Annual Report 2014 and Notice of AGM
FIRSTGROUP PLC (THE COMPANY)
PUBLICATION ANNOUNCEMENT: ANNUAL REPORT 2014 AND NOTICE OF ANNUAL GENERAL MEETING
16 June 2014
In compliance with Listing Rule 9.6.1, the Company has today submitted a copy
of the following documents to the UK Listing Authority, which will shortly be
available for inspection via the National Storage Mechanism which can be viewed
at morningstar.co.uk/uk/NSM:
* Annual Report and Financial Statements 2014; and
* The Notice of Annual General Meeting of the Company which will be held at
The Marcliffe Hotel, North Deeside Road, Pitfodels, Aberdeen AB15 9YA at
11.00 am on Wednesday 16 July 2014.
In accordance with DTR 6.3.5(3) the Annual Report and Financial Statements 2014
and the Notice of Meeting will be available to view on the Company website:
www.firstgroupplc.com.
A condensed set of FirstGroup plc financial statements and information on
important events that have occurred during the year and their impact on the
financial statements were included in the Company's preliminary announcement on
21 May 2014. That information together with the information set out below which
is extracted from the Annual Report and Financial Statements 2014 constitute
the requirements of DTR 6.3.5 which is to be communicated via an RIS in
unedited full text. This announcement is not a substitute for reading the full
Annual Report and Financial Statements 2014. Page and note references in the
text below refer to page numbers in the Annual Report and Financial Statements
2014. To view the preliminary announcement, visit the Company website:
firstgroupplc.com.
Principal risks and uncertainties
The Group's principal risks are set out below. These risks have been assessed
taking into account their potential impact, the likelihood of occurrence and
any change to this compared to the prior year and the residual risk after the
implementation of controls. A description of each principal risk, its potential
impact on the Group, any movement in the risk during the year and risk
mitigation measures are provided. Each risk is linked to the relevant strategic
objectives, which are detailed on page 10.
The risks listed do not comprise all those highlighted by our risk management
processes or those that may otherwise affect the Group or any particular
division, nor are those that are listed set out in any order of priority.
Additional risks and uncertainties not presently known to us, or that we
currently believe to be less material, may also impact our business. Any
movement shown does not necessarily indicate a change in the overall net risk
associated with the particular issue during the current or future years after
mitigating factors and actions have been taken into account.
Further information on our risk management processes is contained in the
Directors' and corporate governance report on pages 59 and 60.
Risk Potential impact Movement during Mitigation
the year
Economic and political conditions
Economic Reduced demand Unchanged Some areas of the Group's
conditions, for public business offer a degree
political transportation. Economic of protection against
developments and recovery in the economic conditions in
changes in Reduced funding UK and North specific geographic
government policy for and spending America is markets.
affecting the by local and variable by
markets in which national state and Certain current rail
the Group operates, governments and region. franchises have revenue
whether at a other customers support and profit
global, regional or on public or sharing arrangements in
national level, student place. Some (but not all)
could have a transport. of the new franchises
negative impact on currently being let also
the Group's Changes to market contain a degree of
businesses and its structure or protection from
ability to grow dynamics macro-economic factors.
existing businesses resulting in lost
and retain or win business or loss To an extent, our UK Bus
new contracts. The of future operating companies are
same factors could opportunity. able to modify services
also affect our key in reaction to economic
suppliers. Inability to pass and political impacts.
on fully to
customers the Our Greyhound operations
impact of have flexibility to
increased costs. modify services in
response to reduced
Supplier failure, demand, particularly in
or the United States.
non-performance,
resulting in The Group monitors the
supply chain financial health of key
disruption. suppliers and identifies
alternatives to ensure
Group supply chain
resilience.
We regularly engage with
senior policy makers in
the UK and North America
to discuss the emerging
policy landscape in
respect of our core
business activities. We
do this directly and
indirectly through
industry organisations
and trade associations.
Attraction and retention of key management
Attracting and Inability to Unchanged The Group-wide succession
retaining key execute Group planning process and
members of senior strategy Whilst performance development
management is vital resulting in attraction and approach is designed to
in ensuring that reduced retention of identify talented
the Group continues profitability and key management individuals, set
to have the growth. may become more development goals for
necessary expertise challenging as progression to other
and continuity to the economy roles and to assess the
execute its recovers, our depth of talent and any
strategy. defined gaps throughout the
business plans, leadership of FirstGroup.
including The Group also offers
development market-based compensation
of more packages consisting of an
attractive appropriate mix of long
commercial and short term
propositions, incentives.
have enabled us
to attract and
retain
high-quality
management.
Rail refranchising
As discussed on Lower UK Rail Unchanged The Group has an
page 29, we are division experienced and dedicated
involved in a contribution and All of the rail bid team which will
number of rail profitability. Group's UK Rail continue to compete for
franchise franchises will franchises as they are
competitions. Incorrect bid expire between re-let.
Competition for new assumptions 2014 and 2016.
rail franchises is leading to Direct awards The Group also has a
expected to be greater than have been made comprehensive review
intense. We bid anticipated costs in the year to process for bids as they
against operators or losses. extend the are developed and
of current UK rail First Capital finalised involving a
franchises and rail Connect and number of divisional and
operators from First Great Group functions as well
other countries, Western rail as formal Board sign off.
principally from franchises.
within the European
Union.
Contracted businesses
The Group is Potential Unchanged Compliance with rail
required to comply termination of franchise conditions is
with certain the relevant rail Whilst First closely managed and
conditions as part franchise Transit's monitored on a monthly
of its UK Rail agreement and contract basis by senior
franchise possibly others retention rate management and procedures
agreements. if cross-default remained stable are in place to minimise
is invoked, during the the risk of
The Group's First resulting in loss year, First non-compliance.
Student and First of revenue and Student's
Transit businesses cash flow as well retention rate The relevant divisions
are contracted as some or all of was slightly have experienced and
businesses the amounts set reduced dedicated bid teams who
dependent on the aside as security reflecting our undertake careful
ability to renew for performance focus on economic modelling of
and secure new bonds and season improving contract bids and, where
contract wins on ticket bonds. contract possible, seek to
profitable terms. portfolio negotiate risk sharing
Loss of business, returns. arrangements with the
or failure to relevant customer or
renew, leading to contracting authority.
reduced revenue
and In First Student, as
profitability. described on pages 14 and
15, we have accelerated
Incorrect bid the contract portfolio
assumptions pricing programme to
leading to focus capital on higher
greater than returning opportunities.
anticipated costs
or losses.
Competitive pressures
All of the Group's Reduced passenger Unchanged The Group continues to
businesses compete numbers and focus on service quality
in the areas of revenues. No material and performance as
pricing and service change during priorities in making our
and face the year. services attractive to
competition from a passengers and other
number of sources. customers.
Our main In our contract
competitors include businesses, contract
the private car and compliance, a competitive
existing and new bidding strategy and a
public and student strong bidding team are
transport operators key.
across all our
markets. In addition, wherever
possible, the Group works
As mentioned on with local and national
page 29, bodies to promote
competition for UK measures aimed at
Rail franchises increasing demand for
remains intense public transport and the
including from a other services that we
number of other offer.
large public and
state-owned
entities active in
the market.
Treasury risks
As set out in Foreign currency Unchanged The Group's treasury
further detail in and interest rate policy and delegated
note 24 to the movements impact The rights authorities are reviewed
financial profit, balance issue announced periodically to ensure
statements on pages sheet and cash in May 2013 compliance with best
125 to 130, flows of the decreased the practice and to control
treasury risks Group. Group's and monitor these risks
include liquidity liquidity risk appropriately.
risks and risks Ineffective but its credit
arising from hedging rating remains The Group is continuously
changes to foreign arrangements may subject to the focused on improving
exchange rates and not fully methodology and operating and financial
interest rates. mitigate losses metrics adopted efficiency as part of our
or may increase by the credit strategic objectives as
The Group is credit them. ratings outlined on page 10.
rated by Standard & agencies.
Poor's and Fitch. A downgrade in
the Group's
credit ratings to
below investment
grade may lead to
increased
financing costs
and other
consequences and
affect the
Group's ability
to invest in its
operations.
Pensions
The Group sponsors Material changes Unchanged Through diversification
or participates in in the accounting of investments, hedging
a number of cost and cash No material of liabilities, amendment
significant defined contributions change during of the defined benefit
benefit pension required. the year. promises and the
schemes. introduction of defined
contribution for new
Future cash starts in UK Bus and
contribution Group, the Group has
requirements may reduced these risks.
increase or
decrease based upon Under the UK Rail
financial markets, franchise arrangements,
notably investment the Group's train
returns/valuations, operating companies are
the rates used to not responsible for any
value the residual deficit at the
liabilities and end of a franchise so
through changes to there is only short term
life expectancy. cash flow risk within a
particular franchise.
Fuel costs
Fuel is a High prices, Unchanged The Group regularly
significant increased enters into forward
component of the volatility of No material hedging contracts
Group's operating fuel prices or change during providing fixed fuel
costs. Fuel prices supply the year. prices. In addition, the
and supply levels restrictions, Group may limit the
can be influenced shortages or impact of unexpected fuel
significantly by interruptions price rises through
international, could adversely efficiency and pricing
political and impact the measures.
economic Group's
circumstances. operations, cash
flow and
profitability.
The Group may be
unable to pass
increased costs
on fully to
customers.
Ineffective
hedging
arrangements may
not fully
mitigate losses
or may increase
them.
Terrorism
The threat from Reduced public Unchanged We continue to develop
terrorism is confidence in and apply good practice,
enduring and public No material and train our employees
continues to exist transportation, change during so that they can identify
in the countries in and/or the year. and respond effectively
which we operate. specifically in to any potential threat
Public transport the Group's or incident.
has previously been security and
subject to attack safety record.
and it remains
important that we Reduced profits
take all reasonable resulting from
steps to help guard reduced demand
against such for our services,
activity on any of increased costs
the services we or security
operate. requirements and/
or business
disruption.
Information technology
The Group relies on Loss of revenue Up As a result of the
information and increased continuing threat of
technology in all operating costs Web and mobile cyber-attacks the Group
aspects of its due to increased sales channels has increased its
business. Any capital, are of dedicated IT security
significant security, fines, increasing resource which, in
disruption or penalties or importance conjunction with policies
failure, caused by insurance across many of and procedures and
external factors, requirements. our businesses. extensive security
denial of service, controls, is designed to
computer viruses Prolonged failure enhance the resilience
or human error of our sales and security of the
could result in a websites could Group's information
service adversely affect technology systems and
interruption, revenues. the data they contain.
accident or
misappropriation of Failure to manage The Group has
confidential properly strengthened its IT
information implementation of project management
(including credit new IT systems capability during the
card and personal may result in year.
data). Process increased costs
failure, security and/or lost
breach or other revenue.
operational
difficulties may
also lead to
revenue loss.
Successful delivery
and implementation
of the Greyhound IT
transformation plan
is required to
improve yield
management and
drive future
growth.
Customer service
The Group's Contracts not Unchanged Customer service is one
revenues are at renewed, revenue of our five core values
risk if it does not levels reduced or No overall (see page 6). The
continue to provide negative impact material change relevant employees
the level of on brand image. in the year undertake intensive
service expected by although, as training programmes to
customers. noted on page ensure that they are
27, UK Bus aware of, and abide by,
achieved an the levels of service
improvement in that are required by our
the annual customers in each
independent business.
Passenger Focus
survey. Ongoing engagement with
customers and community
stakeholders takes place
across the Group,
including through `meet
the manager' events,
customer panels,
consultations and local
partnerships.
The Board also monitors
customer service KPIs to
ensure that strict
targets are being met.
Legislation and regulation
Our businesses are Increased costs Unchanged The Group has embedded
subject to numerous of compliance operating policies and
laws and with existing or Our businesses procedures in all our
regulations changes in continue to businesses to ensure
covering a wide regulation or experience compliance with existing
range of matters legislation. changes in the legislation and
including health legislative and regulation.
and safety, Reduction in regulatory
equipment, operational environment. We have dedicated legal
employment flexibility or teams in the UK and North
(including working efficiency. America who oversee the
time, wage and hour Group's compliance and
and legislation Financial and training programmes and
covering mandatory reputational advise on emerging
breaks), impact of failure issues.
competition and to comply.
anti-trust, The Group closely
environmental, Negative impact monitors the impact of
insurance coverage on ability to bid changes in the regulatory
and other operating for future and legal environment and
issues. These laws business. actively engages with
and regulations are Government and transport
constantly subject bodies to help ensure
to change. that we are properly
positioned to respond to
any proposed changes.
Litigation and claims
The Group has three Increased costs, Up The Group has a very
main insurable reduced strong focus on safety
risks: third party availability of The claims and, as described on page
injury and other insurance cover, environment, 6, it is one of our five
claims arising from or reputational particularly in core values. The Group
vehicle and general impact. our North self-insures third party
operations, American and employee injury
employee injuries A large single businesses claims up to a certain
and property claim or a large remains a level commensurate with
damage. number of smaller challenge the historical risk
claims may despite our profile. It purchases
The Group is also negatively affect continued focus insurance above these
subject to other profitability and on safety. limits from reputable
litigation, cash flow. global insurance firms.
particularly in Claims are managed by
North America, experienced claims
which is not handlers.
insured, including
contractual claims Non-insured claims are
and those relating managed by the Group's
to employee wage dedicated in-house legal
and hour matters. team with external
assistance as
appropriate.
Employee costs and relations
Employee costs High employee Unchanged The Group seeks to
represent the turnover leading mitigate these risks by
largest component to higher than No material its recruitment and
of the Group's expected change during retention policies,
operating costs. increases in the the year. training schemes and
Labour shortages or cost of working practices.
decreasing recruitment,
unemployment rates training and our Our working practices
could hinder the employee costs. include building
Group's ability to communication and
recruit and retain Operational engagement with trade
qualified disruption and unions and the wider
employees. reduced cash flow workforce. Examples of
and profitability this engagement include
Our employees are from industrial regular leadership
key to service action. conferences, employee
delivery and surveys and the presence
therefore it is of Employee Directors
important that good (Directors voted for by
employee relations the employees to
are maintained. represent them) on many
of the Group's UK
divisional boards and the
Board.
Environmental
The Group's Environmental, Unchanged To mitigate these risks,
operations store reputational or the Group's storage
and manage large financial loss No material facilities are subject to
quantities of fuel resulting from change overall regular inspection and
at our maintenance remediation of during the we have detailed fuel
sites, which incidents, year. handling procedures which
presents a prosecutions and/ are regularly audited.
potential or penalties.
regulatory and Robust environmental
financial risk in Increased costs policies, strategies and
the event of of compliance due management systems are
significant loss or to regulatory maintained across the
spillage and are requirements. Group.
subject to ongoing
changes in The Group continues to
environmental target reductions in its
regulations. emissions, including
through behaviour change
Along with all initiatives and
businesses we face investment in new
the challenge of technology.
addressing climate
change, both
through managing
its impact and
reducing emissions.
Severe weather and natural disasters
Many of our Reduced profits Up The geographic spread of
operations are resulting from the Group's businesses
experiencing lower demand for This year, our offers some protection.
greater and more our services, North American In addition, some of our
frequent adverse increased costs, businesses contract based businesses
weather disruption business experienced have force majeure
leading to reduced disruption and unprecedented clauses in place. We have
or cancelled increased severe weather, severe weather action
services and accidents. affecting plans and procedures to
reduced customer operational and manage the impact on our
demand. financial operations.
performance.
Further information, FirstGroup plc:
Rachael Borthwick, Group Corporate Communications Director
Stuart Butchers, Group Media Relations Manager
Faisal Tabbah, Investor Relations Manager
Tel: +44 (0) 20 7725 3354
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