Returning to strength FirstGroup plc Investor Day 23 January 2014 - - PowerPoint PPT Presentation

Returning to strength

Investor Day 23 January 2014

FirstGroup plc

10:00 Welcome Tim O’Toole, Chief Executive Initial impressions John McFarlane, Chairman Overview Tim O’Toole, Chief Executive First Transit Brad Thomas, President First Transit First Student Linda Burtwistle, First Student Dennis Maple, President First Student 11:30 Coffee break Greyhound Dave Leach, President Greyhound UK Rail Vernon Barker, Managing Director UK Rail 13:00 Lunch break UK Bus Giles Fearnley, Managing Director UK Bus Financial framework Chris Surch, Group Finance Director Closing remarks and Q&A Chaired by Tim O’Toole, Chief Executive 16:00 Event closes

2

Agenda

John McFarlane Chairman

3

Tim O’Toole Chief Executive

4

• Clear direction for each division:

– Transit will continue its market leadership, achieving growth without sacrificing margin – Student will deliver cost reductions, better asset utilisation and disciplined pricing to achieve a sufficient return on capital – Greyhound will utilise the commercial advantage of its national network and continue to deliver profitable growth and improving margins – UK Rail’s portfolio will deliver earnings on par with the last round of franchising – UK Bus will return to competitive double digit margins through an equal coordination of efficiencies and revenue growth

• Clear opportunities for the sector and for our market leading businesses

5

Returning to strength

First Transit

Brad Thomas, President

7

First Transit – overview

• Public transit ridership at the highest level in five decades; ageing population will increase the

need for transportation services

• Increasing federal government spend on transportation
• Growing $24bn per annum market, with only 30% currently outsourced
• Long-term contracted revenue streams with low customer credit risk and limited capital

Market

• pportunity

Our strengths

• Established credentials and track record – First Transit has been a market leader for 50+ years
• Diverse customer segments and large volume of relatively small contracts – exceptional

bidding and management expertise well embedded

• Industry leading safety programme, technology solution-led – delivering what customers want

Strategic progress

• Expanded portfolio to higher margin transit activity, including paratransit and shuttle
• Disposed of non-core businesses
• Leveraging expertise to win new business across segments
• Continuing to exploit scale, technology differentiation and bidding expertise to grow profitably

Our

• bjectives
• Deliver continued good growth whilst maintaining margins
• Capex including investment in expanding shuttle network, particularly in university campuses

and Canadian oil fields

8

First Transit – a market leading position

• Continent-wide scope across nearly 40 US states

and four Canadian provinces, Puerto Rico and US Virgin Islands

• Operate and manage approximately 11,500 buses

and provide maintenance services for approximately 38,000 vehicles and pieces of equipment

• 317m passengers in FY13 over more than 360m

fleet miles

• Unrivalled reputation, credentials and experience
• ffering a wide range of solutions in c.330 contracts
• High contract retention rate >95%
• Market leader in four major segments, which all

contribute high returns and consistent growth:

• Fixed Route
• Shuttle
• Paratransit
• Vehicle Services

9

Business overview

10

First Transit – business overview

Fixed Route, 37% Paratransit, 30% Shuttle, 22% Vehicle Services, 11%

FY13 revenue - $1.2bn

1,007 1,026 1,078 1,129 1,195

$0m $200m $400m $600m $800m $1,000m $1,200m

FY09 FY10 FY11 FY12 FY13

Revenue ($m)

Montreal

First Transit – scale of operations

West $292m Fixed Route 1,100 vehicles Paratransit 1,745 vehicles Shuttle 59 vehicles Central $272m Fixed Route 861 vehicles Paratransit 1,069 vehicles Shuttle 361 vehicles East $304m Fixed Route 656 vehicles Paratransit 1,010 vehicles Shuttle 629 vehicles Canada $190m Fixed Route 513 vehicles Paratransit 53 vehicles Shuttle 334 vehicles Vehicle Services (nationwide) $137m Vehicles/equipment maintained 38,000

11

12

First Transit – business overview

1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 Fixed Route Paratransit Shuttle Vehicle Services Corp/Region OH

Headcount

FY09 FY13 1,000 2,000 3,000 4,000 5,000 Fixed Route Paratransit Shuttle

Operated vehicle count

FY09 FY13 Totals: FY09 14,051 FY13 16,758 Totals: FY09 7,254 FY13 8,390 20 40 60 80 100 120 140 Fixed Route Paratransit Shuttle

Total miles (m)

FY09 FY13 Totals: FY09 222.2 FY13 270.6

13

Market background

14

The fixed route market

• Competitors:

– MV Transport – Veolia Transportation – National Express – RATP Dev – Keolis

• Price competition intensifying
• Transit authorities becoming more

price sensitive

• Long established transit systems slow

to embrace conversion to private

• perations
• Metropolitan/Municipality customer base
• Full turnkey transportation services
• High customer interaction
• Low capital investment
• 5-year contracts with options
• Average 55 vehicles per contract
• 60 contracts averaging $7m in revenue

First Transit Market Market potential First Transit

First Transit has 28% of contracted market 90% of market has not been contracted City/Counties/Municipalities Growth will continue as customers seek cost savings and expertise alternatives Leader in market First Transit revenue growth greater than 6% annually Technology and scale competitive advantage Low capital investment

• ffers high returns

90% 7% 3%

Non-contracted market Contracted market First Transit Total market: $15bn

15

The paratransit market

• Competitors:

– MV Transport – Veolia Transportation – National Express – RATP Dev – Keolis

• Growth segment as a result of an

ageing population and their increased demand for independence

• Transit authorities becoming more

price sensitive

• Municipality’s ADA, NEMT market
• Complex business model increases
• utsourcing

– Physically disabled passenger base – Call taking/scheduling, coordinating services

• Low-medium capital investment
• 3-5 year contracts with options
• Average 60 vehicles per contract
• 70 contracts averaging $5m in revenue

First Transit Market Market potential First Transit

25% of $4bn market has not been contracted High growth customer base

• Aging population increases demand for

future growth

• ADA, NEMT, Medicaid requirements
• Affordable Care Act potential

Major player in the paratransit segment First Transit revenue growth greater than 4% annually Expertise and scale allows future growth Low-medium capital investment and attractive margins

25% 67% 8%

Non-contracted market Contracted market First Transit Total market: $4bn

16

The shuttle bus market

• Competitors:

– MV Transport – Veolia Transportation

• Competitors are few but have capital

resources to fund contracts

• Customer focus on value versus price
• High technology expectations
• University, airports, corporate shuttle bus
• Customer interaction low
• Increased capital requirements, IRR

thresholds

• 7 year contracts with options
• Average 30 vehicles per contract
• 50 contracts averaging $4m in revenue

First Transit Market Market potential First Transit

10% of $2bn market has not been contracted Universities, airports and corporate clients

• Customers outsource non-core competency which

will facilitate growth

• High university enrolment and increasing technology

expectations drives demand for future growth Recent success in penetrating the shuttle segment First Transit revenue growth greater than 13% annually Technology solutions and tools competitive advantage High capital investment required, but with high margins to drive returns

10% 76% 15%

Non-contracted market Contracted market First Transit Total market: $2bn

17

The vehicle services market

• Competitors:

– G4S – Vector – Serco

• Established in-house fleet

maintenance programs resistant to change

• Defined value proposition
• City municipal fleets, corporate entities
• Maintenance services for wide range of

fleet solutions

• Very low capital requirements
• Contracts generally annual renewals
• Wide range in number of fleet maintained

per contract

• 75 contracts averaging $1.8m in revenue
• High margin returns

First Transit Market Market potential First Transit

67% of $3bn market has not been contracted Municipalities and corporate clients

• Constrained local municipal budgets in need of cost

savings will drive future growth

• Customers seek cost savings along with

non-core services Scale and profitability competitive advantage First Transit revenue growth greater than 2% annually Low capital, high margin and returns Wide range of customer solutions to provide value

67% 29% 4%

Non-contracted market Contracted market First Transit Total market: $3bn

18

Business strategy

19

Continuing to leverage our successful model

People

Expertise/structure

Solutions

Technology and tools Success

Price

Low bidder

First Transit growth

Fixed Route Shuttle Vehicle Services Paratransit

20

Strategic initiatives – capabilities to win

• Top management in the industry:

– Industry experience and tenure – Solid reputation, results – Company preferred

• Training and development:

– Promotions in-house – First Transit University – e-Learning – Manager-in-Training programme

• Safety training and engagement
• ASE certifications, etc
• Technology-driven efficiencies and

tools: – MI Dashboard – GPS tracking – DriveCam – Infor – TimeForce

• Engineering analytics:

– Real-time vehicle monitoring

• Maintenance technology solutions:

– Paperless system

• Safety behaviour data analysis
• Resources utilised by all business segments
• People and technology drive efficiencies and price
• National service platform/leverage infrastructure
• Low bidder wins business = growth

Best in People Best in Solutions Best in Price

21

First Transit – summary

• Proven business model in place for continued growth
• Diversified, balanced business segments all delivering solid returns
• Top performer/competitor for past five years and continues to build base

capabilities for future growth

Our business Our plans

• Growth opportunities in all segments as customers continue to outsource to

transit companies that provide expertise, solutions and savings

• Continue to optimise technology solutions to enhance customer retention and

growth

• Key acquisitions in each segment immediately increase market share, leverage

scale and improve profits/returns

Value

• pportunity
• Leader in market with exceptional management and technology solutions
• Above cost of capital returns will continue to support future investments
• Size and scale will facilitate and leverage growth initiatives

First Student

Linda Burtwistle Dennis Maple, President

23

First Student – overview

• $24bn market, $9bn currently outsourced; public sector customers – lower credit risk
• Fragmented competition with c.5,000 small independents – consolidation opportunity
• Safety remains paramount; increasing customer focus on technology and cost efficiency
• Budget pressures causing short-term impact on discretionary element of spend, but will drive

demand for high quality, high efficiency players in the medium term

Market

• pportunity

Our strengths

• Clear market leader (bigger than next four competitors combined) – scale economies in

buying, insurance, fleet management, technology development, etc

• Differentiated offering – technology, safety record, strong customer relationships and

satisfaction scores

Strategic progress

• Significant progress in cost efficiency programme – $100m run-rate achieved so far
• Uniform best practice identified and rolled out to 500+ locations
• Raising returns through disciplined management of contract portfolio (‘up or out’) and assets

(charter growth, cascading)

• Several avenues for growth available once margins restored

Our

• bjectives
• Double digit margins through execution of recovery plan
• Disciplined management of returns
• Position the business for profitable growth

24

Business overview

Northwest Central Western Canada Eastern Canada Great Lakes Atlantic Southeast Northeast SNE Southwest

Scale of operations

25

• We transport 6 million students daily
• We operate in 38 states and 8 Canadian

provinces

• We represent 1,300 school districts
• We keep c.4 million cars off the road every day

Northwest Rev ($m) 310 $ Buses 6,600 Southwest Rev ($m) 205 $ Buses 3,800 Central Rev ($m) 245 $ Buses 5,600 Atlantic Southeast Rev ($m) 305 $ Buses 6,900 Great Lakes Rev ($m) 270 $ Buses 5,800 Northeast Rev ($m) 275 $ Buses 5,700 S New England Rev ($m) 355 $ Buses 6,300 Canada East Rev ($m) 275 $ Buses 6,500 Canada West Rev ($m) 135 $ Buses 2,900 TOTAL Rev ($m) $2.4bn Buses 50,000 Locations 550

26

Large footprint, with many state-by-state variations

New Jersey uses unique buses not cascadable to any other state (but run for 15 years). All contracts bid annually Eastern Canada - Ontario market moving from evergreen to RFP Western Canada run the oldest fleet in the company with good ancillary revenue opportunities Alaska – good market share with significant competitive advantage Massachusetts is a low bid state Illinois is a former low bid state. Now allowed to consider quality and safety Florida – Monitoring outsourcing potential California – legislation impedes further outsourcing but regulations and climate allow for an older fleet West Coast – trend toward alternative fuel solutions South Carolina – State provides all buses and maintenance Michigan/Ohio – new administrations pushing conversion

• pportunities (pension-related)

27

Market background and the competitive environment

157,000 191,000 180,000 335,000 342,000 320,000

100,000 200,000 300,000 400,000 500,000 600,000

2004 2007 2013 Schools Contractors

2004 2006 2008 2010 2012 2014

492,000 500,000 533,000 +0.2% (0.4%) +1.4% 10 Year CAGR

A review of the last ten years

28

Organic retraction US Government stimulus Hyper- competition Eastern Canadian RFP Organic growth 3.3% market growth Global recession Student’s market share 2004 2013 …of total market: 3.7% 10.0% …of outsourced market: 11.5% 27.8%

Source: School Bus Fleet Magazine

• Organic growth

− Typically around 0.5-1.0% per annum − Recession caused three years of organic retraction

• Share shift

− Through the competitive bidding process − Increases our share of the outsourced market − Have averaged 700 buses over the last three years

• Acquisitions

− Many 100 – 500 bus companies which could enhance our portfolio

• Conversion

− Relatively low volume and has been slow to develop − Have averaged 400 buses per annum, over the last three years

29

Sources of growth in the $24bn market

Source: First Student (Internal)/School Bus Fleet Magazine

100% 80% 60% 40% 20% 0% 20% 40% 60% 80% 100%

First Student

Durham STA Next 4 ~4,900 Mom and Pops

$9bn $15bn

~10,000 School Districts and ~12,000 other schools

• Key decision makers in academic and community institutions decide whether to contract
• ut, or retain in-house

US school organisation and structure

Public school districts Private schools Catholic schools Other institutions

• 13,000 school districts
• 52,500 elementary schools
• 14,000 middle schools
• 14,000 high schools
• 2,100 K-12 schools
• 7,500 elementary schools
• 900 secondary schools
• 3,900 K-12 schools
• 6,500 elementary schools
• 1,250 secondary schools
• 125 K-12 schools
• 4,000 year-round schools
• 2,500 special education

schools

• 1,900 magnet schools
• 10,000 charter schools

Activist parents Union leaders State/local lawmakers School district administrators School Board members (politicians) Bus contractors

Key influencers and decision makers (impacting conversions and renewals)

Funding primarily from local and state governments

30

The decision making process

Source: National Center for Education Statistics

Durham Student Transportation

• f America

Atlantic Express Illinois Central HQ Warrenville, IL Wall, NJ Staten Island, NY Channahon, IL Geography 30+ states & 4 Canadian provinces 11 states & 1 Canadian province 7 states 5 states Buses 20,000 10,000 5,300 3,500 Unionisation ~35% ~30% ~80% ~50% Margin 10.2% 5.6% Not published Not published

31

The other national operators

• Top 5 companies (including First Student) account for almost 50% of the outsourced

market

Source: Company websites

32

Business strategy

33

The business prior to the recovery programme

Operations

• Inflexible business model in a difficult economic

environment

• Lack of standardisation
• Lack of accountability through clear performance

management and incentives system

• Excess layers of management resulted in

inefficient decision making

• Poorly priced contracts

Culture

• Disengaged organisation
• Default to status quo – no focus on continuous

improvement

• Overly negative environment
• Short-term decision making resulting in siege

mentality

91% 81% 90% 50% 60% 70% 80% 90% 100%

FY10 FY11 FY12

Retention rate

11.0% 8.1% 6.8% 0% 2% 4% 6% 8% 10% 12%

FY10 FY11 FY12

Margin

281 200 170 $0m $50m $100m $150m $200m $250m $300m

FY10 FY11 FY12

Operating profit ($m)

34

Step 1: Driving efficiency through the cost base

Driver labour costs - $1.1bn per annum

• Tighten standard hours without deteriorating service

levels

• Active management of standard hours and exceptions
• every minute saved is worth $2.5m
• Reduce non-driving time
• Review wage and remuneration policy

Savings - $40m delivered from FY11 - FY14 Maintenance costs - $225m per annum

• Establish standard repair times and performance

management system

• Optimise maintenance model and staffing levels
• Implement lean processes and systems
• Harmonise fleet to decrease complexity

Savings - $12m delivered from FY11 - FY14 Fuel expense - $195m per annum

• Drive Smart programme targeting:
• Excess idling and speeding
• Aggressive driving and the link with safety
• Measuring (technology) and communicating with

each driver

Savings - $13m delivered from FY11 - FY14 Other significant costs per annum

• $15m downsizing in FY12, removing a layer of

management from Student

• Cumulative indirect procurement benefit of $10m,

created First Market Place to deliver future benefits

• Plus the elimination of non-value added activities

across the organisation

Savings - $35m delivered from FY11 - FY14

Revenue

• 2 – 3 school board contracts
• $4.4m in billing; 8% from charter work
• 92 buses at 7.3 years old

Driver operations

• 100 drivers; 96,600 paid hours per year
• $70k in stand-by and overtime premium

Maintenance

• 1 shop manager; 3 techs; 3 bays
• Cost per bus = $4,500/year

Fuelling

• Consume 100,000 gallons of diesel

Location overhead

• 1 location manager; 1 other manager
• 1 - 2 dispatchers
• $225k in facilities expense

($000) Total billed revenue $4,400 Driver compensation 1,965

Driver compensation % to revenue

45% Maintenance costs 415

Maint Cost/Bus 4,500

Fuel 360 Insurance/other running costs 250 Location overhead 445 Depreciation 400 Operating profit (gross contribution) $565

Contribution margin 13%

Revenue generating fleet 92 Average age 7.3

35

Step 1: Snapshot of an average school bus location

Per bus $47,825 $6,140

Driver’s compensation Paid hours 96,600

• Have removed 4,800 hours from the system (4.8%)

Average rate $15.63

• Minimizing the union/non-union discrepancy

Driver compensation $1,510k Benefits/taxes $384k Non-driving $70k

• 2% reduction and targeting more

Total $1,965k

Percent of revenue 44.7%

• Almost two full points improvement in efficiency

36

Step 1: Right-sizing the cost base at the location level

Fuel Gallons consumed 100,000

• 5% reduction

Average price $3.60

• 8% off of retail

Total $360k

Percent of revenue 8.2%

• half point improvement

in efficiency

Maintenance Labor costs $243k

• $150/bus efficiencies in
• vertime/tech wages

Parts $134k

• $50/bus savings through

procurement Other maintenance $38k

• $40/bus savings in outside

services Total $415k

Cost/Bus $4,500

• $240/bus savings in efficiencies

37

Step 2: Disciplined approach to improving returns

New contracts Share shift

• Bid responsibly by being disciplined
• n pricing and pursuing a targeted

approach Acquisitions

• Opportunistic, margin enhancing

acquisitions will be used to supplement share shift growth Conversions

• Look to maximise our share of the

bids while keeping strong returns Existing work Retention

• Maximise retention while maintaining

acceptable rates − Extend higher margin business to protect against margin erosion − Assist lower margin business out to bid where we have competitive advantage Organic

• The market is expected to stabilise at

0.5% to 1.0% route growth per annum Charter growth

• Maximise revenue potential of fixed

asset base

• Protect high margin business through retention strategy
• Improve mid-range contracts through consistent pricing
• Disciplined approach on lower end work through rigid ‘up or out’ strategy

Step 2: Contract portfolio management

38

% of FY14 contract portfolio

Manage margin erosion to retain

High >15% margin 13%

Retain business and improve margins

Medium 5-15% margin 51%

Look to shed poor performing contracts and improve margins significantly on remaining

Low <5% margin 36%

c.2.0% >1.0%

$1,060 $230 $225 $195 $85 $400

Cost efficiency ($m)

Driver comp Depreciation Maintenance Fuel Insurance Other running costs / overhead $2,175 $105 $90

Portfolio ($m)

Contract revenue Student charter Commercial charter

39

The roadmap to double digit margins

c.7.5% >10.0% c.2.0% >1.0% c.(0.5%) 5% 6% 7% 8% 9% 10% 11% FY14 Cost efficiency Portfolio Above CPI increases / other FY17

Cost efficiency ($m) Portfolio ($m)

First Student – summary

40

• Business turnaround is progressing
• $100m of cost efficiencies delivered to end of FY14
• Cost efficiency, uniform operating procedures and disciplined approach to

managing the portfolio will provide solid returns and cash flows

Our business Our plans

• Completion of the turnaround programme will return the business to double digit

margins

• The business will be repositioned to take advantage of strategic growth
• pportunities

Value

• pportunity
• Return to double digit margins and improve returns through execution of plan
• Leverage market leading position and deliver profitable growth

Dennis Maple, President – first impressions

41

• Ten years experience providing contracted services to the education sector
• Established profile and contacts in this market
• Understand the issues facing decision makers
• First Student’s recovery programme has achieved significant change and

greater efficiency, while improving safety and customer satisfaction

• Clear direction to drive programme forward, with further opportunity from:

– Cost savings – Pricing – Capital

42

Greyhound

Dave Leach, President

43

Greyhound – overview

• Intercity coach market renaissance continues, especially amongst younger demographic
• Car ownership declining, driven by continued urbanisation, congestion and costs of driving
• Intercity coach beginning to attract users back to coach travel plus new customer

demographics – and today’s share of customers’ addressable journeys is still low

Market

• pportunity

Our strengths

• Iconic brand synonymous with long-distance coach travel
• Only national network of scheduled intercity coach transportation – provides passenger feed

and operating leverage to newer point-to-point services

• An operation that is re-engaged with the customer operating a refreshed fleet
• Point-to-point product suite provides multiple price point approach to new markets

Strategic progress

• Operating model transformed – reduced cost base, capital profile and improved flexibility
• Disciplined renew/refurb programme to manage capital investment requirement
• Point-to-point yield management expertise highly applicable to traditional network
• IT transformation will unlock yield management, dynamic pricing and enhance customer

convenience throughout the network – and transform load factors

Our

• bjectives
• Investment in IT for Greyhound to facilitate better yield management and growth in excess of

GDP

• Further roll out of successful new products such as BoltBus, YO!Bus, and Greyhound Express,

and investment in fleet renewal and refurbishment

44

Business overview

45

Greyhound’s hard work in getting our house in order makes us poised for growth. IT transformation, increased marketing and further expansion of network and brands will leverage this foundation and accelerate future growth

* Greyhound US Only

The actions taken have driven results

25 50 75 100 125 150 175 200 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Rev / Mile* Yield* Load* Revenue* Passenger Miles* Fleet* Coach Miles*

$0m $50m $100m $150m EBIT*

Rightsizing era Growth era Network restructure era Transformation era

• Fixed cost business model
• Long haul orientation
• Promotions
• Route networks
• Revenue at any cost
• Massive fleet investment
• Contribution margin too low to

generate meaningful profits

• Variable cost

business model

• Network

restructured around centres of demand connected by long haul pipes

• No investment,

leveraged and exhausted growth era assets

• Global recession
• Benchmarking

exercise with FirstGroup led to substantial cost reductions

• Location

rationalisation

• Limited

investment

• BoltBus launch

and learnings

• New coach opportunity
• Refocus on customer
• Fleet

Customer experience Expanded sales channels Shorter haul price & network

• rientation

Greyhound Express & BoltBus

• Beginnings of technology

transformation

• Leverage existing costs and

infrastructure for growth – load gains

Initial stages of Greyhound’s transformation

46

We have delivered consistent operating profit growth in the midst of a prolonged recession and new competition Initial stages of Greyhound transformation give us confidence in our future How did we do it?

• Reduced cost structure to a leveragable base by

achieving $115m in cost savings over past 5 years

• Recapitalised the fleet, significantly mitigating required

maintenance capital, by introducing a refurbishment programme that extends the life of coaches. Blue coaches represent 75% of the current fleet

• Transformed the business, refocusing on the customer

and delivering exceptional service

• Restructured our Canadian business to deliver a more

commercially viable service

• Introduced growth brands (BoltBus and YO!Bus) and

launched Greyhound Express, a point to point premium service within the core Greyhound network

$0 $20 $40 $60 $80 $100 $120 $140 FY10 FY11 FY12 FY13 EBIT(Millions) EBITDA (Millions)

Respondents "Very Likely or Likely To Use Greyhound Again"

87% 89% 91%

80% 85% 90% 95% FY11 FY12 FY13

Ontime performance 552 575 330

200 400 600 800 FY11 FY12 FY13

Customer complaints/100,000 Pax 70% 70% 75%

50% 60% 70% 80% FY12-H2 FY13-H1 FY13-H2

Passenger survey stats

Greyhound’s passenger brands

47

Multi level brand strategy achieves broader market potential Learnings in the three growth offerings give us confidence to continue transformation into core network Iconic national network Premium service within the core network Premium brand Chinatown brand

2000+ destinations in the US Access to Mexico and Canada Between most US and Canadian cities with connectivity to the core network Most Canada Markets US Northeast US Northwest (incl. Vancouver) California New York – Philadelphia New York – Boston

1,675 100 20 Markets served Fleet size Description

48

Market background

Size of the potential US coach market

• More than 42m people currently consider coach travel in the US
• We estimate that we currently serve a quarter of this population
• Of the people who travel by coach, they choose other modes 75% of the time
• New offerings and better products, services and price have the potential to growth this market and the

frequency of use

49

Size of the potential market presents a significant opportunity for growth

Market size based on segmentation study results

• f people who have taken or

have considered a coach trip

50

The network advantage

Greyhound network breadth

• Greyhound Express footprint covers over 30% of our US network and already most of the major city pairs
• Significant opportunity in applying Greyhound Express learnings across the network

51

Applying what we have learned from Express across the rest of the network offers substantial growth potential

2 48 121

50 100 150 10/11 11/12 12/13

North America Express sales ($m)

Greyhound’s network – a true competitive advantage

52

The power of the network provides a significant competitive advantage and an established base for further growth

Network passengers account for only 20% of total ticket RPM Network infrastructure supported ancillary products and services increased passenger RPM by a further 17%

Case Study 1: Northeast market

Background: US coach market can be classified into two broad segments:

• Prolific Midwest and Northeast markets with high density city to city demand and high acceptance of public transport systems
• Longer haul markets with low density between city pairs and under developed public transport systems
• Short haul routes, high acceptance of public transport systems and congested freeways result in high density
• These markets are ideal breeding grounds for new entrants because they offer expedited paths to profitability
• While network feed is not the primary component of RPM in these markets, it helps maintain competitive pricing

New York Boston

Hartford Pittsburgh Washington Richmond Raleigh Charlotte

Asheville Spartanburg Columbia Charleston Myrtle Beach Wilmington Greensboro Portland Concord Montpelier Rochester Syracuse Binghamton Albany

Average Daily Round Trips New York - Boston

GLI Point-to-Point Competitor

Legacy 3 Express 15 12 Boltbus 12 Yo!Bus 6 Total 36 12

• Ex. New York - Boston

RPM/CPM Load Yield O&D Specific $3.39 35 9.7 Express to Express Feed $0.10 1 10.1 Longhaul Feed $0.16 2 8.0 Small City Feed $0.54 5 10.8 Total Ticket $4.19 43 9.7 Facility Income $0.51

• Parcel Service

$0.05

• Food Service

$0.17

• Total Ancillary

$0.73

• Total RPM

$4.92 43 11.4 Express

• Network feed from 42 thousand city pairs delivers profit before the coach leaves the station
• Ancillary revenues, leveraging network infrastructure provide an additional 23% of revenue
• Ability to price as necessary to grow markets and gain share in competitive ones
• Ability to offer more frequency than competitors from serving the broader network

Greyhound’s network – a true competitive advantage

53

The power of the network provides a significant competitive advantage and an established base for further growth

Network passengers accounted for 70% of total ticket RPM Network infrastructure supported ancillary products and services increased passenger RPM by a further 23%

Case Study 2: Texas market

• Long haul routes with lower density city pair demand and underdeveloped public transport system
• Lack of network feed can potentially put the viability of a coach operation in these markets at risk

Houston

Oklahoma City New Orleans Baton Rouge El Paso

Fort Worth Bryan McAllen Beaumont Tyler San Angelo Tulsa Little Rock Texarkana Lawton

Dallas Conclusions

Average Daily Round Trips Dallas - Houston

GLI Point-to-Point Competitor

Legacy 3 Express 8 Total 11 4

• Ex. Houston - Dallas

RPM Load Yield O&D Specific $1.07 8 13.4 Express to Express Feed $0.43 3 14.3 Longhaul Feed $0.68 5 13.6 Small City Feed $1.41 10 14.1 Total Ticket $3.59 26 13.8 Facility Income $0.51

• Parcel Service

$0.15

• Food Service

$0.17

• Total Ancillary

$0.83

• Total RPM

$4.42 26 13.8 Express

54

Growth strategy

Growth strategy: one more passenger

• Leveraging available capacity and adding one extra passenger per coach daily will

generate $11m in annual incremental EBIT assuming 1,000 coaches operated

• IT transformation will open up many new ways to interact with new and existing

customers to better leverage and monetise the existing network capacity

• Loyalty and ease of doing business with Greyhound post-transformation will also lead to

greater shares of existing customers’ travel wallet

• We expect to invest $30-50m to complete the programme over the next three years

55

Enablers to load growth

• Frictionless commerce making it easier for our customers to

transact with us

• Ability to deliver personalised offerings that mean

something

• Right information for customers wherever and whenever

they want it

• Proactive problem solving, anticipating needs before they

happen

• Yield and capacity management

Investment in customer-facing technology that provides value to the customer will deliver profitable growth on existing capacity and resources Illustration: impact of one extra passenger per coach

Maximum capacity of a coach 50 Average load 35 Average ticket price $45 Assumed fleet size 1,000 Incremental passenger/coach 1 Price of incremental ticket at 75% of average $34 Incremental revenue/day (tickets*price*coaches) $33,750 EBIT impact/day at 90% flow through $30,375 Annual EBIT impact $11,086,875

56

‘Airline style’ revenue management offers significant value

Dynamic pricing enables yield and capacity optimisation

• Maximizing revenue in high

demand corridors – Peak pricing opens up seats for those willing to pay – Price conscious consumers fill out open schedules

• Ability to sell existing excess

network inventory – Aggressively price ‘free’ network inventory to grow demand

• Initial capabilities expected

to be delivered in Q1 of FY15

Price Conscious Customer Premium Customer Legend Empty Greyhound Coach Seat

Peak Off-Peak

Current State

Can’t Board Can’t Board

Moved from peak schedule to off- peak schedule Don’t make it on to the bus in the current state

Peak Off-Peak

Future State

Load: 50 Yield: 0.12 RPM: 6.00 Load: 30 Yield: 0.12 RPM: 3.60 Load: 50 Yield: 0.20 RPM: 10.00 Load: 42 Yield: 0.10 RPM: 4.20 Current State Future State Load: 27 Yield: 0.1462 RPM: 3.95 Load: 32 Yield: 0.1327 RPM: 4.25

High Demand Management Network Management

Current State

Load: 40 Yield: 0.12 RPM: 4.80

Future State

Load: 46 Yield: 0.15 RPM: 7.10

Greyhound – summary

57

• Conversion to a lower cost business model offers flexibility in any market
• Solid margins and returns provide a platform poised for future growth
• Uniquely positioned with a strong national network and iconic brand

Our business Our plans

• IT transformation to deliver customer value and empower front line employees
• Ample opportunity to expand footprint and grow within existing network
• Improved operational performance and efficiency

Value

• pportunity
• Network leverage delivers top line growth and operating profit margin of

approximately 12% in the medium term

• Ample opportunities to expand penetration and footprint with multiple brands

and services

• Fleet recapitalisation and maintenance transformation offer further margin

enhancement

Business Review

UK Rail PLC 26th November 2013

UK Rail

Vernon Barker, Managing Director

UK Rail – overview

• £8bn of long-term contract-backed passenger revenue available – 19 major franchise
• pportunities
• Third generation of government procurement process with capital-light characteristics
• New franchises expected to have clearer upfront contingent capital requirements,

greater revenue risk but earlier exogenous protection

Market

• pportunity

Our strengths

• Market participant since 1997; experienced in running all types of franchise
• Strong commercial, rolling stock and major project (including infrastructure upgrade)

capabilities

• Highly experienced bidding team – most successful in previous franchising rounds

Strategic progress

• Delivered more than £600m of pre-tax cash from franchises managed since 2006
• Outperformed industry in delivering punctuality and customer satisfaction improvements

since 2006

• Already shortlisted for five bids representing 29% of current passenger revenue receipts

Our

• bjectives
• Maintain a significant share of UK rail market, with similar levels of profit and risk

59

60

• UK Rail division started operating in 1997 and has operated

eight separate franchises, contracting to Government

• Only provider with experience across commuter, regional,

long distance and sleeper operations

• Largest UK operator:

─ 23% of total industry passenger revenue ─ Employs 13,500 members of staff ─ Operates 2,800 diesel and electric rolling stock vehicles

daily

─ Runs 395m vehicle miles per annum ─ Operates 662 stations

UK Rail – scope of operations

Franchise Major market sector(s) Contract period Premium / Subsidy Comments First Great Western InterCity, Commuter, Sleeper, Regional Apr 06 to Sep 15 Premium InterCity element operated since 1998. New agreement signed in Oct 13 First Capital Connect Commuter Apr 06 to Mar 14 Premium In discussions with DfT on short contract award from Mar 14 to Sept 14 First Transpennine Express InterCity Feb 04 to Mar 15 Subsidy Joint Venture with Keolis (who own 45%) and potential contract award to Feb 16 First ScotRail InterCity, Commuter, Sleeper, Regional Apr 04 to Mar 15 Subsidy Shortlisted to bid for new franchise First Hull Trains InterCity Open Access n/a Operated by FirstGroup since 2004 with 20% minority shareholders

Our successful record in rail

• FirstGroup’s portfolio of franchises have been operated since 1 April 2006 and

successfully delivered in excess of £0.6bn pre-tax cash generation for FirstGroup, including franchise investment spend and bid costs

• The main determinate on annual profit levels is variance from the bid model,

especially passenger revenue growth (CAGR since 1 April 2006 is 6.9%)

• Have retained a constant share of the total UK Rail franchise passenger revenue at

24% over the seven year period

FirstGroup’s annual profit and share of UK national rail passenger revenue

£0m £20m £40m £60m £80m £100m £120m 0% 5% 10% 15% 20% 25% 30% 06/07 07/08 08/09 09/10 10/11 11/12 12/13 £m operating profit less non- recurring charges % share of franchise passenger revenue

61

62

Industry opportunity

63

The UK Rail market

• Revenue £8bn
• 19 current UK rail franchises – operated by 11 Owning Groups (including Directly

Operated Railways)

• High barriers to new entrants; regulated environment and rigorously defined

contracting process

• Contingent investment only – good cash flow potential

Forthcoming opportunities

• Third round of post privatisation franchising competition underway
• In total, £5bn (including £1bn relating to FCC and Southern) of the current passenger

revenue value is available for franchising in the period to April 2017

• Process has started with FirstGroup shortlisted for the first five available franchises

UK Rail sector overview

64

Franchise Short listed Market sector 11/12 Passenger revenue share 2014 2015 2016 2017 2018 2019 2020 2021 TSGN (cost risk only) includes First Capital Connect Yes London and South East 15% Sept Essex Thameside Yes London and South East 2% Sept East Coast Yes InterCity 8% Feb Caledonian Sleeper (Transport Scotland) Yes Specialist n/a Apr First ScotRail (Transport Scotland) Yes Regional 4% Apr Northern Regional 3% Feb First TransPennine InterCity 2% Feb First Great Western InterCity 10% Jul Greater Anglia London and South East 8% Oct West Coast InterCity 11% Apr London Midland London and South East 3% Jun East Midlands InterCity 4% Oct South Eastern London and South East 8% Jun Wales & Borders Regional 2% Oct South West London and South East 11% Apr Cross Country InterCity 5% Nov Chiltern London and South East 2% Dec

DfT and Transport Scotland refranchising programme

Source:: ORR, DfT and Transport Scotland

65

The franchise model

Rail franchise bids in the UK

66

Source: DfT

• Normally two years from start of bid consultation process until new franchise

commences

• Typically bid costs for FirstGroup range between £4m to £6m covering financial and

legal advisors, revenue and market assessments and specialist advisors

• The pre-qualification and bid requirements can create a significant barrier for new

market entrants because: – The high cost means it cannot be undertaken speculatively. New entrant cost likely to be much higher as it cannot rely on FirstGroup’s economies of scale and level of expertise – Pre-qualification requires the bidder to demonstrate credentials with a relevant track record and experience in similar operations – Difficulty in building up market expertise as limited pool of contract opportunities and experienced people – Different contractual market from other large outsourced environments

• Margins based on revenue and cost risk profiles of individual bids

The franchise model – passenger revenue

67

• Income characteristics in a franchise with passenger growth generation is

subject to a number of different factors including: – Exogenous GDP growth – Fare changes – Regulated fares – Advance purchase and yield management – Changes to timetable services – Train performance and track engineering works – Revenue protection – Marketing – Crowding constraints

• Financial protection mechanisms include:

– Anticipation that DfT will provide a mechanism for sharing revenue risk linked to economic factors – Government changes to regulated price regime are compensated – Network Rail compensation

48% 32% 20% Leisure Business Commuter Passenger revenue base of FirstGroup UK Rail franchises – 2012/13

The franchise model – franchise costs

68

Network Rail charges – Mainly fixed, covering access charges for track, stations and depots – Office of Rail Regulation (ORR) five yearly Network Rail charging review changes covered by franchise payment adjustment mechanism Rolling stock charges – Fixed operating lease costs – A variety of lease structures depending on the level of maintenance responsibilities Staff costs – Staff TUPE – No long term pension funding liabilities Assets and investment – Few owned assets – Mainly rolling stock, stations and depot

• perating leases

– Franchise payment includes value for any direct investments

29% 27% 21% 8% 3% 12%

Cost base of FirstGroup’s UK Rail franchises – 2012/13

Network Rail Staff costs Rolling stock Fuel and utilities Commission payable Other

Parent company contingent financial support

69

• New franchises are SPVs with the signatories to the Franchise Agreement being the

SPV, Parent Company and the Franchising Authority

• Typically the SPV has no significantly level of initial capitalisation and the Franchising

Authority relies on the Parent to: – Provide a minimum loan facility to the SPV – Provide a re-let/performance bond payable on demand in the event of any default – Provide a Season Ticket Bond to protect the season ticket cash for future rail travel

• Current levels of performance bonds and inter-company loan facilities total: £138m
• For the forthcoming franchises the following published levels are:
• In addition further loan facilities may be required depending on franchise

requirements

Source: DfT

Franchises Essex Thameside TSGN East Coast ScotRail Re-Letting / Performance Bond (RPI indexed) £6m £20m £20m £35m Loan Facility (Minimum) £30m £50m £50m £25m

70

Our strong rail credentials

71

UK Rail – expertise and a record of delivery

Delivering growth

• Average FTPE revenue growth of 13% per

annum delivered over the past nine years

• First ScotRail has seen significant

passenger growth since 2004, with annual journeys up by more than 30% to 83.3m in FY13 Delivering capacity upgrades

• Four successful new fleet introductions in

recent years

• Currently involved in programmes

delivering a further 1,500 further new vehicles

• Major timetable service changes delivered

across all four franchises

72

UK Rail – expertise and a record of delivery

Delivering infrastructure upgrades

• £850m Reading station remodelling project

partnership between FGW and Network Rail

• FCC working with Network Rail on £6bn

Thameslink programme doubling train capacity

• FSR worked with Network Rail to electrify

and transform Paisley Canal line through innovative alliance

• Working with DfT on electrification of Great

Western mainline in preparation for InterCity Express Programme, Crossrail and new fleet of local electric trains

UK Rail – quality improvement

• First Great Western recorded the largest

Public Performance Measure (PPM) improvement of any franchised TOC – 5.9% since 2006/07

• The improvement in National Passenger

Survey (NPS) includes FGW increasing Overall Satisfaction score by 8%

• FCC has seen challenges due to

infrastructure and Thameslink Programme works, but still increased by 5% over the period

• Innovations improving customer

experience: – 1.6m journeys on FSR made with smart tickets – More than one million downloads

• f our customer app, providing

journey planning and mobile retailing capabilities

1% 2% 3% 4% 5% 07/08 08/09 09/10 10/11 11/12 12/13 Train Performance Improvement from 06/07 – as measured by PPM FirstGroup Total industry (excluding FirstGroup)

Source: Network Rail and Passenger Focus surveys

0% 1% 2% 3% 4% 5% 6% 7% 8% 2008 2009 2010 2011 2012 2013 Customer Satisfaction as measured by NPS Spring Results – increase from Spring 07 (franchised only) FirstGroup Total Industry (excluding FirstGroup) 73

74

Industry recognition

• More than 200 external awards within rail industry

and wider since 2006

• FTPE: National Rail Awards – Passenger Operations

2013 and European Intercity Operator of the Year 2013

• FSR: National Rail Awards – Rail Operator 2010 (UK)

and Passenger Transport Operator of the Year 2013 (Scotland)

• Franchises all recognised by the British Quality

Foundation with 4- and 5- star Business for Excellence ratings. FTPE first UK rail franchise to achieve 5 star

• All TOCs accredited by Investors in People
• FirstGroup first public transport operator to achieve

British Standard for collaborative business relationships, as highlighted in McNulty Value for Money Report

Leveraging our expertise and capability

UK Rail – summary

75

• Profitable, successful division with ‘light’ direct capital requirement
• Only owning group with scope and experience across a range of franchise
• pportunities
• Highly experienced management team
• Delivering quality improvement in all operational areas, strong project

management, partnering and rolling stock capability

Our business Our plans

• Delivering rail services with customers at the heart of what we do
• Bid to replenish portfolio, similar levels of profitability and risk

Value

• pportunities
• £5bn of UK rail turnover available for bid pre-April 2017
• Shortlisted for five franchising competitions to date

UK Bus

Giles Fearnley, Managing Director

76

77

UK Bus – overview

• Total revenues of £4.4bn per annum – UK, excluding London
• Market segmentation offers great potential

Market

• pportunity
• 20% market share outside London
• Operating in seven of the 12 most densely populated cities
• 57% of operations across major northern and Scottish conurbations

Our strengths

• Delivering service quality through rigorous focus on disciplined operations
• Designing networks to maximise demand and offering real value for money fares
• Developing ticketing and customer-facing technologies that stimulate growth and loyalty

The proposition

• Transformation programmes across whole division
• Network and fares reviews proving growth potential
• Passenger volume growth 2.0% to date (FY14)

Strategic progress

• Strong revenue growth underpinned by sustained volume growth and tight cost controls
• Double digit margins by 2017

Our

• bjectives

5-16 15% 17-20 10% 21-29 16% 30-39 12% 40-49 12% 50-59 9% 60-69 12% 70+ 14% 78

Bus trips by age band Bus trips by journey purpose

Shopping 25% Commuting 23% Leisure and

• ther

21% Education/ education escort 17% Personal business 10% Business 2% Other Escort 2% Source: DfT National Travel Survey, Great Britain 2012

The UK Bus market remains attractive

 FirstGroup captures 20% of UK market (outside London):

• £871m revenues (FY13)
• Carrying 577m passenger (FY13)
• Operating principally in major urban areas
• Growth strategies targeting each market segment:
• By journey purpose and by age
• Young people provide a great growth opportunity:
• Between 1997 and 2012 the number holding

full car driving licences fell by: Age 17-20 7% Age 21-29 9%

• Significant spare capacity to accommodate growth

79

We have compelling positions in key markets

Financial year 2012/13 revenues

63% 25% 6% 6% Fare paying passengers Concessions Tenders Other Scotland 24% England 68% Glasgow 15% Mid & West Lothian 6% Aberdeen 3% West Yorkshire 15% Manchester 10% Bristol & Avon 9% South West 2% Midlands 6% Norfolk/Suffolk 4% Aircoach 3% Essex 6% Cymru 5%

Revenue £866m Revenue £866m Revenue £866m Revenue £866m Revenue £866m Revenue £866m Revenue £866m Revenue £866m Revenue £866m Revenue £866m Revenue £866m Revenue £866m Revenue £866m Revenue £866m Revenue £866m Revenue £865m

South & North Yorkshire 9% Hants Dorset & Berks 7% Wales 5% Ireland 3%

80

UK Bus – a snapshot of our operations

81

The UK Bus strategy has changed

+22 % +5%

• 3%

 Maximise yield per passenger and per bus by:

• Raising fares above inflation
• Reducing service frequency
• Variable service quality
• Under-investment

 Poor customer proposition, increasingly not offering value for money, leading to:

• Customer dissatisfaction
• Local authority despair
• Increased competition

Historic strategy – pre 2012 The transformed business RESULT: VOLUMES DECLINED

 Maximise revenue growth through:

• Fares offering real value for money
• High standards of service
• Tight cost disciplines
• Focused investment

 Deliver a strong, attractive customer proposition, creating:

• Responsive networks
• Valuable partnerships with local authorities
• Increasing volumes
• Greater market share

RESULT: PROFITABLE VOLUME GROWTH

40.0% 80.0% 120.0% 160.0% 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 Cost per mile Average fare Public Funds RPI Commercial/Other Rev Mileage Commercial Pax

Bus transformation plan – the levers for change (1)

Lever Initiative Progress to date Portfolio

• Sale of non-core assets
• Completed

Disciplined Operations

• Core operating procedures and

standards

• Cost efficiencies
• Breakdowns reduced by 27%
• Vehicle defects reduced by 29%
• Engineering lost mileage reduced by 21%

Network Delivery

• Design – to maximise growth
• pportunities and increase market

share

• Partnerships – to create strong

delivery mechanisms with local authorities, improving service delivery

• Fares and fare structures – a new

approach to deliver volume and revenue growth

• Numerous route upgrades and initiatives
• 10 major redesigns completed to date
• Examples of deeper arrangements including Sheffield Bus

Partnership and the Eclipse network in Hampshire

• Award of Better Bus Area status in Bristol, Sheffield and

York

• Providing the strongest defence to the regulatory agenda
• Reductions in selected fares products, particularly day

and weekly tickets, have now been applied to c.65% of the business. Volume growth is achieving expectations

• Focus on discounts to young people

82

Together these measures deliver a compelling offer to customers

Bus transformation plan – the levers for change (2)

83

Together these measures deliver a compelling offer to customers

Lever Initiative Progress to date People

• Training and development for all

employees, directly related to individual roles and responsibilities

• Creating a customer centric

culture

• Driver CPC courses and on-the-job training for engineers
• Leaders and managers receiving personal development

support and training

• Managing Director appointments to each business unit
• Recruitment of specialist commercial and technology

experts

• 30% of senior managers recruited to role since 2012
• Significant cultural change

Investment

• Core operating procedures and

standards

• Cost efficiencies
• Deliveries on track and achieving reduction in average

fleet age from 9.4 to 8.2 years in 2016

• Plans developed to deliver smart and mobile products

through 2014

• Apps and web channel upgraded; real time service

information, working alongside local authorities

Bus transformation plan – cost efficiency opportunities

84

Drivers

• New starter rates
• Scheduling and rostering
• Terms and conditions

Fuel

• DriveGreen – driving behaviours
• Working with manufacturers for continuous

improvement

• Lightweight and flybrid technologies
• Low carbon certification for Streetlite

Engineering

• Labour recording system
• Investment in diagnostic equipment

reducing breakdowns

• Increasing skill levels
• Benchmarking by depot and vehicle type
• Purchasing and supplier management
• Benefits from new buses
• Fewer vehicle types
• Lower maintenance costs

Overheads

• Continuous review of all support functions
• Depot rationalisations
• Energy efficiency programmes
• Investing to support frontline delivery

Drivers 43% Fuel 16% Traffic 7% PCV 9% Building Overheads 3% Non Building Overheads 5% Total Labour 56% Fuel 16% Dep'n 6% Parts & Support Services 14% Other Overheads 8% Engineering 15% Other Direct & Semi Direct Costs 2 %

Financial year 2012/13 costs

85

Commercial volume growth – strategy delivering results

Area Mileage % Actions Commercial Volumes % Commercial Revenue % Comments Bristol +4%

• Service enhancements
• Performance improvements
• No fares increase

+7% +3% Major fares realignment introduced Nov 2013 following consultation Leeds +4%

• Stable network
• Performance improvements
• Inflation only fares increases

(18 months) +9% +5% Pricing initiatives (day and weekly products) launched Jan 2014 Manchester +1%

• Day and weekly prices

reduced by 30% (Apr 2013)

• Performance improvements

+13% +1% Volumes continue to increase Sheffield 0%

• Partnerships from Oct 2012
• Fares realigned
• Performance improvements

+17% +12% Total ridership (all operators) for adult fare-paying passengers increased by 9%

April-December 2012 vs. April-December 2013

Commercial volumes represent fare paying passengers Commercial revenue excludes concessionary fares reimbursement and tendered service support

Significantly increasing the customer base

86

UK Bus case study – Bristol

• Service performance badly

affected by congestion

• Over complex and anomalous

fare structures leading to a perception of over-pricing

• Difficult relationships with the

West of England local authorities and the newly-elected Mayor of Bristol

• Service performance improved through

lost mileage reduction of 21%

• Passenger volumes increased by a

further 6% following November fares changes

• Overall passenger satisfaction score rises

to 93%

• Working closely with the Mayor to drive

the city’s economy

• The future

– Fares consultation for Greater Bristol networks, Spring 2014 – Comprehensive marketing campaigns

• Additional resource to maintain

timetable – but congestion remains a major issue

• Responding to growing night-

time economy with additional late evening and night services

• Following a major public

consultation (6,500 respondents) – launched a new fares structure from November 2013 – focused

• n zonal and young persons’

products

2011/12 Pax +3% Complaints +4% STA +2% 2012/13 Pax –4% Complaints +3% STA – no change 2013/14 Pax +6% Complaints +4%* STA -1%* Consolidated from 3 to 2 depots Mayor of Bristol elected Focus on service performance Fares increase deferred Public consultation

• f fares

Increased evening and night services Fares changes implemented

STA – start time adherence Complaints – per 100 passengers * STA and complaints metrics for 2013/14 are impacted by a significant programme of roadworks and construction activity in central Bristol

The issues Actions taken The results

87

UK Bus case study – Leeds

2011/12 Pax –4% Complaints +4% STA +2% 2012/13 Pax -4% Complaints +2% STA -1% 2013/14 Pax +10% Complaints -6% STA +3% Opening of Trinity Shopping Centre Multiple fare rises Delivery of 100 Olympic buses Fare increase deferred Student campaign

STA – start time adherence Complaints – per 100 passengers

• Poor service performance
• Driver training backlog
• Frequent service changes
• History of above inflation fares

increases

• Little confidence from local

authority (West Yorkshire PTE)

• 100k additional passengers per week
• 32% of new passengers new to bus and

71% travelling only 1-3 times per month

• Service performance improved through

lost mileage reduction of 24%

• Delivering best defence to a regulatory

regime

• The future

– From January 2014 reduction in day and weekly tickets – Aligned to the city’s growing economy – Opportunity for partnership working

• Transformation programme

focusing on all aspects of service delivery

• Acceleration of training

programmes

• Stable service network with

additional growth mileage

• Fares increase deferred six

months and then applied at inflation

• Pro-active in developing

partnership proposals with local authority The issues Actions taken The results

88

UK Bus case study – Manchester

2011/12 Pax +2% Complaints +2% STA -1% 2012/13 Pax –9% Complaints +3% STA +3% 2013/14 Pax +14% Complaints -2% STA +1% Announced intention to acquire Finglands FirstGroup fares considerably higher than competitors Delivery of 100 Olympic buses Fare reductions through GM Delivery of 30 new buses Evolving marketing campaign Oldham / M60 fare trials FirstGroup fined by traffic commissioner

STA – start time adherence Complaints – per 100 passengers

• Poor passenger and local

authority (Transport for Greater Manchester) perceptions: – Variable service performance – Fares c.40% higher than

• ther operator comparables

– Tired fleet

• Low employee morale
• An eroding market
• 150k additional passengers per week
• 46% of new passengers new to bus and

67% now travelling 1-3 times per month

• Service performance improved through

lost mileage reduction of 32%

• Stronger relationships with local

authority

• The future

– Marketing campaigns continue – Benefits of Finglands acquisition

• Transformation programme

focusing on all aspects of service delivery

• Following trials, permanent

reductions of c.30% in day and weekly products

• Marketing strategy to maximise

awareness including extensive door drops targeting car users

• Cross city services introduced
• 130 new buses
• Staff engagement throughout

The issues Actions taken The results

89

UK Bus case study – Sheffield

2011/12 Pax –8% Complaints +1% STA +1% 2012/13 Pax –4% Complaints +7% STA -3% 2013/14 Pax +20% Complaints -10% STA +2% Phased price reductions Strong yields from inflationary fare increases Extensive student campaign Bus partnership launched Targeted route campaigns building

• n fare position

New and refurbished vehicles

STA – start time adherence Complaints – per 100 passengers

• Highly competitive network
• FirstGroup’s fares 30-50% above

competitors

• Poor service quality
• Elderly fleet
• Disillusioned employees
• Deservedly poor reputation
• Total passenger volume growth of 20%
• n FirstGroup’s services (adult fare

paying is 30%+)

• Volumes for all operators’ services now

growing by 9%

• Service performance improved through

lost mileage reduction of 32%

• The future

– Strong partnership foundation to deliver further growth – Network changes following consultation

• Transformation programme

focusing on all aspects of service delivery

• Fares reductions (c.30% on day

and weekly tickets)

• Sheffield Bus Partnership from

October 2012 delivering: – Co-ordinated route structures – Elimination of over- resourcing – Strong network promotion

• 37 new buses + 30 refurbished
• Strong staff engagement

The issues Actions taken The results

90

UK Bus case study – Glasgow: network redesign

services operating at frequencies of 10 minutes or better

• Continual mileage reductions

had focused on reduced frequencies

• Route structure complex and

many journeys not direct

• An impossible proposition for

effective marketing

• Opportunities for competitor

entry

• Against backdrop of a struggling local

economy: – SimpliCITY outperforming the rest of the Glasgow network – Against pre-launch trends SimpliCITY +1.2%, non-SimpliCITY +0.2% volume growth

• SimpliCITY represents 68% of the

network’s revenue and 65% of resource

• The future

– 420k households receiving direct marketing – Further network strengthening planned

• SimpliCITY network introduced

May 2013 following extensive consultation with public and local authorities

• High frequencies (10 mins or

better) restored to core services

• Better co-ordination across all

services

• Simpler links to and from city

centre

• Achieved with no increase in

mileage

• A strong marketable proposition

The issues Actions taken The results 2005 2012 SimpliCITY from May 2013

91

UK Bus capital investment

PCV capex (£m) Fleet age and DDA compliance (ex London)

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 7.6 7.8 8.0 8.2 8.4 8.6 8.8 9.0 9.2 9.4 9.6

DDA Compliance Average Age

 Additionally – mid-life refurbishments of: 379 buses in 2013/14 273 buses in 2014/15  Reduction of 24 vehicle types by 2017  Focus on fuel efficiency:

• lightweight, micro Hybrid and Flybrid technologies

delivering 10%+ fuel efficiency

• low carbon certification on Streetlite qualifies for

6p increase in BSOG payments  Alternative fuel source trials – in 2014 include:

• electric for York’s Park & Ride services
• hydrogen for Aberdeen

20 40 60 80 100 120 08/09 09/10 10/11 11/12 12/13 London/Regulated Rest of UK/De-regulated

Total capex (£m) Reducing average fleet age and achieving DDA compliance

20 40 60 80 100 120 140 Other PCV's Property

£339 £126 £6 £114 £52 £70 £73 Drivers Fuel (net) Tyres Engineering Traffic PCV Overheads £546 £214 £49 £62

Portfolio ($m)

Fare paying passengers Concessions Tenders Other revenues

92

The roadmap to double digit margins

4.7% 1.0% (1.8%) c.3.0% c.3.0% c.10.0% 0% 2% 4% 6% 8% 10% 12% FY13 Portfolio Headwinds Cost efficiency Growth FY17

Costs (£m) Revenue (£m)

0.1%

c.3.0% c.3.0%

93

UK Bus – summary

• The transformation plan is working by:

– driving the potential in each market – utilising spare capacity to meet this increasing demand – successfully partnering with local authorities – aligning objectives and underpinning the delivery of high quality bus services

Our business Our plans

• Each component of the transformation plan is coming together to enable the full

potential within each market to be achieved

• The introduction through 2014 of smart and mobile ticketing, together with

enhancements to customer information channels will spur further growth

Value

• pportunity
• Exploiting the compelling position held in each market
• Profitably expanding the customer base – passenger volumes are increasing at

unprecedented levels

• In combination, these strategies are creating a robust business
• Restoring double digit margins by 2017

Financial framework

Chris Surch Group Finance Director

94

Key topics

95

Group profile Financial objectives and supporting management framework Capital structure Medium term potential

Group profile

96

Revenue Operating profit

Financial year 2012/13: post-IAS19 excluding Group items

Group ROCE at 31 March 2013 was 7.6%

First Student 22% First Transit 12% Greyhound 9% UK Bus 16% UK Rail 41% First Student 36% First Transit 16% Greyhound 18% UK Bus 18% UK Rail 12%

Medium term financial objectives

• Four-year financial objectives:

– Grow Group revenue (excluding UK Rail) at a faster rate than the underlying economy – First Student and UK Bus: improve margins to 10% – Greyhound: improve margins to approximately 12% – First Transit: maintain margins while investing to take advantage of key outsourcing

• pportunities

– UK Rail: maintain similar levels of profitability and risk – Post-tax ROCE* in the range of 10%-12%

• Treasury objectives:

– Net debt : EBITDA ratio of 2.0x in the medium term – Maintain appropriate liquidity headroom – Maintain investment grade credit rating

97 * Defined on next page

Return on capital employed

• Calculation based on statutory accounts disclosures
• ROCE includes tax structuring benefits
• Capital employed includes goodwill, excludes net debt

and accrued interest

98

ROCE FY13 (£m)

Operating profit (post-IAS19) 275.5 Effective tax rate 20.1% Operating profit post-tax 220.1 Balance sheet net assets 819 Less: gross cash (Note 21 to Annual Report) (682) Plus: gross debt (Note 22 to Annual Report) 2,759 Capital employed 2,896 ROCE FY13 (as reported) 7.6% Operating profit after tax All assets and liabilities, excluding debt items

Medium term ROCE target of 10% to 12%

Framework for managing and driving improved returns

99

Drive returns Objectives Operational returns: ROCE 10-12% Capital structure: Investment Grade Rating 2.0x net debt / EBITDA in medium term Returns FirstGroup to being a reliable and consistent cash generative business Strong cash flow Margin expansion EPS Free cash flow Revenue growth Divisional turnaround plans Operating leverage Capital expenditure control Capital structure 1 2 3 4 5

Revenue growth

100

• General:

– GDP based businesses: economic recovery from 2015

• First Student:

– Optimise existing portfolio and share shift – Charter growth to maximise utilisation of assets

• First Transit:

– Continual focus on bid pipeline (retention and new opportunities) – Growth in context of margin maximisation and ROCE for shuttle

• Greyhound:

– Capacity and yield management on core network and Express services – New point-to-point services

• UK Bus:

– Refreshed commercial proposition – Passenger, concessions, other revenue volumes – Pricing and funding

• UK Rail:

– Passenger volumes – New contract bids 1

GDP growth Contract growth and

• ptimisation

Continued growth Yield management Network rationalisation less funding Rail franchises

Divisional turnaround plan – First Student

101

First Student roadmap to double digit margins 2

c.2.0% >1.0%

$1,060 $230 $225 $195 $85 $400

Cost efficiency ($m)

Driver comp Depreciation Maintenance Fuel Insurance Other running costs / overhead $2,175 $105 $90

Portfolio ($m)

Contract revenue Student charter Commercial charter

c.7.5% >10.0% c.2.0% >1.0% c.(0.5%) 5% 6% 7% 8% 9% 10% 11% FY14 Cost efficiency Portfolio Above CPI increases / other FY17

Cost efficiency ($m) Portfolio ($m)

Divisional turnaround plan – UK Bus

UK Bus roadmap to double digit margins 2

102

£339 £126 £6 £114 £52 £70 £73 Drivers Fuel (net) Tyres Engineering Traffic PCV Overheads £546 £214 £49 £62

Portfolio ($m)

Fare paying passengers Concessions Tenders Other revenues

4.7% 1.0% (1.8%) c.3.0% c.3.0% c.10.0% 0% 2% 4% 6% 8% 10% 12% FY13 Portfolio Headwinds Cost efficiency Growth FY17

Costs (£m) Revenue (£m)

0.1%

c.3.0% c.3.0%

Operating leverage – improved margins

103 * All margins post-IAS19

Student Transit Greyhound

• Transformation
• Growth and efficiency
• Growth
• Cost containment
• Growth
• Cost containment

7.4% 7.6% (underlying) UK Bus

• Transformation
• Growth and efficiency

Double digit Stable c.12% Double digit 8.4% 4.7%

Margin FY13 Objective Medium term plan Increased margins from revenue growth, investment and sharing of best practice 3

Profit – building blocks to future value

104

100 200 300 400 500 600 Actual FY13 Turnaround programmes Trading Economic recovery Potential Rail wins Potential FY17 Operating profit

Capital expenditure

105

Annual capex Maintenance capex Fleet growth and other capex Returns-focused capital expenditure

Gross capex (£m) Student 180 - 200 Transit 30 - 40 Greyhound 50 - 70 UK Bus 110 - 120 Group 10 - 20 Gross capex 400 Student Share shift at good returns Transit Expansion in growing shuttle market Greyhound Yield management system UK Bus Reinvestment in fleet Smart ticketing Depot rationalisation

1.2x depreciation = c.£320m

* All capital expenditure excludes Rail

4

£0m £100m £200m £300m £400m 14/15 H1 14/15 H2 15/16 H1 15/16 H2 16/17 H1 16/17 H2 17/18 H1 17/18 H2 18/19 H1 18/19 H2 19/20 H1 19/20 H2 20/21 H1 20/21 H2 21/22 H1 21/22 H2 22/23 H1 22/23 H2 23/24 H1 23/24 H2 24/25 H1 Lease Finance Loan Notes Private Placement Notes £200m Bond 2024 (6.875%) £325m Bond 2022 (5.250%) £350m Bond 2021 (8.750%) £250m Bond 2019 (6.125%) £300m Bond 2018 (8.125%)

Capital structure – funding

106

On plan to achieve net debt/EBITDA of circa 2.2x by March 14 Medium term objective is c.2.0x

• Net debt ‘right sized’ through rights issue
• Simple Net Debt/EBITDA reduced to 2.4x at

September 2013, from 3.3x at March 2013

• Strong liquidity
• Primarily Bond and Lease financed
• Considerable bank financing available under RCF

($1.25bn) due Dec 15

• Additional bonding and letter of credit

requirements met through bank and surety markets

• Plan to bring interest costs down whilst

maintaining adequate liquidity and appropriate risk management policies

5

£0.0bn £0.5bn £1.0bn £1.5bn £2.0bn £2.5bn £3.0bn Mar 13 Sep 13

Gross debt

Bank Debt Finance leases Private Placement Bonds

Capital structure – Investment Grade status

Continued commitment to Investment Grade rating

• Rights Issue put us on track to meet Investment Grade metrics in medium term, whilst allowing funding
• f significant investment programme in the short term
• No change in rating or outlook from S&P following methodology changes announced in December
• Recent affirmation of rating and outlook by Fitch (December 2013)
• Credit positives cited by Agencies include competitive position, strong liquidity and diversified portfolio

107

S&P Fitch Current Rating (Outlook) BBB- (Negative) BBB- (Stable) Key Metric FFO/ Net Debt Net lease adjusted FFO Leverage Target level 25% 3.5x Reported March 2013 15.8% 4.6x

5

Capital structure – pensions

108

Characteristics

• Size of schemes
• Discount rate volatility
• Strength of covenant

P&L vs. cash charges Interest rate movement since 2010 valuations £m P&L 2012/13 Cash: accrual Cash: deficit Cash: total

UK Bus 24.7 29.1 20.0 49.1 Rail 45.4 42.4

• 42.4

North America 15.7 4.5 23.9 28.4 Total 85.8 76.0 43.9 119.9

Service cost (£85.6m) + deficit contributions (£43.9m) – other (£9.6m) = £119.9m total cash charges P&L charge includes service cost plus £0.2m net interest charges

2.0 2.5 3.0 3.5 4.0 4.5 5.0 Mar-2010 Sep-2010 Mar-2011 Sep-2011 Mar-2012 Sep-2012 20 year fixed interest gilt yield

Yield reduced by 1.78% over period Magnitude of pension schemes £m Scheme assets 30 Sep 13 Net deficit 30 Sep 13 Op profit 2012/13

UK Bus 1,936 (45.3) 53.5 Rail 1,334 (7.9) 38.0 Student 78 (17.4) 109.9 Greyhound 393 (134.6) 54.5 Transit

• 49.1

Corporate

• (29.5)

Total 3,741 (205.2) 275.5

5

Returning to sustainable cash flows

109 * Before dividends and corporate disposal proceeds

Cash generation available to distribute as dividends or reinvest for further growth

Cash sources and uses

2012/13* Medium term plan*

EBITDA EBITDA Cash capex Cash capex Interest & tax Interest & tax Pensions Pensions W.cap/other W.cap/other Net cash outflow Net cash inflow Cash flow £'m

Tim O’Toole

Chief Executive

110

Q&A

111

112

Appendix: abbreviations

ADA Americans with Disabilities Act ASE Automotive service excellence – qualification awarded by the National Institute for Automotive Service Excellence CAGR Compound annual growth rate CPC Certificate of Professional Competence (bus driver training) CPI Consumer price index DDA Disability Discrimination Act DfT Department for Transport FCC First Capital Connect FFO Funds from operations (measure of cash flow used by ratings agencies) FGW First Great Western FSR First ScotRail FTPE First TransPennine Express GDP Gross domestic product GLI Greyhound Lines Inc. HHI Household income IEP InterCity Express Programme IRR Internal rate of return NEMT Non-emergency medical transport NPS National Passenger Survey NR Network Rail O&D Origin and destination ORR Office of Rail Regulation PCV Passenger carrying vehicle PPM Public performance measure (UK Rail industry punctuality and reliability measure) PTE Passenger Transport Executive RCF Revolving credit facility RFP Request for Proposal ROCE Return on capital employed ROSCO Rolling Stock Company RPI Retail price index RPM Revenue per mile SPV Special purpose vehicle STA Student Transportation of America Inc. STA Start Time Adherence (UK Bus measure of punctuality) TOC Train operating company TSGN Thameslink, Southern and Great Northern TUPE Transfer of Undertakings Protection of Employment (UK employment regulation)

Disclaimer

Certain statements included or incorporated by reference within this presentation may constitute “forward looking statements" in respect of FirstGroup plc's

• perations, performance, prospects and/or financial condition. Such statements are based on FirstGroup plc'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 plc's present and future strategy and the environment in which it operates, which may not be accurate. FirstGroup plc undertakes no obligation to update any forward looking statements contained in this presentation or any other forward looking statements it 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

• r 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.

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