FirstGroup plc Half-yearly results for the six months to 30 - - PowerPoint PPT Presentation

FirstGroup plc Half-yearly results

for the six months to 30 September 2014 Wednesday 5 November 2014

Tim O’Toole Chief Executive

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• Trading for the Group in line with our expectations

– Encouraging progress with First Student turnaround – Good performances in First Transit and UK Rail – Core Greyhound customers and some local UK Bus markets not seeing benefit from improving macroeconomic trends

• Results more weighted to H2 than usual this year
• Negotiating FGW and FTPE direct awards with DfT
• Multi-year transformation programme on track; confident our plans will

deliver sustainable improvements in shareholder value

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Overview

Chris Surch Group Finance Director Financial review

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• Adjusted operating profit £103.6m up 2.4%
• Adjusted EPS 1.8p up 63.6%
• Net cash outflow of £91.0m (H1 2013: £103.0m outflow)

– Expect full year outflow to be approx. £100m

• Underlying capital investment £222m (ex-UK Rail)
• Net debt to EBITDA: 2.5x due to seasonal swings (FY 2014: 2.2x)
• ROCE 7.8% (H1 2013: 7.9%)

Key highlights

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Sep 2014 Sep 2013 restated1 Change Revenue £2,941.1m £3,300.7m (10.9)% Adjusted2

• EBITDA3

£253.3m £260.5m (2.8)%

• Operating profit

£103.6m £101.2m +2.4%

• Margin %

3.5% 3.1% +0.4pp

• Interest

£(70.3)m £(81.6)m (13.8)%

• Profit before tax

£33.3m £19.6m +69.9%

• Attributable profit

£21.6m £10.3m +109.7%

• EPS4

1.8p 1.1p +63.6%

1. Restated for the reclassification of UK Rail bid costs and property profits or losses 2. Before amortisation charges, ineffectiveness on financial derivatives and certain other items 3. Adjusted operating profit less capital grant amortisation plus depreciation 4. Change in EPS is less than for profit attributable to ordinary shareholders due to the increased weighted average number of shares in issue following the rights issue completed in H1 2013

Financial summary

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Group revenue bridge

£m Revenue Change H1 2013 3,300.7 (10.9)% UK Rail revenue support (192.7) UK Rail reduction in First ScotRail subsidy (98.2) UK Bus operations sold or closed in prior period (56.0) Foreign exchange (122.4) H1 2013 comparator 2,831.4 +3.9% Growth / other 109.7 H1 2014 2,941.1

Revenue (£m) Operating Profit1 (£m) Operating Margin1 (%) Sep 14 Sep 13 Sep 14 Sep 132 Sep 14 Sep 132 Student 605.7 666.4 4.5 10.4 0.7% 1.6% Transit 410.2 408.7 29.5 31.4 7.2% 7.7% Greyhound 314.0 333.7 29.9 32.1 9.5% 9.6% UK Bus 449.2 490.7 16.9 15.9 3.8% 3.2% UK Rail 1,155.6 1,395.2 40.0 25.8 3.5% 1.8% Group items 6.4 6.0 (17.2) (14.4) Total 2,941.1 3,300.7 103.6 101.2 3.5% 3.1%

Divisional performance

1. Before amortisation charges, ineffectiveness on financial derivatives and certain other items 2. Restated for the reclassification of UK Rail bid costs and property profits or losses

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Sep 14 £m Sep 13 £m Amortisation charges (25.8) (25.9) Gain on disposal of property 26.1

• Legal claims

(12.2)

• IT licences

(8.7)

• UK Bus depot sales and closures

(2.4) 15.3 Ineffectiveness on financial derivatives

• (17.0)

Other (0.4)

• Other non-GAAP adjusting items

2.4 (1.7) Total non-GAAP adjustments (23.4) (27.6)

Non-trading items

• Gain on disposal of property was realised on sale of Greyhound garage in Miami.

£31.6m cash proceeds of this disposal were received during the period

• Legal claims charge relates to two separate claims that pre-date the Laidlaw acquisition
• IT licences have been written off as the related project objectives will now be achieved

through a less costly and more appropriate alternative

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£253.3m (£268.5m) £43.9m (£15.2m) (£12.4m) (£7.5m) (£84.6m) (£91.0m)

• EBITDA

Capital expenditure Property disposal proceeds Pensions Provisions Working capital / other Interest and tax Net cash flow

Net cash flow

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• Full year net cash outflow is expected to be approximately £100m including £70m outflow

for FCC in H2

• Strong liquidity and stable financing platform to drive forward transformation

– Long term facilities in place – next refinancing 2019 – Average debt maturity 5.7 years (2013: 6.5 years) – Liquidity – headroom under committed facilities plus free cash: £943m (2013: £1,003m) – Mid-year net debt: EBITDA ratio 2.5x (FY 2014: 2.2x)

Financial position

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£0m £100m £200m £300m £400m £500m FY 14/15 H1 15/16 FY 15/16 H1 16/17 FY 16/17 H1 17/18 FY 17/18 H1 18/19 FY 18/19 H1 19/20 FY 19/20 H1 20/21 FY 20/21 H1 21/22 FY 21/22 H1 22/23 FY 22/23 H1 23/24 FY 23/24 H1 24/25 Lease finance Drawings under £800m RCF at 30 Sept 14 Private placement notes £200m bond 2024 £325m bond 2022 £350m bond 2021 £250m bond 2019 £300m bond 2018

Tim O’Toole Chief Executive Business review

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• Successful contract portfolio pricing programme this year

– Average price increases of c.4.5% on contracts up for re-bid this season (approx. one-third of bus fleet) – timing of school year means benefit will be seen in H2 – 90% contract retention – customer recognition of our overall value proposition

• Reduced proportion of low margin contracts from 36% to c.28% this year –

multi-year programme to build on this improvement

• Cost growth still running slightly ahead of inflation; on track to deliver
• approx. $20m this year of the $50m cost savings programme

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First Student

• Outsourcing and demographic trends continue to create opportunities to

grow our diverse contract portfolio, with modest capital requirements

• Growth profile this year driven by timing of available opportunities and two

larger contracts rolling off in H2 – Profitable contract wins continued; several start up towards end of current financial year – H1 revenue growth of 9.0% expected to moderate to c.4% for full year

• Expect to maintain margin of c.7% this year, in line with medium term

target

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First Transit

• Greyhound Express delivered profitable like-for-like growth of 5.8%
• Core Greyhound customers not yet benefiting from improving economy
• Programme underway to equip traditional Greyhound with the tools to

reduce dependence on the macroeconomic cycle – Good progress with technology rollout in the period – Improved CRM capability (web, mobile, loyalty) – Key systems upgrades for real-time pricing and yield management in place over next 12 months

• Continue to utilise more flexible cost model to protect margin

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Greyhound

Source: University of Michigan Consumer Survey: Index of consumer sentiment within income terciles (three month moving averages)

US consumer sentiment by income band

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45 55 65 75 85 95 105 2008 2009 2010 2011 2012 2013 2014 Index value Bottom third Middle third Top third

Change over last twelve months: Top third: 11.4% up Middle third: 2.4% up Bottom third: 0.6% up

• Actions taken with fares, networks and local partnerships are delivering good

volume growth – 2.1% LFL volume growth in H1; principally commercial passengers – Pace of economic recovery continues to vary across our local markets

• 2.1% LFL revenue growth – no net price inflation across portfolio in H1

– Will begin to benefit in H2 from disciplined price increases to cover cost inflation, in line with peers – mainly from December/January

• Continued disciplined operations programme – £6m of savings in H1

– Targeting double the amount in further efficiencies in H2

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UK Bus

• Robust revenue and passenger volume growth coupled with strong
• perating performance
• Negotiating with DfT for First Great Western direct award to at least

March 2019

• Shortlisted for TransPennine Express from February 2016; negotiating direct

award up to that time

• Submitted InterCity East Coast bid in June 2014; result expected shortly
• Franchise competitions: remain ambitious but disciplined in bidding, in order

to secure business at acceptable economic levels

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UK Rail

• Trading in the period in line with our expectations
• Results more weighted to H2 than usual this year
• Strong liquidity and stable financing platform to progress transformation
• Focused on achieving our medium term financial targets
• Confident our plans will deliver sustainable improvements in

shareholder value

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Summary

FirstGroup plc Half-yearly results

for the six months to 30 September 2014

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Appendices

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First Student

Sep 14 $m Sep 131 $m Change Revenue 1,013.1 1,029.7 (1.6)% Operating profit 6.0 17.3 (65.3)% Margin % 0.6% 1.7% (1.1)pp $m Revenue Operating profit Sep 131 1,029.7 17.3 Net growth / op days / other (20.4) (16.0) Exit of loss making contracts (21.6)

• Inflation

18.7 (7.0) Mgmt initiatives 5.0 6.1 Weather 11.8 6.2 CAN$ fx (10.1) (0.6) Sep 14 1,013.1 6.0

1. Restated for the reclassification of property profits or losses

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First Transit

Sep 14 $m Sep 13 $m Change Revenue 687.7 630.8 9.0% Operating profit 49.3 48.6 1.4% Margin % 7.2% 7.7% (0.5)pp $m Revenue Operating Profit Sep 13 630.8 48.6 Net growth 64.1 2.5 CAN$ fx / Other (7.2) (1.8) Sep 14 687.7 49.3

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Greyhound

Sep 14 $m Sep 131 $m Change Revenue 527.0 514.7 2.4% Operating profit 50.3 49.6 1.4% Margin % 9.5% 9.6% (0.1)pp $m Revenue Operating profit Sep 131 514.7 49.6 Passenger revenue 18.0 18.0 Product improvement

• (5.3)

Increased marketing

• (2.8)

Inflation / other

• (9.5)

CAN$ fx (5.7) 0.3 Sep 14 527.0 50.3

1. Restated for the reclassification of property profits or losses

UK Bus

£m Revenue Operating profit Sep 131 490.7 15.9 Depot closures and sales (56.0)

• Sep 13 adjusted

434.7 15.9 Revenue growth 14.5 8.8 Cost inflation / other

• (11.8)

Cost efficiencies

• 5.8

Restructuring

• (1.8)

Sep 14 449.2 16.9 Sep 14 £m Sep 131 £m Change Revenue 449.2 490.7 (8.5)% Operating profit 16.9 15.9 6.3% Margin % 3.8% 3.2% 0.6pp

1. Restated for the reclassification of property profits or losses

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UK Rail

Sep 14 £m Sep 131 £m Change Revenue 1,155.6 1,395.2 (17.2)% Operating profit 40.0 25.8 55.0% Margin % 3.5% 1.8% 1.7pp

1. Restated for the reclassification of UK Rail bid costs

Sep 14 £m Sep 131 £m Change Revenue 2,941.1 3,300.7 (10.9)% EBITDA 2 253.3 260.5 (2.8)% EBITDA % 8.6% 7.9% 0.7pp Operating Profit 3 103.6 101.2 2.4% Margin % 3.5% 3.1% 0.4pp Interest (70.3) (81.6) (13.8)% Profit before tax 3 33.3 19.6 69.9% Non-GAAP adjustments (23.4) (27.6) (15.2)% Profit/(loss) before tax 9.9 (8.0) n/m Tax (2.4) 11.8 n/m Profit after tax 7.5 3.8 97.4% Basic EPS 0.3p (0.1)p n/m Adjusted EPS 1.8p 1.1p 63.6%

1. Restated for the reclassification of UK Rail bid costs and property profits or losses 2. Adjusted operating profit less capital grant amortisation plus depreciation 3. Before amortisation charges, ineffectiveness on financial derivatives and certain other items

Financial results

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Cash Fixed Asset Additions Sep 14 £m Sep 13 £m Sep 14 £m Sep 13 £m First Student 128.5 96.5 106.5 96.4 First Transit 15.7 8.1 15.3 8.0 Greyhound 35.8 32.6 35.8 32.6 UK Bus 41.1 35.6 63.2 61.0 UK Rail 35.2 21.1 33.5 20.4 Group items 1.2 0.8 1.2 0.8 Total 257.5 194.7 255.5 219.2 Cash 257.5 156.3 255.5 180.8 New finance leases

• 38.4
• 38.4

Total capital expenditure 257.5 194.7 255.5 219.2

Capital expenditure

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Deficit Cash contribution P&L charge1 £m Sep 2014 Mar 2014 Sep 2013 Sep 2014 Mar 2014 Sep 2013 Sep 2014 Mar 2014 Sep 2013 North America (154.7) (152.4) (152.0) 14.4 20.0 21.5 3.5 6.9 3.7 UK Bus2 (129.2) (94.2) (45.3) 29.7 53.6 25.4 17.0 30.4 15.5 UK Rail (7.4) (14.1) (7.9) 22.9 48.3 28.6 31.3 56.9 24.5 Total (291.3) (260.7) (205.2) 67.0 121.9 75.5 51.8 94.2 43.7

• Group deficit increased by £30m principally due changes in actuarial assumptions, in particular

significantly lower discount rates partly offset lower inflation rates and better than expected returns on assets

1. Service costs excluding interest 2. September 2014 P&L charge includes £4.1m of defined contribution arrangements

Pensions

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Diesel hedge position

UK North America 2014/15 2015/16 2016/17 2014/15 2015/16 2016/17 Annual volume (barrels’m) 2.2 1.4 1.1 1.5 1.5 1.5 % hedged 93% 90% 34% 78% 67% 27% Crude rate ($/barrel) $101.21 $98.03 $97.30 $89.93 $87.20 $86.11 Diesel rate ($/barrel) $122.41 $117.24 $114.24 $118.63 $115.59 $112.60 Equivalent cost per litre 48.1p 46.1p 44.9p US 74.6c US 72.7c US 70.8c UK Bus UK Rail Student Transit Greyhound Total Annual volume (barrels’m) 1.1 1.1 0.7 0.1 0.7 3.7

• Prices include crude and refining cost but exclude delivery margins, duty, taxes and BSOG
• Equivalent cost per litre assumes a constant FX rate of $1.60 : £1:00
• North America annual volume excludes c.1.9m barrels provided by customer or protected by contract escalator
• The decrease in expected annual volume consumption in 2015/16 reflects the contractual end dates of UK Rail franchises.

FGW included to September 2015

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Sep 14 £m Sep 13 £m Bonds 43.0 45.6 Bank borrowings 7.9 13.3 Loan notes 0.5 0.5 Senior unsecured loan notes 2.0 2.0 Finance lease interest 5.5 7.3 Notional interest on long term provisions 7.4 10.0 Notional interest on pensions 4.8 3.6 Investment income (0.8) (0.7) Net finance costs before adjustments 70.3 81.6 Hedge ineffectiveness on financial derivatives¹

• 17.0

Net finance costs 70.3 98.6

1. Included within non-GAAP items in 2013 and principally comprised a charge of £16.5m for US Dollar interest rate swaps which were no longer required as the underlying US Dollar debt was repaid from the proceeds of the rights issue

Net finance costs

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• Lower US Dollar compared to March:
• Higher US Dollar rate compared to last half year:

Sep 14 Mar 14 Sep 13 Closing rate for the balance sheet US$ $1.63 $1.66 $1.61 Closing rate for the balance sheet CAN$ $1.81 $1.84 $1.66 Sep 14 Mar 14 Sep 13 Effective rate on US$ earnings $1.65 $1.61 $1.56 Effective rate on CAN$ earnings $1.82 $1.69 $1.59

Foreign exchange

• The higher US Dollar rate negatively impacted revenue by £122m this half year compared

to last half year

• The impact on EBIT was negligible due to our “natural hedge” whereby US Dollar

denominated fuel costs in the UK and US Dollar denominated interest costs offset the exposure of US Dollar EBIT

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Sep 14 £m Sep 13 £m Current tax 2.5 2.0 Deferred tax (0.1) (13.8) Tax charge/(credit) 2.4 (11.8) Tax rate on Adjusted profit before tax 22.0% 22.0% Tax paid 3.1 4.2

Taxation

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UK Rail

Passenger revenue growth

• Continued solid demand across all of our franchises – passenger volumes

increased by 3.5%

Six months to: Sep 14 Mar 14 Sep 13 Mar 13 FCC 6.8% 8.1% 6.9% 6.3% FGW 7.0% 4.9% 4.6% 6.7% FSR 4.7% 5.5% 6.2% 6.6% FTPE 6.2% 5.6% 6.3% 7.8% Hull Trains 9.7% 5.2% 8.0% 9.4% Total 6.5% 6.0% 5.7% 6.7%

£m FCC FCC DA FGW FGW DA FSR FTPE Total FY 2012/13 (228.2)

• (435.3)
• 447.2

57.0 (159.3) HY 2013/14 (118.0)

• (234.2)
• 231.2

30.8 (90.2) FY 2013/14 (254.4)

• (273.9)

(22.0) 506.9 65.7 22.3 HY 2014/15

• (69.9)
• (53.7)

133.0 24.8 34.2

• FGW and FCC franchise payment decrease for HY reflects the direct award profile

and CP5 profile changes

• FSR HY subsidy reduction reflects principally CP5 profile changes

UK Rail subsidy/(premium) profile

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Six months to: Sep 14 £m Mar 14 £m Sep 13 £m FCC Revenue Support

• 20.3

39.3 FGW Revenue Support

• 24.0

153.4 FTPE Profit Share

• (1.4)

Total

• 44.3

191.3

• FCC and FGW did not receive revenue support in the period
• FSR eligible for revenue support but currently trading above target revenue

Revenue support/profit share

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Sep 14 £m Sep 13 £m FTPE Performance bond 10.6 10.6 FSR Performance bond 25.0 25.0 FSR Season ticket bond 5.4 5.2 FSR Maintenance bond 20.7 20.7 FCC Performance bond 10.0 22.6 FCC Season ticket bond 58.9 58.0 FGW Performance bond 10.0 63.4 FGW Season ticket bond 26.4 19.8 Total 167.0 225.3

UK Rail bonds

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Sep 14 £m Sep 13 £m FCC 39.7 74.7 FGW 116.4 14.8 FSR 73.1 85.6 FTPE 46.7 43.1 Total 275.9 218.2

UK Rail ring-fenced cash

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Certain statements included or incorporated by reference within this presentation may constitute “forward looking statements" in respect of FirstGroup plc's operations, performance, prospects and/or financial condition. Such statements are based on our 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 our present and future strategy and the environment in which we operate, which may not transpire. We undertake no obligation to update any forward looking statements contained in this presentation or any other forward looking statements we may make. Nothing in this presentation 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. Nothing contained in this presentation is intended to constitute an invitation or inducement to engage in investment activity for the purposes of the prohibition on financial promotions in the UK Financial Services and Markets Act 2000. In making this presentation available, FirstGroup plc makes no recommendation to buy, sell or otherwise deal in shares of FirstGroup plc or in any other securities or investments whatsoever and you should neither rely nor act upon, directly or indirectly, any

• f the information contained in this presentation in respect of any such investment activity.

Disclaimer

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