Embargoed until 7:00am on Wednesday 31 March 2010
FIRSTGROUP PLC
PRE-CLOSE TRADING UDPATE
FirstGroup plc ("the Group") provides the following update on trading for its
financial year ending 31 March 2010 ("the year" or "the period") ahead of
preliminary results due to be announced on 12 May 2010.
Summary
* Overall performance is in line with management's expectations
* Group on course to deliver earnings and cash targets for the year including
£100m cash generation to reduce net debt
* Achieved cost reductions of over £200m per annum - mitigating effect of
recession on trading and increased hedged fuel costs this year
Overall trading
The Group provided an update on 14 January 2010 in respect of trading during
the third quarter of our financial year. Since then, underlying performance has
been in line with management's expectations and the Group is on course to
achieve its earnings and cash targets for the year. We are pleased with this
performance in the context of a challenging trading environment and despite the
unusually severe weather which disrupted service across our networks in the UK
and North America during the fourth quarter of our financial year ("Q4"). The
effect of the severe weather is expected to adversely impact operating profit
by approximately £16m.
We have continued to take action to mitigate the effects of recession and
hedged fuel costs which increased by £100m this year. We have reduced costs
across the Group by over £200m per annum through a number of actions including
overhead reductions and increased operating efficiencies.
UK Bus
We remain encouraged by the performance which has remained steady during the
second half of our financial year and is in line with our expectations.
Like-for-like passenger revenue for the year is expected to increase by 1.8%.
We have taken action to ensure the business maintains a robust trading
performance despite continued economic pressures, higher unemployment and
increased hedged fuel costs this year. Against this backdrop, the focus on
operating margin has been underpinned by the successful implementation of our
cost reduction plans together with targeted reductions in mileage across our
networks to protect revenue per mile.
UK Rail
Our UK Rail business has delivered a strong performance ahead of our
expectations with like-for-like passenger revenue growth for the year expected
to be 2.1%. We are encouraged by improving volume trends which helped deliver
passenger revenue growth of 3.2% in Q4, despite the impact of reduced regulated
fares from January 2010. The contractual arrangements within our franchises
continue to ensure significant insulation from passenger revenues that are
lower than the target revenues in our franchise bids. First Great Western and
First Capital Connect are receiving revenue support at the 80% level.
Notwithstanding the high fixed cost nature of rail, we successfully implemented
a programme to substantially reduce the addressable cost base within our rail
operations which has supported the outperformance.
North America contract businesses
Our North American contract businesses have an order book of more than $11bn
and generate annual revenues in excess of $3.7bn.
We expect full year revenues for our North American contract businesses to be
broadly in line with the prior year, at constant US:Canadian Dollar exchange
rates. Contract retention rates remained high at over 90% during the year. We
continue to win new business in First Student and First Transit including
sizeable contracts to operate school buses in Wichita, Kansas and a
`conversion' contract in Detroit, Michigan that was previously operated within
the public sector.
At First Student we have seen unprecedented levels of pressure on school board
budgets particularly during the second half of our financial year. As
previously reported, we have experienced a reduction in ancillary revenues,
which primarily consist of charter and additional services to existing
contracts. We believe that this should recover as the economy strengthens
although we expect the pressure on school board budgets to continue during 2010
/11. During Q4 the number of operating days lost as a result of the unusually
severe weather was significantly higher than normal. As a result, operating
profit for the full year will be slightly lower than our expectations.
Cost management continues to be a key priority and we have taken action to
build on the scale and synergy benefits already achieved across the business to
further reduce our costs. We believe that there is further scope within this
business to develop a leaner and more efficient cost base and to deliver long
term profitable growth.
First Transit, which generates over $1.1bn of annual revenues, delivered a good
performance during the year. Contract retention remained high and we were
pleased to win new business and enter new markets through a range of
fixed-route and light transit contracts during the year. We continue to develop
opportunities to expand in the large North American Transit market which
provides prospects to deliver further profitable growth with minimal capital
investment.
Greyhound
Greyhound has delivered results in line with our expectations despite the clear
impact of the weaker North America economy on trading. During the year
like-for-like US Dollar revenue, at constant US:Canadian Dollar exchange rates,
is expected to be reduced by 14.0%. Revenue trends continue to show encouraging
progress with an increase of 1.1% during Q4.
Our network management and targeted mileage reductions have protected revenue
per mile, which is now ahead of prior year, despite the difficult trading
environment. The actions we have taken have underpinned the continued cash
generation and profitability of the business. The lower cost base we have now
achieved as a result of our sustained programme of management actions executed
throughout the year has transformed the business. Greyhound is well placed with
lower fixed costs and improved operating leverage to benefit as the economy
recovers.
Outlook
We are pleased with the overall performance of the Group which is on track to
achieve its earnings and cash targets despite the challenging economic
conditions and increased hedged fuel costs in the year.
Looking ahead to the new financial year the global economic outlook remains
uncertain and in particular we expect to see continued pressure on public
spending budgets in North America. Against this backdrop we expect moderate
earnings growth. Net debt reduction remains a key priority and we are confident
in our ability to deliver our cash target of at least £100m in 2010/11 to
reduce net debt and to develop further opportunities to increase cash
generation within the Group to accelerate our deleveraging plans.
The Board is confident that the inherent strength of our businesses, combined
with the actions taken our management team to reduce costs and closely manage
service provision against changing demand, will ensure that the Group continues
to deliver long term value for shareholders.
A conference call for analysts and investors will be held at 9:00am today.
Please call +44 207 291 0507 / 0512 in advance of the call to register and
receive dial-in details.
A presentation to accompany the call will be available on our website
www.firstgroup.com ahead of the conference call.
Contacts FirstGroup plc:
Sir Moir Lockhead, Chief Executive
Tel: +44 207 291 0512
Jeff Carr, Finance Director
Tel: +44 207 291 0512
Rachael Borthwick, Corporate Communications Director
Tel: +44 207 291 0508 / +44 7771 945432
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