Trading Statement
21 January 2015
FirstGroup plc
THIRD QUARTER 2014/15 TRADING UPDATE
FirstGroup plc (the "Group"), the leading transport operator in the UK and
North America, reports the following update in respect of trading since 1
October 2014.
Summary
Overall trading for the Group is in line with management's expectations, and
our transformation plans continue to make progress:
* First Student: recovery plan on track, with improved pricing achieved in
recent bid season and cost efficiencies
* First Transit: revenue expectations benefitting from organic growth on
existing contracts
* Greyhound: demand adversely affected by sharply lower fuel prices over the
key holiday period
* UK Bus: continued volume growth and progress with cost savings, with
increases in yield starting to contribute
* UK Rail: robust volume and revenue growth, with financial performance
towards the top end of our expectations
Commenting, Chief Executive Tim O'Toole said:
"Overall trading for the Group is in line with our expectations. Our First
Student and UK Bus transformation plans are on track and both divisions are
delivering the expected improvements in financial performance. Demand for
Greyhound services over the important holiday period was adversely affected by
the significant and rapid reduction in fuel prices, which makes car travel more
affordable and competitive with our services. This was offset by good
performances in First Transit and our UK Rail operations, which are both
achieving growth towards the top of our expectations with robust margins.
Overall we are on course to meet our full year expectations for the Group, and
we are confident that our multi-year plans will deliver improved cash
generation and create sustainable value over the medium term."
First Student
First Student's operating performance in the period has benefitted from the
important step forward made earlier in the year, with the improved pricing
achieved on contracts awarded in the 2014 bid season making an impact for the
first time. Market conditions are improving modestly with organic growth still
limited, and we continue to expect our bus portfolio at the end of the current
financial year to be broadly similar in size to the prior year. We are
delivering against our target of $50m per annum in cost efficiencies and remain
confident of achieving approximately $20m in the current financial year, with
margins in excess of 7.5%. As previously indicated, with cost inflation running
ahead of price indexation on some of our multi-year contracts, we will continue
to focus only on retaining or winning contracts in future bid seasons at prices
that deliver an appropriate return on capital employed. We are on track to meet
our medium term target of double-digit margins for First Student through our
contract pricing and cost efficiency programmes.
First Transit
In the period First Transit's organic growth on existing contracts has been at
the higher end of our planning range, and we now expect revenue growth of
approximately 6%, with margins around our medium term target of 7% for the
current financial year. As expected, the second half of the financial year has
so far seen a number of larger contracts coming to an end with fewer start-ups,
though we continued to win additional new business in the period that will
commence in the next financial year. Our focus on disciplined bidding,
operational excellence, and investing in innovative technology for the benefit
of our customers ensured that First Transit continues to deliver good growth
and margins with relatively low capital intensity.
Greyhound
Demand for Greyhound's traditional services has lagged the US economic
recovery, with the disposable incomes of our core customers not significantly
increasing with the improvement in the overall macroeconomic environment for
much of the financial year. In the period, this demand challenge has been
exacerbated by the significant and rapid fall in consumer fuel prices, which
improves the affordability of using private cars for some trips compared with
Greyhound. As a consequence, Greyhound's like-for-like US dollar revenues in
the period decreased by 1.1%. In order to mitigate the impact of lower demand
on our profitability, we are actively managing our mileage and timetables, and
are flexing ticket prices in order to remain competitive. Nevertheless we
expect margins for the full year to be modestly below the prior year level.
Although our point-to-point brands were also somewhat affected by the sharply
lower fuel prices, Greyhound Express continued to grow profitably, with
like-for-like revenue growth of 2.1% in the period.
As previously indicated, our programme to roll out real-time pricing and yield
management capabilities across the network will give traditional Greyhound more
tools to stimulate and manage passenger demand. At the end of October, for
example, Greyhound launched its passenger-facing smartphone app, and our
commercial team continued to be augmented with additional hires in the period.
This programme, which replicates the commercial model of our newer
point-to-point brands across the whole of Greyhound's unique national network,
is expected to be fully operational over the next year. We remain confident of
achieving our target of 12% margins for the division in the medium term.
UK Bus
Our UK Bus transformation programme is on track, with overall like-for-like
passenger volume growth of 1.4% in the period, despite mixed local economic
conditions across our portfolio. Our volumes continue to be driven principally
by growth in commercial passenger volumes (up 2.8% on a like-for-like basis in
the period), responding to the work we have done to improve our commercial
proposition through selected fare rebasing, network redesigns and additional
investment in fleet and ticketing. As anticipated, we began to achieve positive
yield in the period with overall like-for-like passenger revenue increasing by
2.7%, with some of our local operations beginning to put through
inflation-based price increases, having reached the anniversary of our fare
changes in their area. The other key elements of our plans to restore
double-digit margins in UK Bus over the medium term - including more
disciplined operations, further fleet investment and mobile and smart ticketing
initiatives - have continued to progress. We are on track to deliver the cost
efficiencies targeted for the second half, and this, coupled with continued
passenger volume and price momentum, will result in margin progress for the
financial year as a whole.
We remain committed to maintaining strong partnerships with local authorities
throughout our markets, as experience of our existing partnerships demonstrates
that this model is the most responsive, efficient and cost-effective way to
achieve our shared aims of higher bus passenger volumes, investment in bus
fleets and increased use of smart and mobile ticketing, with competitive fare
levels. We and the industry continue to present the strong evidence for the
success of such partnerships when engaging with stakeholders on emerging policy
proposals which could impact the current structure of bus service provision.
UK Rail
Our rail businesses achieved like-for-like passenger revenue growth of 7.3% in
the period, underpinned by robust passenger volume growth. Overall financial
performance for the year to date is toward the top of our range of
expectations. We continue to work to minimise the disruption for our passengers
and keep them informed while supporting Network Rail and other industry
partners with the significant infrastructure and fleet upgrade programmes
taking place throughout our networks.
We are negotiating with the Department for Transport ("DfT") for a longer
direct award to at least March 2019 for First Great Western, our largest rail
franchise. We are shortlisted to bid for the next TransPennine Express
franchise, and are negotiating with the DfT to extend our current operation of
that route to February 2016. As previously announced, the DfT informed us that
we were not awarded the contract to operate the InterCity East Coast franchise
in the period. We continue to examine and assess the feedback from this and
previous rail bids to help shape our proposals in future competitions. We have
been, and will continue to be, disciplined in our approach to bidding for these
significant contracts. We remain focused on reaching our desired position in
the rail industry over time, which is to achieve earnings on a par with the
previous franchising cycle at an acceptable level of risk and return.
Financial position
As previously indicated, we expect a total cash outflow for the full year of
approximately £100m, which is principally due to the cash outflow of
approximately £70m associated with the end of the First Capital Connect
franchise.
A conference call for analysts and investors will be held at 9:00am today.
Please call +44 20 7725 3354 in advance of the call to register and receive
joining details.
Contacts at FirstGroup:
Group Corporate Communications, Tel: +44 20 7725 3354
Contacts at Brunswick PR:
Michael Harrison / Andrew Porter, Tel: +44 20 7404 5959
Notes
Unless otherwise stated, all financial figures refer to the three months ended
31 December 2014 (the "period"), with growth compared to the same period in
2013. In the descriptions of the performance and outlook of the US-based
divisions, no account is taken of the translation of the division's results
into sterling.
Figures presented in this announcement are not audited. Certain statements
included or incorporated by reference within this announcement may constitute
"forward looking statements" in respect of FirstGroup's operations,
performance, prospects and/or financial condition. Such statements are based on
FirstGroup's current expectations and beliefs concerning future events and are
subject to a number of known and unknown risks and uncertainties that could
cause actual events or results to differ materially from any expected future
events or results referred to in these forward looking statements. Such
statements are also based on numerous assumptions regarding FirstGroup's
present and future strategy and the environment in which it operates, which may
not be accurate. FirstGroup undertakes no obligation to update any forward
looking statements contained in this announcement or any other forward looking
statements it may make. Nothing in this announcement should be construed as a
profit forecast. Past performance cannot be relied upon as a guide to future
performance and persons needing advice should consult an independent financial
adviser.
FirstGroup plc (LSE: FGP.L) is the leading transport operator in the UK and
North America. With revenues of more than £6.7 billion and around 117,000
employees in 2013/14, we transported around 2.5 billion passengers last year.
Each of our five divisions is a leader in its field: First Student is the
largest provider of student transportation in North America with a fleet of
around 49,000 yellow school buses, First Transit is one of the largest
providers of outsourced transit management and contracting services in the US,
while Greyhound is the only national operator of scheduled intercity coach
services across North America. In the UK, FirstGroup is one of Britain's
largest bus operators running a fleet of some 6,400 buses, and we are one of
the largest operators of passenger rail services in the UK, carrying more than
330 million passengers last year, with experience of running all types of rail
network.
Our vision is to provide solutions for an increasingly congested world...
keeping people moving and communities prospering.
Visit our website at www.firstgroupplc.com