thames Valley, the
Cotswolds and on routes to Newbury and Westbury will increase the capacity on
crucial peak commuter trains and provide 30% more seats.
First Capital Connect
First Capital Connect's operational performance continues to improve and in
August and September the company recorded its best ever PPM score of over 93%.
Overcrowding continues to be one of the biggest issues for First Capital
Connect. In December we will introduce four additional trains which will enable
many four carriage services to be increased to eight carriages and help reduce
overcrowding. Our services are moving from Kings Cross Thameslink station to
the new St Pancras International Station in December. On the Great Northern
route we will introduce a new timetable in September 2008 to deliver much
needed additional capacity onto the network. However, the longer-term solution
to overcrowding will be provided by the Government's decision to fund the £5.5
billion Thameslink Programme, the largest capacity enhancement project
announced in the High Level Output Specification. The programme will deliver
longer trains and a higher frequency during the morning and evening peaks,
longer platforms, improved station facilities and more destinations by 2015.
First Capital Connect continues to target ticketless travel and installed seven
additional gatelines at stations across the network and recruited 56 additional
revenue protection staff in the first six months of the year. The recruitment
of 29 additional British Transport Police Officers and Police Community Support
Officers across the network and our innovative "keeping you safe with us"
campaign is having a positive effect on crime reduction, passenger and staff
security.
Hull Trains
Hull Trains, our non-franchised, open access intercity train operating company
between London Kings Cross has continued to deliver good growth during the
period. In September the new Paragon Interchange opened in Hull, an £18m
redevelopment that will allow travellers to benefit from easy access to trains,
buses and coaches all under one roof.
FirstGBRf
FirstGBRf had another successful period with new contracts won to provide rail
freight services around the UK. FirstGBRf has successfully moved mail by rail
for Royal Mail since 2004 and in June we were delighted to sign a contract to
continue operations until 2010. In June FirstGBRf's new depot at Wellingborough
opened allowing rail and sleeper delivery trains to be stabled and loaded with
raw materials stockpiled at the depot. In July we commenced our new contract
with EDF energy. We continue to plan for the future development of the rail
freight industry with an order for coal wagons to meet the expected growth in
demand for the movement of coal during the next financial year.
Europe
While North America remains our primary market for growth and international
expansion, consistent with our strategy to explore opportunities in new markets
we continue to invest in European bidding activity. During the period we were
pleased to be awarded, with our partner DSB, the Øresund rail franchise which
includes coastal and Copenhagen Airport links in Denmark and links to Malmö,
Gothenburg, Kalmar and Karlskrona in Sweden. The new services are planned to
commence in 2009 and run until 2017.
Group outlook
This is a very exciting time for the Group. We have now established leadership
positions in the UK and North America. The completion of our Laidlaw
acquisition on 1 October 2007 provides a step-change in the shape of our
business and gives us the scale and opportunities to generate increased value
and returns and a robust platform for future growth in the large North American
market.
Across our UK businesses we are seeing the results of our investment in quality
and operational performance. In UK Rail our programme of investment in
capacity, service quality and performance, together with the national appetite
for rail travel, continues to drive growth. In UK Bus our programme of
investment in people and vehicles, coupled with rigorous control of costs and
operating performance delivered revenue growth and an increase of over 1.0% in
the operating margin. In North America our focus is to continue to deliver a
high quality of service together with measures to control costs and increase
productivity. Looking ahead, the scale and resources of our enlarged business
will enable us to make a compelling service and product offering to new and
existing customers.
These excellent results demonstrate the strength of the Group. We are
delivering on our clear strategy to achieve profitable growth in our core
markets and increase value for shareholders. The Board's confidence in the
Group's future prospects and ability to continue to generate strong operating
cash flows is reflected in the ongoing commitment to at least 10% annual
dividend growth for at least the next three years. Trading in the second half
of the year has started well and is in line with our expectations
Moir Lockhead
Chief Executive
6 November 2007
Finance Director's review
Overview
Our results for the first half of financial year 2007/08 show double digit
growth in most of our key Group performance measures reflecting the strong
underlying profitability and cash generation of the existing FirstGroup
businesses.
The results of the actions we have taken on revenue and costs in UK Bus have
started to come through. This is reflected by an increase in the operating
margin of 1.2% to 8.8%. Within UK Rail we have experienced strong passenger
revenue growth driven by factors that continue to remain in place. The
completion of the Laidlaw acquisition will transform the North American
division which will represent over half of Group revenue and adjusted operating
profit going forward.
We have now established leading positions in both the UK and North America. The
Board is confident of the prospects for the Group in the second half of the
year in all of the markets in which it operates and its continued strong cash
flows.
Results
Revenue increased from £1,715.7m to £1,768.9m and profit before tax increased
from £39.7m to £71.3m due to higher adjusted operating profit, lower
non-recurring items and a lower net finance charge. Overall Group operating
margin increased by 0.4% to 5.8%. Adjusted operating profit was up by 11.8%,
EBITDA up by 10.6% and adjusted EPS up by 9.9%.
Throughout the rest of this review we refer to adjusted operating profit as
this is the measure that we use to assess the performance of our businesses.
Adjusted operating profit is stated before intangible asset amortisation,
non-recurring bid costs, other non-recurring items and profit on disposal of
properties.
6 months to 6 months to Year to
30 September 2007 30 September 2006 31 March 2007
Divisional Revenue Operating Operating Revenue Operating Operating Revenue Operating Operating
results
£m profit * margin * £m profit * margin * £m profit * margin *
£m % £m % £m %
UK Bus 540.1 47.6 8.8 521.9 39.5 7.6 1,073.7 103.0 9.6
UK Rail 863.6 48.2 5.6 817.6 43.9 5.4 1,824.1 108.8 6.0
North America 358.5 17.2 4.8 372.0 17.9 4.8 802.9 68.2 8.5
Other ** 6.7 (9.9) - 4.2 (9.1) - 8.1 (20.8) -
Total Group 1,768.9 103.1 5.8 1,715.7 92.2 5.4 3,708.8 259.2 7.0
* Before intangible asset amortisation, non-recurring bid costs, other
non-recurring items and profit on disposal of properties.
** Tram operations, German Bus, central management and other items.
Throughout the Finance Director's review, operating profit and operating margin
are based on the above definition.
UK Bus revenue was £540.1m (six months to 30 September 2006: £521.9m), an
increase of 3.5%. Operating profit was £47.6m (six months to 30 September 2006:
£39.5m), an increase of 20.5%. The UK Bus management team is delivering the
benefits of our investment in people and vehicles. Encouragingly passenger
revenue growth was in excess of 5% and passenger volumes were 1.2% higher.
Passenger revenue growth continues to be strongest in city centre locations and
high density areas and especially where we work closely with local authorities
to invest in public transport and traffic management systems. Our portfolio
includes regional and rural businesses where passenger revenue growth is slower
and this reduces the overall passenger revenue growth number. In the regions we
have successfully implemented our turnaround strategy which has improved
profitability. The combination of growth and operational focus has resulted in
an increase in the margin of 1.2% to 8.8%.
North America revenue was £358.5m (six months to 30 September 2006: £372.0m),
an increase of 4.0% at constant exchange rates. Operating profit was £17.2m
(six months to 30 September 2006: £17.9m), an increase of 2.7% at constant
exchange rates. First Student maintained its margin of 4.3%. Within First
Student there remains a strong focus on controlling costs and improving
productivity. First Transit continues to show margin improvement and has
successfully renewed a number of contracts during the period. First Services
revenues and profits were lower than last half year due to the planned renewal
of the Diego Garcia contract.
Overall trading at Laidlaw for the year to 31 August 2007 was towards the top
end of their management expectations. Education Services continues to deliver
good revenue growth and improved margin. Volumes at Greyhound are now beginning
to recover as a result of passenger growth initiatives and in addition their
management have implemented some cost reduction measures that have contributed
to results.
UK Rail revenue was £863.6m (six months to 30 September 2006: £817.6m), an
increase of 5.6%. Operating profit was £48.2m (six months to 30 September 2006:
£43.9m), an increase of 9.8%. Within UK Rail we have experienced strong
passenger revenue and passenger growth across all of our Train Operating
Companies with like for like passenger revenue up 9% and passenger volumes up
by approximately 6%. The main growth drivers in UK Rail are improved
performance and quality, revenue protection and the overall national appetite
for rail travel which shows no signs of abating. Revenue protection is still
being rolled out across First Capital Connect and First Great Western with
Paddington suburban gates being installed later this year. Investment in
rolling stock and station improvements has continued and the £200m High Speed
Train refurbishment programme at First Great Western is on course for
completion in early 2008. Following this over the next 18 months rail capital
expenditure will fall to more normal maintenance levels further enhancing the
Group's cash position. Overall prospects for revenue growth continue to be
strong.
Property
Net property gains on disposal of £6.9m (six months to 30 September 2006: £
1.4m) were realised during the period. The most significant disposal during the
period was the sale of the Acton Depot in London as part of a depot relocation.
Non-recurring bid costs and other non-recurring items
Bid costs of £5.2m (six months to 30 September 2006: £7.3m) were incurred
during the period principally on our unsuccessful bid for the East Coast rail
franchise. We expect that there will be no rail bid costs in the second half of
the year. There will be some European activity but our focus will remain on
North America and the Laidlaw integration.
There were no restructuring costs during the period (six months to 30 September
2006: £8.5m). The 2006/07 restructuring spend reflected the one-off transition
costs of taking on the First Great Western and First Capital Connect
franchises. There were no non-recurring costs (six months to 30 September 2006:
£1.1m) charged in North America.
We anticipate significant non-recurring costs in the second half of the year as
a direct result of the Laidlaw integration.
Intangible asset amortisation
The intangible asset amortisation charge for the period was £4.9m (six months
to 30 September 2006: £4.7m).
Finance costs and investment income
Net finance costs (net of investment income) were £28.6m (six months to 30
September 2006: £32.3m) with the decrease due to higher cash balances in
particular the proceeds of the February 2007 equity issue. The net finance cost
is covered 6.0 times (six months to 30 September 2006: 4.8 times) by EBITDA.
Taxation
The taxation charge for the period was £9.4m (six months to 30 September 2006:
£9.9m). The taxation charge for the half-year has been based on the estimated
effective rate for the full year of 27.2% (six months to September 2006: 25.5%)
on profit before intangible asset amortisation, non-recurring bid costs and
other non-recurring items. This estimated tax rate is based on existing
business and does not take account of the Laidlaw acquisition. The tax charge
is stated after a one-off £8.9m adjustment to the UK deferred tax liability
arising on the reduction in the corporation tax rate from 30% to 28% which will
apply from April 2008 onwards. The actual tax paid during the period was £4.4m.
The cash cost of taxation will be impacted by the acquisition of Laidlaw
International, Inc. but it is anticipated to remain low.
The abolition of Industrial Buildings Allowances, which has been announced, but
is expected to be substantially enacted in the year ending 31 March 2009, will
have the effect of increasing the Group's deferred tax liability and hence is
expected to give rise to a non-recurring tax charge in that year.
Dividends
The interim dividend of 5.5p (six months to 30 September 2006: 5.0p) per
ordinary share represents an increase of 10%. The interim dividend will be paid
on 6 February 2008 to shareholders on the register of members at the close of
business on 11 January 2008. This interim dividend has not been provided in the
accounts as at 30 September 2007.
EPS
The adjusted basic EPS, before intangible asset amortisation, non-recurring bid
costs, other non-recurring items and profit on disposal of properties, was
11.1p (six months to 30 September 2006: 10.1p), an increase of 9.9%. Basic EPS
was 12.9p (six months to 30 September 2006: 6.3p).
EBITDA
The Group's businesses continue to generate strong operating profits which are
converted into cash. EBITDA for the period was £170.9m (six months to 30
September 2006: £154.5m and year to 31 March 2007: £398.9m), an increase of
10.6%. EBITDA by division is set out below:
6 months to 6 months to Year to
30 September 2007 30 September 2006 31 March 2007
Revenue EBITDA EBITDA Revenue EBITDA* EBITDA* Revenue EBITDA EBITDA
* * * *
£m £m £m % £m
£m % £m %
UK Bus 540.1 83.5 15.5 521.9 74.6 14.3 1,073.7 173.6 16.2
UK Rail 863.6 59.4 6.9 817.6 47.2 5.8 1,824.1 122.4 6.7
North 358.5 36.0 10.0 372.0 39.4 10.6 802.9 119.2 14.8
America
Other 6.7 (8.0) - 4.2 (6.7) - 8.1 (16.3) -
Total Group 1,768.9 170.9 9.7 1,715.7 154.5 9.0 3,708.8 398.9 10.8
* Operating profit before intangible asset amortisation, non-recurring bid
costs, other non-recurring items and profit on disposal of properties plus
depreciation.
Cash flow
During the period there was an outflow of £25.5m equating to the amount by
which defined benefit pension payments were in excess of the income statement
charge and a further outflow of £40.2m principally due to the timing of certain
UK Rail payments and receipts. It is anticipated that the majority of this £
40.2m outflow will reverse in the second half of the year. In both the six
months to 30 September 2006 and the year to 31 March 2007 there were unusually
high working capital inflows due to the commencement of the First Great Western
and First Capital Connect franchises.
Capital expenditure and acquisitions
Capital expenditure, as set out in note 9 to the half-year financial
information, was £160.2m (six months to 30 September 2006: £199.0m including £
84.0m of lease restructuring in UK Bus). Capital expenditure was principally in
North American operations of £60.5m (six months to 30 September 2006: £35.7m),
UK Bus operations of £29.0m (six months to 30 September 2006: £124.4m) and UK
Rail operations of £70.6m (six months to 30 September 2006: £38.2m). The UK
Rail increase reflects the franchise commitments for First Capital Connect and
First Great Western and the North American increase reflects the fact that the
first half of last year had an unusually low spend.
During the period the Group made four small acquisitions for a total
consideration of £7.2m. Provisional goodwill arising on these acquisitions
amounted to £5.9m.
Net debt
The Group's net debt at 30 September 2007 was £650.0m and was comprised as
follows:
Analysis of net debt Fixed Variable Total
£m £m £m
Cash - 44.6 44.6
Share placement proceeds deposited - 190.1 190.1
Ring-fenced cash and deposits - 144.9 144.9
Sterling bond (2013) * (296.7) - (296.7)
Sterling bond (2019) ** (213.2) - (213.2)
Sterling bank loans and overdrafts - (261.2) (261.2)
US Dollar bank loans and overdrafts - (107.8) (107.8)
Canadian Dollar bank loans and overdrafts (2.1) (39.2) (41.3)
Euro bank loans and overdrafts - (15.7) (15.7)
HP and finance leases (3.2) (74.9) (78.1)
Loan notes (8.7) (6.9) (15.6)
Total (523.9) (126.1) (650.0)
* excludes accrued interest
** stated excluding accrued interest, swapped to US Dollars less gains on
associated derivatives
Balance sheet and net assets
Net assets decreased by £2.8m over the period mainly due to the offset of
retained earnings of £56.1m, favourable hedging reserve movements of £8.6m with
dividend payments of £45.9m and adverse foreign exchange movements of £26.0m.
Shares in issue
As at 30 September 2007 there were 434.5m (30 September 2006: 392.9m and 31
March 2007: 434.0m) shares in issue, excluding treasury shares and shares held
in trust for employees. The weighted average number of shares in issue for the
purpose of EPS calculations (excluding own shares held in trust for employees
and treasury shares) was 434.3m (six months to 30 September 2006: 392.5m and
year to 31 March 2007: 397.9m).
The proposed Rights Issue announced in February 2007 will not now go ahead as
the overall debt position has improved compared to our initial projections of
the impact of the Laidlaw acquisition.
Foreign exchange
The results of the North American businesses have been translated at an average
rate of £1:$2.00 (six months to 30 September 2006: £1:$1.85 and year to 31
March 2007: £1:$1.89). The period end rate was £1:$2.03 (30 September 2006: £1:
$1.87 and 31 March 2007: £1:$1.96).
Fuel hedging
In the UK 100% of the Group's 2007/08 exposure to crude oil prices (2.7m
barrels p.a.) is hedged at $67 per barrel. In North America 35% of second half
(1.3m barrels) is hedged at $71.5 per barrel. The Group's exposure relates only
to those requirements not covered by pass through or escalation clauses in
contracts.
Looking ahead to 2008/09, 62% of the Group's UK exposure (2.7m barrels p.a.) is
hedged at approximately $68 per barrel and 40% of North American exposure (2.4m
barrels p.a.) is hedged at approximately $79 per barrel.
Pensions
The net pension surplus has increased by £25.5m over the period to £49.3m due
to additional cash payments into the pension schemes in particular the UK Bus
Occupational Scheme. The pension scheme assets and liabilities are only
re-valued on an annual basis at year-end.
Principal risks and uncertainties for the remaining six months of the financial
year
The Laidlaw acquisition closed on 1 October 2007. The level of synergy benefits
and costs of achieving these synergies may differ from our original
expectations and could therefore impact either positively or negatively on the
second half.
The level of economic activity affects the number of bus and train journeys
taken by our passengers in the UK. Any changes in economic activity may impact
on passenger numbers and hence our UK operations. The potential impact of this
is reduced on certain rail franchises due to the existence of revenue share
arrangements. In addition, in most UK Bus operating companies, we have the
ability to modify services by giving 56 days' notice of such modifications.
Terrorist acts and public concerns about potential attacks could adversely
affect the demand for our services. The Group has a Head of Security who is
responsible for improved security awareness, implementation of good practice
and development of a passenger and employee security culture.
To the extent that fuel prices differ from our expectations on the unhedged
element of our Group requirement and, where appropriate cannot be mitigated
through management actions, this will impact on the results of our business.
Responsibility statement
The condensed set of financial statements, which has been prepared in
accordance with the applicable set of accounting standards, gives a true and
fair view of the assets, liabilities, financial position and profit of the
group as required by DTR 4.2.4R. The half-yearly financial report has been
prepared in accordance with International Accounting Standard 34 "Interim
Financial Reporting". The half-yearly financial report also includes a fair
review of the information required by DTR 4.2.7R and DTR 4.2.8R.
Nick Chevis
Acting Finance Director
6 November 2007
Consolidated income statement
Notes Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Audited
Before
Before Amortisation Total amortisation Amortisation Total Total
amortisation
charges, charges, 6 months charges, charges, 6 months year to
non-recurring non-recurring to non-recurring non-recurring to
bid bid bid costs and bid 31 March
30 30
costs and costs and September other costs and September 2007
other other 2006
2007 non-recurring other £m
non-recurring non-recurring £m
items items £m items non-recurring
6 months to 6 months to 6 months to items
30 September 30 September 30 September 6 months to
2007 2007 2006 30 September
£m £m £m 2006
£m
Revenue
Continuing operations 2 1,768.9 - 1,768.9 1,715.7 - 1,715.7 3,708.8
Operating costs before
profit/(loss) on disposal
of properties
Continuing operations (1,665.8) (10.1) (1,675.9) (1,623.5) (21.6) (1,645.1) (3,501.5)
Operating profit before
profit/(loss) on disposal
of properties
Continuing operations 103.1 (10.1) 93.0 92.2 (21.6) 70.6 207.3
Operating profit before 103.1 - 103.1 92.2 - 92.2 259.2
amortisation charges,
non-recurring bid costs
and other non-recurring
items
Amortisation charges - (4.9) (4.9) - (4.7) (4.7) (10.3)
Non-recurring bid costs - (5.2) (5.2) - (7.3) (7.3) (19.3)
Other non-recurring items - - - - (9.6) (9.6) (22.3)
Operating profit before 103.1 (10.1) 93.0 92.2 (21.6) 70.6 207.3
profit/(loss) on disposal
of properties
Profit/(loss) on disposal - 6.9 6.9 - 1.4 1.4 (3.7)
of properties
Operating profit 103.1 (3.2) 99.9 92.2 (20.2) 72.0 203.6
Finance income 3 8.8 - 8.8 4.0 - 4.0 9.4
Finance costs 3 (37.4) - (37.4) (36.3) - (36.3) (72.8)
Profit before tax 74.5 (3.2) 71.3 59.9 (20.2) 39.7 140.2
Tax 4 (20.3) 10.9 (9.4) (15.3) 5.4 (9.9) (38.1)
Profit for the period 54.2 7.7 61.9 44.6 (14.8) 29.8 102.1
from continuing
operations
Attributable to:
Equity holders of the 48.3 7.8 56.1 39.6 (14.7) 24.9 91.7
parent
Minority interest 5.9 (0.1) 5.8 5.0 (0.1) 4.9 10.4
54.2 7.7 61.9 44.6 (14.8) 29.8 102.1
Basic earnings per share 6 12.9p 6.3p 23.1p
Diluted earnings per 6 12.8p 6.3p 22.8p
share
Dividends of £45.9m were paid during the six months to 30 September 2007 (30
September 2006: £37.5m). Dividends of £23.9m were proposed for approval during
the period (30 September 2006: £19.6m and 31 March 2007: £45.6m). Consolidated
balance sheet
Notes Unaudited Unaudited Audited
30 30 31 March
September September
2007
2007 2006
£m
£m £m
Non-current assets
Goodwill 7 464.7 482.6 468.8
Other intangible assets 8 55.5 59.4 60.8
Property, plant and equipment 9 1,135.7 1,036.6 1,059.7
Financial assets - derivative financial 13 38.2 28.7 27.7
instruments
1,694.1 1,607.3 1,617.0
Non-current assets classified as held 11 8.3 6.2 7.5
for sale
Retirement benefit surplus 81.0 - 57.1
Current assets
Inventories 77.4 62.4 64.6
Trade and other receivables 10 414.8 368.1 377.3
Financial assets - cash and cash 379.6 181.3 411.2
equivalents
- derivative financial instruments 13 26.2 7.5 8.3
898.0 619.3 861.4
Total assets 2,681.4 2,232.8 2,543.0
Current liabilities
Trade and other payables 12 707.6 586.3 695.1
Tax liabilities 60.8 51.7 49.7
Financial liabilities - obligations 13.1 14.9 11.5
under finance leases
- bank overdrafts and loans 18.9 27.8 1.8
- loan notes 5.1 0.2 5.2
- derivative financial instruments 13 5.9 9.0 5.0
- bonds 20.1 20.1 23.1
831.5 710.0 791.4
Net current assets/(liabilities) 66.5 (90.7) 70.0
Non-current liabilities
Financial liabilities - obligations 65.0 76.7 70.4
under finance leases
- bank loans 407.1 334.5 310.5
- loan notes 10.5 15.6 10.6
- derivative financial instruments 13 17.3 0.2 4.3
- bonds 537.2 549.2 539.3
Retirement benefit obligation 31.7 140.8 33.3
Deferred tax liabilities 143.3 86.2 142.7
Long-term provisions 14 33.3 39.1 33.2
1,245.4 1,242.3 1,144.3
Total liabilities 2,076.9 1,952.3 1,935.7
Net assets 604.5 280.5 607.3
Equity
Share capital 16 21.9 19.9 21.9
Share premium account 17 447.8 238.8 447.8
Hedging reserve 17 35.3 12.0 26.7
Other reserves 17 4.6 4.6 4.6
Own shares 17 (15.2) (23.0) (17.4)
Translation reserves 18 (83.8) (23.7) (57.8)
Retained earnings 17 180.7 40.2 170.4
Equity attributable to equity holders of 591.3 268.8 596.2
the parent
Minority interests 13.2 11.7 11.1
Total equity 604.5 280.5 607.3
Consolidated cash flow statement
Note Unaudited Unaudited Audited
6 months to 6 months Year to
to
30 31 March
September 30
2007 September 2007
£m 2006 £m
£m
Net cash from operating activities 19 55.3 113.5 295.5
Investing activities
Interest received 8.9 4.1 9.4
Proceeds of disposal of property, plant 12.5 7.4 18.3
and equipment
Purchases of property, plant and (149.0) (125.7) (251.2)
equipment
Grants received - - 29.1
Acquisition of businesses (7.2) (6.9) (17.9)
Net cash used in investing activities (134.8) (121.1) (212.3)
Financing activities
Dividends paid (45.9) (37.5) (57.1)
Dividends paid to minority shareholders (3.7) (5.7) (11.3)
Proceeds of bank borrowings 110.1 - -
Repayment of obligations under finance (3.8) (4.8) (14.4)
leases
Repayment of loan notes (0.1) (4.7) (4.8)
Payment of new bank facility issue costs (0.7) - -
Proceeds on issue of shares - - 216.9
New bank loans raised - 67.3 22.4
Monies received on exercise of options 0.2 0.4 2.8
Net cash from financing activities 56.1 15.0 154.5
Net (decrease)/increase in cash and cash (23.4) 7.4 237.7
equivalents before foreign exchange
movements
Cash and cash equivalents at beginning 410.3 169.9 169.9
of period
Effect of foreign exchange rate changes (8.1) 2.3 2.7
Cash and cash equivalents at end of 378.8 179.6 410.3
period
Cash and cash equivalents for cash flow 30 30 31 March
statement purposes comprise: September September
2007
2007 2006
£m
£m £m
Cash and cash equivalents per balance sheet 379.6 181.3 411.2
Overdrafts (0.8) (1.7) (0.9)
378.8 179.6 410.3
Cash and cash equivalents for the purposes of the cash flow statement comprise
cash at bank and in hand, overdrafts and other short-term highly liquid
investments with a maturity of three months or less.
Consolidated statement of recognised income and expense
Unaudited Unaudited Audited
6 months 6 months Year to
to to
31 March
30 30
September September 2007
2007 2006
£m
£m £m
Derivative hedging instrument movements 8.7 6.7 22.8
Deferred tax on derivative hedging instrument (0.1) 3.4 2.0
movements
Exchange differences on translation of foreign (26.0) (51.4) (85.5)
operations
Actuarial gains on defined benefit pension - - 116.9
schemes
Deferred tax on actuarial gains - - (35.0)
Net income recognised directly in equity (17.4) (41.3) 21.2
Profit for the period 61.9 29.8 102.1
Total recognised income and expense for the 44.5 (11.5) 123.3
period
Attributable to:
Equity holders of the parent 38.7 (16.4) 112.9
Minority interests 5.8 4.9 10.4
44.5 (11.5) 123.3
Notes to the half-yearly financial statements
1 Basis of preparation
This half-yearly financial report does not constitute statutory accounts within
the meaning of section 240 of the Companies Act 1985. The statutory accounts
for the year ended 31 March 2007 have been delivered to the Registrar of
Companies. The report of the auditors did not contain a statement under section
237 (2) or (3) of the Companies Act 1985.
The figures for the six months to 30 September 2007 include the results of the
rail businesses for the period ended 22 September 2007 and the results for the
other businesses for the 26 weeks ended 29 September 2007.
The accounting policies used in the half-yearly financial statements are
consistent with International Financial Reporting Standards and those followed
in the preparation of the Group's annual financial statements for the year
ended 31 March 2007. The condensed set of financial statements included in this
half-yearly financial report have been prepared in accordance with
International Accounting Standard 34, "Interim Financial Reporting", as adopted
by the European Union.
These results are unaudited but have been reviewed by the auditors. The
comparative figures for the six months to 30 September 2006 are unaudited and
are derived from the half-yearly financial report for the six months ended 30
September 2006, which was also reviewed by the auditors.
This half-yearly financial report will be sent to all shareholders in November
2007 and will be available to the public at the Registered Office of the
Company, 395 King Street Aberdeen AB24 5RP.
This half-yearly financial report was approved by the Board on 6 November 2007.
2 Segment information
For management purposes, the Group is currently organised into three operating
divisions - UK Bus, UK Rail and North America. These divisions are the basis on
which the Group reports its primary segment information. The principal
activities of these divisions are set out in the Chief Executive's operating
review.
The segment results for the six months to 30 September 2007 are as follows:
UK Bus UK Rail North Group Total
America items
£m £m £m
£m £m
Revenue 540.1 863.6 358.5 6.7 1,768.9
Adjusted operating profit * 47.6 48.2 17.2 (9.9) 103.1
Amortisation of intangible - (3.8) (1.1) - (4.9)
assets
Non-recurring bid costs - (3.5) - (1.7) (5.2)
Profit on disposal of 6.9 - - - 6.9
properties
Operating profit 54.5 40.9 16.1 (11.6) 99.9
Finance income 8.8
Finance costs (37.4)
Profit before tax 71.3
Tax (9.4)
Profit for the period 61.9
The segment results for the six months to 30 September 2006 are as follows:
UK Bus UK Rail North Group Total
America items
£m £m £m
£m £m
Revenue 521.9 817.6 372.0 4.2 1,715.7
Adjusted operating profit * 39.5 43.9 17.9 (9.1) 92.2
Amortisation of intangible - (3.8) (0.9) - (4.7)
assets
Non-recurring bid costs - (5.0) - (2.3) (7.3)
Other non-recurring items - (8.5) (1.1) - (9.6)
Profit on disposal of 1.4 - - - 1.4
properties
Operating profit 40.9 26.6 15.9 (11.4) 72.0
Finance income 4.0
Finance costs (36.3)
Profit before tax 39.7
Tax (9.9)
Profit for the period 29.8
* operating profit before amortisation of intangible assets, non-recurring bid
costs, other non-recurring items and profit on disposal of properties.
Profits in the North American division are traditionally lower in the first
half of the year because the summer school holidays fall within this reporting
period impacting on First Student's results.
2 Segment information (continued)
The segment results for the year to 31 March 2007 are as follows:
UK Bus UK Rail North Group Total
America items
£m £m £m
£m £m
Revenue 1,073.7 1,824.1 802.9 8.1 3,708.8
Adjusted operating profit * 103.0 108.8 68.2 (20.8) 259.2
Amortisation of intangible - (8.2) (2.1) - (10.3)
assets
Non-recurring bid costs - (14.5) - (4.8) (19.3)
Other non-recurring items - (21.3) (1.0) - (22.3)
Loss on disposal of (3.7) - - - (3.7)
properties
Operating profit 99.3 64.8 65.1 (25.6) 203.6
Finance income 9.4
Finance costs (72.8)
Profit before tax 140.2
Tax (38.1)
Profit for the period 102.1
* operating profit before amortisation of intangible assets, non-recurring bid
costs, other non-recurring items and loss on disposal of properties.
3 Net finance costs
6 months to 6 months to Year to
30 September 30 31 March
2007 September
2006 2007
£m
£m £m
Finance income 8.8 4.0 9.4
Bond and bank facilities (30.8) (29.6) (59.8)
Loan notes (0.7) (0.7) (1.4)
Finance charges payable in respect of (2.4) (2.5) (4.7)
finance leases
Notional interest on long-term provisions (3.5) (3.5) (6.9)
Finance costs (37.4) (36.3) (72.8)
Net finance costs (28.6) (32.3) (63.4)
4 Tax 6 months to 6 months to Year to
30 30 31 March
September September 2007
2007 2006
£m
£m £m
Corporation tax 6.2 0.4 5.5
Deferred tax 12.1 9.5 32.6
Non-recurring deferred tax credit arising (8.9) - -
on future reduction in corporation tax rate
Tax on profit on ordinary activities 9.4 9.9 38.1
5 Dividends paid and proposed 6 months 6 months Year to
to to
31
30 30 March
September September
2007 2007
2006
£m £m
£m
Final dividend paid for the year ended 31 March 45.6 37.5 37.5
2007 of 10.5p (2006: 9.55p) per share
Interim dividend paid for the year ended 31 March - - 19.6
2007 of 5.0p (2006: 4.55p) per share
Amounts recognised as distributions to equity 45.6 37.5 57.1
holders in the period
Proposed interim dividend for the year ended 31 23.9 19.6 -
March 2008 of 5.5p (2007: 5.0p) per share
The proposed interim dividend will be paid on 6 February 2008 to shareholders
on the register of members at the close of business on 11 January 2008. The
proposed interim dividend has not been included as a liability as at 30
September 2007.
6 Earnings per share (EPS)
Basic EPS is based on earnings of £56.1m (six months to 30 September 2006: £
24.9m and year to 31 March 2007: £91.7m) and on a weighted average number of
ordinary shares (excluding own shares held in trust for employees and treasury
shares) of 434.3m (six months to 30 September 2006: 392.5m and year to 31 March
2007: 397.9m) in issue.
Diluted EPS is based on the same earnings and on the weighted average number of
ordinary shares of 439.0m (six months to 30 September 2006: 396.0m and year to
31 March 2007: 402.0m). The difference in the number of shares between the
basic calculation and the diluted calculation represents the weighted average
number of potentially dilutive ordinary shares.
The adjusted basic EPS and adjusted cash EPS are intended to demonstrate
recurring elements of the results of the Group and as such are calculated
before amortisation of intangible assets, non-recurring bid costs, other
non-recurring items and profit/loss on disposal of properties. A reconciliation
of the earnings used in the bases is set out below:
6 months to
30 September 2007
£m Earnings
per share
(p)
Profit for EPS calculation 56.1 12.9
Amortisation of intangible assets* 4.8 1.1
Non-recurring bid costs 5.2 1.2
Profit on disposal of properties (6.9) (1.6)
Taxation effect of above adjustments (2.0) (0.5)
Non-recurring deferred tax credit on change (8.9) (2.0)
in UK corporation tax rate
Profit for adjusted EPS calculation 48.3 11.1
Depreciation ** 67.4 15.5
Profit for adjusted cash EPS calculation 115.7 26.6
* Amortisation of £4.9m per note 8 less £0.1m attributable to
equity minority interests.
** Depreciation charge of £67.8m per note 9 less £0.4m of
depreciation attributable to equity minority interests.
6 Earnings per share (EPS) (continued)
6 months to
30 September 2006
£m Earnings
per share
(p)
Profit for EPS calculation 24.9 6.3
Amortisation of intangible assets * 4.6 1.2
Non-recurring bid costs 7.3 1.9
Other non-recurring items 9.6 2.4
Profit on disposal of properties (1.4) (0.3)
Taxation effect of above adjustments (5.4) (1.4)
Profit for adjusted EPS calculation 39.6 10.1
Depreciation ** 61.9 15.8
Profit for adjusted cash EPS calculation 101.5 25.9
* Amortisation of £4.7m per note 2 less £0.1m attributable to
equity minority interests.
** Depreciation charge of £62.3m less £0.4m of
depreciation attributable to equity minority interests.
Year to
31 March 2007
£m Earnings
per share
(p)
Profit for EPS calculation 91.7 23.1
Amortisation of intangible assets * 10.1 2.5
Non-recurring bid costs 19.3 4.9
Other non-recurring items 22.3 5.6
Loss on disposal of properties 3.7 0.9
Taxation effect of above adjustments (13.0) (3.3)
Profit for adjusted EPS calculation 134.1 33.7
Depreciation ** 138.8 34.9
Profit for adjusted cash EPS calculation 272.9 68.6
* Amortisation charge of £10.3m per note 2 less £0.2m attributable
to equity minority interests.
** Depreciation charge of £139.7m less £0.9m of
depreciation attributable to equity minority interests.
7 Goodwill £m
Cost
At 1 April 2007 468.8
Additions 5.9
Exchange rate differences (10.0)
At 30 September 2007 464.7
Accumulated impairment losses
At 1 April 2007 and 30 September 2007 -
Carrying amount
At 30 September 2007 464.7
At 31 March 2007 468.8
At 30 September 2006 482.6
8 Other intangible assets Contracts Franchise Total
acquired
agreements £m
£m
£m
Cost
At 1 April 2007 21.2 56.3 77.5
Additions 0.2 - 0.2
Exchange rate differences (0.7) - (0.7)
At 30 September 2007 20.7 56.3 77.0
Amortisation
At 1 April 2007 4.0 12.7 16.7
Charge for period 1.1 3.8 4.9
Exchange rate differences (0.1) - (0.1)
At 30 September 2007 5.0 16.5 21.5
Carrying amount
At 30 September 2007 15.7 39.8 55.5
At 31 March 2007 17.2 43.6 60.8
At 30 September 2006 11.7 47.7 59.4
Contracts acquired through the purchases of businesses and subsidiary
undertakings, are amortised on a straight-line basis over their useful lives,
which is on average, nine years.
The rail franchise agreements intangible asset represents the part of the
economic benefit derived from the rail franchise agreements that is realised as
a result of recognising our share of the rail pension deficit and is amortised
on a straight-line basis over the term of the franchise, which is on average,
seven years.
9 Property, plant and Land and Passenger Other Total
equipment
buildings carrying plant and £m
£m vehicle equipment
fleet
£m
£m
Cost
At 1 April 2007 181.7 1,389.9 286.0 1,857.6
Subsidiary undertakings and 2.0 2.8 0.2 5.0
businesses acquired
Additions 4.0 81.4 74.8 160.2
Disposals (2.4) (36.4) (4.2) (43.0)
Reclassified as held for - (27.0) - (27.0)
sale
Exchange rate differences (0.2) (9.1) (1.2) (10.5)
At 30 September 2007 185.1 1,401.6 355.6 1,942.3
Depreciation
At 1 April 2007 25.6 645.5 126.8 797.9
Subsidiary undertakings and - - - -
businesses acquired
Charge for period 2.7 47.5 17.6 67.8
Disposals (0.1) (31.1) (1.9) (33.1)
Reclassified as held for - (19.6) - (19.6)
sale
Exchange rate differences (0.2) (5.3) (0.9) (6.4)
At 30 September 2007 28.0 637.0 141.6 806.6
Carrying amount
At 30 September 2007 157.1 764.6 214.0 1,135.7
At 31 March 2007 156.1 744.4 159.2 1,059.7
At 30 September 2006 132.9 794.6 109.1 1,036.6
10 Trade and other receivables 30 September 30 September 31 March
2007 2006
2007
£m £m
£m
Amounts due within one year
Trade debtors 272.8 265.2 262.7
Other debtors 69.9 38.2 61.8
Prepayments and accrued income 72.1 64.7 52.8
414.8 368.1 377.3
11 Non-current assets classified as held for sale
Non-current assets held for resale comprise of North American yellow school
buses which are surplus to requirement 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.
12 Trade and other payables 30 September 30 September 31 March
2007 2006
2007
£m £m
£m
Amounts falling due within one year
Trade creditors 194.1 180.2 194.5
Other creditors 115.3 35.1 104.7
Accruals and deferred income 348.7 326.0 346.4
Season ticket deferred income 49.5 45.0 49.5
707.6 586.3 695.1
13 Derivative financial instruments 30 September 30 September 31 March
2007 2006
2007
£m £m
£m
Non-current assets
Interest rate and foreign exchange 31.3 28.6 24.9
derivatives
Fuel derivatives 6.9 0.1 2.8
38.2 28.7 27.7
Current assets
Interest rate and foreign exchange 13.0 3.8 4.1
derivatives
Fuel derivatives 13.2 3.7 4.2
26.2 7.5 8.3
Total assets 64.4 36.2 36.0
Current liabilities
Interest rate and foreign exchange 5.9 0.7 3.6
derivatives
Fuel derivatives - 8.3 1.4
5.9 9.0 5.0
Non-current liabilities
Interest rate and foreign exchange 17.3 - 4.3
derivatives
Fuel derivatives - 0.2 -
17.3 0.2 4.3
Total liabilities 23.2 9.2 9.3
14 Long-term provisions Insurance Pensions Total
claims * £m £m
£m
At 1 April 2007 26.9 6.3 33.2
Provided in the period 21.2 - 21.2
Utilised in the period (23.2) (0.2) (23.4)
Notional interest on long-term provisions 3.5 - 3.5
Exchange rate differences (1.2) - (1.2)
At 30 September 2007 27.2 6.1 33.3
At 30 September 2006 32.5 6.6 39.1
* Insurance claims accruals due within one year at 30 September 2007 amounted
to £42.1m (30 September 2006: £42.7m and 31 March 2007: £44.0m) and are
included in "accruals and deferred income" in note 12.
15 Business combinations 30 September 30 31 March
2007 September
2006 2007
£m
£m £m
Provisional fair values of net assets
acquired:
Tangible assets 5.0 2.6 5.0
Intangible assets - - 7.1
Other current assets 2.3 - 0.1
Cash at bank and in hand 0.2 - -
Bank loans and overdrafts (1.6) - -
Other creditors (4.6) (2.1) (3.4)
1.3 0.5 8.8
Goodwill (note 7) 5.9 6.4 9.1
7.2 6.9 17.9
Satisfied by cash paid and payable 7.2 6.9 17.9
There was no material difference between the book value and the provisional
fair values of the net assets acquired and there were no adjustments required
in respect of accounting policy alignments.
The businesses acquired during the period and dates of acquisition were:
Business acquired Country Segment Date % Voting
acquired equity
instruments
acquired
Quatrone Transportation, USA North 29 June 100%
Inc America 2007
Arthur Merl GmbH & Co KG Germany Group 1 May 2007 100%
Chester City Transport United Kingdom UK Bus 2 July 100%
Limited 2007
Hutchison's Coaches United Kingdom UK Bus 28 June 100%
(Overtown) Limited 2007
16 Share capital 30 September 30 31 March
September 2007
2007
2006 £m
£m
£m
Authorised:
Ordinary shares of 5p each 230.0 30.0 30.0
Allotted, called up and fully paid
Ordinary shares of 5p each 21.9 19.9 21.9
The number of ordinary shares of 5p each in issue, excluding treasury shares
and shares held in trust for employees, at the end of the period was 434.5m (30
September 2006: 392.9m and 31 March 2007: 434.0m). At the end of the period
3.3m shares (30 September 2006: 5.6m shares and 31 March 2007: 3.3m shares)
were being held as treasury shares and 0.5m (30 September 2006: 0.3m and 31
March 2007: 1.0m) were being held in trust to satisfy the exercise of employee
share options.
17 Statement of changes in equity Hedging Share Own Retained
reserve shares earnings
premium
£m £m £m
account
£m
At 1 April 2007 26.7 447.8 (17.4) 170.4
Retained profit for the financial - - - 56.1
period
Dividends paid - - - (45.9)
Movement in EBT, QUEST and treasury - - 2.2 (2.0)
shares during the period
Derivative hedging instrument 8.7 - - -
movements
Deferred taxation on derivative (0.1) - - -
hedging instrument movements
Share-based payments - - - 2.1
Deferred tax on share-based payments - - - 2.4
Current tax on share-based payments - - - 0.4
Change in equity for change in - - - (2.8)
corporation tax rate
At 30 September 2007 35.3 447.8 (15.2) 180.7
At 30 September 2006 12.0 238.8 (23.0) 40.2
Capital Capital Total
other
redemption reserve
reserves
reserve £m
£m
£m
At 1 April 2007 and 30 September 2007 1.9 2.7 4.6
At 30 September 2006 1.9 2.7 4.6
18 Translation reserves
£m
At 1 April 2007 (57.8)
Movement for the financial period (26.0)
At 30 September 2007 (83.8)
At 30 September 2006 (23.7)
The translation reserve represents the retranslation of net assets denominated
in foreign currencies. The movement for the financial period reflects the fact
that the US Dollar exchange rate moved from $1.96:£1 at 1 April 2007 to $2.03:£
1 at 30 September 2007.
19 Notes to the consolidated cash flow 6 months to 6 months to Year to
statement
30 September 30 31 March
2007 September 2007
£m 2006 £m
£m
Operating profit before profit/(loss) on 93.0 70.6 207.3
disposal of properties
Adjustments for:
Depreciation charges 67.8 62.3 139.7
Amortisation of intangible assets 4.9 4.7 10.3
Share-based payments 2.1 1.6 3.2
Loss on disposal of property, plant and 0.5 0.7 1.9
equipment
Operating cash flows before working capital 168.3 139.9 362.4
Increase in inventories (4.6) (4.5) (8.8)
Increase in receivables (34.8) (6.0) (25.8)
(Decrease)/increase in payables (0.8) 54.2 114.1
Defined benefit pension payments in excess (25.5) (26.2) (74.0)
of income statement charge
Cash generated by operations 102.6 157.4 367.9
Corporation tax paid (4.4) (3.1) (5.5)
Interest paid (41.2) (39.7) (62.3)
Interest element of finance lease payments (1.7) (1.1) (4.6)
Net cash from operating activities 55.3 113.5 295.5
20 Reconciliation of net cash flows 6 months to 6 months Year to
to movement in net debt to
30 September 31 March
2007 30
September 2007
£m
2006 £m
£m
(Decrease)/increase in cash and (23.4) 7.4 237.7
cash equivalents in period
Increase in debt and finance lease (105.5) (57.8) (3.2)
financing
Debt acquired on acquisition of (1.0) - -
businesses
Inception of new finance leases - (84.0) (84.0)
Foreign exchange differences (3.4) 22.5 38.5
Other non-cash movements in (0.5) (0.3) (0.8)
relation to financial instruments
Movement in net debt in period (133.8) (112.2) 188.2
Net debt at beginning of period (516.2) (704.4) (704.4)
Net debt at end of period (650.0) (816.6) (516.2)
Net debt includes the value of derivatives in connection to the £250m bond and
excludes all accrued interest. The £250m bond is included in non-current
liabilities in the consolidated balance sheet.
21 Acquisition of Laidlaw International, Inc
On 1 October 2007 the Group acquired 100% of the issued share capital of
Laidlaw International, Inc. for $3.4bn (inclusive of acquired debt of $0.6bn).
Due to the timescale between completing the acquisition and the production of
this half-yearly financial report it has been impracticable to properly
determine the provisional fair values on acquisition for all assets and
liabilities. It is anticipated that the net tangible assets will be valued at
approximately $1.3bn and therefore, after transaction costs of approximately
$0.2bn, goodwill and other intangible assets will amount to approximately
$1.7bn.