Interim Results - Part 1

FirstGroup PLC
7 November 2000

PART 1



                                FIRSTGROUP PLC



               RESULTS FOR THE SIX MONTHS TO 30 SEPTEMBER 2000



                      Summary of results for the period



*        Further strong growth in sales and operating profit

*        US operating profits 10% ahead of acquisition plan

*        Outperformance in UK rail operations - passenger volumes up 7.5%

*        UK bus volumes up by 0.5%

*        Encouraging growth in urban bus initiatives

*        Bristol airport disposal progressing well



*        Turnover £987m  up 30%

*        Group operating profit £94.2m* up 29%

*        Cash generation £138m**  up 37%

*        Adjusted basic earnings per share 11.2p

*        Net interim dividend per share    3.0p



* Before ESOP,goodwill, restructuring and other exceptional items

** Group operating profit before ESOP, goodwill and restructuring and other
exceptional costs, plus depreciation



Commenting, FirstGroup Chief Executive, Moir Lockhead said:

'This is another set of strong results for FirstGroup confirming our strategy
of focusing on our three core business areas.

Our US operations are performing ahead of the targets set at the time of the
acquisition and we are now seeing increased opportunities to grow these
businesses. In the UK, our rail division has delivered excellent results and
we are actively involved in the re-franchising process. In the UK Bus Division
the 0.5% underlying growth in passenger volumes confirms that, despite
operating within a mature market, we are able to grow the business in the key
urban areas in which we operate.

The Group's strong cashflow ensures we are well placed to continue our
strategy of enhancing shareholder value by growing our core businesses,
reducing debt and buying back equity as the opportunities arise.'



Enquiries:

FirstGroup plc

Moir Lockhead, Group Chief Executive  Tel: [phone]

Iain Lanaghan, Group Finance Director   Tel: [phone]

Michael Mitchell, Corporate Communications Director Tel: [phone]

Brunswick

Craig Breheny     Tel: [phone]


Chief Executive's statement



Results for the period



Overall Group trading in the six months to 30 September 2000 has continued to
be strong, with turnover of £986.6m (1999: £756.5m) and operating profit of £
94.2m (1999: £73.1m), up by 30% and 29% respectively. These results include a
full half year's results from FirstGroup America which was acquired in
September 1999, together with a strong performance from UK rail operations.
Profit before tax, restructuring, goodwill amortisation and profit on disposal
of New World First Holdings was £58.9m (1999: £55.0m) an increase of 7%
compared to the same period last year. Adjusted basic earnings per share were
11.2p per share (1999: 11.2p  per share). The flat earnings per share in the
period reflects the higher number of shares in issue following the rights
issue in August 1999 and the seasonality of earnings from the Group's US
business.   The board has declared an interim dividend of 3.0p per share
(1999: 2.7p per share) an increase of 11% over 1999.  This will be paid on 14
February 2001 to shareholders on the register on 19 January 2001.



Highlights



Safety remains our highest priority. As part of our on-going programme of
safety improvements, DuPont Safety Resources have now completed an audit of
our systems and are working with us to introduce appropriate measures to
strengthen the culture of safety at all levels throughout the organisation.
All directors and senior divisional managers have undergone a safety
management refresher programme. This programme is being extended to include a
further 200 managers across the Group.



During the half year the Group has continued to develop and integrate its US
school bus and transit businesses. The operating results are ahead of
expectations at the time of the acquisition in September 1999 and contracts to
operate  a further 620 school buses for the 2000/01 year have been won.
Operating margins have been enhanced and the transfer of systems from Ryder
Group has now been successfully completed on time and within budget.



In the UK the Rail Division has continued to perform very strongly with
excellent passenger growth in all three operating companies. Passenger volumes
increased by 7.5% overall.



UK bus volumes have shown underlying growth of 0.5%. These results are
encouraging and confirm that, despite operating within a mature market, we are
able to grow the business through initiatives in the key urban areas in which
we operate.



The sale of Bristol airport is progressing well and we are optimistic that a
conclusion will be reached by the end of the financial year.





Bus Division



Whilst for the six months to 30 September 2000 turnover increased to £392.7m
(1999: £367.2m), operating profit fell to £47.4m (1999: £50.8m), primarily due
to the cost of industrial action, which has now been settled, together with
wage increases and inflationary pressures that were not fully passed on
through the fare box. The Group has endeavoured to keep fare increases in line
with the general level of inflation during the period and is fully hedged
against fuel price increases until March 2001. Following the recent sharp rise
in world oil prices we are reviewing all options carefully in order that we
can maintain operating profit whilst minimising the impact on fares. However,
if costs in the key areas of drivers' wages and fuel continue to rise in the
future, such increases will be passed on through fares.



Underlying passenger volumes have increased by approximately 0.5% in the
period. The 'Overground', the Group's simplified route and fares structure,
was introduced in Glasgow in 1999 where we have seen a 5% growth in passenger
volumes. The Overground has been successfully extended to Bradford and
Sheffield in the period and will be introduced in Aberdeen and Leeds in the
second half of the year. The concept has also been refined for smaller route
networks and has been introduced as 'Metro' in Leicester. Metro will be
introduced in Southampton and York in the second half year. Initial results
from these new networks are very positive, and further Overground and Metro
networks will be introduced in our urban operating areas during 2001.



Capital investment in the bus division was £46.7m in the period which includes
£17m carried forward from last year. With the average fleet age now at eight
years, in line with the targets given to the industry in the Transport White
Paper, a lower level of investment will be required to maintain the fleet at
this age. This reduced level of capital investment will only be made in areas
where passenger growth can be delivered.



The Government's 10-year Transport Plan is encouraging for the Group's bus
division. Within this review £59 billion has been earmarked for local
transport, much of it associated with measures to relieve traffic congestion
and develop more effective urban bus networks. Details of specific schemes,
including an increase in bus priority measures, will be announced in December
when new, five year Local Transport Plans (LTPs) are finalised. We have worked
very closely with local authorities to develop their LTPs and, with a
predominantly urban network, the Group is uniquely placed to work at a local
level to deliver increased bus usage in line with Government transport policy.
In rural areas the Group continues to work with local authorities to identify
and introduce a range of different solutions to develop bus services often
using the Rural Bus Subsidy Grant.



During the half year the Group has developed innovative proposals to introduce
US style, yellow school bus networks to the UK. As the second largest operator
of school buses in the US and the largest bus operator in the UK, we are
ideally placed to deliver the concept. By encouraging children to travel to
school by bus, the proposals will help to reduce the traffic congestion and
associated accidents and environmental pollution caused by the 'school run'.
The scheme is very much in line with Government transport aims and has been
enthusiastically received by many Local Authorities. Proposals for a test area
are under discussion and it is hoped to have prototype vehicles operating in
early 2001. If the scheme is successful it would provide a substantial source
of new business for our bus division.





Rail Division



For the six months to 30 September 2000, rail revenues increased strongly.
Turnover increased to £365.3m (1999: £350.6m) and operating profit increased
to £26.9m (1999: £17.8). These excellent results reflect further growth in
passenger volumes, which increased by 7.5% overall, and tight control of costs
in the businesses. Passenger income increased by 9.0% in First Great Western,
7.3% in First Great Eastern, and 7.0% in First North Western.



Operating performance in our three train companies has been good. Both First
Great Eastern and First Great Western were top of their respective classes in
the shadow Strategic Rail Authority's (sSRA) second quarter performance
tables. Additionally, First Great Eastern was voted Best Commuter Rail
Operator of the Year in the recent Rail Industry Awards.



Train services on First Great Western and First Great Eastern were severely
disrupted by emergency engineering work carried out by Railtrack after the
derailment at Hatfield in October 2000 and by the severe weather conditions at
the end of the month. At this stage we believe that we will be able to recover
short term revenue losses caused by the disruption, but we are still assessing
the longer term impact of the disruption. However, previous experience
suggests a fairly swift recovery in passenger volumes after any disruption.



New class 175 trains are entering service on First North Western. Testing has
now commenced on the prototype class 180 train for First Great Western and
deliveries will commence in 2001. This new fleet, which is fully fitted with
Automatic Train Protection, will comprise the first new 125mph diesel trains
introduced in the UK for over 25 years. They will provide extra capacity on
routes to the South West and Wales.



In June 2000 the sSRA outlined its proposals for new and revised franchises
for Britain's passenger railways. Under  this reorganisation First North
Western will become part of three new rail franchises. The Group is therefore
in discussion with the sSRA about terms for the early surrender of this
franchise which runs to 2004. The sSRA has not yet invited formal submissions
for the renegotiation of the Group's two remaining franchises (First Great
Eastern and First Great Western). Proposals for the retention and extension of
these franchises for longer terms will be submitted in due course.



As part of the Group's objective of maintaining a balanced portfolio of
railway operations, we are forming joint ventures with NS (Dutch Railways) and
Via GTI (part of SNCF French Railways) to bid for a number of other new rail
franchises. We have been shortlisted with NS for the South West Trains
franchise and with Via GTI for the new Trans Pennine franchise. We have also
pre-qualified to bid for Thameslink 2000 with NS and we have expressed
interest in the new Wales and the Borders franchise. We believe that our
partners bring valuable additional expertise and resources in order to help us
win and operate these new franchises. The Group will only bid for new or
replacement franchises on terms that balance risk and opportunity and increase
shareholder value.



North America



In the six months to 30 September 2000 the performance of FirstGroup America
was strong. Both turnover at £201.8m and operating profit at £16.1m are ahead
of our expectations at the time of the acquisition. This has been achieved
concurrently with setting up all of the division's systems and staff functions
from scratch and is an excellent achievement by the US management team.



First Student sales in the current financial year are running 7% ahead of
pre-acquisition levels. At the commencement of the new school year in
September 2000, additional school bus contracts representing 6% of turnover
had been won by First Student for the school year 2000/01.  The largest of the
new contracts is based in Charleston South Carolina, an area in which First
Student was not previously represented. We are confident that we have the
resources in place and can continue to grow this business in all geographic
areas of the US.  We now believe that we can achieve growth rates well above
those assumed at the time of the acquisition. The division has improved its
margins reflecting our focus on increasing return on capital employed. In
total, First Student now has a fleet of approximately 11,500 school buses and
has daily custody of some 3/4 million students across 500 schools in 27
states.



In the first full year post acquisition,  contracts accounting for 40% of
First Transit's revenue came up for renewal. The Division has achieved
considerable success in retaining these contracts and improving margins,
without any overall loss of sales revenue. We now expect sales to grow at
least in line with the sector. First Transit was re-awarded the contract to
run bus services in Dallas, Texas.  This is one of the largest and most
prestigious transit contracts in the USA and First Transit have been appointed
to run it for the next five years with an option to extend for a further two
years. Another major success in the year was the renewal by the Los Angeles
Metropolitan Transit Authority of a contract to supply and operate 95 buses in
the region for 5 years with an option to extend for a further 3 years.  The
Dallas and Los Angeles contracts alone will generate revenues of $430 million
over their full lives. First Transit is currently bidding for a number of
other new contracts and we believe that there are excellent prospects for the
further expansion of this business.



First Vehicle Services, the smallest of our three divisions, is the leader in
the market for outsourced  public sector vehicle and equipment maintenance. We
anticipate substantial growth in this market over the next few years and
believe that the division will continue to grow strongly.



Both First Transit and First Vehicle Services require little investment in
fixed assets and therefore the return on capital employed is very attractive
as we are rewarded for our management skill and operational expertise.
Consequently, growth in these businesses is particularly value enhancing for
shareholders.



The reorganisation and strengthening of divisional management has continued
with a number of changes being made in all three divisions. Overall,
substantial reductions in the cost base have already been achieved through
improved management focus and operational control. Although labour and fuel
cost pressures continue to be a feature of trading in the US we are confident
that we have opportunities to  contain these cost pressures and that further
profit growth will be achieved ahead of expectations at the time of
acquisition.



Airport and other operations



Bristol International Airport continues to perform well with operating profit
increased by 25% to £8.9m (1999: £7.1m) and passenger volumes up by 10.7%.
There has been a substantial level of interest from potential purchasers of
the Group's 51% share in the airport, and it is anticipated that the sale will
be completed by the end of the financial year.



The full service for Croydon Tramlink has now commenced and the build up in
passenger volumes has been very encouraging, making it the busiest tramway in
the UK carrying 45,000 passengers per week. This flagship project gives the
Group a valuable shop window to demonstrate its ability to operate light rail
systems.



First Info, the Group's technology and e-commerce division has developed a
number of new projects including Smartcard sales for First Bradford, on-line
ticket sales for our rail companies and season ticket sales for our bus
division. We have also successfully bid for an extension to our contract to
operate a call centre for the National Rail Enquiry Service which deals with
ten million calls per year, and we are operating the Passenger Transport
Information Service South West zone call centre. We continue to develop a
number of other projects. The future prospects for this new business are
excellent as the move to technology led information systems gains momentum.



Outlook



The outlook for the Group remains very positive with excellent prospects for
growth across our operations, despite some specific cost pressures in certain
of our businesses and the recent disruption on the UK rail network. The
Group's strong cashflow ensures we are well placed to continue our strategy of
enhancing shareholder value by growing our core businesses, reducing debt and
buying back equity as the opportunities arise.





Moir Lockhead

Chief Executive

6 November 2000


Financial review



Overall



Turnover in the half year increased by £230.1m (30%).  Of this, £183.8m is
attributable to North America, where last year's results only included two
weeks' post-acquisition trading.  Operating profit before ESOP, goodwill and
exceptional costs was £94.2m, an increase of £21.1m over last year.  North
America was up by £13.4m and Rail by £9.1m.



Divisional results 

                                                                              
                                              6 months to                     
                                           30 September 2000                  
                               Turnover        Operating profit*   Operating  
                                                      £m            margin*   
                                  £m                                   %      
  UK Bus                               392.7                47.4         12.1 
  North America                        201.8                16.1          8.0 
  Rail                                 365.3                26.9          7.4 
  Bristol International                 23.5                 8.9         38.0 
  Airport                                                                     
  Other**                                3.3               (5.1)              
  Total                                986.6                94.2          9.5 
                                                                              
                                                 6 months to                  
                                              30 September 1999               
                                      Turnover        Operating    Operating  
                                                       profit*      margin*   
                                         £m               £m           %      
  UK Bus                                       367.2         50.8         13.8
  North America                                 18.0          2.7         15.0
  Rail                                         350.6         17.8          5.1
  Bristol International                         18.1          7.1         39.2
  Airport                                                                     
  Other**                                        2.6        (5.3)             
  Total                                       756.5         73.1          9.7 
 

                                                                              
                                                 Year to                      
                                              31 March 2000                   
                                Turnover      Operating profit*    Operating  
                                                      £m            margin*   
                                   £m                                  %      
  UK Bus                               744.3                111.4         15.0
  North America                        246.4                 34.5         14.0
  Rail                                 767.4                 46.2          6.0
  Bristol International                 31.3                  9.9         31.6
  Airport                                                                     
  Other**                                5.7               (11.1)             
  Total                             1,795.1                190.9         10.6 



* Before ESOP, goodwill and restructuring and other exceptional costs

** Tram operations, central management, Group information technology and other
items



Turnover in the UK Bus division increased by 6.9% overall, or 3.0% after
adjusting for an extra week's trading this year.  Passenger volumes rose 0.5%
on a comparable basis, after allowing for the extra week and the effects of
industrial action in Manchester.  Fuel purchases are fully hedged for the
current year, so there is no impact on the result from current high spot oil
prices.  Cost pressures, particularly on drivers' wages, combined with the
one-off impact of the industrial action and implementation costs of the
Overground networks led to reduced margins.  It is anticipated that additional
fare increases in the second half will help to close the gap on last year.  We
are currently exploring various possibilities for dealing with fuel costs in
the next financial year.  These include further fares increases and reducing
vehicle mileage.  Meanwhile the industry is lobbying for a reduction in fuel
duty.



The North American businesses performed ahead of expectations.  New contracts
for 620 school buses have led to 6% growth in First Student.  Margins have
improved through winning additional profitable contracts and improved
efficiency.  The school bus business is very seasonal, with much higher
margins in the second half of the year than in the first half, because of the
school holidays in the summer.



The Rail Division also performed ahead of expectations, returning an operating
profit of £26.9m, against £17.8m last year and despite a £10.2m reduction in
subsidies.  Net passenger volume growth was 7.7% at First Great Eastern, 7.6%
at First Great Western and 5.9% at First North Western.  During the second
half, we shall start to see an increase in costs as more new rolling stock
comes into service at First North Western.



Bristol International Airport continues to produce strong results, with
operating profits up 25% to £8.9m and passenger volumes up 10.7%.



Joint ventures and associates



Tramtrack Croydon Limited commenced operations of tram services in May 2000.
Included in the results is a £0.1m share of losses at Prepayment Cards
Limited.



In May, we sold our 26% interest in New World First Holdings to the other
shareholder, New World Development Company, for HK$457m (£38.7m).  This gave
rise to a pre-tax profit on disposal of £13.9m.



Restructuring and other exceptional costs



Exceptional costs of £3.0m were incurred in the half year. These include £2.0m
costs in respect of bringing new trains into service at First North Western,
being mainly duplicated costs for the replacement rolling stock and setting up
the new Chester depot.  The remaining £1.0m was incurred in respect of
restructuring in North America.



Interest



The net interest charge for the half year was £32.8m against £15.2m in the
same period last year, the rise principally reflecting the increase in net
debt arising from the US acquisitions last year.  The interest charge is
covered 4.2 times by cash generation.



Taxation



The taxation charge for the half year has been based on the estimated likely
effective rate for the full year by division.  The low effective rate of 18.2%
on profits before the Hong Kong disposal reflects the high level of investment
that has taken place in recent years, particularly in new buses.  In the US,
tax relief is also obtained for goodwill amortisation.  The total charge
includes £4.8m in respect of the New World First Holdings disposal gain.



Earnings per share



The adjusted basic earnings per share figure is 11.2p.  This is unchanged on
last year, because of the seasonality of the North American profits and the
increased number of shares in issue.



Cash flow and investment in the business



Cash generation (operating profit, before ESOP, goodwill and one off costs,
plus depreciation) rose from £100.8m to £138.0m.  Capital expenditure for the
period amounted to £96.5m.  This included £80.5m for new vehicles (£43.2m in
the UK and £37.3m in the US) with a further £25m committed for new vehicles in
the second half.  The UK Bus figures include £17m for vehicles outstanding
from the previous year.



Net debt



Net debt increased in the half year by £43.7m to £823.5m.  Capital expenditure
was much higher in the first half than is expected in the second half. This is
because of the £17m carried forward from last year in the UK, and because US
school bus purchases tend to be in the first half in preparation for the new
school year.  There were also working capital outflows which are expected to
reverse in the second half, plus a £15m increase in the sterling value of
dollar borrowings, the exchange rate having moved from £1:$1.60 to £1:$1.46.
£38.7m was received from the sale of our share of New World First Holdings, of
which £31.1m was used to repurchase shares.



Of the £15.3m deposits for First North Western rolling stock that were
outstanding at March 2000, £2.9m was received in the first half as the first
trains were accepted into service, and the balance of £12.4m is expected in
the second half.  It is expected that an operating lease agreement will also
be entered into during the second half in respect of the First Great Western
rolling stock, with similar financing arrangements.  The first repayments of
the £16.1m deposits on the First Great Western vehicles should be received
during the second half as the new trains start to be delivered and accepted
into service.



In line with the policy of reducing exposure to interest rate risk, over 70%
of the Group's net debt is on fixed terms. Borrowings included bank loans of
US$262m to hedge the net assets of the US businesses.


Analysis of net debt                          Fixed       Variable        Total
                                                 £m             £m           £m

Cash                                              -           30.1         30.1
Rail ring-fenced cash                             -           31.3         31.3
Rail season ticket bonded cash                    -           35.1         35.1
Sterling bank loans and overdrafts                -        (504.9)      (504.9)
US dollar bank loans                              -        (179.1)      (179.1)
HP and finance leases                       (153.8)         (45.7)      (199.5)
Loan notes                                    (9.6)         (26.9)       (36.5)
Interest rate swaps                         (445.9)          445.9            -

Total                                       (609.3)        (214.2)      (823.5)




Balance sheet and net assets



Net assets increased in the half year by £44m to £380m, mainly reflecting the
£30m retained profits and a £43m foreign exchange movement, less the £31m
share repurchase.  The US dollar borrowings broadly match the US dollar
denominated net assets excluding goodwill, and so the foreign exchange
movement principally arises from the impact on the US goodwill of the 9%
strengthening of the US dollar against sterling since March.



Shares in issue



During the first half, 12.7m shares (2.9% of the original share capital) were
repurchased and cancelled at a total cost of £31.1m.  This leaves 420.8m in
issue.  For the purpose of the earnings per share calculation (excluding own
shares held), the average number of shares in issue during the first half was
424.1m.  Since the half year end, 2.5m SAYE options have matured and been
exercised.  If there are no other movements in the second half, the average
number of shares in issue will be 422.2m for the full year.



Dividend



The interim dividend is 3.0p per ordinary share against 2.7p last year, an
increase of 11%, and it is covered 3.3 times.



Foreign Exchange



The profits from North America have been translated at an average rate of £1:
$1.50, while the period end exchange rate was £1:$1.46, which compares with £
1:$1.64 at 30 September 1999 and £1:$1.60 at 31 March 2000.



Accounting Standards



There have been no new accounting standards to implement in the current
financial year.







Iain Lanaghan

Group Finance Director

6 November 2000


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