Trading Statement
Wednesday 8 October 2014
FIRSTGROUP PLC
FIRST HALF 2014/15 PRE-CLOSE TRADING UPDATE
FirstGroup plc ("FirstGroup" or "the Group"), the leading transport operator in
the UK and North America, reports the following trading update for the six
months to 30 September 2014 (the "period" or the "first half"), ahead of our
half-yearly results due to be announced on Wednesday 5 November 2014.
Summary
Trading for the first half was in line with management's expectations and we
continue to make progress with our bus transformation plans:
* First Student: encouraging results from our contract portfolio pricing
strategy during the 2014/15 bid season
* First Transit: delivering good financial performance with modest capital
requirements
* Greyhound: revenue growth continued despite the ongoing economic challenges
faced by our core customers
* UK Bus: revenue growth and margin improvement on track, underpinned by our
actions to increase passenger volumes
* UK Rail: robust passenger revenue growth and strong operating performance
Commenting, Chief Executive Tim O'Toole said:
"Trading during the first half has been in line with our expectations for the
Group and we continue to make progress with our transformation plans. We were
encouraged that the early pricing improvements on our First Student contract
portfolio were maintained through the whole bid season, with contract retention
towards the top of our expectations. The slow pace of economic recovery for our
core Greyhound customers, and in some of our local UK Bus markets, is balanced
by the contract pricing and cost reduction progress made in First Student and
good performances in First Transit and our UK Rail operations. As usual, the
second half of our financial year will make a larger contribution to full year
profits than the first half, principally due to the seasonal nature of First
Student's business. Despite the variable trading conditions across our markets,
we are confident that our financial performance will continue to improve during
the second half and for the full year, and that the multi-year plans we are
executing across the Group will return us to a profile of sustainable cash
generation and value creation in the medium term."
First Student
We continue to execute our plans to address contract portfolio pricing, focus
capital on higher returning opportunities and drive further cost efficiencies
throughout the business. During the recently completed bid season for the 2014/
15 school year, we progressed our plans to achieve an appropriate level of
return on capital on our contract portfolio, achieving average price increases
of approximately 4.5% on the business up for bid this year (approximately one
third of the division's overall bus portfolio). Our retention rate of 90% on
contracts up for bid was at the upper end of our expectations, and this -
together with new business outsourced for the first time, share shift from our
competitors, a small bolt-on acquisition and modest organic growth on existing
contracts - means we are confident that revenues for the 2014/15 financial year
will be around the top end of our planning range. As previously indicated,
First Student's operating results in the current financial year will be more
heavily weighted than usual to the second half, with fewer operating days in
the first half than the prior year due to the timing of the Easter school
vacation. As a result, US Dollar revenue for the first half is expected to be
approximately 1.6% lower than the same period in 2013.
In the period we drove further cost efficiencies across the business,
principally through continuing to drive best practice procedures across all
cost categories. Notwithstanding the ongoing headwind of cost inflation running
slightly ahead of price indexation on our older multi-year contracts, we are
making progress towards our medium term target of double digit margins for
First Student. We continue to expect to achieve an operating margin in excess
of 7.5% for the current financial year.
First Transit
In First Transit our bidding expertise and operational excellence continued to
deliver good margin business with relatively modest capital investment. US
dollar revenues are expected to increase by 9.0% for the first half reflecting
a number of contract start-ups with major awards in Palm Beach County, Florida;
Denver, Colorado and Austin, Texas during the period. However we expect the
rate of growth to moderate in the second half of the financial year with fewer
start-ups and a number of larger contracts rolling off. For the year as a whole
we expect to achieve margins in line with our medium term target of around 7%
and revenue growth of approximately 4%.
Greyhound
Despite the headline growth in the US economy, Greyhound's core customers are
still not seeing that improvement reflected in their disposable incomes. As a
consequence, Greyhound's expected like-for-like US dollar revenue growth of
2.7% for the first half was at the low end of our range of expectations. We
continue to flex our cost base to respond to demand trends, and we expect some
margin improvement year on year. In the period, we made further progress with
our programme to improve Greyhound's tools for stimulating demand and managing
yields, which will reduce its dependence on the economic cycle and increase
margins toward our 12% target over the medium term. Through further investments
in IT infrastructure, mobile sites, and consumer and driver apps, our plans to
roll out and support airline-style yield management and the latest
consumer-facing sales, marketing and loyalty programmes throughout Greyhound
are on track. Greyhound Express continued both to grow volumes on existing
routes and to develop new routes profitably, with like-for-like revenue growth
(excluding new routes) of 5.8% expected for the first half.
UK Bus
Our UK Bus transformation programme continues to progress in line with our
expectations. Both like-for-like passenger revenue and passenger volumes are
expected to increase by 2.1% in the first half, with mixed local economic
conditions across our portfolio in the period. Our programme of major network
redesigns and selected fare rebasing throughout the business has now been
completed, and our more locally-based management structure is now fully in
place to ensure that our commercial proposition is more agile and responsive to
the challenges and opportunities arising from the changing needs of our local
communities.
Our other key initiatives - including more disciplined operations, further cost
efficiencies, mobile ticketing and fleet investments - are also on track as we
work through our plans to restore double digit margins in UK Bus by 2017. We
continue to expect underlying increases in revenue and improvements in
operating margin in both the first and second half of 2014/15 compared with the
prior year, with progress weighted to the second half as revenues begin to
benefit from improving yields, and restructuring costs associated with the
transformation plan in the first half do not recur.
UK Rail
Our rail businesses delivered further robust passenger volume growth in the
first half, with like-for-like passenger revenue expected to increase by 6.5%.
Overall financial performance was toward the top of our range of expectations.
Our First Capital Connect franchise came to an end shortly before the end of
the first half, while First Great Western was back to normal commercial terms
under the current direct award.
In a separate announcement today we noted that Transport Scotland have informed
us that we have not been awarded the contract to operate the new ScotRail
franchise, beyond the current term ending on 1 April 2015. This does not alter
the Group's stated medium term targets. As one of the most experienced rail
operators we are actively participating in a range of rail franchise
competitions with the objective of achieving earnings on a par with the last
round of franchising, at an acceptable level of risk. We are also in
negotiations with the Department for Transport ('DfT') to operate the First
TransPennine Express franchise until February 2016, and remain in discussions
with DfT in respect of a potential longer direct award for our largest
franchise First Great Western, during the period when the substantial programme
of infrastructure upgrades will take place on the network.
Financial position
We are improving the financial performance of our businesses through our
investment and turnaround programmes, which will generate increased sustainable
cash flows in the medium term. As previously indicated, we expect a total cash
outflow for the full year of approximately £100m, which is principally due to
the cash outflow in the second half 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:
Rachael Borthwick, Group Corporate Communications Director
Faisal Tabbah, Group Investor Relations Manager
Stuart Butchers, Group Head of Media
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 six month period
ended 30 September 2014 (the `period' or `the first half'), with growth
compared to the same period in 2013. No account is taken of foreign exchange
translation effects in the description of divisional performance and outlook.
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