Half-yearly Report

Embargoed until 07:00hrs on Wednesday 7 November 2012 FIRSTGROUP PLC HALF-YEARLY RESULTS TO 30 SEPTEMBER 2012 FirstGroup plc ("FirstGroup" or "the Group") is the leading transport operator in the UK and North America. With approximately 124,000 employees we carry 2.5 billion passengers every year across our bus and rail networks in the UK and our school bus, transit and intercity coach operations in the US and Canada. Overview: * Overall Group trading during the first half of the year is in line with our expectations, despite continued economic uncertainty. As previously indicated, the results reflect the anticipated reductions in operating profit for UK Bus, where we are taking action to reposition the business and restore growth, and in UK Rail as a result of the transition to the three year extension period in First TransPennine Express. * We are focused on our goals of improved performance and sustainable growth across the Group and are confident that our actions will create a stronger business for the future. While there is still more to do, we are pleased with the progress of the actions we have taken so far. * The Department for Transport (DfT) has cancelled the InterCity West Coast competition, in which FirstGroup had been chosen as the winning bidder, and has paused the current rail franchise competitions. As a result of the uncertainty this creates, the Board has decided to hold the interim dividend at last year's level, and will consider the appropriate level for the full year dividend in May 2013. By that time, the prospects for our UK Rail division are expected to be clearer, following independent reviews into the cancellation of the West Coast competition and the future of franchising. * As the UK's largest and most successful rail operator, we remain committed to maintaining our leading position in the rail market and are actively engaging with the ongoing reviews to help shape the future of franchising. Operating highlights: * First Student - progress from a more efficient operating model that we have established. * First Transit - continued steady growth across all core segments with a healthy pipeline of business. * Greyhound - a transformed business with attractive new products such as Greyhound Express. The highly flexible operating model we have created is mitigating the effects of a sluggish economic environment. * UK Bus - progressing our extensive programme to reposition the business and create a firmer footing to deliver sustainable growth. We remain confident in our plans and encouraged by positive early signs in some of our markets. * UK Rail - strong growth across all of our rail franchises and high levels of performance > 90% punctuality and reliability. Financial highlights: 2012 2011 Change Continuing operations1 Revenue Â£3,250.0m Â£3,168.8m +2.6% Underlying2 * EBITDA3 Â£291.2m Â£317.3m (8.2)% * Operating profit Â£128.7m Â£163.0m (21.0)% * Profit before tax Â£48.7m Â£84.5m (42.4)% * Basic EPS 7.2p 11.2p (35.7)% Statutory * Operating profit Â£91.7m Â£216.3m (57.6)% * Profit before tax4 Â£8.4m Â£127.8m (93.4)% * Basic EPS 1.7p 18.3p (90.7)% Proposed dividend per 7.62p 7.62p share Net debt5 Â£2,081.8m Â£2,058.7m +1.1% 1 For all businesses excluding UK Rail this half year includes 26 weeks compared to 27 weeks for the corresponding period last year. 2 Before amortisation charges, ineffectiveness on financial derivatives, exceptional items, loss on disposal of properties and discontinued operations. All references to `underlying' figures throughout this document are defined in this way. 3 Underlying operating profit less capital grant amortisation plus depreciation 4 Reflects lower underlying operating profit and a charge for exceptional items this half year compared with a credit last half year largely driven by a one-off exceptional gain of Â£73.3m due to actions we took to de-risk the UK Bus pension scheme. 5Net debt is stated excluding accrued bond interest. Commenting, FirstGroup's Chief Executive, Tim O'Toole said: "With fundamentally strong and diverse operations together with our improvement programmes, we are confident of achieving our goals to enhance performance and deliver improved growth and returns. The Group is in a period of transition and while there is significant work still to do, we are satisfied with the progress of the actions we have taken so far, though we remain cautious in respect of the continued economic weakness. "In the short term we have to contend with the uncertainty around future rail franchises created by the Department for Transport's (DfT) decision to cancel the InterCity West Coast contract and pause the current franchise competitions, following its discovery of flaws in the way it conducted its process. Prior to this we had been awarded the West Coast contract and were shortlisted for the remaining three current competitions, the outcomes of which would have been known by early summer 2013. As a result of this uncertainty, the Board has decided to hold the interim dividend at last year's level, and will consider the appropriate level for the full year dividend in May 2013, by which time the prospects for our rail division are expected to be clearer. As the UK's largest rail operator, with approximately a quarter of the market and unrivalled expertise from a diverse portfolio, we remain committed to maintaining our leading position in the rail market and are actively engaging with the ongoing reviews to help shape the future of franchising. "We have leading positions in a sector that is a key enabler of economic growth and the backbone of vibrant and sustainable local economies. Demand for high quality, attractive services that offer value for money remains and we are confident that the actions we are taking will strengthen our business and its prospects for long term growth." For further information please contact: FirstGroup plc: Chris Surch, Group Finance Director Rachael Borthwick, Group Corporate Communications Director Stuart Butchers, Group Corporate Communications Manager Tel: +44 (0) 20 7291 0512 Brunswick PR: Michael Harrison/Andrew Porter Tel: +44 20 7404 5959 A PRESENTATION TO INVESTORS AND ANALYSTS WILL BE HELD AT 9:00AM TODAY ATTENDANCE IS BY INVITATION A LIVE TELEPHONE `LISTEN IN' FACILITY IS AVAILABLE FOR JOINING DETAILS PLEASE CONTACT +44 (0) 20 7291 0507 A PLAYBACK FACILITY WILL BE AVAILABLE AT WWW.FIRSTGROUP.COM/INVESTORS PHOTOS FOR MEDIA ARE AVAILABLE, PLEASE CALL +44 (0) 20 7291 0507 Chairman's statement During the first half of the current financial year we continued to chart a course to improve performance and position the business to deliver increased sustainable growth. Despite continued economic uncertainty and the pressure that creates on public and consumer spending, our portfolio continues to provide strength from varied and fundamentally strong assets in diverse markets, moving at different stages through the economic cycle. Across the business there is a resolute drive for improvement and a momentum for change. While we are pleased with the progress of our management actions, there remains plenty of work to do. With a management team that is highly experienced, we are clearly focused on the priorities of addressing the challenges of the current economic environment in certain markets where we operate, and creating a stronger business, centred on our core operations, that will deliver sustainable growth for the longer term. It has been an exceptionally difficult period in rail. On 15 August the Department for Transport (DfT) announced that we had been awarded the InterCity West Coast franchise. On 3 October, the DfT announced that the competition had been cancelled following the discovery of significant technical flaws in the way it conducted its process. The DfT have publicly stated that we are in no way at fault, having followed due process and submitted a strong bid in good faith and in strict accordance with their terms. Our bid would have delivered a better deal for West Coast passengers, the taxpayer and an appropriate return for shareholders and we are extremely disappointed and frustrated that our employees and our shareholders have had to endure this extraordinary series of events. The DfT also announced its decision to pause all of the current live competitions, including the three franchises for which we were shortlisted. As a result, the Board has decided to hold the interim dividend at last year's level and will consider the appropriate level of final dividend in May 2013. By that time, we expect the prospects for our rail division to be clearer, following independent reviews into the cancellation of the West Coast competition and the future of rail franchising. The interim dividend per share of 7.62p (2011: 7.62p) will be paid on 7 February 2013 to shareholders on the register at 11 January 2013. The Group is committed to its public investment grade credit rating, which it has maintained since 2002. The Group has significant levels of liquidity headroom and maintains prudent levels of headroom under its financial covenants. Further leverage reduction remains a focus. Chris Surch was appointed to the Board as Group Finance Director on 1 September 2012. Chris joined us from Shanks Group plc where he was Group Finance Director. Prior to that, he held a number of senior financial roles including at Smiths Group plc and TI Group plc, having begun his career at PricewaterhouseCoopers. As well as strong financial leadership, he brings considerable operational, strategic and international knowledge and experience of significant business improvement programmes. On 1 August 2012 Brian Wallace and Jim Winestock joined the Board as Independent Non-Executive Directors. Brian Wallace has held executive board positions within a number of FTSE 100 and FTSE 250 organisations, most recently as Group Finance Director of Ladbrokes plc. Prior to joining Ladbrokes he was Group Finance Director and Deputy Chief Executive of Hilton Group. A chartered accountant, he began his career at PricewaterhouseCoopers and went on to perform senior finance roles at Geest, APV and Schlumberger. Jim Winestock served in a number of senior roles and was a member of the Management Committee during his career at United Parcel Service, Inc. Most recently he was Senior Vice President and Director of US Operations and Global Security with responsibility for all US operations and 360,000 employees. He is also Non-Executive Director of YRC Worldwide Inc., a Fortune 500 company and one of the largest transportation service providers in the world. I am delighted to welcome Chris, Brian and Jim to the Board of FirstGroup. With a wealth of financial and operational experience within large and complex organisations, together with a strong track record of achievement, I am confident they will further strengthen the Board and make a significant contribution to the Group and its future development. Finally on behalf of the Board I would like to extend our thanks to our 124,000 employees across the Group. As we strive to provide greater levels of service for the 2.5 billion passengers that we transport each year, their ongoing professionalism and commitment is vital to our success. With leading positions in our core markets and a clear focus on creating a stronger business for the future, the Board is confident in the Group's prospects to deliver long term value for shareholders. Notwithstanding the ongoing economic uncertainty, we have a strong foundation in a sector which is critical to economic growth, and the need for better, more efficient and innovative transport solutions has become ever more important. We are confident that the actions we are taking will improve performance and strengthen the business. Martin Gilbert Chairman 7 November 2012 * Operating profit referred to throughout this document refers to operating profit before amortisation charges, ineffectiveness on financial derivatives, exceptional items, loss on disposal of properties and discontinued operations. EBITDA is underlying operating profit less capital grant amortisation plus depreciation. Operating and Financial Review Group results Group revenue increased by 2.6% to Â£3,250.0m (2011: Â£3,168.8m), or 5.4% excluding the extra week of trading in the corresponding period last year. Underlying operating profit was Â£128.7m (2011: Â£163.0m), reflecting one week less trading in the non-Rail businesses, the expected reductions in UK Bus and UK Rail profits partly offset by higher US$ profits in the North American businesses. US$ operating margins also improved across all our North American operations. Statutory operating profit was Â£91.7m (2011: Â£216.3m) reflecting the lower underlying operating profit and a charge for exceptional items this half year compared with a credit last half year largely driven by the UK Bus pension scheme changes. Underlying basic EPS was 7.2p (2011: 11.2p) and EBITDA was Â£291.2m (2011: Â£317.3m). 6 months to 30 September 20121 6 Months to 30 September 2011 Year to 31 March 2012 Revenue Operating Operating Revenue Operating Operating Revenue Operating Operating profit2 margin2 profit2 margin2 profit2 margin2 Divisional Â£m Â£m % Â£m Â£m % Â£m Â£m % results First Student3 640.3 5.2 0.8 683.3 5.5 0.8 1,567.2 107.1 6.8 First Transit 397.2 28.8 7.3 387.3 27.2 7.0 778.6 55.8 7.2 Greyhound 337.3 33.5 9.9 343.6 30.5 8.9 657.2 50.6 7.7 UK Bus 572.9 39.6 6.9 586.9 59.4 10.1 1,157.2 134.4 11.6 UK Rail 1,296.4 35.4 2.7 1,162.6 55.7 4.8 2,506.1 110.5 4.4 Group4 5.9 (13.8) - 5.1 (15.3) - 12.4 (29.9) - Total Group 3,250.0 128.7 4.0 3,168.8 163.0 5.1 6,678.7 428.5 6.4 North America $m $m % $m $m % $m $m % in $'s First Student 1,017.2 10.8 1.1 1,107.6 9.0 0.8 2,497.9 169.5 6.8 First Transit 627.8 45.5 7.2 627.3 44.1 7.0 1,242.6 89.1 7.2 Greyhound 532.6 52.5 9.9 556.6 49.4 8.9 1,049.3 81.0 7.7 Total North 2,177.6 108.8 5.0 2,291.5 102.5 4.5 4,789.8 339.6 7.1 America 1 For all businesses excluding UK Rail this half year includes 26 weeks compared to 27 weeks in the corresponding period last year. 2 Underlying. 3 North American results are translated at the average US Dollar rate for each month. First Student losses recorded during the summer school holidays were translated at lower prevailing US Dollar rates than the prevailing US Dollar rates when profits were recorded. 4 Tramlink operations, central management and other items. FIRST STUDENT Revenue in our First Student division was $1,017.2m or Â£640.3m (2011: $1,107.6m or Â£683.3m). Adjusting for the extra week of trading in the same period last year, US Dollar revenues were 3.0% lower year-on-year. Operating profit was $10.8m or Â£5.2m (2011: $9.0m or Â£5.5m). With trading continuing to develop in line with our expectations, as previously stated, we expect the operating margin for the full year 2012/13 to exceed the 2010/11 performance. We have made good progress in addressing performance and strengthening the operating model with the continued roll out of management actions across the business. Although there remains significant work to be done, the business is now set on the path to recovery and, as previously stated, is on course to achieve annual cost savings of $100m, exceeding our original target of $65m. We maintained a strong focus on contract retention through the recent bidding season, with our target of 90% retention, for those contracts that came up for renewal, achieved for the second successive year. With average contract lengths of three to five years, this recent bid season saw the tail end of those contracts awarded prior to the recession. We were particularly pleased to secure the renewal of our ten largest contracts that were up for tender. In many areas we have seen signs of state and local finances beginning to stabilise, helping to create more certainty in respect of school district funding. While it is too early to call this a trend, we were encouraged to see organic growth return to the market for the first time in several years, adding a further 250 buses to our existing contracts. As we focus on addressing performance and reforming the operating model we have not actively pursued a programme of infill acquisitions. We were pleased to be awarded new contracts to operate over 850 buses. This included eight conversion contracts for 450 buses. Interest in conversion to the private sector continues to be high although it remains the case that only a relatively small proportion actually switches to outsourcing. We continue to offer a competitive proposition within the conversion market, particularly for larger accounts, and were pleased to be awarded the contracts to provide outsourced services for 150 buses in McLean County, Illinois, and over 90 buses in Robbinsdale, Minnesota. We are seeing the benefits of the first full year of a more agile and efficient business model following the implementation of our recovery plan, and we are harnessing the advantages of a more effective organisation. We were pleased to record a smooth start up to the new school year in September with our performance statistics, particularly on safety, at consistently high levels. Improvements in labour productivity are a key component of our business recovery plan. We continued to expand the use of FOCUS, our GPS software that links onboard data to back office systems, and we are making good progress in standardising operating procedures across the business including the creation of a benchmark playbook. A programme to deliver fuel savings through more efficient driver behaviours was also initiated. Following the trial of our pilot regional workshops in the second half 2011/12, we are rolling out lean practices across our 600 locations. At present around half of our workshops have been converted to take these on board, and we expect to complete the roll out by the end of the year. We identified that this could give us approximately 10% productivity savings and we are already seeing encouraging reductions in maintenance costs per bus. A revised central procurement programme recently implemented is also allowing us to better leverage our size. First Student is now positioned to leverage its scale as the market leader. While there remains work to be done in our recovery programme, we are confident of the prospects to build further on the actions we have taken and the positive results we have seen so far. FIRST TRANSIT First Transit continues to deliver steady performance. Revenue increased to $627.8m or Â£397.2m (2011: $627.3m or Â£387.3m). After adjusting for the extra week in the same period last year US Dollar revenues increased by 4.0% from the same period last year. Operating profit was $45.5m or Â£28.8m (2011: $44.1m or Â£ 27.2m) and operating margin improved to 7.2%. Over the course of the last six months, we have strengthened our core services with some key new contract wins. We added 140 buses for Foothill Transit in Arcadia, Southern California making First Transit the sole provider of transit services to that authority. The city of Independence, Missouri, launched a new public transport system and our unrivalled expertise led us to be selected as the first ever operators of their network. We began paratransit services in Louisville, Kentucky, fixed route services in Rochester, Minnesota and fleet maintenance services through First Vehicle Services for the transit authority in San Juan, Puerto Rico as well as the University of Southern California campus shuttle. We have been working with our clients to continue promoting technological innovation and the environmental benefits of mass transit to users. In Austin, Texas, we recently began preparations to operate the area's first environmentally friendly bus for Capital Metro passengers and University of Texas students. The prototype vehicle showcases and tests hydrogen fuel cell technology in an advanced electric drive bus, and operates as part of our 93 strong university shuttle fleet already in service. The introduction of this bus assists Capital Metro in promoting its green initiatives to the community, as well as a new environmentally friendly form of local transit. We also partnered with Microsoft to enhance our network and systems offering to provide more efficient operations for our clients and passengers. This partnership further underlines our reputation as the market leading provider of innovative transit services in North America as we continue to develop attractive mass transit systems that enable our clients to operate with maximum efficiency. GREYHOUND During the first half of the year like-for-like passenger revenue increased by 1.6% (2011: 3.7%) and revenue was $532.6m or Â£337.3m (2011: $556.6m or Â£ 343.6m). Operating profit was $52.5m or Â£33.5m (2011: $49.4m or Â£30.5m) and operating margin improved to 9.9%. As a result of the actions we have taken over recent years Greyhound is now a transformed business. From a more flexible and agile operating model, with greater operating leverage, the business is better placed to mitigate the impact that the sluggish economic environment and lower fuel prices had on summer trading. Greyhound's US operations maintained a strong performance and in particular our successful Greyhound Express product continues to achieve higher growth. We continue to develop these non-stop city to city, enhanced services offering passengers the convenience of a guaranteed reservation, free WiFi and improved seating. Passengers are also able to take advantage of online, yield-managed fares. During the period we began operating Greyhound Express in California and also increased our services in Texas bringing the offering to approximately 70 key markets across North America. As we continue to build on this momentum we will be expanding Express to a further nine cities in the autumn. We also expanded our BoltBus service into the Pacific Northwest, offering customers a viable alternative to Amtrak in the region. Our subsidiary Crucero USA, serving the Hispanic market, also launched its first direct, non-stop services connecting key locations in Southern California during the summer. A further 43 new vehicles were added to our fleet during the first half of the year. We also completed the refurbishment of more than 120 vehicles bringing the total number of `like new' vehicles to 450. Greyhound Canada continues to benefit from our network modernisation programme. Our management team have been working with Provincial governments to reduce uneconomic routes and we saw encouraging growth from Greyhound Express in Alberta during the period. Following the implementation of our profit recovery plan, we are pleased to have achieved a marked improvement in Greyhound Canada's profitability over the last two years. UK BUS Revenue was Â£572.9m (2011: Â£586.9m) during the period. Passenger revenues, on a like-for-like basis, increased by 2.6%. As we anticipated, operating profit decreased to Â£39.6m (2011: Â£59.4m) and operating margin decreased to 6.9%. As previously stated, we expect UK Bus operating margin to be approximately 8% in the full year. We continue to see challenging trading conditions as a result of lower economic activity in the major urban areas where we operate, increased fuel costs and the impact of reduced funding available to the industry. During the period our operations in the North of England and Scotland saw improved revenue growth whereas, in keeping with industry trends, we saw a reduction in concessionary volumes in our businesses in the South. We are taking action with a clear and detailed plan to fix and restore growth to the division, informed by a thorough review of all our operations. While there remains considerable work to be done, these actions are delivering early positive signs in some of our markets. We have a strong platform from which to grow in UK Bus. The vast majority of our bus operations generate good returns or have potential for significant further improvement. As part of our stated strategy to reposition and rebalance our portfolio, we were pleased to announce the sale of our Wigan bus business to Stagecoach Group plc for a consideration of Â£12.0m on 31 October 2012. We are confident of the opportunities to continue to focus the size and shape of our UK Bus portfolio and, with discussions ongoing with a number of interested parties, we will continue to work through our programme of selected business and asset disposals. We are applying standardisation to our maintenance and operational models including, where appropriate, building on best practice and experience from our Student and Greyhound businesses. A number of our depots have been prioritised to undergo an intensive improvement programme with visible impact on working practices and service delivery. The remaining depots will follow, led by dedicated regional change teams. The transformation will deliver tangible improvements as we introduce market leading diagnostic systems, specialist training and make progress on reducing breakdowns and vehicle defects. The progress we have seen is translating to improved customer service delivery in areas such as cleanliness, reliability and punctuality. The emphasis on greater revenue and patronage growth is supported by locally focused service planning and tailored solutions that are attractive to customers and most appropriate for individual areas - including network redesign; partnerships with local authorities; fares and promotions underwritten by improvements in service quality and delivery. During the period we have launched, redesigned and reinvigorated networks across the country with further reviews underway. Responding to passenger demand we have relaunched our high frequency services across Greater Manchester, West Yorkshire and South Yorkshire supported by 200 new double decker vehicles now operating on the routes. Locally customised fares structures are helping to generate volume increases and build a platform for longer term growth. Promotional fares in Sheffield have helped to generate up to 17% volume growth, while the introduction of good value day and weekly fares in Greater Manchester has led to up to 25% passenger volume growth, across certain routes and corridors. In the Greater Bristol Bus Network area we have worked with the local authorities and other operators to build on successful infrastructure developments and other improvements coupled with a new offer, welcomed by passengers, of a multi-operator ticket - a key recommendation of the Competition Commission's report into the industry in 2011. We are keen to work with local authorities to improve bus services and welcomed the comments by the Transport Select Committee that partnership between operators and local authorities are the most realistic way of delivering service improvements without increasing council taxpayer spend. In South Yorkshire our Optio voluntary partnership with the Passenger Transport Executive and other operators was extended in October to embrace the whole Sheffield city region. It has led to transport being put at the heart of Sheffield's recent City Deal announcement, and we are working with the local authority and other operators in bidding for additional funds from the DfT in order to further improve local bus services. We are working hard with the Passenger Transport Executive and the Association of Bus Operators and in West Yorkshire, to deliver passenger benefits through partnership. These benefits are proposed to incorporate key issues such as ticketing, fares, network design, service delivery and passenger information. We will have completed the Â£160m introduction of 1,000 new vehicles into our fleet by the end of the 2012/13 year and our fleet investment plans will continue beyond this date. We have also repainted and/or refurbished 750 of our mid-life vehicles, which is supporting a step change to our fleet profile as part of a Â£4m modernisation programme. We were proud to be the main provider of spectator bus transport at the London 2012 Games in the summer, including shuttle services at Games venues and Park & Ride services to the Olympic Park as well as the sailing venue in Weymouth and rowing venue in Eton Dorney. We also operated a network of express coach services from across the country to the Olympic Park and Weymouth. The delivery of our services went very smoothly and achieved excellent feedback from customers. We were delighted to have the opportunity to showcase our operations and for our employees to play an important role in the success of the Games. UK RAIL Our UK Rail division continued to benefit from strong growth across all of our franchises with revenue increased to Â£1,296.4m (2011: Â£1,162.6m). Operating profit reduced to Â£35.4m (2011: Â£55.7m) principally reflecting the expected lower profits from First TransPennine Express following the transition to the three year extension period at an operating margin closer to the industry average. We saw strong demand from historic highs of passenger numbers across all of our Train Operating Companies with like-for-like passenger revenues increasing by 8.1%. We are the UK's largest rail provider, operating a quarter of the market and with unrivalled expertise from our diverse portfolio of long distance, regional and commuter services. We have a strong record of investment with nearly 750 new vehicles introduced as well as a track record of delivering major infrastructure improvements in partnership with stakeholders. Performance has improved across all our franchises since we commenced operation, and the latest reported figures saw the Public Performance Measurement (PPM) of reliability and punctuality reach above 90% on a Moving Annual Average (MAA) basis for all of our franchises. Our rail companies also played a part in the successful transport operation for the London 2012 Games, with First Great Western running a shuttle service connecting to our buses at Slough station for rowing events, and First Capital Connect running over a million extra seats during the Games and establishing a 24/7 customer support centre which has now become a permanent feature. We have a highly experienced bidding team, which was demonstrated by FirstGroup being the only operator to successfully be shortlisted for all four contracts that came out to tender, and subsequently we were awarded the InterCity West Coast franchise on 15 August 2012. We were, therefore, shocked by the DfT's announcement on 3 October 2012 that, due to the discovery of significant flaws in the way it conducted its process, they were cancelling the competition for the West Coast franchise and pausing the ongoing franchise programme, including the current competitions for Essex Thameside, Great Western and Thameslink. Although the DfT have publicly stated that we are in no way at fault, having followed due process and submitted a strong bid in good faith and in strict accordance with their terms, we are extremely disappointed and frustrated at this extraordinary series of events. Our bid would have delivered a better deal for West Coast passengers, the taxpayer and an appropriate return for our shareholders. As the UK's largest rail operator, we are actively engaging with the two independent inquiries, ordered by the DfT into the West Coast competition and the wider rail franchise programme, to help shape the future of rail franchising in the UK. At First Capital Connect we continue to focus on improving performance. Our PPM score reached 94.4% on the Thameslink route during the period, the highest ever result, while on Great Northern the second highest score seen since the start of the franchise of 94.9% was recorded. The Thameslink Programme of major improvement works continues, with the resumption of full service between Brighton and Bedford throughout the day, evening and at weekends following the completion of three and a half years of engineering work. Major improvements were made with longer trains, as well as new and later services. Operational performance at First Great Western keeps on improving with PPM MAA at 90.5%. We continue to challenge Network Rail to address infrastructure failures affecting the network. Our latest independent National Passenger Survey scores show overall customer satisfaction to have increased by 5% since the start of the expanded franchise in 2006. During the period we completed the introduction of 48 new carriages as part of the DfT's High Level Output Specification programme. Our innovative Driver Advisory System has now been installed throughout our high speed train fleet, providing a GPS-linked system that enables significant fuel savings through efficient driving. We are pleased that this system has won several awards for innovation. First ScotRail continues to perform well and deliver improvements in customer satisfaction, while passenger journeys reached record highs of 81m, an increase of 30% since we took over the franchise. We were pleased that the National Passenger Survey of Spring 2012 recorded that 89% of passengers were satisfied with our service, which is 6% above the national average, and we scored above average in 31 out of 33 categories. Our PPM MAA currently stands at 92.1%. We developed one of the first alliance framework agreements with Network Rail in order to better align overall objectives, deliver value for money and increase focus on passenger requirements. One of the first projects to come to fruition is the Â£12m electrification of the Paisley Canal line, which will be completed in December 2012 allowing us to introduce greener, more reliable and more efficient Class 380s to the route. This work is being completed in a shorter amount of time and at significantly reduced cost thanks to the more efficient working practices that the alliance has delivered. We were delighted to be awarded the title of Scottish Public Transport Operator of the Year for the fourth time in June, as well as being nominated for Transport Operator of the Year at the National Transport Awards. First TransPennine Express is the current Rail Business Awards Train Operator of the Year. Our PPM MAA is considerably above the national average at 93.3%, which is also an increase of 20% since we commenced the franchise in 2004. We achieved a passenger satisfaction rating of 88% in the latest National Passenger Survey, a 4% increase on the prior year. Passenger journeys have grown from 13m to 25m since 2004 driven by service and timetable innovation, improved yield management, customer service excellence and marketing, including groundbreaking social media and mobile apps. We will work closely with the DfT as they commence work on proposals for the Northern Hub - a suite of schemes including electrification of many of the routes on which we operate. Our fleet is set to be expanded following the agreement in February 2012 to acquire ten four-car Class 350 trains for the Manchester-Scotland routes, which will in turn release trains to provide a third more capacity onto the popular Manchester-Leeds route. First Hull Trains saw a PPM score of over 91% during the period and continues to score highly in the National Passenger Survey with a 93% overall customer satisfaction rate, which is 10% above the national average and 5% above the average for long distance operators. First Hull Trains has now become the first operator on the East Coast Mainline to offer passengers the option to have tickets sent directly to their smart phones via an app launched in Spring this year. OUTLOOK With fundamentally strong and diverse operations together with our improvement programmes, we are confident of achieving our goals to enhance performance and deliver improved growth and returns. The Group is in a period of transition and while there is significant work still to do, we are satisfied with the progress of the actions we have taken so far, though we remain cautious in respect of the continued economic weakness. In the short term we have to contend with the uncertainty around future rail franchises created by the DfT's decision to cancel the InterCity West Coast contract and pause the current franchise competitions, following its discovery of flaws in the way it conducted its process. Prior to this we had been awarded the West Coast contract and were shortlisted for the remaining three current competitions, the outcomes of which would have been known by early summer 2013. As a result of this uncertainty, the Board has decided to hold the interim dividend at last year's level, and will consider the appropriate level for the full year dividend in May 2013, by which time the prospects for our rail division are expected to be clearer. As the UK's largest rail operator, with approximately one quarter of the market and unrivalled expertise from a diverse portfolio, we remain committed to maintaining our leading position in the rail market and are actively engaging with the ongoing reviews to help shape the future of franchising. We have leading positions in a sector that is a key enabler of economic growth and the backbone of vibrant and sustainable local economies. Demand for high quality, attractive services that offer value for money remains and we are confident that the actions we are taking will strengthen our business and its prospects for long term growth. EXCEPTIONAL ITEMS AND AMORTISATION CHARGES 6 months to 6 months to Year to 30 September 30 September 31 March 2012 2011 2012 Â£m Â£m Â£m UK Rail bid costs (12.3) (2.1) (10.2) UK Bus depot sales and closures (3.3) - (8.2) First Transit legal settlements (5.9) - - UK Bus Pension Scheme changes - 73.3 73.3 Loss on sale of Northumberland Park - - (2.5) Competition Commission costs - (1.0) (1.9) Other exceptional items - (1.1) (1.1) Total exceptional items (21.5) 69.1 49.4 Amortisation charges (13.6) (15.1) (30.9) (Loss)/profit on disposal of properties (1.9) (0.7) 1.0 Operating profit (charge)/credit (37.0) 53.3 19.5 Ineffectiveness on financial derivatives (3.3) (10.0) (11.0) Profit before tax credit/(charge) (40.3) 43.3 8.5 Tax credit/(charge) 13.9 (9.2) 4.4 Loss on disposal of discontinued operations - (9.2) (9.2) Net exceptional items for the period (26.4) 24.9 3.7 UK Rail bid costs For the majority of the period the rail bidding programme progressed as planned. Costs of Â£12.3m (2011: Â£2.1m) were incurred during the period on our bids for West Coast, Greater Western, Thameslink and Essex Thameside franchises. Subsequent to the end of the period the Government announced the much publicised cancellation of the West Coast bid process. They stated that they intend to reimburse bid costs to the four West Coast bidders. The DfT have yet to clarify which costs can be recovered and how they can be reclaimed. As a result we are currently unable to quantify how much we will recover and have not recognised a receivable within these results. UK Bus depot sales and closures Our programme to rebalance our portfolio of UK Bus operation has continued. During the period we received disposal proceeds of Â£14.2m for the Northumberland Park depot, which was sold last year. Net losses of Â£3.3m (2011: Â£nil) were incurred during the period for UK Bus depots that were closed in East Lothian and North Devon. This represents principally closure costs including redundancy payments. First Transit legal settlements During the period First Transit settled historic legal claims, principally a contractual dispute from 2009. Due to the size of this settlement and age of the claim, we consider it appropriate to treat it in this way so as to avoid distorting operating results. Amortisation charges The charge for the period was Â£13.6m (2011: Â£15.1m) with the reduction mainly due to the First Capital Connect franchise intangible asset and certain First Student customer contract intangible assets being fully written down in the previous year. Loss on disposal of properties The programme of disposals is progressing in the UK and North America. A loss on disposal of properties of Â£1.9m (2011: Â£0.7m) was recorded during the period principally reflecting losses on disposals of certain UK Bus properties. We anticipate further disposals in the second half. Ineffectiveness on financial derivatives Due to the ineffective element and undesignated fair value movements on financial derivatives there was a Â£3.3m non-cash charge to the income statement during the year. The principal component of this non-cash charge relates to fixed interest rate swaps which do not qualify for hedge accounting but do provide a cash flow hedge against variable rate debt from 2012 to 2015. Tax The tax credit as a result of these exceptional items was Â£13.9m (2011: charge of Â£9.2m). FINANCE COSTS AND INVESTMENT INCOME Net finance costs, before exceptional items, were Â£80.0m (2011: Â£78.5m) with the increase principally due to higher levels of net debt during the period. PROFIT BEFORE TAX Underlying profit before tax was Â£48.7m (2011: Â£84.5m) with the decrease due principally to lower underlying operating profit. An overall charge of Â£40.3m (2011: credit Â£43.3m) for exceptional items and amortisation charges resulted in statutory profit before tax of Â£8.4m (2011: Â£127.8m). TAX The tax charge, on underlying profit before tax, for the period was Â£9.8m (2011: Â£18.8m) representing an effective rate of 20.1% (2011: 22.3%). The tax credit of Â£13.9m (2011: charge Â£9.2m) relating to amortisation charges and exceptional items resulted in a total tax credit of Â£4.1m (2011: charge of Â£ 28.0m) on continuing operations. The actual tax paid during the period was Â£4.8m (2011: Â£4.3m). North American cash tax remains low due to tax losses brought forward and tax depreciation in excess of book depreciation. We expect the North American cash tax rate to remain low for the near term. DIVIDENDS The interim dividend per share is 7.62p (2011: 7.62p) and will be paid on 7 February 2013 to shareholders on the register of members at the close of business on 11 January 2013. EPS The underlying basic EPS was 7.2p (2011: 11.2p), a reduction of 35.7%. Basic EPS was 1.7p (2011: 18.3p), a reduction of 90.7% due to last half year benefitting from the de-risking of the UK Bus Pension Scheme. EBITDA EBITDA by division is set out below: 6 months to 30 September 6 Months to September Year to 31 March 2012 20121 2011 Revenue EBITDA2 EBITDA2 Revenue EBITDA2 EBITDA2 Revenue EBITDA2 EBITDA2 Â£m Â£m % Â£m Â£m % Â£m Â£m % First Student 640.3 78.6 12.3 683.3 79.9 11.7 1,567.2 255.8 16.3 First Transit 397.2 34.0 8.6 387.3 31.7 8.2 778.6 65.3 8.4 Greyhound 337.3 48.8 14.5 343.6 45.4 13.2 657.2 80.1 12.2 UK Bus 572.9 74.5 13.0 586.9 96.3 16.4 1,157.2 207.1 17.9 UK Rail 1,296.4 68.7 5.3 1,162.6 78.7 6.8 2,506.1 163.5 6.5 Group 5.9 (13.4) - 5.1 (14.7) - 12.4 (28.9) - Total Group 3,250.0 291.2 9.0 3,168.8 317.3 10.0 6,678.7 742.9 11.1 North America $m $m % $m $m % $m $m % in $'s First Student 1,017.2 126.8 12.5 1,107.6 129.6 11.7 2,497.9 406.9 16.3 First Transit 627.8 53.8 8.6 627.3 51.4 8.2 1,242.6 104.2 8.4 Greyhound 532.6 76.6 14.4 556.6 73.5 13.2 1,049.3 128.0 12.2 Total North 2,177.6 257.2 11.8 2,291.5 254.5 11.1 4,789.8 639.1 13.3 America 1 For all businesses excluding UK Rail this half year includes 26 weeks compared to 27 weeks in the corresponding period last year. 2 Underlying operating profit less capital grant amortisation plus depreciation. CASH FLOW The seasonality of our Student business combined with the phasing of interest and dividend payments typically results in a cash outflow at the half year. The net cash outflow for the period was Â£250.2m (2011: Â£64.2m). This contributed to a net debt increase of Â£244.3m (2011: Â£109.3m) as detailed below: 6 months to 6 months to Year to 30 September 30 September 31 March 2012 2011 2012 Â£m Â£m Â£m EBITDA 291.2 317.3 742.9 Exceptional items (21.5) 69.1 49.4 Other non-cash income statement charges 3.0 2.4 9.8 Working capital excluding FGW provision (107.8) (42.7) 20.2 movement Working capital - FGW provision (17.2) 22.2 48.7 movement (current liabilities) FGW provision movement (non-current - (22.2) (48.7) liabilities) Movement in other provisions (22.3) (24.0) (29.1) Pension payments in excess of income (54.4) (44.5) (87.1) statement charge Non-cash RPI to CPI pension gain - (73.3) (73.3) Cash generated by operations 71.0 204.3 632.8 Capital expenditure (154.7) (121.7) (293.6) Proceeds from disposal of property, 3.2 29.9 57.7 plant and equipment Interest and tax (100.9) (102.5) (155.4) Dividends payable to Group shareholders (77.3) (72.1) (108.8) Dividends payable to non-controlling (5.7) (7.6) (19.0) minority shareholders Proceeds from sale of businesses 14.2 5.5 5.5 Net cash (outflow)/inflow (250.2) (64.2) 119.2 Foreign exchange movements 8.1 (42.6) (7.7) Other non-cash movements in relation to (2.2) (2.5) 0.4 financial instruments Movement in net debt in period (244.3) (109.3) 111.9 The reduction in net cash flow compared to last year was primarily due to: * EBITDA of Â£291.2m was Â£26.1m lower than prior period. * Higher pension payments in excess of income statement charge of Â£9.9m principally due to additional deficit payments in Greyhound and UK Bus. * FGW provision utilisation of Â£17.2m during the period. * Working capital excluding FGW provision movement was Â£65.1m adverse to the prior period principally due to the payment of FTPE profit share (Â£15.9m) and the timing of certain other UK Rail payments (Â£22.0m) and the reversal of cost accruals created for the additional week of trading in the non-rail businesses last year (Â£17.6m). * Higher cash capital expenditure of Â£33.0m principally due to a change in phasing of UK Bus purchases as a result of the London 2012 Games. * Lower disposal proceeds of Â£26.7m with the reduction principally due to the Washington DC property sale in the prior period. * Higher cash exceptional costs of Â£17.3m reflecting principally UK Rail bid costs. Partly offset by: * Higher proceeds from sale of businesses of Â£8.7m representing the Â£14.2m receipt for Northumberland Park in this period compared to Â£5.5m for our German bus operations in the prior period. CAPITAL EXPENDITURE We continue to invest in our businesses. During the period cash capital expenditure was Â£154.7m (2011: Â£121.7m) and comprised First Student Â£29.4m (2011: Â£45.7m), First Transit Â£7.8m (2011: Â£17.0m), Greyhound Â£24.9m (2011: Â£ 26.3m), UK Bus Â£58.7m (2011: Â£21.8m), UK Rail Â£31.8m (2011: Â£10.9m) and Group items Â£2.1m (2011: Â£nil). FUNDING AND RISK MANAGEMENT Liquidity within the Group has remained strong. At the period end there was Â£ 717.7m (2011: Â£682.3m) of committed headroom and free cash being, Â£624.0m (2011: Â£601.0m) of committed headroom and Â£93.7m (2011: Â£81.3m) of free cash. The Group's average debt maturity was 5.1 years (2011: 5.9 years). The Group's $1.25bn revolving bank facility expires in December 2015. INTEREST RATE RISK The Group reduces 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 between 75% and 100% of net debt. At 30 September 2012 87% (2011: 91%) of net debt was fixed. FUEL PRICE RISK The Group uses a progressive forward hedging programme to manage fuel price risk. In the current year in the UK, 88% of the `at risk' crude requirements (2.5m barrels p.a.) are hedged at an average rate of $102 per barrel. At the end of the period we have hedged 64% of our UK crude requirements for the year to 31 March 2014 at $103 per barrel and 17% of our requirements for the year to 31 March 2015 at $98 per barrel. In North America 69% of current year `at risk' crude oil volumes (1.6m barrels p.a.) are hedged at an average rate of $94 per barrel. At the end of the period we have hedged 56% of the volumes for the year to 31 March 2014 at $94 per barrel. In addition we have hedged 22% of our volumes for the year to 31 March 2015 at $89 per barrel. FOREIGN CURRENCY RISK Group policies on foreign currency risk affecting cash flow, profits and net assets are maintained to minimise exposures to the Group by using a combination of natural hedge positions and derivative instruments where appropriate. Translation risk relating to US Dollar earnings arising in the US is largely offset by US Dollar denominated costs incurred in the UK, principally UK fuel costs, US Dollar interest and tax costs so that exposure to EPS on a year to year basis is not significant. With regard to balance sheet translation risk, the Group hedges part of its exposure to the impact of exchange rate movements on translation of foreign currency net assets by holding currency swaps and net borrowings in foreign currencies. At 31 March 2012 foreign currency net assets were 46% (2011: 62%) hedged. NET DEBT The Group's net debt at 30 September 2012 was Â£2,081.8m (2011: Â£2,058.7m) and comprised: 30 September 30 31 March September 2012 2011 2012 Fixed Variable Total Total Total Analysis of net debt Â£m Â£m Â£m Â£m Â£m Sterling bond (2013)1 299.1 299.1 298.5 298.5 - Sterling bond (2018)2 322.2 322.2 335.8 325.1 - Sterling bond (2019)2 249.4 249.4 268.9 249.4 - Sterling bond (2021)3 330.5 330.5 335.2 331.5 - Sterling bond (2024)1 199.1 199.1 199.0 199.0 - Sterling bank loans 90.0 90.0 25.0 - - US Dollar bank loans 335.8 335.8 398.3 369.8 - Canadian Dollar bank 100.0 100.0 119.7 113.9 loans - Euro and other bank 11.1 11.1 17.2 11.7 loans - HP contracts and 254.8 104.5 359.3 286.5 335.3 finance leases Senior unsecured loan 92.4 - 92.4 95.9 93.3 notes Loan notes 8.7 1.0 9.7 9.7 9.7 Cash (93.7) (93.7) (81.3) (164.0) - UK Rail ring-fenced (210.1) (210.1) (233.6) (323.2) cash and deposits - Other ring-fenced cash (13.0) (13.0) (16.1) (12.5) and deposits - Interest rate swaps 303.1 (303.1) - - - Total 1,809.9 271.9 2,081.8 2,058.7 1,837.5 1 Excludes accrued interest. 2 Stated excluding accrued interest, swapped to US Dollars and adjusted for movements on associated derivatives. 3 Stated excluding accrued interest, partially swapped to US Dollars and adjusted for movements on associated derivatives. Leverage reduction remains a key priority. At 30 September 2012 the net debt to EBITDA ratio was 2.9 times (2011: 2.7 times). SHARES IN ISSUE As at 30 September 2012 there were 481.8m shares in issue (2011: 481.4m), excluding treasury shares and own shares held in trust for employees of 0.3m (2011: 0.7m). The weighted average number of shares in issue for the purpose of basic EPS calculations was 481.6m (2011: 481.2m). BALANCE SHEET Net assets have decreased by Â£148.9m since the start of the period. The principal reasons for this are actuarial losses on defined benefit pension schemes (net of deferred tax) of Â£57.2m, dividend payments of Â£83.0m, unfavourable hedging reserve movements of Â£8.8m and unfavourable translation reserve movements of Â£15.2m partly offset by the retained profit for the period of Â£12.5m. FOREIGN EXCHANGE The most significant exchange rates to Sterling for the Group are as follows: 6 months to 6 months to Year to 31 March 30 September 2012 September 2011 2012 Closing Effective Closing Effective Closing Effective rate rate rate rate rate Rate US Dollar 1.62 1.62 1.56 1.62 1.60 1.59 Canadian Dollar 1.59 1.61 1.64 1.59 1.60 1.59 PENSIONS The Group has updated its pension assumptions as at 30 September 2012 for the defined benefit schemes in the UK and North America. The net pension deficit of Â£268m at the beginning of the period has increased to Â£289m at the end of the period principally due to changes in actuarial assumptions largely driven by lower discount rates. The main factors that influence the balance sheet position for pensions and the sensitivities to their movement at 30 September 2012 are set out below: Movement Impact Discount rate +0.1% Reduce deficit by Â£ 30m Inflation +0.1% Increase deficit by Â£ 21m The changes to the Accounting Standard IAS 19 will apply from 2013/14 onwards and will have a significant impact on certain profit measures including operating profit and EPS. We estimate that the new rules would reduce operating profit in the current year as follows: 2012/ 13 Â£m UK Bus (37) UK Rail (25) Greyhound (8) Total (70) It must be emphasised that these are non-cash changes and will not impact on the net assets of the Group. SEASONALITY The First Student business generates lower revenues and profits in the first half of the year than in the second half of the year as the school summer holidays fall into the first half. Greyhound operating profits are typically higher in the first half of the year due to demand being strongest in the summer months. PRINCIPAL RISKSAND UNCERTAINTIES FOR THE REMAINING SIXMONTHS OF THE FINANCIAL YEAR There are a number of risks and uncertainties facing the Group in the remaining six months of the financial year. These are the same as disclosed in the 2012 Annual report. The principal risks and uncertainties, which are set out in detail on pages 39 to 41 of the Annual Report and Accounts 2012, are: * Economy in the UK and North America * Pensions asset and liability valuations * Terrorism * Competitive pressures * Customer service and associated contract retention * Legislation and regulation * Labour costs and employee relations * Unhedged fuel costs * Treasury risks and insurance costs * Rail franchise agreements * Retention of key management * Environmental In addition a period of severe or prolonged adverse weather could have a significant impact on the results of certain of our businesses. The First Transit contract for the provision of base services in Diego Garcia has been awarded to another contractor and we currently expect to exit this contract at the end of March 2013. We believe that the loss making reserve for this contract is still sufficient to cover projected losses up until the exit date. CAUTIONARY STATEMENT The Operating and Financial Review including the principal risks and uncertainties, has been prepared by the Directors in good faith based on the information available to them up to the time of their approval of this report solely for the Company's shareholders as a body, so as to assist them in assessing the Group's strategies and the potential for those strategies to succeed and accordingly should not be relied on by any other party or for any other purpose and the Company hereby disclaims any liability to any such other party or for reliance on such information for any such other purpose. This Operating and Financial Review 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. RESPONSIBILITY STATEMENT We confirm to the best of our knowledge: * The condensed set of financial statements has been prepared in accordance with IAS34 `Interim Financial Reporting' as adopted by the European Union; * The interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and * The interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transaction and changes therein). Tim O'Toole Chris Surch Chief Executive Group Finance Director 7 November 2012 7 November 2012 Condensed consolidated income statement For the 6 months to 30 September based on unaudited figures 6 months to 6 months to Year to 30 September 2012 30 September 2011 31 March 2012 Underlying Underlying results1 Adjustments2 Total results1 Adjustments2 Total Total Notes Â£m Â£m Â£m Â£m Â£m Â£m Â£m Continuing operations Revenue 2,3 3,250.0 - 3,250.0 3,168.8 - 3,168.8 6,678.7 Operating costs (3,121.3) (35.1) (3,156.4) (3,005.8) 54.0 (2,951.8) (6,231.7) before (loss)/ profit on disposal of properties Operating 128.7 (35.1) 93.6 163.0 54.0 217.0 447.0 profit before ( loss)/profit on disposal of properties Amortisation - (13.6) (13.6) - (15.1) (15.1) (30.9) charges Exceptional - (21.5) (21.5) - 69.1 69.1 49.4 items - (35.1) (35.1) - 54.0 54.0 18.5 (Loss)/profit - (1.9) (1.9) - (0.7) (0.7) 1.0 on disposal of properties Operating 3 128.7 (37.0) 91.7 163.0 53.3 216.3 448.0 profit Investment 4 1.0 - 1.0 0.8 - 0.8 2.0 income Finance costs 4 (81.0) (3.3) (84.3) (79.3) (10.0) (89.3) (170.1) Profit before 48.7 (40.3) 8.4 84.5 43.3 127.8 279.9 tax Tax 5 (9.8) 13.9 4.1 (18.8) (9.2) (28.0) (50.1) Profit for the 38.9 (26.4) 12.5 65.7 34.1 99.8 229.8 period from continuing operations Discontinued operations Loss for the 6 - - - (0.3) (9.2) (9.5) (9.5) period from discontinued operations Profit for the 38.9 (26.4) 12.5 65.4 24.9 90.3 220.3 period Attributable to: Equity holders 34.5 (26.3) 8.2 53.5 25.0 78.5 196.2 of the parent Non-controlling 4.4 (0.1) 4.3 11.9 (0.1) 11.8 24.1 interests 38.9 (26.4) 12.5 65.4 24.9 90.3 220.3 Earnings per share Continuing operations Basic 8 7.2p (5.5)p 1.7p 11.2p 7.1p 18.3p 42.7p Diluted 7.1p (5.4)p 1.7p 11.1p 7.1p 18.2p 42.5p Continuing and discontinued operations Basic 8 7.2p (5.5)p 1.7p 11.1p 5.2p 16.3p 40.8p Diluted 7.1p (5.4)p 1.7p 11.1p 5.2p 16.3p 40.5p Dividends of Â£77.3m (2011: Â£72.1m) were paid during the period. Dividends of Â£ 36.7m (2011: Â£36.7m) are proposed in respect of the interim dividend for the year to 31 March 2013. 1Underlying trading results before items noted in 2 below. 2Amortisation charges, ineffectiveness on financial derivatives, exceptional items, (loss)/profit on disposal of properties and loss on disposal of discontinued operations and tax thereon. Â³For all businesses excluding UK Rail this half year includes 26 weeks compared to 27 weeks for the corresponding period last year. Condensed consolidated statement of comprehensive income Unaudited Unaudited Audited 6 months to 6 months year to 30 September to 31 March 2012 30 2012 September 2011 Â£m Â£m Â£m Profit for the period 12.5 90.3 220.3 Other comprehensive income/(expense) Derivative hedging instrument movements (14.0) (91.8) (36.1) Deferred tax on derivative hedging instrument 5.2 24.4 13.2 movements Exchange differences on translation of foreign (15.2) 24.4 (10.9) operations Actuarial losses on defined benefit pension (77.7) (135.8) (185.8) schemes Deferred tax on actuarial losses on defined 20.5 43.8 51.8 benefit pension schemes Other comprehensive (expense) for the period (81.2) (135.0) (167.8) Total comprehensive (expense)/income for the (68.7) (44.7) 52.5 period Attributable to: Equity holders of the parent (73.0) (56.2) 28.4 Non-controlling interests 4.3 11.5 24.1 (68.7) (44.7) 52.5 Condensed consolidated balance sheet Unaudited Unaudited Audited 30 30 31 September September March 2012 2011 2012 Notes Â£m Â£m Â£m Non-current assets Goodwill 9 1,586.4 1,634.7 1,599.3 Other 10 303.5 338.9 318.8 intangible assets Property, plant 11 2,019.9 2,041.7 2,006.3 and equipment Deferred tax 62.0 53.0 43.3 assets Retirement 20 13.5 32.5 25.2 benefit assets Derivative 15 78.1 65.4 72.6 financial instruments Investments 8.1 7.4 7.2 4,071.5 4,173.6 4,072.7 Current assets Inventories 89.7 90.0 91.0 Trade and other 12 645.8 620.1 601.9 receivables Cash and cash 316.8 331.0 499.7 equivalents Assets held for 13 3.1 7.7 3.7 sale Derivative 15 29.6 30.5 43.5 financial instruments 1,085.0 1,079.3 1,239.8 Total assets 5,156.5 5,252.9 5,312.5 Current liabilities Trade and other 14 1,214.7 1,185.5 1,261.0 payables Tax liabilities 30.4 59.4 21.8 Financial - bank loans 22.6 96.3 69.3 liabilities - bonds 334.8 35.7 73.6 - HP contracts and finance 59.2 46.0 52.4 leases Derivative 15 48.6 41.4 17.1 financial instruments 1,710.3 1,464.3 1,495.2 Net current 625.3 385.0 255.4 liabilities Non-current liabilities Financial - bank loans 514.3 464.0 426.0 liabilities - bonds 1,151.5 1,439.1 1,441.0 - HP contracts and finance 300.1 240.5 282.9 leases - loan notes 9.7 9.7 9.7 - senior unsecured loan notes 92.4 95.9 93.3 Derivative 15 28.3 84.6 50.1 financial instruments Retirement 20 303.0 293.7 293.1 benefit liabilities Deferred tax 82.6 69.2 97.7 liabilities Provisions 16 232.2 269.8 242.5 2,714.1 2,966.5 2,936.3 Total 4,424.4 4,430.8 4,431.5 liabilities Net assets 732.1 822.1 881.0 Equity Share capital 18 24.1 24.1 24.1 Share premium 676.4 676.4 676.4 Hedging reserve 3.7 (32.0) 12.5 Other reserves 4.6 4.6 4.6 Own shares (1.1) (2.2) (1.1) Translation 130.5 181.2 145.7 reserve Retained (127.1) (44.5) (3.6) earnings Equity 711.1 807.6 858.6 attributable to equity holders of the parent Non-controlling 21.0 14.5 22.4 interests Total equity 732.1 822.1 881.0 Condensed consolidated statement of changes in equity Non- Share Share Hedging Other Own Translation Retained controlling Total capital premium reserve reserves shares reserve earnings Total interests equity Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Balance at 1 24.1 676.4 12.5 4.6 (1.1) 145.7 (3.6) 858.6 22.4 881.0 April 2012 Total - - (8.8) - - (15.2) (49.0) (73.0) 4.3 (68.7) comprehensive income for the period Dividends - - - - - - (77.3) (77.3) (5.7) (83.0) paid Share-based - - - - - - 2.8 2.8 - 2.8 payments Balance at 30 24.1 676.4 3.7 4.6 (1.1) 130.5 (127.1) 711.1 21.0 732.1 September 201 2 Balance at 1 24.1 676.4 35.4 4.6 (5.0) 156.6 41.5 933.6 17.3 950.9 April 2011 Total - - (67.4) - - 24.6 (13.4) (56.2) 11.5 (44.7) comprehensive income for the period Dividends - - - - - - (72.1) (72.1) (14.3) (86.4) paid Movement in - - - - 2.8 - (3.0) (0.2) - (0.2) EBT and treasury shares Share-based - - - - - - 2.8 2.8 - 2.8 payments Deferred tax - - - - - - (0.3) (0.3) - (0.3) on share-based payments Balance at 30 24.1 676.4 (32.0) 4.6 (2.2) 181.2 (44.5) 807.6 14.5 822.1 September 201 1 Balance at 1 24.1 676.4 35.4 4.6 (5.0) 156.6 41.5 933.6 17.3 950.9 April 2011 Total - - (22.9) - - (10.9) 62.2 28.4 24.1 52.5 comprehensive income for the period Dividends - - - - - - (108.8) (108.8) (19.0) (127.8) paid Movement in - - - - 3.9 - (3.9) - - - EBT and treasury shares Share-based - - - - - - 6.0 6.0 - 6.0 payments Deferred tax - - - - - - (0.6) (0.6) - (0.6) on share-based payments Balance at 31 24.1 676.4 12.5 4.6 (1.1) 145.7 (3.6) 858.6 22.4 881.0 March 2012 Condensed consolidated cash flow statement Unaudited Unaudited Audited 6 months 6 months year to to to 31 March 30 30 2012 September September 2012 2011 Note Â£m Â£m Â£m Net cash from operating activities 19 (30.9) 101.1 475.4 Investing activities Interest received 1.0 0.7 2.0 Proceeds from disposal of property, plant 3.2 29.9 57.7 and equipment Purchases of property, plant and equipment (89.8) (65.8) (170.9) Disposal of business/subsidiary 14.2 5.5 5.5 Acquisition of businesses - - (3.4) Net cash used in investing activities (71.4) (29.7) (109.1) Financing activities Dividends paid (77.3) (72.1) (108.8) Dividends paid to non-controlling (5.7) (7.6) (19.0) shareholders Proceeds from senior unsecured loan notes - 90.2 90.2 Proceeds from bank facilities 153.3 36.0 2.5 Repayment of bank debt (110.1) (146.7) (179.8) Repayments under HP contracts and finance (38.6) (26.7) (35.2) leases Fees for bank facility amendments (0.2) (1.5) (2.1) Net cash flow from financing activities (78.6) (128.4) (252.2) Net (decrease)/increase in cash and cash (180.9) (57.0) 114.1 equivalents before foreign exchange movements Cash and cash equivalents at beginning of 499.7 388.0 388.0 period Foreign exchange movements (2.0) - (2.4) Cash and cash equivalents at end of period 316.8 331.0 499.7 per condensed consolidated balance sheet Cash and cash equivalents are included within current assets on the condensed consolidated balance sheet. Note to the condensed consolidated cash flow statement - reconciliation of net cash flow to movement in net debt 6 months 6 months Year to to to 31 March 30 30 2012 September September 2012 2011 Â£m Â£m Â£m Net (decrease)/increase in cash and cash (180.9) (57.0) 114.1 equivalents in period (Increase)/decrease in debt and finance leases (4.6) 47.2 122.3 Inception of new HP contracts and finance leases (64.9) (55.9) (119.3) Fees capitalised against bank facilities and bond 0.2 1.5 2.1 issues Net cash flow (250.2) (64.2) 119.2 Foreign exchange movements 8.1 (42.6) (7.7) Other non-cash movements in relation to financial (2.2) (2.5) 0.4 instruments Movement in net debt in period (244.3) (109.3) 111.9 Net debt at beginning of period (1,837.5) (1,949.4) (1,949.4) Net debt at end of period (2,081.8) (2,058.7) (1,837.5) Net debt includes the value of derivatives in connection with the bonds maturing in 2018, 2019 and 2021 and excludes all accrued interest. These bonds are included in 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 2012 have been delivered to the Registrar of Companies. The auditors 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 2012 include the results of the rail division for the period ended 15 September 2012 and the results for the other divisions for the 26 weeks ended 29 September 2012. The comparative figures for the six months to 30 September 2011 include the results of the rail division for the period ended 17 September 2011 and the results of the other divisions for the 27 weeks ended 1 October 2011. The accounting policies used in this half-yearly financial report are consistent with International Financial Reporting Standards. The same accounting policies, presentation and methods of computation are followed in this condensed set of financial statements as applied in the Group's latest annual audited financial statements. The condensed set of financial statements included in this half-yearly financial report has 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, whose report is given on page xx. The comparative figures for the six months to 30 September 2011 are unaudited and are derived from the half-yearly financial report for that period, which was also reviewed by the auditors. There continue to be no significant debt repayments due until the 2013 Bond. After taking this into account and the committed liquidity headroom available under the $1.25bn committed revolver facility and making enquiries and reviewing the outlook for 2012/13 and medium term plans, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly they continue to adopt the going concern basis in preparing this half-yearly financial report. This half-yearly financial report will be available to all shareholders later in November 2012 and will also 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 7 November 2012. Restatement of prior period numbers The calculation of underlying EBITDA has been revised to exclude capital grant amortisation whereas previously EBITDA was calculated as underlying operating profit plus depreciation. As a result of this EBITDA for the six months to 30 September 2011 has been restated as follows: Â£m EBITDA as previously 323.4 stated Capital grant (6.1) amortisation EBITDA as restated 317.3 Total assets split by geographical are at 31 March 2012 have been restated to be consistent with the basis of presentation at 30 September 2011 and 30 September 2012. 6 months 6 months Year to to to 31 30 30 March September September 2012 2012 2011 2 REVENUE Â£m Â£m Â£m Continuing operations Services rendered 2,859.3 2,852.9 6,028.9 UK Rail franchise subsidy receipts 232.4 193.9 411.1 UK Rail revenue support 158.3 122.0 238.7 3,250.0 3,168.8 6,678.7 Investment income 1.0 0.8 2.0 Total revenue from continuing operations as 3,251.0 3,169.6 6,680.7 defined by IAS 18 Discontinued operations Services rendered - 5.3 5.3 Total revenue from discontinued operations as - 5.3 5.3 defined by IAS 18 Total revenue as defined by IAS 18 3,251.0 3,174.9 6,686.0 3 SEGMENT INFORMATION The segment results for the six months to 30 September 2012 are as follows: First First Group Student Transit Greyhound UK Bus UK Rail items2 Total3 Â£m Â£m Â£m Â£m Â£m Â£m Â£m Revenue continuing 640.3 397.2 337.3 572.9 1,296.4 5.9 3,250.0 operations EBITDA1 78.6 34.0 48.8 74.5 68.7 (13.4) 291.2 Depreciation (73.4) (5.2) (15.3) (35.2) (45.6) (0.4) (175.1) Capital grant - - - 0.3 12.3 - 12.6 amortisation Segment results1 5.2 28.8 33.5 39.6 35.4 (13.8) 128.7 Amortisation charges (9.2) (2.0) (1.5) - (0.9) - (13.6) Exceptional items - (5.9) - (3.3) (12.3) - (21.5) (Loss)/profit on 0.1 - (0.2) (1.8) - - (1.9) disposal of properties Operating profit (3.9) 20.9 31.8 34.5 22.2 (13.8) 91.7 Investment income 1.0 Finance costs (81.0) Ineffectiveness on (3.3) financial derivatives Profit before tax 8.4 Tax 4.1 Profit for the period 12.5 The segment results for the six months to 30 September 2011 are as follows: First First Group Student Transit Greyhound UK Bus UK Rail items2 Total3 Â£m Â£m Â£m Â£m Â£m Â£m Â£m Revenue 683.3 387.3 343.6 586.9 1,162.6 10.4 3,174.1 Discontinued - - - - - (5.3) (5.3) operations Revenue continuing 683.3 387.3 343.6 586.9 1,162.6 5.1 3,168.8 operations EBITDA1 79.9 31.7 45.4 96.3 78.7 (14.7) 317.3 Depreciation (74.4) (4.5) (14.9) (37.1) (28.9) (0.6) (160.4) Capital grant - - - 0.2 5.9 - 6.1 amortisation Segment results1 5.5 27.2 30.5 59.4 55.7 (15.3) 163.0 Amortisation charges (9.8) (2.2) (1.6) - (1.5) - (15.1) Exceptional items - - - 72.3 (2.1) (1.1) 69.1 (Loss)/profit on (0.3) - 0.9 (1.3) - - (0.7) disposal of properties Operating profit (4.6) 25.0 29.8 130.4 52.1 (16.4) 216.3 Investment income 0.8 Finance costs (79.3) Ineffectiveness on financial derivatives (10.0) Profit before tax 127.8 Tax (28.0) Profit for the period from continuing operations 99.8 Discontinued operations (9.5) Profit for the period 90.3 1Underlying. 2Group items comprise Tramlink operations, central management and other items. 3For all businesses excluding UK Rail this half year includes 26 weeks compared to 27 weeks for the corresponding period last year. 3 SEGMENT INFORMATION continued The segment results for the year to 31 March 2012 are as follows: First First Group Student Transit Greyhound UK Bus UK Rail Items2 Total Â£m Â£m Â£m Â£m Â£m Â£m Â£m Revenue 1,567.2 778.6 657.2 1,157.2 2,506.1 17.7 6,684.0 Discontinued - - - - - (5.3) (5.3) operations Revenue continuing 1,567.2 778.6 657.2 1,157.2 2,506.1 12.4 6,678.7 operations EBITDA1 255.8 65.3 80.1 207.1 163.5 (28.9) 742.9 Depreciation (148.7) (9.5) (29.5) (73.2) (66.2) (1.0) (328.1) Capital grant - - - 0.5 13.2 - 13.7 amortisation Segment results1 107.1 55.8 50.6 134.4 110.5 (29.9) 428.5 Amortisation charges (20.1) (4.3) (3.1) - (3.4) - (30.9) Exceptional items - - - 60.7 (10.2) (1.1) 49.4 Profit/(loss) on (0.3) - 5.0 (3.7) - - 1.0 disposal of properties Operating profit 86.7 51.5 52.5 191.4 96.9 (31.0) 448.0 Investment income 2.0 Finance costs (159.1) Ineffectiveness on (11.0) financial derivatives Profit before tax 279.9 Tax (50.1) Profit for the year 229.8 from continuing operations Discontinued (9.5) operations Profit for the year 220.3 1Underlying. 2Group items comprise Tramlink operations, central management and other items. 30 30 31 March September September 2012 2012 2011 restated3 Total assets Â£m Â£m Â£m United Kingdom 4,299.5 4,481.4 4,440.3 United States of America 2,908.2 3,022.3 2,933.2 Canada 522.1 501.7 526.1 Eliminations (2,635.3) (2,805.5) (2,630.4) Unallocated corporate items 62.0 53.0 43.3 5,156.5 5,252.9 5,312.5 3Restated as explained in note 1. 6 months to 6 months Year to 30 to 31 March September 30 2012 2012 September 2011 4 INVESTMENT INCOME AND FINANCE COSTS Â£m Â£m Â£m Investment income Bank interest receivable (1.0) (0.8) (2.0) Finance costs Bonds 46.2 47.0 92.6 Bank borrowings 17.5 17.0 34.3 Senior unsecured loan notes 2.0 1.7 3.9 Loan notes 0.5 0.5 1.0 Finance charges payable in respect of HP 5.1 3.8 8.4 contracts and finance leases Notional interest on long term provisions 9.7 9.3 18.9 Finance costs before exceptional items 81.0 79.3 159.1 Ineffectiveness on financial derivatives 3.3 10.0 11.0 84.3 89.3 170.1 Net finance costs 83.3 88.5 168.1 6 months 6 months Year to to to 31 30 30 March September September 2012 2012 2011 5 TAX ON PROFIT ON ORDINARY Â£m Â£m Â£m ACTIVITIES Current 3.0 8.2 (5.3) tax Deferred (7.1) 19.8 55.4 tax Total tax (4.1) 28.0 50.1 (credit)/ charge The tax effect of the adjustments disclosed in the condensed consolidated income statement was a credit of Â£13.9m (2011: charge of Â£9.2m). 6 DISCONTINUED OPERATIONS On 30 September 2011 the Group disposed of FirstGroup Deutschland GmbH and, as a consequence, the results of this business have been classified as discontinued operations, as detailed below. 6 months 6 months Year to to to 31 30 30 March September September 2012 2012 2011 Â£m Â£m Â£m Revenue - 5.3 5.3 Operating costs - (5.6) (5.6) Loss before tax - (0.3) (0.3) Loss on disposal of discontinued operations - (9.2) (9.2) Net loss attributable to discontinued operations - (9.5) (9.5) There was no attributable tax on the profit on disposal of discontinued operations. During the period, discontinued operations contributed Â£nil (2011: Â£0.6m; full year 2012: Â£0.6m) to the Group's net operating cash flows. Details of the loss on disposal of FirstGroup Deutschland GmbH are set out in note 17. The effect of discontinued operations on segment results is disclosed in note 3. 6 months 6 months Year to to to 31 30 30 March September September 2012 2012 2011 7 DIVIDENDS Â£m Â£m Â£m Final dividend per share paid for the year ended 31 77.3 72.1 72.1 March 2012 of 16.05p (2011: 15.0p) Interim dividend per share paid for the year ended - - 36.7 31 March 2012 of 7.62p (2011: 7.12p) Amounts recognised as distributions to equity 77.3 72.1 108.8 holders in the period Proposed interim dividend per share for the year 36.7 36.7 - ended 31 March 2013 of 7.62p (2012: 7.62p) The proposed interim dividend will be paid on 7 February 2013 to shareholders on the register of members at the close of business on 11 January 2013. 8 EARNINGS PER SHARE (EPS) Basic EPS is calculated by dividing the profit attributable to equity shareholders of Â£8.2m (2011: Â£78.5m; full year 2012: Â£196.2m) by the weighted average number of ordinary shares in issue (excluding own shares held in the EBT and treasury shares) of 481.6m (2011: 481.2m; full year 2012: 481.4m). The underlying basic EPS is intended to highlight the recurring results of the Group before amortisation charges, ineffectiveness on financial derivatives, exceptional items and loss/(profit) on disposal of properties. A reconciliation is set out below: 6 months to 6 months to Year to 30 September 30 September 31 March 2012 2012 2011 Â£m EPS Â£m EPS Â£m EPS (p) (p) (p) Basic profit/EPS from continuing 8.2 1.7 88.0 18.3 205.7 42.7 operations Basic profit/EPS from discontinued - - (9.5) (2.0) (9.5) (1.9) operations Basic profit/EPS 8.2 1.7 78.5 16.3 196.2 40.8 Amortisation charges1 13.5 2.8 15.0 3.1 30.7 6.4 Ineffectiveness on financial 3.3 0.7 10.0 2.1 11.0 2.2 derivatives Exceptional items 21.5 4.5 (69.1) (14.4) (49.4) (10.3) Loss/(profit) on disposal of 1.9 0.4 0.7 0.2 (1.0) (0.2) properties Business disposals - - 9.2 1.9 9.2 1.9 Tax effect of above adjustments (13.9) (2.9) 9.2 1.9 (4.4) (0.9) Underlying profit/EPS 34.5 7.2 53.5 11.1 192.3 39.9 Underlying profit/EPS from - - 0.3 0.1 0.3 0.1 discontinued operations Underlying profit/EPS from continuing 34.5 7.2 53.8 11.2 192.6 40.0 operations 1Amortisation charges of Â£13.6m (2011: Â£15.1m; full year 2012: Â£30.9m) per note 10 less Â£0.1m (2011: Â£0.1m; full year 2012: Â£0.2m) attributable to equity non-controlling interests. Diluted EPS is based on the same earnings and on a weighted average number of ordinary shares in issue of 483.8m (2011: 483.6m; full year 2012: 484.1m). 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 from the share options. 9 GOODWILL Â£m Cost At 1 April 2012 1,604.3 Foreign exchange movements (12.9) At 30 September 2012 1,591.4 Accumulated impairment losses At 1 April 2012 and 30 September 2012 5.0 Carrying amount At 30 September 2012 1,586.4 At 31 March 2012 1,599.3 At 30 September 2011 1,634.7 Disclosures including goodwill by cash generating unit, details of impairment testing and sensitivities thereon are set out on pages 81 and 82 of the 2012 Annual Report. The projections for First Student assume the incremental benefits of the recovery plan together with a moderate economic recovery. Based on these projections the First Student margin would need to fall in excess of 1.6% compared to the projections for there to be an impairment on the business. Projections for all businesses are currently being updated and detailed disclosures as described above will be included in the 2013 Annual Report. Customer Greyhound Rail Total contracts brand and franchise trade agreements name 10 OTHER INTANGIBLE ASSETS Â£m Â£m Â£m Â£m Cost At 1 April 2012 381.2 61.8 57.7 500.7 Foreign exchange movements (2.8) (0.4) - (3.2) At 30 September 2012 378.4 61.4 57.7 497.5 Amortisation At 1 April 2012 114.3 14.4 53.2 181.9 Charge for period 11.2 1.5 0.9 13.6 Foreign exchange movements (1.4) (0.1) - (1.5) At 30 September 2012 124.1 15.8 54.1 194.0 Carrying amount At 30 September 2012 254.3 45.6 3.6 303.5 At 31 March 2012 266.9 47.4 4.5 318.8 At 30 September 2011 284.1 49.8 5.0 338.9 Intangible assets include customer contracts and the Greyhound brand and trade name which were acquired through the purchases of businesses and subsidiary undertakings. These are being amortised on a straight-line basis over their useful lives which are between nine and twenty years. The rail franchise agreements' intangible asset represents the part of the economic benefit that is realised as a result of recognising our share of the rail pension deficit on the date of commencement of each respective franchise and is amortised on a straight-line basis over the initial term of each respective franchise. Passenger Other Land and carrying plant and buildings vehicle equipment Total fleet 11 PROPERTY, PLANT AND EQUIPMENT Â£m Â£m Â£m Â£m Cost At 1 April 2012 507.3 2,623.7 666.3 3,797.3 Additions 5.5 148.4 51.6 205.5 Disposals (1.1) (21.1) (3.4) (25.6) Reclassified as held for sale - (32.3) - (32.3) Foreign exchange movements (1.6) (14.2) (1.8) (17.6) At 30 September 2012 510.1 2,704.5 712.7 3,927.3 Accumulated depreciation and impairment At 1 April 2012 83.5 1,293.7 413.8 1,791.0 Charge for period 5.8 108.6 60.7 175.1 Disposals (0.8) (19.1) (3.0) (22.9) Reclassified as held for sale - (27.2) - (27.2) Foreign exchange movements (0.2) (7.3) (1.1) (8.6) At 30 September 2012 88.3 1,348.7 470.4 1,907.4 Carrying amount At 30 September 2012 421.8 1,355.8 242.3 2,019.9 At 31 March 2012 423.8 1,330.0 252.5 2,006.3 At 30 September 2011 434.1 1,356.1 251.5 2,041.7 30 30 31 September September March 2012 2011 2012 12 TRADE AND OTHER RECEIVABLES Â£m Â£m Â£m Amounts due within one year Trade receivables 475.5 458.1 421.5 Provision for doubtful receivables (4.9) (5.2) (4.5) Other receivables 58.4 61.0 72.8 Other prepayments and accrued income 116.8 106.2 112.1 645.8 620.1 601.9 30 30 31 September September March 2012 2011 2012 13 ASSETS HELD FOR SALE Â£m Â£m Â£m Assets held for sale 3.1 7.7 3.7 These comprise First Student yellow school buses which are surplus to requirements and are being actively marketed for sale. Gains or losses arising on the disposal of such assets are included in arriving at operating profit in the condensed consolidated income statement. 30 30 31 March September September 2012 2012 2011 14 TRADE AND OTHER PAYABLES Â£m Â£m Â£m Amounts falling due within one year Trade payables 372.4 332.5 397.6 Other payables 205.2 154.1 169.1 Accruals and deferred income 573.7 639.7 626.2 Season ticket deferred income 63.4 59.2 68.1 1,214.7 1,185.5 1,261.0 30 30 31 September September March 2012 2011 2012 15 DERIVATIVE FINANCIAL INSTRUMENTS Â£m Â£m Â£m Derivatives designated and effective as hedging instruments carried at fair value Non-current assets Cross currency swaps (net investment hedge) 18.1 12.7 23.2 Coupon swaps (fair value hedge) 56.1 49.6 43.8 Fuel derivatives (cash flow hedge) 3.9 3.1 5.6 78.1 65.4 72.6 Current assets Cross currency swaps (net investment hedge) 3.0 3.6 4.3 Coupon swaps (fair value hedge) 13.0 9.6 9.5 Currency forwards (cash flow hedge) - 0.3 - Fuel derivatives (cash flow hedge) 13.6 17.0 29.7 29.6 30.5 43.5 Current liabilities Interest rate derivatives (cash flow hedge) 6.7 9.9 8.0 Cross currency swaps (net investment hedge) 35.6 19.2 1.2 Fuel derivatives (cash flow hedge) 2.7 11.0 3.5 45.0 40.1 12.7 Non-current liabilities Interest rate derivatives (cash flow hedge) 15.1 13.4 13.7 Cross currency swaps (net investment hedge) - 48.9 27.1 Fuel derivatives (cash flow hedge) 1.6 12.4 0.9 16.7 74.7 41.7 Derivates classified as held for trading Current liabilities Interest rate swaps 3.6 1.3 4.4 Non-current liabilities Interest rate swaps 11.6 9.9 8.4 Total non-current assets 78.1 65.4 72.6 Total current assets 29.6 30.5 43.5 Total assets 107.7 95.9 116.1 Total current liabilities 48.6 41.4 17.1 Total non-current liabilities 28.3 84.6 50.1 Total liabilities 76.9 126.0 67.2 30 30 31 September September March 2012 2011 2012 16 PROVISIONS Â£m Â£m Â£m Insurance claims 208.3 216.0 218.4 Legal and other 19.7 22.8 19.9 FGW contract provision - 26.5 - Pensions 4.2 4.5 4.2 Non-current liabilities 232.2 269.8 242.5 Insurance Legal FGW contract claims and provision Pensions Total other Â£m Â£m Â£m Â£m Â£m At 1 April 2012 336.0 24.1 56.9 4.2 421.2 Provided in the period 62.3 6.8 - - 69.1 Utilised in the period (85.2) (1.9) (17.2) - (104.3) Notional interest 9.7 - - - 9.7 Foreign exchange movements (2.4) (0.4) - - (2.8) At 30 September 2012 320.4 28.6 39.7 4.2 392.9 At 30 September 2011 332.3 32.5 59.3 4.5 428.6 Current liabilities 112.1 8.9 39.7 - 160.7 Non-current liabilities 208.3 19.7 - 4.2 232.2 At 30 September 2012 320.4 28.6 39.7 4.2 392.9 Current liabilities 117.6 4.2 56.9 - 178.7 Non-current liabilities 218.4 19.9 - 4.2 242.5 At 31 March 2012 336.0 24.1 56.9 4.2 421.2 Current liabilities 116.3 9.7 32.8 - 158.8 Non-current liabilities 216.0 22.8 26.5 4.5 269.8 At 30 September 2011 332.3 32.5 59.3 4.5 428.6 The current liabilities above are included within accruals and deferred income in note 14. 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. The utilisation of Â£ 85.2m (2011: Â£87.7m) represents payments made largely against the current liability of the preceding year. 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 ten 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. The provision for future losses on the FGW franchise will be utilised over the remaining term of the franchise which is expected to end in March 2013. The DfT has the discretion to extend the franchise by up to seven rail periods beyond this date but thus far has not formally advised if it will be doing so. The pension's provision relates to unfunded obligations that arose on the acquisition of certain UK Bus companies. It is anticipated that this will be utilised over five to ten years. 30 30 31 March September September 2012 2011 2012 17 Disposal of businesses and subsidiary Â£m Â£m Â£m undertakings Fair values of net assets disposed of: Goodwill - 6.1 6.1 Property, plant and equipment - 4.7 4.7 Current assets - 1.2 1.2 Cash and cash equivalents - 1.6 1.6 Other liabilities - (0.5) (0.5) - 13.1 13.1 Costs of disposal - 1.6 1.6 Loss on disposal - (9.2) (9.2) Satisfied by cash received and receivable - 5.5 5.5 Net cash inflow arising on disposal: Cash consideration - 5.5 5.5 - 5.5 5.5 On 30 September 2011, the Group disposed of its interest in FirstGroup Deutschland GmbH. The impact of FirstGroup Deutschland GmbH on the Group's results in the current and prior periods is disclosed in note 6. 30 30 31 March September September 2012 2011 2012 18 Share capital Â£m Â£m Â£m Allotted, called up and fully paid: 482.1m ordinary shares of 5p each 24.1 24.1 24.1 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 481.8m (2011: 481.4m). At the end of the period 0.3m shares (2011: 0.7m shares) were being held as treasury shares and own shares held in trust for employees. 30 30 31 September September March 2012 2011 2012 19 Net cash from operating activities Â£m Â£m Â£m Operating profit before loss on disposal of 93.6 217.0 447.0 properties Operating loss of discontinued operations - (0.3) (0.3) Adjustments for: Depreciation charges 175.1 160.4 328.1 Capital grant amortisation (12.6) (6.1) (13.7) Amortisation charges 13.6 15.1 30.9 Share-based payments 2.8 2.8 6.0 Loss/(profit) on disposal of property, plant and 0.2 (0.4) 3.8 equipment Operating cash flows before working capital 272.7 388.5 801.8 Decrease in inventories 1.1 0.8 0.6 (Increase)/decrease in receivables (42.7) (42.1) 34.0 (Decrease)/increase in payables (83.4) 21.1 34.6 Decrease in provisions (22.3) (46.2) (77.8) Defined benefit pension payments in excess of (54.4) (117.8) (160.4) income statement charge Cash generated by operations 71.0 204.3 632.8 Tax paid (4.8) (4.3) (17.7) Interest paid (92.0) (95.1) (130.9) Interest element of HP contracts and finance (5.1) (3.8) (8.8) leases Net cash from operating activities (30.9) 101.1 475.4 20 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 in page 103 of the Annual Report and Accounts for the year ended 31 March 2012. First Greater Western Limited, First Capital Connect Limited, First ScotRail Limited, Hull Trains Limited and First/Keolis TransPennine Express Limited have sections in the Railways Pension Scheme (RPS), which is an industry-wide arrangement. Under the terms of the RPS, any fund deficit or surplus is shared by the employer (60%) and the employees (40%). In calculating the Group's pension obligations in respect of the RPS the Group has calculated the total pension deficits in each of the RPS sections in accordance with IAS 19. These deficits are reduced by a "franchise adjustment" which is that portion of the deficit which is projected to exist at the end of the franchise and for which the Group will not be required to fund. The franchise adjustment, which has been calculated by the Group's actuaries, is offset against the present value of the RPS liabilities so as to fairly present the financial performance, position and cash flows of the Group's obligations. The market value of the assets at 30 September 2012 for all defined benefit schemes totalled Â£3,445m (2011: Â£3,227m; full year 2012: Â£3,397m). 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. 20 RETIREMENT BENEFIT SCHEMES continued The key assumptions were as follows: UK UK North UK UK North UK UK North Bus Rail America Bus Rail America Bus Rail America 30 Sept 30 30 Sept 30 30 30 Sept 31 31 31 Sept Sept Sept March March March 2012 2012 2012 2011 2011 2011 2012 2012 2012 % % % % % % % % % Key assumptions used: Discount rate 4.5 4.5 3.6 5.10 5.10 4.05 4.65 4.65 4.20 Expected return on 6.7 8.2 6.3 7.40 8.60 6.90 7.28 7.28 6.33 scheme assets Expected rate of 3.4 3.4 3.25 3.75 3.75 3.25 3.75 3.75 3.25 salary increases Inflation - RPI 2.4 2.4 2.25 2.8 2.8 - 2.75 2.75 2.25 Inflation - CPI 1.65 1.65 - 2.0 2.0 - 1.75 1.75 - Future pension 1.65/1. 1.65 - 1.9 2.0 - 1.75/ 1.75 - increasesÂ¹ 55/2.3 1.65/ 2.65 Â¹UK Bus refers to LGPS, UK Bus Scheme and Group scheme respectively. Amounts (charged)/credited to the condensed consolidated income statement before exceptional items in respect of these defined benefit schemes are as follows: North UK Bus UK Rail America Total 6 months to 30 September 2012 Â£m Â£m Â£m Â£m Current service cost (13.7) (25.9) (2.4) (42.0) Interest cost (40.1) (18.8) (14.3) (73.2) Expected return on scheme assets 58.7 27.1 13.1 98.9 Interest on franchise adjustment - 3.3 - 3.3 4.9 (14.3) (3.6) (13.0) North UK Bus UK Rail America Total 6 months to 30 September 2011 Â£m Â£m Â£m Â£m Current service cost (14.1) (24.8) (2.2) (41.1) Interest cost (42.5) (20.1) (16.1) (78.7) Expected return on scheme assets 63.2 27.0 14.9 105.1 Interest on franchise adjustment - 1.9 - 1.9 6.6 (16.0) (3.4) (12.8) North UK Bus UK Rail America Total Year to 31 March 2012 Â£m Â£m Â£m Â£m Current service cost (32.4) (51.6) (4.3) (88.3) Interest cost (84.8) (43.4) (32.3) (160.5) Expected return on scheme assets 126.6 58.6 29.5 214.7 Interest on franchise adjustment - 4.2 - 4.2 9.4 (32.2) (7.1) (29.9) Actuarial gains and losses have been reported in the condensed consolidated statement of comprehensive income. 20 RETIREMENT BENEFIT SCHEMES continued 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: North UK Bus UK Rail America Total At 30 September 2012 Â£m Â£m Â£m Â£m Fair value of schemes' assets 1,772.8 1,200.0 472.7 3,445.5 Present value of defined benefit (1,792.6) (1,530.3) (696.0) (4,018.9) obligations Deficit before adjustments (19.8) (330.3) (223.3) (573.4) Adjustment for irrecoverable surplus1 (28.9) - - (28.9) UK Rail franchise adjustment (60%) - 180.7 - 180.7 Adjustment for employee share of RPS - 132.1 - 132.1 deficits (40%) Liability recognised in the condensed (48.7) (17.5) (223.3) (289.5) consolidated balance sheet This amount is presented in the condensed consolidated balance sheet as follows: Non-current assets 13.5 - - 13.5 Non-current liabilities (62.2) (17.5) (223.3) (303.0) (48.7) (17.5) (223.3) (289.5) North UK Bus UK Rail America Total At 30 September 2011 Â£m Â£m Â£m Â£m Fair value of schemes' assets 1,668.9 1,112.3 445.9 3,227.1 Present value of defined benefit (1,611.1) (1,378.7) (683.7) (3,673.5) obligations (Deficit)/surplus before adjustments 57.8 (266.4) (237.8) (446.4) Adjustment for irrecoverable surplus1 (53.3) - - (53.3) UK Rail franchise adjustment (60%) - 131.9 - 131.9 Adjustment for employee share of RPS - 106.6 - 106.6 deficits (40%) (Liability)/asset recognised in the 4.5 (27.9) (237.8) (261.2) condensed consolidated balance sheet This amount is presented in the condensed consolidated balance sheet as follows: Non-current assets 32.5 - - 32.5 Non-current liabilities (28.0) (27.9) (237.8) (293.7) 4.5 (27.9) (237.8) (261.2) North UK Bus UK Rail America Total At 31 March 2012 Â£m Â£m Â£m Â£m Fair value of schemes' assets 1,761.4 1,175.9 460.0 3,397.3 Present value of defined benefit (1,759.1) (1,475.6) (675.2) (3,909.9) obligations (Deficit)/surplus before adjustments 2.3 (299.7) (215.2) (512.6) Adjustment for irrecoverable surplus1 (29.7) - - (29.7) UK Rail franchise adjustment (60%) - 154.5 - 154.5 Adjustment for employee share of RPS - 119.9 - 119.9 deficits (40%) Liability recognised in the condensed (27.4) (25.3) (215.2) (267.9) consolidated balance sheet This amount is presented in the condensed consolidated balance sheet as follows: Non-current assets 25.2 - - 25.2 Non-current liabilities (52.6) (25.3) (215.2) (293.1) (27.4) (25.3) (215.2) (267.9) 1 The irrecoverable surplus represents the amount of the surplus that the Group could not recover through reducing future company contributions to Local Government Pension Schemes.

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