Trading Statement

                                                                                                                                                                                  Tuesday 14 July 2015

FIRSTGROUP PLC

FIRST QUARTER 2015/16 TRADING UPDATE

FirstGroup plc (the 'Group'), the leading transport operator in the UK and North America, reports the following update on trading since the start of our 2015/16 financial year (the 'current year') on 1 April 2015.

Summary

Overall trading for the Group is in line with management's expectations, and our transformation plans continue to progress:

• First Student: second year of contract pricing strategy progressing as planned
• First Transit: further contract wins offset by reduced Canadian oil sands activity, as expected
• Greyhound: flexible cost base helping to mitigate demand challenges from cheaper fuel; yield management project on track
• UK Bus: continued commercial passenger revenue growth moderated by concessionary revenues; advancing cost efficiency plans
• UK Rail: strong passenger revenue growth maintained

Commenting, Chief Executive Tim O'Toole said:

"Overall trading for the Group during the first quarter was in line with our expectations and we remain focused on delivering further progress from our transformation plans. With three quarters of the current bid season concluded, First Student continues to achieve slightly higher average price increases than the prior year. UK Bus delivered further growth with concessionary revenues moderating continued commercial passenger revenue growth, and we continue to take action to improve our cost efficiency on a market-by-market basis. We anticipate strong progress for the current year in our non-rail businesses, mainly from the First Student and UK Bus turnarounds, to largely offset the reduced size of our UK Rail franchise portfolio compared with the prior year. We are on track to meet our financial objectives through our multi-year transformation plans, and thereby return to a position of sustainable strong cash flow and value creation."

First Student

The second year of our contract portfolio pricing strategy continues to make good progress. With approximately three quarters of negotiations completed in the current bid season, we are achieving average price increases of over 5% and our contract retention rate is over 80%. Recovery of operating days lost to severe weather in the prior year was in line with our expectations, and we continue to deliver cost efficiencies. In the current year we expect to make further progress towards our medium term double digit margin target, despite an adverse impact of approximately $17m to operating profit as a result of fewer operating days compared with the prior year (which will reverse in the following year).

First Transit

First Transit delivered a solid financial performance in the first quarter, with contract retentions and new business wins in all key segments. As previously indicated, lower oil prices have reduced demand for our shuttle services in the Canadian oil sands region, and in consequence we expect overall growth in the division for the current year to be challenging. However, we continue to harness our management experience and bidding expertise to develop opportunities in existing and new markets, and in the medium term are confident of achieving further growth at margins of approximately 7%, with relatively modest capital investment.

Greyhound

As expected, Greyhound continued to experience the adverse effect on passenger demand of the sharply lower fuel prices since October/November 2014, and we are actively managing our cost base to mitigate the impact. Like-for-like revenue decreased by 5.7% in the first quarter, and we expect year-on-year growth to remain challenging throughout the first half of the current year. Greyhound Express remained more resilient, with like-for-like revenues decreasing by 2.1% in the first quarter. In the second half we expect Greyhound's financial performance to improve. Our real-time pricing and yield management systems are on track to be operational from the middle of this financial year. On 15 July Greyhound will launch domestic services in Mexico, connecting new terminals in Monterrey and Nuevo Laredo and becoming the first US-based intercity bus company to operate both international and domestic services in the country.

UK Bus

In the first quarter, UK Bus like-for-like revenue increased by 1.4%, with commercial passenger revenue continuing to grow at more than 2%, partially offset by a decrease in concessionary revenue. As part of our transformation programme, we continue to make changes to our local commercial proposition to stimulate growth. For example, in the first quarter we launched a rebranded service in Leeds with more frequent services, and will shortly be rolling out multi-operator smart ticketing in Leicester and Bristol. We are investing to improve our services, recently ordering 385 'low carbon certified' buses worth £77.7m for delivery in the current year, and upgrading our driver training programme. We continue to promote and build strong partnerships with the local authorities in our markets, some of whom may have further powers over transport and other decision-making devolved to them, as highlighted in the recent Budget. The other key element of our transformation is cost efficiency, where our actions are tailored to local market conditions in the light of the progress each part of our business has made through our turnaround plan. As part of this ongoing process we are making a number of changes to our depot portfolio, which will accelerate achievement of our medium term target of double digit margins. We expect to make further progress during the current year towards our target after absorbing approximately £7m of one-time costs associated with these actions.

UK Rail

In the first quarter, our UK Rail division delivered strong like-for-like passenger revenue growth of 6.3%, underpinned by robust volume growth. UK Rail's contribution to Group earnings will however be substantially lower in the first half and for the current year, following the end of the First Capital Connect and First ScotRail franchises. In the recent National Rail Passenger Survey, all our rail businesses improved their customer satisfaction ratings, during a period when the industry average satisfaction score fell.

We note the recent update to the Department for Transport's rail franchise timetable, with the South Western franchise competition being brought forward to 2016 from 2018, and short delays to other upcoming competitions. The winner of the TransPennine Express competition (for which we are shortlisted) will now be announced in December 2015, with the franchise starting in April 2016. In the first quarter we were shortlisted for the East Anglia franchise competition, for which the winner is due to be announced in June 2016, ahead of the franchise start in October.

In a recent statement to Parliament, the Secretary of State for Transport announced several changes to the governance of Network Rail and launched a review of its infrastructure investment programme, which is due to report in the Autumn. We remain ready to do all we can to work with Network Rail, the Department for Transport and our other industry partners to ensure that the Great Western mainline and other important infrastructure upgrade projects move forward as quickly and efficiently as possible, in order to deliver further service improvements for our passengers.

Financial position

On 12 June 2015, credit rating agency Standard & Poor’s upgraded their outlook to 'stable' from 'negative' and affirmed their 'BBB-/A-3' corporate credit ratings on the Group, citing strengthened credit measures thanks to the turnaround plan.

As in previous years, the Group’s results in the current year will be significantly weighted to the second half due to the timing of school summer holidays on First Student's business compared with our financial year. This effect will be magnified by the reduced contribution from UK Rail in the first half compared with the prior year, following the end of the First Capital Connect and First ScotRail franchises.

As previously indicated, we expect net cash flow for the current year to be broadly flat before the UK Rail end of franchise outflows of approximately £30m.

Contacts at FirstGroup:

Faisal Tabbah, Group Investor Relations Manager
Stuart Butchers, Group Head of Media
Tel: [phone]

Contacts at Brunswick PR:

Michael Harrison/Andrew Porter
Tel: [phone]

Notes

Unless otherwise stated, all financial figures refer to the three month period ended 30 June 2015 (the 'first quarter'), with growth compared to the same period in the prior year. 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' with respect to the business, strategy and plans of the Group and our current goals, assumptions and expectations relating to our future financial condition, performance and results. By their nature, forward-looking statements involve known and unknown risks, assumptions, uncertainties and other factors which may cause actual results, performance or achievements of the Group to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Shareholders are cautioned not to place undue reliance on the forward-looking statements. Except as required by the UK Listing Rules and applicable law, the Group does not undertake any obligation to update or change any forward-looking statements to reflect events occurring after the date of this announcement. 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 approximately £6 billion in revenues and around 110,000 employees, we transported around 2.4 billion passengers last year. Each of our five divisions is a leader in its field: In North America, First Student is the largest provider of student transportation 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, while Greyhound is the only nationwide operator of scheduled intercity coach services. In the UK, FirstGroup is one of Britain's largest bus operators running a fleet of some 6,300 buses, and we are one of the country's most experienced passenger rail operators, carrying around 280 million passengers last year.

Our vision is to provide solutions for an increasingly congested world... keeping people moving and communities prospering.

Visit our website at www.firstgroupplc.com