FIRSTGROUP PLC
FIRSTGROUP PLC
HALF-YEARLY RESULTS FOR THE SIX MONTHS TO 30 SEPTEMBER 2017
Overview
* Overall trading for the Group in the first half was consistent with plans
outlined at start of the financial year
* Strong cash performance in addition to inflows from recent start of South
Western Railway ('SWR')
Financial summary
* Group revenue +8.1% including new SWR rail franchise from 20 August and
favourable foreign exchange; excluding these, Group revenue was +0.9%
* Adjusted1 operating profit flat, with solid trading performances and
favourable foreign exchange offset by c.£6m impact of severe North American
hurricanes, mainly on First Transit's three contracts in Puerto Rico; in
constant currency, adjusted1 operating profit (9.1)%
* Adjusted1 EPS +35.7% reflecting lower interest costs tempered by
significantly higher tax rate as expected; adjusted1 EPS flat in constant
currency
* Net cash inflow of £97.0m (H1 2016: outflow of £64.3m) in the period
includes a cash flow improvement of £86.2m in addition to a £75.1m working
capital inflow from the start of the SWR franchise
* Net debt: EBITDA improved to 1.7 times at the half year, compared to 2.4
times a year ago
* Statutory operating profit decline of £20.5m, statutory loss before tax of
£1.9m and statutory EPS reduction to 0.2p principally reflect a gain on
disposal of property in the prior period which did not recur
Adjusted1 H1 2017 H1 2016 Change Change in SWR-adjusted
£m £m constant change in
currency2 constant
currency3
Revenue 2,771.3 2,564.7 +8.1% +3.5% +0.9%
Operating profit 89.4 89.0 +0.4% (9.1)%
Operating profit 3.2% 3.5% (30)bps (50)bps
margin
Profit before tax 30.5 21.9 +39.3% +2.0%
EPS 1.9p 1.4p +35.7% flat
Net debt4 1,179.9 1,491.5 (20.9)% (20.3)%
Statutory H1 2017 H1 2016 Change
£m £m
Revenue 2,771.3 2,564.7 +8.1%
Operating profit 57.4 77.9 (26.3)%
Operating profit 2.1% 3.0% (90)bps
margin
(Loss)/profit (1.9) 11.1 n/m5
before tax
EPS 0.2p 0.7p (71.4)%
Divisional summary
* First Student delivered +5.3% average price increases and 83% retention
through our 'up or out' bidding strategy, successfully managed school start
up despite ongoing driver shortages, and completed an acquisition in the
period
* First Transit growth and contract wins continued but margin affected by
severe hurricane impact mainly on our Puerto Rico operations, and higher
driver shortage costs due to strength of US employment market
* Greyhound like-for-like6 revenue +1.2%, including +7.8% in Greyhound
Express and other short haul growth while long haul declined; fuel and cost
savings partially offset higher inflation and maintenance costs
* First Bus like-for-like6 passenger revenue +0.6% including +1.3% from
commercial passengers; adjusted1 margin improved 50bps in period, driven by
systematic programme of management actions
* First Rail like-for-like6 passenger revenue +3.2% and cost efficiencies
contributed to an increased margin; SWR franchise commenced towards end of
period
Looking ahead
* Our overall trading and cash performance in first half, excluding the short
term impact of the severe hurricanes, affirms our confidence that the Group
will make further progress and deliver substantial cash generation for the
full year
Commenting, Chief Executive Tim O'Toole said:
"The overall trading performance and significantly increased free cash
generation of the Group in the first half was consistent with the plans we
outlined at the start of the financial year. Solid performances from most of
our businesses are partially obscured by the impact of the recent severe
hurricane on our operations in Puerto Rico. In the second half we will benefit
from our normal seasonal bias, our ongoing focus on cost efficiencies and from
additional business which commenced in the period, including the South Western
Railway franchise. We expect to make further progress and deliver substantial
free cash generation for the year as a whole."
Contacts at FirstGroup:
Faisal Tabbah, Head of Investor Relations
Stuart Butchers, Group Head of Media
Tel: +44 (0) 20 7725 3354
Contacts at Brunswick PR:
Andrew Porter / Alison Kay, Tel: +44 (0) 20 7404 5959
A presentation for investors and analysts will be held at 9:00am today -
attendance is by invitation. A live telephone 'listen in' facility is available
- for joining details please call +44 (0) 20 7725 3354. A playback facility
will be available together with presentation slides and a pdf copy of this
report at www.firstgroupplc.com/investors.
Notes
1 'Adjusted' figures throughout this document are before other intangible
asset amortisation charges and certain other items as set out in note 3 to the
condensed consolidated financial statements.
2 Changes 'in constant currency' throughout this document are based on
retranslating H1 2016 foreign currency amounts at H1 2017 rates.
3 Growth excluding revenue associated with the South Western Railway
franchise which became part of the First Rail portfolio towards the end of the
period, in constant currency.
4 Net debt is stated excluding accrued bond interest, as explained on
page 11.
5 Period on period percentage change not meaningful.
6 References to like-for-like revenue adjust for certain factors which
distort the period-on-period trends in our passenger revenue businesses, as
described on page 11.
Legal Entity Identifier (LEI): 549300DEJZCPWA4HKM93. Classification as per DTR
6 Annex 1R: 1.2.
FirstGroup plc (LSE: FGP.L) is a leading transport operator in the UK and North
America. With £5.7 billion in revenue and more than 100,000 employees, we
transported around two billion passengers last year. Each of our five divisions
is a leader in its field: In North America, First Student is the largest
provider of student transportation with a fleet of more than 40,000 yellow
school buses, First Transit is one of the largest providers of outsourced
transit management and contracting services, while Greyhound is the only
nationwide operator of scheduled intercity coaches. In the UK, First Bus is one
of Britain's largest bus operators, transporting 1.6 million passengers a day,
and we are one of the country's most experienced rail operators, carrying
around 130 million passengers last year.
Our vision is to provide solutions for an increasingly congested world...
keeping people moving and communities prospering.
Visit our website at www.firstgroupplc.com and follow us @firstgroupplc on
Twitter.
Chief Executive's report
Our overall trading performance and free cash generation in the first half was
consistent with the plans we outlined at the start of the financial year, with
solid performances from most of our businesses partially obscured by the impact
of the recent severe hurricanes, particularly on our operations in Puerto Rico.
First Student continued to execute our pricing strategy, focusing on retaining
or bidding for contracts at prices that reflect appropriate returns, and
delivered ongoing price increases and contract retention. Margin in the
seasonally weaker first half was lower than the prior period mainly due to
fewer operating days, as anticipated. With school start-up completed we are
well positioned to deliver further progress for the full year, notwithstanding
the ongoing industry-wide driver shortage challenges in parts of the US. In
August we acquired Falcon Transportation in Illinois, a 94 bus operation which
extends our relationship with the Chicago public school system and offers
synergies with our other operations in the city.
First Transit had a difficult first half, with continued revenue growth
insufficient to offset higher costs resulting from driver shortages and the
impact of the severe hurricanes including Maria, which devastated the island of
Puerto Rico where we have two vehicle services contracts and a fixed route
business. We are confident margins will be restored to more typical levels for
the division in the second half and beyond, and First Transit has continued to
retain existing business and win new contracts in the period.
Greyhound's overall growth modestly accelerated in the period, and it is
becoming increasingly clear that in current market conditions our opportunity
is strongest for our point-to-point Greyhound Express and other short haul
trips, where we saw significant growth in the period. Long haul demand
currently remains weak in the face of competition from budget airlines. We
continue to adapt our business in response to these divergent trends, in order
to capture the opportunities for profitable growth available to us as a result
of our unique nationwide coverage and the new business tools at our disposal.
First Bus delivered encouraging like-for-like passenger revenue growth overall
in the period, though industry conditions remain uncertain. Margin in the
period mainly benefitted from our systematic programme of management actions to
maximise patronage, increase efficiency and reduce cost, including the recent
closure of three depots. We anticipate an acceleration of efficiencies and
savings in the second half, as we focus our investment only on those local
markets where our stakeholders recognise the value to the community of
successful bus services, and where our ability to generate sustainable value is
strongest.
First Rail revenues increased significantly, reflecting the inclusion of the
South Western Railway franchise for the first time as well as passenger revenue
growth in our pre-existing businesses. Our plans for each of our franchises are
based on improving the experiences of our passengers through fleet upgrades,
timetable improvements and performance enhancements, though some of these are
reliant on infrastructure upgrades managed by our industry partners,
particularly in GWR, which are progressing at a slower pace than originally
envisaged.
In the second half we will benefit from our normal seasonal bias, our ongoing
focus on cost efficiencies and from additional business which commenced in the
period. Notwithstanding some of the challenges faced in the first half, we
expect to make further progress over the full year, while our cash performance
so far affirms our confidence in generating substantial free cash flow for the
year as a whole.
Last Thursday marked one year since the fatal derailment of a tram we operate
on behalf of Transport for London in Croydon, a tragedy which continues to
weigh heavily on us. We continue to provide our full support to the ongoing
investigations into the incident, as it is absolutely essential that the
reasons for the derailment are established.
Tim O'Toole
Chief Executive
14 November 2017
Operating and financial review
Group revenue in the first half increased by 8.1% reflecting the impact of
First Rail's new SWR franchise and translation of our US dollar-based
businesses into sterling at more favourable rates than the prior period. Group
revenue increased by 0.9% in constant currency and after adjusting for the new
SWR franchise, with revenue growth on this basis in all divisions except First
Student, where our pricing strategy continues to result in a smaller but higher
returning portfolio of contracts.
Group adjusted operating profit in the first half increased modestly to £89.4m
(H1 2016: £89.0m), with growth, ongoing cost efficiencies and favourable
currency translation offset by the impact of the recent severe hurricanes,
particularly for First Transit's operations in Puerto Rico, fewer First Student
operating days in the first half as expected and the initial impact of the SWR
franchise, which commenced during the Waterloo platform upgrade in late August.
Net finance costs before adjustments were £58.9m (H1 2016: £67.1m) with the
decrease principally reflecting the lower level of net debt and lower interest
rates, and adjusted profit before tax increased by 39.3% to £30.5m (H1 2016: £
21.9m). Adjusted profit attributable to ordinary shareholders was £22.4m (H1
2016: £16.3m) with higher adjusted profit before tax and a loss attributable to
non-controlling interest due to the start of the SWR franchise partly offset by
a higher effective tax rate of 30.0% (H1 2016: 25.1%). Adjusted EPS increased
by 35.7% to 1.9p (H1 2016: 1.4p). Excluding the changes in First Rail's
franchise portfolio and in constant currency, adjusted EPS increased by 10.5%.
EBITDA increased by 10.5% to £278.2m (H1 2016: £251.7m).
Statutory operating profit decreased by 26.3% to £57.4m (H1 2016: £77.9m),
principally reflecting the gain on disposal of a Greyhound terminal of £21.6m
in the prior period. Statutory profit attributable to equity shareholders was £
2.1m (H1 2016: £9.0m), and statutory EPS decreased to 0.2p in the period (H1
2016: 0.7p).
The net cash inflow for the period of £97.0m (H1 2016: outflow £64.3m)
represents an improvement of £86.2m compared with the prior period together
with a First Rail start of franchise cash inflow of £75.1m. The improvement in
cash flow before First Rail start of franchise cash flows was driven by higher
EBITDA, timing of certain working capital flows and lower capital expenditure
partly offset by lower proceeds from the disposal of property, plant and
equipment primarily due to the sale of a Greyhound terminal in the prior
period. The net cash inflow, combined with movements in debt due to foreign
exchange, resulted in a net debt decrease in the first half of £110.0m relative
to the 31 March position (H1 2016: increase of £81.3m). As at 30 September
2017, the net debt: EBITDA ratio was 1.7 times (H1 2016: 2.4 times). Liquidity
within the Group has remained strong; as at 30 September 2017 there was £844.1m
(H1 2016: £824.8m) of committed headroom and free cash, being £800.0m (H1 2016:
£745.0m) of committed headroom and £44.1m (H1 2016: £79.8m) of free cash. Our
average debt maturity was 3.2 years (H1 2016: 3.9 years).
During the period gross capital investment of £205.9m (H1 2016: £161.3m) was
made in our business. As previously indicated this increased investment was
primarily in First Rail (increasing to £56.5m from £22.8m in H1 2016), and is
incorporated into our franchise bidding assumptions. ROCE was 7.9% (H1 2016:
8.3% at constant exchange rates).
6 months to 30 September 6 months to 30 September Year to 31 March 2017
2017 2016
Revenue Operating Operating Revenue Operating Operating Revenue Operating Operating
£m profit1 margin1 £m profit1 margin1 £m profit1 margin1
£m % £m % £m %
First Student 763.1 14.8 1.9 719.5 14.0 1.9 1,780.3 171.1 9.6
First Transit 536.4 20.9 3.9 482.5 30.0 6.2 1,042.0 73.3 7.0
Greyhound 358.8 23.5 6.5 333.4 25.8 7.7 684.7 42.6 6.2
First Bus 428.2 15.8 3.7 426.1 13.5 3.2 861.7 37.0 4.3
First Rail 677.4 31.1 4.6 595.8 22.1 3.7 1,268.8 53.8 4.2
Group2 7.4 (16.7) 7.4 (16.4) 15.8 (38.8)
Total Group 2,771.3 89.4 3.2 2,564.7 89.0 3.5 5,653.3 339.0 6.0
$m $m % $m $m % $m $m %
North America
in
US Dollars
First Student 982.8 18.1 1.8 1,004.5 26.2 2.6 2,323.3 222.0 9.6
First Transit 692.0 26.7 3.9 663.6 41.4 6.2 1,358.9 95.2 7.0
Greyhound 463.0 30.5 6.6 457.5 34.3 7.5 894.0 55.2 6.2
Total North 2,137.8 75.3 3.5 2,125.6 101.9 4.8 4,576.2 372.4 8.1
America
1 Adjusted.
2 Tramlink operations, central management and other items.
First Student
6 months to 30 $m £m Change in
September constant
2017 2016 2017 2016 currency1
Revenue 982.8 1,004.5 763.1 719.5 (1.9)%
Adjusted operating 18.1 26.2 14.8 14.0 (26.7)%
profit
Adjusted operating 1.8% 2.6% 1.9% 1.9% (70)bps
margin
1 Based on retranslating H1 2016 foreign currency amounts at H1 2017
rates.
In the recently completed bid season, First Student continued to execute our
pricing strategy focusing on retaining or bidding for contracts at prices that
reflect an appropriate return on the capital we invest. In light of the
substantial proportion of the portfolio which has now been bid under the
strategy, the moderating 5.3% average price increase on 'at risk' business and
higher retention rate of 83% on 'at risk' contracts compared with prior year
were as expected. Across the entire portfolio of multi-year contracts,
retention was 94%, with overall price increases of 3.4%. Combined with a modest
level of organic growth and conversion of previously insourced work, we expect
to operate a slightly smaller, but higher returning, bus fleet of approximately
43,000 vehicles for the balance of the year, in line with our strategy. First
Student's revenue in the first half was $982.8m or £763.1m (H1 2016: $1,004.5m
or £719.5m). Compared with the prior period, revenues principally reflect the
net effect of our pricing strategy noted above and fewer operating days in the
half as anticipated, due to the timing of Easter at the start of the period.
Adjusted operating profit was $18.1m or £14.8m (H1 2016: $26.2m or £14.0m),
resulting in an adjusted operating margin of 1.8% (H1 2016: 2.6%). Excluding
the effect of fewer operating days in the period, the adjusted margin was flat,
with management actions, fuel savings and weather recoveries offsetting ongoing
employee cost pressures due to driver shortages as a result of the strong
employment market in parts of the US.
In August we acquired Falcon Transportation, a Chicago-based provider of school
and charter transportation services. Falcon started in 1996 and expanded to a
fleet of 94 school buses. With this acquisition, First Student extends its
market presence in Illinois and its relationship with Chicago Public Schools.
Overall First Student's first half performance has been solid and we were
pleased with this year's school start-up, notwithstanding continued driver
recruitment challenges in some markets. The division's results are always
heavily weighted to the second half because of the overlay of our financial
year on the North American school calendar, so as usual our performance in the
second half is key. However our performance in the first half means we are
positioned to deliver progress for the full year.
First Transit
6 months to 30 $m £m Change in
September constant
2017 2016 2017 2016 currency1
Revenue 692.0 663.6 536.4 482.5 +4.3%
Adjusted operating 26.7 41.4 20.9 30.0 (34.9)%
profit
Adjusted operating 3.9% 6.2% 3.9% 6.2% (230)bps
margin
1 Based on retranslating H1 2016 foreign currency amounts at H1 2017
rates.
First Transit's revenue in the first half was $692.0m or £536.4m (H1 2016:
$663.6m or £482.5m), an increase of 4.3% in constant currency. The revenue
performance benefitted from contract awards and organic growth, partially
offset by the impact of recent severe hurricanes, particularly on our Puerto
Rico operations.
Adjusted operating profit was $26.7m or £20.9m (H1 2016: $41.4m or £30.0m),
resulting in an adjusted operating margin of 3.9% (H1 2016: 6.2%). First
Transit's adjusted operating profit was reduced by approximately $6m due to the
effects of the recent hurricane season, principally the impact of hurricane
Maria which devastated the island of Puerto Rico in September. Margin was also
affected by higher costs driven by driver shortages in certain regions, as the
US employment market continues to tighten. First Transit also experienced
higher costs in relation to certain poorly performing contracts which completed
in the period.
We were awarded 14 new contracts and achieved a 94% retention rate in the
period. Wins or retentions included large fixed route contracts in Los Angeles
and Denver, vehicle services business for Seminole County, the City of
Arlington and the Maine Department of Transport, and shuttle contracts for
Clemson University and the University of Connecticut. In the period First
Transit also signed an agreement with GoMentum Station, a California-based
proving ground, to use the facility as a test site for a pilot project to
deploy the first commercially operated shared autonomous vehicle on public
roads in the US.
Through the continued delivery of our longstanding strategy, First Transit is
focused on continuing to drive growth by applying our skills and capabilities
in both our core and adjacent markets; and we expect to restore margins to more
typical levels in the second half and beyond.
Greyhound
6 months to 30 $m £m Change in
September constant
2017 2016 2017 2016 currency1
Revenue 463.0 457.5 358.8 333.4 +1.3%
Adjusted operating 30.5 34.3 23.5 25.8 (11.7)%
profit
Adjusted operating 6.6% 7.5% 6.5% 7.7% (100)bps
margin
1 Based on retranslating H1 2016 foreign currency amounts at H1 2017
rates.
Greyhound's revenue was $463.0m or £358.8m (H1 2016: $457.5m or £333.4m) in the
first half, and overall like-for-like revenue increased by 1.2%. Short haul
journeys, including our point-to-point Greyhound Express business which
delivered like-for-like revenue growth of 7.8%, outperformed long haul, where
competition from the budget airlines remains most intense. We are also
experiencing muted cross-border traffic in the US south west region due to
tighter immigration enforcement. In the period we continued to reduce mileage
modestly while achieving load factor and revenue per mile growth.
Adjusted operating profit was $30.5m or £23.5m (H1 2016: $34.3m or £25.8m), or
an adjusted operating margin of 6.6% (H1 2016: 7.5%). With the growth prospects
in different parts of our business diverging, we are adapting our business in
response, and we expect adjusted operating performance this year to be less
seasonally weighted to the first half than in previous years. However in the
period cost savings and a fuel cost benefit were not sufficient to offset the
impact of higher fleet maintenance and driver costs including training. We are
modestly increasing marketing spend to support awareness of the changes we have
made to our service, and investing additional resources in our fleet and
elsewhere: Greyhound launched e-tickets in September in selected city pairs,
bus-side ticket scanning continues to roll out and further customer service
training and terminal development was undertaken in the period. Greyhound also
ended its cooperation arrangements with Peter Pan Lines in the US North East
region at the end of the period, while in Canada Greyhound has recently applied
to the authorities in British Columbia for certain reductions to its services
in the province.
With the inherent strengths of our unique nationwide coverage, and the new
tools at our disposal, we are well positioned to capture the opportunities for
profitable growth available to us.
First Bus
6 months to 30 £m Change in
September constant
2017 2016 currency1
Revenue 428.2 426.1 +0.3%
Adjusted operating 15.8 13.5 +15.3%
profit
Adjusted operating 3.7% 3.2% +50bps
margin
1 Based on retranslating H1 2016 foreign currency amounts at H1 2017
rates.
First Bus reported revenue of £428.2m (H1 2016: £426.1m) in the period, with
like-for-like passenger revenue increasing by 0.6%, though demand patterns vary
widely across the division's local markets. Industry conditions remain
uncertain, with high street retail footfall trends and congestion affecting
passenger demand in many of our markets, particularly in the North and
Scotland. Commercial passenger revenue increased by 1.3% while commercial
passenger volumes decreased by 0.3% in the period. We continue to focus on
improving the reliability of our services and the convenience of our ticket
options to drive patronage. In some cases we are adjusting our fares to
encourage passengers to move to mobile ticketing and cashless payment.
Adjusted operating profit was £15.8m (H1 2016: £13.5m) and adjusted operating
margin was 3.7% (H1 2016: 3.2%), reflecting depot consolidation actions from
second half of the prior year, further cost efficiency actions in the period
including an additional depot closure, additional optimisation of our mileage
and network structures at a local level, and a benefit from fuel hedging,
partially offset by inflation. In the second half we anticipate the pace of our
cost efficiency programme to accelerate.
We are investing in First Bus at lower levels than the prior year, as we begin
to focus our capital budget only on those markets where the local transport
strategy recognises the importance of bus services in responding to the
problems of congestion, air quality, parking and issues of social exclusion.
For the current year we expect to take delivery of approximately 180 new buses
(year to March 2017: 272 buses). We also continue to invest in technology which
simplifies our passengers' journeys, and are particularly pleased with the
success of our contactless ticketing trials in Aberdeen and Bristol.
We have had an encouraging first half in First Bus, despite industry conditions
remaining relatively challenging. In the face of these market uncertainties,
our systematic programme of actions to raise margin and restore our ability to
create sustainable value in First Bus envisages an acceleration in the second
half - including further changes to the shape and breadth of our networks. We
are focusing our investments on those local markets where our stakeholders
recognise the value of bus services, allowing us to capture the best
opportunities for growing patronage and generate acceptable returns.
First Rail
6 months to 30 £m Change
September
2017 2016
Revenue 677.4 595.8 +13.7%
Adjusted operating 31.1 22.1 +40.7%
profit
Adjusted operating 4.6% 3.7% +90bps
margin
First Rail revenues increased to £677.4m (H1 2016: £595.8m), reflecting four
weeks of the new SWR franchise and like-for-like passenger revenue growth of
3.2% on our pre-existing businesses. Passenger volumes in the first half
increased by 1.0%, showing tentative signs of improvement compared with prior
periods, though the key drivers of the recent slowdown - macroeconomic
uncertainty, modal shift due to sustained lower fuel prices, and the magnitude
of the infrastructure upgrade works taking place on the GWR network - have not
definitively improved. Adjusted operating profit was £31.1m (H1 2016: £22.1m),
principally benefitting from the stronger revenue performance and cost
efficiencies, partially offset by the initial impact of SWR which commenced
during the Waterloo platform upgrade in late August and a lower margin on TPE.
Trading in SWR in the short period since taking over the franchise has been in
line with our expectations, and our plans for the network commenced with the
launch of the new brand on 4 September. Network Rail's electrification work
continues on the Great Western mainline, albeit at a slower pace than
originally envisaged, and we are working with our industry partners to reflect
the impact of these delays in the level of our franchise commitments and model.
Shortly after the period end, GWR introduced into service the first of the new
Hitachi Intercity Express Train fleet, which will continue to roll out across
the network over the coming year. The new trains, which are performing well
following some initial teething issues, have substantially greater seating
capacity than the trains they replace as well as a range of other passenger
improvements; once Network Rail's electrification programme has been completed
the fleet will add 40% more seats than today and provide quicker, more frequent
journeys. TPE's first fully-refurbished 'Class 185' trainset returned to
service; upgrades as part of the £32m programme include brand new seats
throughout, information screens, free, fast Wi-Fi and an on-board entertainment
system. We are progressing our franchise commitments to transform TPE into a
true intercity service for the North, which call for substantial passenger
journey growth, facilitated by additional capacity from our plans to introduce
220 new carriages from summer 2018, together with the denser operating
timetable permitted by the upgraded fleet.
Once again Hull Trains was the UK's top performing long distance operator in
the independent National Rail Passenger survey, and GWR was named rail operator
of the year at the recent National Transport Awards, having scored their
highest ever National Rail Passenger Survey customer satisfaction figures in
2016.
We remain cautious on the rate of passenger growth for the balance of the year
in light of recent industry conditions, and continue to expect the full year
margin to be lower than prior year as a result. With the successful start-up of
SWR, we would expect to make modest progress for the year as a whole in First
Rail.
Finance costs and investment income
Net finance costs before adjustments were £58.9m (H1 2016: £67.1m) with the
decrease principally reflecting the lower level of net debt and lower interest
rates.
Profit before tax
Adjusted profit before tax as set out in note 3 to the condensed consolidated
financial statements was £30.5m (H1 2016: £21.9m). An overall charge of £32.4m
(H1 2016: £10.8m) for adjustments including other intangible asset amortisation
charges of £32.0m (H1 2016: £28.5m) resulted in a statutory loss before tax of
£1.9m (H1 2016: profit before tax of £11.1m).
Tax
The tax charge, on adjusted profit before tax, for the period was £9.2m (H1
2016: £5.5m) representing an effective rate of 30.0% (H1 2016: 25.1%). The
effective rate is higher due to the anticipated increased weighting of North
American profits for the full year, where corporate tax rates are higher than
in the UK. There was a tax credit of £12.1m (H1 2016: credit of £3.5m) relating
to other intangible asset amortisation charges and other adjustments. The total
tax credit was £2.9m (H1 2016: charge of £2.0m). The actual tax paid during the
period was £7.1m (H1 2016: £5.1m).
EPS
Adjusted EPS was 1.9p (H1 2016: 1.4p). Basic EPS was 0.2p (H1 2016: 0.7p).
Shares in issue
As at 30 September 2017 there were 1,206.4m shares in issue (H1 2016:
1,204.3m), excluding treasury shares and own shares held in trust for employees
of 2.8m (H1 2016: 0.9m). The weighted average number of shares in issue for the
purpose of basic EPS calculations (excluding treasury shares and own shares
held in trust for employees) was 1,206.2m (H1 2016: 1,204.3m).
Reconciliation to non-GAAP measures and performance
Note 3 to the condensed consolidated financial statements sets out the
reconciliations of operating profit and profit before tax to their adjusted
equivalents. The principal adjusting items are as follows:
Other intangible asset amortisation charges
The charge for the period was £32.0m (H1 2016: £28.5m). The increase primarily
reflects the higher charge for software intangible amortisation this period.
Ineffectiveness on financial derivatives
There was a £0.4m non-cash charge (H1 2016: credit £0.3m) in the period due to
ineffectiveness on financial derivatives.
Capital expenditure
Cash capital expenditure was £191.1m (H1 2016: £206.5m) and comprised First
Student £69.5m (H1 2016: £97.2m), First Transit £9.2m (H1 2016: £6.9m),
Greyhound £14.4m (H1 2016: £14.9m), First Bus £39.7m (H1 2016: £58.7m), First
Rail £57.1m (H1 2016: £28.5m) and Group items £1.2m (H1 2016: £0.3m). First
Rail capital expenditure is typically matched by franchise receipts or other
funding. In addition, during the period we entered into operating leases for
passenger carrying vehicles with capital values in First Transit of £nil (H1
2016: £8.0m).
Gross capital investment (fixed asset and software additions plus the capital
value of new operating leases) was £205.9m (H1 2016: £161.3m) and comprised
First Student £123.8m (H1 2016: £84.2m), First Transit £9.4m (H1 2016: £13.6m),
Greyhound £11.6m (H1 2016: £6.8m), First Bus £3.4m (H1 2016: £33.6m), First
Rail £56.5m (H1 2016: £22.8m) and Group items £1.2m (H1 2016: £0.3m).
Balance sheet
Net assets have decreased by £176.0m since the start of the period. The
principal reasons for this are translation reserve movements of £210.0m partly
offset by actuarial gains on defined benefit pension schemes (net of deferred
tax) of £19.1m and favourable after tax hedging reserve movements of £16.3m.
Cash flow
The net cash inflow for the period of £97.0m (H1 2016: outflow £64.3m)
represents an improvement of £86.2m compared with the prior period together
with a First Rail start of franchise cash inflow of £75.1m. The improvement in
cash flow before First Rail start of franchise cash flows was driven by higher
EBITDA, timing of certain working capital flows and lower capital expenditure
partly offset by lower proceeds from the disposal of property, plant and
equipment primarily due to the sale of a Greyhound terminal in the prior
period. The net cash inflow, combined with movements in debt due to foreign
exchange, resulted in a net debt decrease in the first half of £110.0m relative
to the 31 March position (H1 2016: increase of £81.3m), as follows:
6 months to 30 Year to
September 31 March
2017
2017 2016 £m
£m £m
EBITDA 278.2 251.7 686.6
Other non-cash income statement charges/(credits) 7.7 8.0 (6.2)
Working capital excluding First Rail start of 57.7 (6.0) 23.9
franchise cash flows
Movement in other provisions (19.3) (19.8) (30.6)
Pension payments in excess of income statement (31.0) (26.1) (37.6)
charge
Cash generated by operations excluding First Rail 293.3 207.8 636.1
start of franchise cash flows
Capital expenditure and acquisitions (194.0) (206.5) (404.3)
Proceeds from disposal of property, plant and 7.0 29.1 43.0
equipment
Interest and tax (80.0) (81.3) (116.3)
Dividends paid to non-controlling minority - (11.9) (11.9)
shareholders
Other (4.4) (1.5) 0.6
Net cash inflow/(outflow) before First Rail start of 21.9 (64.3) 147.2
franchise cash flows
First Rail start of franchise cash flows 75.1 - -
Net cash inflow/(outflow) after First Rail start of 97.0 (64.3) 147.2
franchise cash flows
Foreign exchange movements 13.9 (16.0) (26.5)
Other non-cash movements (0.9) (1.0) (0.4)
Movement in net debt in the period 110.0 (81.3) 120.3
Funding and risk management
Liquidity within the Group has remained strong. At 30 September 2017, there was
£844.1m (H1 2016: £824.8m) of committed headroom and free cash, being £800.0m
(H1 2016: £745.0m) of committed headroom and £44.1m (H1 2016: £79.8m) of free
cash. Largely due to the seasonality of First Student, committed headroom
typically reduces during the financial year up to October and increases
thereafter. Treasury policy requires a minimum of £150m of committed headroom
at all times. Our average debt maturity was 3.2 years (H1 2016: 3.9 years). The
Group's main revolving bank facilities require renewal in July 2021. The Group
does not enter into speculative financial transactions and uses only authorised
financial instruments for certain financial risk management purposes.
Net debt
The Group's net debt at 30 September 2017 was £1,179.9m (H1 2016: £1,491.5m)
and comprised:
Analysis of net debt 30 September 30 September 31 March 2017
2017 2016 £m
£m £m
Sterling bond (2018) 299.3 298.8 298.8
Sterling bond (2019) 249.8 249.8 249.8
Sterling bond (2021) 348.3 348.3 348.3
Sterling bond (2022) 321.1 320.5 321.1
Sterling bond (2024) 199.6 199.6 199.6
Sterling bank loans - 52.5 -
HP contracts and finance leases 144.2 207.4 183.7
Senior unsecured loan notes 36.9 115.5 80.0
Loan notes 9.5 9.6 9.5
Gross debt excluding accrued 1,608.7 1,802.0 1,690.8
interest
Cash (44.1) (79.8) (141.1)
First Rail ring-fenced cash and (383.8) (228.0) (255.8)
deposits
Other ring-fenced cash and deposits (0.9) (2.7) (4.0)
Net debt excluding accrued interest 1,179.9 1,491.5 1,289.9
Under the terms of the First Rail franchise agreements, cash can only be
distributed by the Train Operating Companies (TOCs) either up to the lower
amount of their retained profits or the amount determined by prescribed
liquidity ratios. The ring-fenced cash represents that which is not available
for distribution or the amount required to satisfy the liquidity ratio at the
balance sheet date. First Rail ring-fenced cash increased by £128.0m in the
period principally due to the commencement of the SWR franchise and working
capital inflows at GWR.
Interest rate risk
We seek to reduce our exposure by using a combination of fixed rate debt and
interest rate derivatives to achieve an overall fixed rate position over the
medium term of at least 50% of net debt.
Foreign currency risk
'Certain' and 'highly probable' foreign currency transaction exposures may be
hedged at the time the exposure arises for up to two years at specified levels,
or longer if there is a very high degree of certainty. The Group does not hedge
the translation of earnings into the Group reporting currency (pounds
Sterling), but accepts that reported Group earnings will fluctuate as exchange
rates against pounds Sterling fluctuate for the currencies in which the Group
does business. During the period, the net cash generated in each currency may
be converted by Group Treasury into pounds Sterling by way of spot transactions
in order to keep the currency composition of net debt broadly constant.
Fuel price risk
We use a progressive forward hedging programme to manage commodity risk. We
have hedged 89% of the 'at risk' crude requirements for the current year in the
UK (1.9m barrels p.a.) at an average rate of $60 per barrel, 63% of our 'at
risk' UK crude requirements for the year to 31 March 2019 at $55 per barrel and
26% of our requirements for the year to 31 March 2020 at $50 per barrel.
In North America, we have hedged 63% of current year 'at risk' crude oil
volumes (1.4m barrels p.a.) at an average rate of $56 per barrel, 38% of the
volumes for the year to 31 March 2019 at $50 per barrel and 21% of our volumes
for the year to 31 March 2020 at $50 per barrel.
Foreign exchange
The most significant exchange rates to Sterling for the Group are as follows:
6 months to 30 6 months to 30 Year to 31 March 2017
September 2017 September 2016
Closing Effective Closing Effective Closing Effective
rate rate rate rate rate rate
US Dollar 1.35 1.27 1.30 1.45 1.25 1.29
Canadian 1.67 1.96 1.71 2.01 1.67 1.74
Dollar
Seasonality
First Student generates lower revenues and profits in the first half of the
financial year than in the second half of the year as the school summer
holidays fall into the first half. Greyhound operating profits are typically
higher in the first half of the year due to demand being stronger in the summer
months.
Pensions
We have updated our pension assumptions as at 30 September 2017 for the defined
benefit schemes in the UK and North America. The net pension deficit of £358.5m
at the beginning of the period has decreased by £62.3m to £296.2m at the end of
the period, principally due to a higher real discount rate in the UK together
with favourable foreign exchange movements. The increase in assets, liabilities
and adjustments during the period principally relate to the SWR franchise. The
main factors that influence the balance sheet position for pensions and the
sensitivities to their movement at 30 September 2017 are set out below:
Movement Impact
Discount rate +0.1% Reduce deficit by £
37.3m
Inflation +0.1% Increase deficit by £
31.7m
Dividends
The Board recognises that dividends are an important component of total
shareholder return for many investors and remains committed to reinstating a
sustainable dividend at the appropriate time, having regard to the Group's
financial performance, balance sheet and outlook. The Board is not proposing to
pay a dividend in respect of the six months to 30 September 2017 but will
continue to review the appropriate timing for restarting dividend payments.
Forward-looking statements
Certain statements included or incorporated by reference within this document
may constitute 'forward- looking statements' with respect to the business,
strategy and plans of the Group and our current goals, assumptions and
expectations relating to our future financial condition, performance and
results. By their nature, forward-looking statements involve known and unknown
risks, assumptions, uncertainties and other factors that cause actual results,
performance or achievements of the Group to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Shareholders are cautioned not to place undue
reliance on the forward-looking statements. Except as required by the UK
Listing Rules and applicable law, the Group does not undertake any obligation
to update or change any forward-looking statements to reflect events occurring
after the date of this document.
Other information
Unless otherwise stated, all financial figures for the six months to 30
September 2017 (the 'first half', the 'period' or 'H1 2017') include the
results and financial position of the First Rail business for the period ended
16 September 2017 and the results and financial position of all the other
businesses for the 26 weeks ended 23 September 2017. The figures for the six
months to 30 September 2016 (the 'prior period' or 'H1 2016') include the
results and financial position of First Rail for the period ended 17 September
2016 and the results and financial position of all the other businesses for the
26 weeks ended 24 September 2016. Figures for the year to 31 March 2017 include
the results and financial position of the First Rail division for the year
ended 31 March 2017 and the results and financial position of all the other
businesses for the 52 weeks ended 25 March 2017. Full year results for 2018
will include the results and financial position of First Rail for the year to
31 March 2018 and the results and financial position of all the other
businesses for the 53 weeks ended 31 March 2018.
All references to 'adjusted' figures throughout this document are before other
intangible asset amortisation charges and certain other items as set out in
note 3 to the condensed consolidated financial statements.
'ROCE' or Return on Capital Employed is a measure of capital efficiency and is
calculated by dividing adjusted operating profit after tax by all year end
assets and liabilities excluding debt items.
'EBITDA' is adjusted operating profit less capital grant amortisation plus
depreciation.
'Net debt' is the value of Group external borrowings excluding the fair value
adjustment for coupon swaps designated against certain bonds, excluding accrued
interest, less cash balances.
References to 'like-for-like' revenue adjust for changes in the composition of
the divisional portfolio, holiday timing, severe weather and other factors, for
example engineering possessions in First Rail, that distort the
period-on-period trends in our passenger revenue businesses.
Principal risks and uncertainties for the remaining six months of the financial
year
There are a number of risks and uncertainties facing the Group in the remaining
six months of the financial year. The principal risks and uncertainties, which
are set out in detail on pages 32 to 37 of the Annual Report and Accounts 2017,
are summarised below:
Economic conditions including Brexit implications
A worsening economic outlook could result in reduced demand particularly in
First Rail; while an improving economic climate, particularly combined with
lower fuel prices, may result in reduced demand for Greyhound and First Bus as
alternative transport modes become relatively more affordable. Improving
conditions may also lead to a tightening of labour markets resulting in
employee shortages or pressure to increase pay.
Political and regulatory
The political and regulatory landscape - including government policy, funding
regimes, or the legal and regulatory framework - within which the Group
operates is constantly changing, which may result in structural market changes
or impact the Group's operations.
Contract businesses including rail franchising
The Group's contract-based businesses are dependent on the ability to renew and
secure new contract wins on profitable terms in a competitive environment.
Incorrect modelling or bid assumptions could lead to higher costs or losses,
while failure to comply with contract terms could result in termination,
litigation and financial penalties and failure to win further contracts. Our
rail franchises cover a period during which there is significant change (major
infrastructure work, electrification and resignalling, introduction of new
trains). These changes require careful planning, management and negotiation
with industry partners, in particular where delays can impact the delivery of
franchise assumptions. Failure to manage these risks adequately could result in
financial and reputational impacts to the Group.
Competition and emerging technologies
The Group competes in the areas of pricing and service and faces competition
from a number of sources, including the private car, existing and new public
and private transport operators across all our markets, and emerging
technologies such as Uber, ride sharing apps and price comparison websites.
Information technology and cyber security
The Group relies on IT in all aspects of our businesses. Any service
interruption, accident or misappropriation of confidential information
resulting from significant disruption or failure of IT, or failure to properly
manage the implementation of new IT systems, may lead to revenue loss or
increased costs, fines, penalties or additional insurance requirements.
Treasury and credit rating
Treasury risks include liquidity risks, risks arising from changes to foreign
exchange and interest rates and fuel price risk, and ineffective hedging
arrangements may not fully mitigate losses or may increase them. A downgrade in
the Group's credit ratings to below investment grade may lead to increased
financing costs and other consequences and affect the Group's ability to invest
in its operations.
Pension scheme funding
The Group sponsors or participates in a number of significant defined benefit
pension schemes, primarily in the UK. Future accounting cost and cash
contribution requirements may increase or decrease materially based upon
various factors outside of the control of the Group.
Compliance, litigation and claims, health and safety
The Group's operations are subject to a wide range of legislation and
regulation, and failure to comply can lead to litigation, claims, damages,
fines and penalties. The Group has three main insurable risks: third party
injury and other claims arising from vehicle and general operations, employee
injuries and property damage. The Group is also subject to other litigation,
which is not insured, particularly in North America, including contractual
claims and those relating to employee wage and hour and meal and break matters.
Labour costs, employee relations, recruitment and retention
Employee costs represent the largest component of the Group's operating costs,
and political or union pressure to increase wages could increase these costs.
Competition for employees or high employee turnover can lead to shortages which
increase costs and affect service delivery. Similarly, industrial action could
adversely impact customer service and have a financial impact on the Group's
operations.
Disruption to infrastructure/operations
Our operations, and the infrastructure on which they depend, can be affected by
a number of different external factors, many of which are not within our
control, including terrorism, adverse weather events and potentially climate
change or pandemics.
Condensed consolidated income statement
Notes Unaudited Unaudited Year to
6 months to 6 months to 31 March 2017
30 September 30 September £m
2017 2016
£m £m
Revenue 2, 4 2,771.3 2,564.7 5,653.3
Operating costs (2,713.9) (2,486.8) (5,369.7)
Operating profit 57.4 77.9 283.6
Investment income 5 0.4 0.7 1.2
Finance costs 5 (59.7) (67.5) (132.2)
(Loss)/profit before tax (1.9) 11.1 152.6
Tax 6 2.9 (2.0) (36.5)
Profit for the period 1.0 9.1 116.1
Attributable to:
Equity holders of the parent 2.1 9.0 112.3
Non-controlling interests (1.1) 0.1 3.8
1.0 9.1 116.1
Earnings per share
Basic 7 0.2p 0.7p 9.3p
Diluted 0.2p 0.7p 9.2p
Adjusted results1
Adjusted operating profit 3 89.4 89.0 339.0
Adjusted profit before tax 3 30.5 21.9 207.0
Adjusted EPS 7 1.9p 1.4p 12.4p
1 Adjusted for certain items as set out in note 3.
Condensed consolidated statement of comprehensive income
Unaudited Unaudited Year to
6 months 6 months 31 March
to to 30 2017
30 September £m
September 2016
2017 £m
£m
Profit for the period 1.0 9.1 116.1
Items that will not be reclassified subsequently to
profit or loss
Actuarial gains/(losses) on defined benefit pension 23.6 (232.1) (89.7)
schemes
Deferred tax on actuarial gains/(losses) on defined (4.5) (1.2) 7.3
benefit pension schemes
19.1 (233.3) (82.4)
Items that may be reclassified subsequently to
profit or loss
Derivative hedging instrument movements 22.4 51.8 69.7
Deferred tax on derivative hedging instrument (6.1) (14.1) (19.0)
movements
Exchange differences on translation of foreign (210.0) 244.8 356.2
operations
(193.7) 282.5 406.9
Other comprehensive (expense)/income for the period (174.6) 49.2 324.5
Total comprehensive (expense)/income for the period (173.6) 58.3 440.6
Attributable to:
Equity holders of the parent (172.5) 58.2 436.8
Non-controlling interests (1.1) 0.1 3.8
(173.6) 58.3 440.6
Condensed consolidated balance sheet
Note Unaudited Unaudited 31 March
30 September 30 September 2017
2017 2016 £m
£m £m
Non-current assets
Goodwill 8 1,826.7 1,887.4 1,956.1
Other intangible assets 9 117.2 155.8 150.6
Property, plant and equipment 10 2,166.9 2,246.7 2,276.5
Deferred tax assets 17.6 49.5 25.8
Retirement benefit assets 22 41.8 20.0 34.0
Derivative financial instruments 17 45.5 70.3 48.6
Investments 31.3 29.8 33.3
4,247.0 4,459.5 4,524.9
Current assets
Inventories 62.2 62.0 64.5
Trade and other receivables 12 780.3 696.6 790.9
Current tax assets 4.1 - 0.7
Cash and cash equivalents 428.8 310.5 400.9
Assets held for sale 11 3.0 3.9 2.9
Derivative financial instruments 17 4.2 1.1 1.7
1,282.6 1,074.1 1,261.6
Total assets 5,529.6 5,533.6 5,786.5
Current liabilities
Trade and other payables 13 1,283.8 1,034.1 1,155.3
Tax liabilities - Current tax 2.1 16.7 5.1
liabilities
- Other tax 34.4 27.5 20.3
and social security
Borrowings 14 432.6 173.9 204.4
Derivative financial instruments 17 13.7 36.3 29.5
1,766.6 1,288.5 1,414.6
Net current liabilities 484.0 214.4 153.0
Non-current liabilities
Borrowings 14 1,246.3 1,725.4 1,586.4
Derivative financial instruments 17 4.7 18.1 8.6
Retirement benefit liabilities 22 338.0 520.3 392.5
Deferred tax liabilities 21.0 15.4 24.3
Provisions 18 253.1 280.6 284.2
1,863.1 2,559.8 2,296.0
Total liabilities 3,629.7 3,848.3 3,710.6
Net assets 1,899.9 1,685.3 2,075.9
Equity
Share capital 20 60.5 60.2 60.4
Share premium 679.9 676.4 678.9
Hedging reserve (1.6) (30.9) (17.9)
Other reserves 4.6 4.6 4.6
Own shares (3.3) (1.6) (1.2)
Translation reserve 498.4 597.0 708.4
Retained earnings 642.8 363.0 621.9
Equity attributable to equity 1,881.3 1,668.7 2,055.1
holders of the parent
Non-controlling interests 18.6 16.6 20.8
Total equity 1,899.9 1,685.3 2,075.9
Condensed consolidated statement of changes in equity
Share Share Hedging Other Own Translation Retained Total Non-controlling Total
capital premium reserve reserves shares reserve earnings £m interests equity
£m £m £m £m £m £m £m £m £m
Balance at 1 April 2017 60.4 678.9 (17.9) 4.6 (1.2) 708.4 621.9 2,055.1 20.8 2,075.9
Total comprehensive expense - - 16.3 - - (210.0) 21.2 (172.5) (1.1) (173.6)
for the period
Shares issued 0.1 1.0 - - - - - 1.1 - 1.1
Dividends paid/other - - - - - - - - (1.1) (1.1)
Movement in EBT and - - - - (2.1) - (4.7) (6.8) - (6.8)
treasury shares
Share-based payments - - - - - - 4.4 4.4 - 4.4
Balance at 30 September 60.5 679.9 (1.6) 4.6 (3.3) 498.4 642.8 1,881.3 18.6 1,899.9
2017 (unaudited)
Balance at 1 April 2016 60.2 676.4 (68.6) 4.6 (1.4) 352.2 585.4 1,608.8 24.4 1,633.2
Total comprehensive income - - 37.7 - - 244.8 (224.3) 58.2 0.1 58.3
for the period
Dividends paid/other - - - - - - - - (7.9) (7.9)
Movement in EBT and - - - - (0.2) - (1.7) (1.9) - (1.9)
treasury shares
Share-based payments - - - - - - 3.6 3.6 - 3.6
Balance at 30 September 60.2 676.4 (30.9) 4.6 (1.6) 597.0 363.0 1,668.7 16.6 1,685.3
2016 (unaudited)
Balance at 1 April 2016 60.2 676.4 (68.6) 4.6 (1.4) 352.2 585.4 1,608.8 24.4 1,633.2
Total comprehensive income - - 50.7 - - 356.2 29.9 436.8 3.8 440.6
for the period
Shares issued 0.2 2.5 - - - - - 2.7 - 2.7
Dividends paid/other - - - - - - - - (7.4) (7.4)
Movement in EBT and - - - - 0.2 - (1.6) (1.4) - (1.4)
treasury shares
Share-based payments - - - - - - 8.2 8.2 - 8.2
Balance at 31 March 2017 60.4 678.9 (17.9) 4.6 (1.2) 708.4 621.9 2,055.1 20.8 2,075.9
Condensed consolidated cash flow statement
Note Unaudited Unaudited Year to
6 months to 6 months to 31 March
30 30 2017
September September £m
2017 2016
£m £m
Net cash from operating activities 21 288.0 125.8 520.4
Investing activities
Interest received 0.4 0.7 1.2
Proceeds from disposal of property and 7.0 29.1 43.0
plant and equipment
Purchases of property, plant and (183.9) (197.6) (374.1)
equipment
Purchases of software (7.2) (8.9) (30.2)
Acquisition of business 19 (2.9) - -
Net cash used in investing activities (186.6) (176.7) (360.1)
Financing activities
Dividends paid to non-controlling - (11.9) (11.9)
shareholders
Shares purchased by Employee Benefit (5.2) (1.5) (1.5)
Trust
Shares issued 0.8 - 2.1
Drawdowns from bank facilities - 52.5 -
Repayment of senior unsecured loans (38.7) - (41.0)
Repayment of loan notes - (0.1) (0.1)
Repayments under HP contracts and finance (30.1) (47.7) (75.0)
leases
Fees for bank facility amendments - - (1.8)
Net cash flow used in financing (73.2) (8.7) (129.2)
activities
Net increase/(decrease) in cash and cash 28.2 (59.6) 31.1
equivalents before foreign exchange
movements
Cash and cash equivalents at beginning of 400.9 360.1 360.1
period
Foreign exchange movements (0.3) 10.0 9.7
Cash and cash equivalents at end of 428.8 310.5 400.9
period per consolidated balance sheet
Cash and cash equivalents are included within current assets on the condensed
consolidated balance sheet. Cash and cash equivalents includes ring-fenced cash
of £384.7m (H1 2016: £230.7m; full year 2017: £259.8m).
Note to the condensed consolidated cash flow statement - reconciliation of net
cash flow to movement in net debt
Unaudited Unaudited Year to 31
6 months to 6 months to March 2017
30 30 £m
September September
2017 2016
£m £m
Net increase/(decrease) in cash and cash 28.2 (59.6) 31.1
equivalents in period
Decrease/(increase) in debt and finance leases 68.8 (4.7) 116.1
Net cash flow 97.0 (64.3) 147.2
Foreign exchange movements 13.9 (16.0) (26.5)
Other non-cash movements in relation to (0.9) (1.0) (0.4)
financial instruments
Movement in net debt in period 110.0 (81.3) 120.3
Net debt at beginning of period (1,289.9) (1,410.2) (1,410.2)
Net debt at end of period (1,179.9) (1,491.5) (1,289.9)
Net debt includes the value of derivatives in connection with the bonds
maturing in 2019 and 2021 and excludes all accrued interest. These bonds are
included in non-current liabilities in the condensed consolidated balance
sheet.
Notes to the half yearly financial report
1 Basis of preparation
This half-yearly financial report does not constitute statutory accounts as
defined in section 434 of the Companies Act 2006. The statutory accounts for
the year ended 31 March 2017 have been delivered to the Registrar of Companies.
The auditor reported on those accounts; their report was unqualified, did not
draw attention to any matters by way of emphasis and did not contain a
statement under section 498(2) or (3) of the Companies Act 2006.
The figures for the six months to 30 September 2017 include the results and
financial position of the First Rail division for the period ended 16 September
2017 and the results and financial position for the other divisions for the 26
weeks ended 23 September 2017. The comparative figures for the six months to 30
September 2016 include the results and financial position of the First Rail
division for the period ended 17 September 2016 and the results and financial
position of the other divisions for the 26 weeks ended 24 September 2016.
The condensed set of financial statements included in this half-yearly
financial report has been prepared in accordance with the DTR of the Financial
Conduct Authority and International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union.
The accounting policies used in this half-yearly financial report are
consistent with International Financial Reporting Standards (IFRS) as adopted
by the European Union. The accounting policies applied are consistent with
those described in the Group's latest annual audited financial statements,
except for a number of amendments to IFRSs which became effective for the
financial year beginning on 1 April 2017. There has been no material change as
a result of applying these new accounting standards. We have also included
certain non-GAAP measures in order to reflect management's reported view of
financial performance excluding other intangible asset amortisation charges and
certain other items.
These results are unaudited but have been reviewed by the auditor. The
comparative figures for the six months to 30 September 2016 are unaudited and
are derived from the half-yearly financial report for that period, which was
also reviewed by the auditor.
The Directors have carried out a review of the Group's budget for the year to
31 March 2018 and medium term plans, with due regard for the risks and
uncertainties to which the Group is exposed, the uncertain economic climate and
the impact that this could have on trading performance. Based on this review,
the Directors believe that the Company and the Group have adequate resources to
continue in operational existence for the foreseeable future. Accordingly, the
condensed consolidated financial statements have been prepared on the going
concern basis in preparing this half-yearly report.
The operating and financial review statement contained in this half-yearly
report, including the summarised principal risks and uncertainties, has been
prepared by the Directors in good faith based on the information available to
them up to the time of their approval of this report solely for the Company's
shareholders as a body, so as to assist them in assessing the Group's
strategies and the potential for those strategies to succeed and accordingly
should not be relied on by any other party or for any other purpose and the
Company hereby disclaims any liability to any such other party or for reliance
on such information for any such other purpose.
The operating and financial review considers the impact of seasonality on the
Group and also the principal risks and uncertainties facing it in the remaining
six months of the financial year.
This half-yearly report has been prepared in respect of the Group as a whole
and accordingly matters identified as being significant or material are so
identified in the context of FirstGroup plc and its subsidiary undertakings
taken as a whole.
This half-yearly financial report was approved by the Board on 14 November
2017.
2 Revenue
6 months to 6 months to Year to
30 September 30 September 31 March
2017 2016 2017
£m £m £m
Services rendered 2,771.3 2,564.7 5,653.3
Investment income 0.4 0.7 1.2
Total revenue as defined by IAS 18 2,771.7 2,565.4 5,654.5
3 Reconciliation to non-gaap measures and performance
In measuring the Group adjusted operating performance, additional financial
measures derived from the reported results have been used in order to eliminate
factors which distort year-on-year comparisons. The Group's adjusted
performance is used to explain year-on-year changes when the effect of certain
items is significant, including restructuring and reorganisation costs relating
to the business turnarounds, property disposals, aged legal and self-insurance
claims, revisions to onerous contracts and pension settlement gains or losses.
In addition, management assess divisional performance before other intangible
asset amortisation charges as these are typically a result of Group decisions
and therefore the divisions have little or no control over these charges.
Management consider that this overall basis more appropriately reflects
operating performance and provide a better understanding of the key performance
indicators of the business.
Reconciliation of operating profit to 6 months to 6 months to Year to
adjusted operating profit 30 September 30 September 31 March
2017 2016 2017
£m £m £m
Operating profit 57.4 77.9 283.6
Adjustments for:
Other intangible asset amortisation 32.0 28.5 60.2
charges
Gain on disposal of property - (21.6) (21.6)
Restructuring and reorganisation - 4.2 16.8
costs
Total operating profit adjustments 32.0 11.1 55.4
Adjusted operating profit 89.4 89.0 339.0
Reconciliation of (loss)/profit before tax 6 months to 6 months to Year to
to adjusted profit before tax 30 September 30 September 31 March
2017 2016 2017
£m £m £m
(Loss)/profit before tax (1.9) 11.1 152.6
Operating profit adjustment (see table 32.0 11.1 55.4
above)
Ineffectiveness on financial derivatives 0.4 (0.3) (1.0)
Adjusted profit before tax 30.5 21.9 207.0
Adjusted tax charge (9.2) (5.5) (53.8)
Non-controlling interests 1.1 (0.1) (3.8)
Adjusted earnings 22.4 16.3 149.4
The principal adjusting items are as follows:
Other intangible asset amortisation charges
The charge for the period was £32.0m (H1 2016: £28.5m). The increase primarily
reflects the higher charge on software intangible amortisation this period.
Ineffectiveness on financial derivatives
There was a £0.4m non-cash charge (H1 2016: credit £0.3m) in the period due to
ineffectiveness on financial derivatives.
4 Business segments information
The segment results for the six months to 30 September 2017 are as follows:
First First Greyhound First Bus First Group Total
Student Transit £m £m Rail items1 £m
£m £m £m £m
Revenue 763.1 536.4 358.8 428.2 677.4 7.4 2,771.3
EBITDA2 104.1 31.4 40.1 47.4 70.9 (15.7) 278.2
Depreciation (89.3) (10.5) (16.6) (31.6) (43.5) (1.0) (192.5)
Capital grant - - - - 3.7 - 3.7
amortisation
Segment results 14.8 20.9 23.5 15.8 31.1 (16.7) 89.4
Other intangible (25.3) (0.5) (5.3) - (0.9) - (32.0)
asset
amortisation
charges
Operating profit (10.5) 20.4 18.2 15.8 30.2 (16.7) 57.4
Balance sheet Total assets Total Net assets/
£m liabilities (liabilities)
£m £m
First Student 2,641.9 (400.5) 2,241.4
First Transit 580.6 (137.4) 443.2
Greyhound 636.0 (326.9) 309.1
First Bus 753.9 (306.1) 447.8
First Rail 344.6 (670.8) (326.2)
4,957.0 (1,841.7) 3,115.3
Group items 122.1 (121.8) 0.3
Net debt 428.8 (1,608.7) (1,179.9)
Taxation 21.7 (57.5) (35.8)
Total 5,529.6 (3,629.7) 1,899.9
The segment results for the six months to 30 September 2016 are as follows:
First First Greyhound First Bus First Group Total
Student Transit £m £m Rail items1 £m
£m £m £m £m
Revenue 719.5 482.5 333.4 426.1 595.8 7.4 2,564.7
EBITDA2 98.4 38.6 43.2 45.5 41.4 (15.4) 251.7
Depreciation (84.4) (8.6) (17.4) (32.0) (22.3) (1.0) (165.7)
Capital grant - - - - 3.0 - 3.0
amortisation
Segment results 14.0 30.0 25.8 13.5 22.1 (16.4) 89.0
Other intangible (23.6) (1.6) (3.3) - - - (28.5)
asset
amortisation
charges
Other adjustments (1.9) (0.2) 19.8 - - (0.3) 17.4
(note 3)
Operating profit (11.5) 28.2 42.3 13.5 22.1 (16.7) 77.9
1 Group items comprise Tram operations, central management and other items.
2 EBITDA is adjusted operating profit less capital grant amortisation plus
depreciation.
Balance sheet Total assets Total Net assets/
£m liabilities (liabilities)
£m £m
First Student 2,775.4 (410.5) 2,364.9
First Transit 571.0 (150.5) 420.5
Greyhound 672.4 (346.4) 326.0
First Bus 774.9 (435.7) 339.2
First Rail 236.4 (467.4) (231.0)
5,030.1 (1,810.5) 3,219.6
Group items 143.5 (203.7) (60.2)
Net debt 310.5 (1,802.0) (1,491.5)
Taxation 49.5 (32.1) 17.4
Total 5,533.6 (3,848.3) 1,685.3
4 Business segments information (continued)
The segment results for the year to 31 March 2017 are as follows:
First First Greyhound First Bus First Group Total
Student Transit £m £m Rail items1 £m
£m £m £m £m
Revenue 1,780.3 1,042.0 684.7 861.7 1,268.8 15.8 5,653.3
EBITDA2 348.7 91.9 79.4 104.5 98.8 (36.7) 686.6
Depreciation (177.6) (18.6) (36.8) (67.5) (50.3) (2.1) (352.9)
Capital grant - - - - 5.3 - 5.3
amortisation
Segment results 171.1 73.3 42.6 37.0 53.8 (38.8) 339.0
Other intangible (49.6) (1.8) (8.5) - (0.3) - (60.2)
asset
amortisation
charges
Other adjustments (2.5) (0.2) 19.6 (10.9) - (1.2) 4.8
(note 3)
Operating profit 119.0 71.3 53.7 26.1 53.5 (40.0) 283.6
1 Group items comprise Tram operations, central management and other items.
2 EBITDA is adjusted operating profit less capital grant amortisation plus
depreciation.
Balance sheet Total assets Total Net assets/
£m liabilities (liabilities)
£m £m
First Student 2,918.4 (414.9) 2,503.5
First Transit 600.6 (161.1) 439.5
Greyhound 694.5 (363.7) 330.8
First Bus 769.5 (364.6) 404.9
First Rail 245.8 (482.8) (237.0)
5,228.8 (1,787.1) 3,441.7
Group items 130.3 (183.0) (52.7)
Net debt 400.9 (1,690.8) (1,289.9)
Taxation 26.5 (49.7) (23.2)
Total 5,786.5 (3,710.6) 2,075.9
5 Investment income and finance costs
6 months to 6 months to Year to
30 30 September 31 March
September 2016 2017
2017 £m £m
£m
Investment income
Bank interest receivable (0.4) (0.7) (1.2)
Finance costs
Bonds 41.3 42.1 83.7
Bank borrowings 3.3 6.8 11.4
Senior unsecured loan notes 1.0 2.3 4.3
Loan notes 0.5 0.5 1.0
Finance charges payable in respect of HP 2.4 3.4 6.4
contracts and finance leases
Notional interest on long term provisions 5.6 7.9 17.5
Notional interest on pensions 5.2 4.8 8.9
Finance costs before adjustments 59.3 67.8 133.2
Hedge ineffectiveness on financial 0.4 (0.3) (1.0)
derivatives
Net finance costs 59.7 67.5 132.2
Finance costs before adjustments 59.3 67.8 133.2
Investment income (0.4) (0.7) (1.2)
Net finance costs before adjustments 58.9 67.1 132.0
6 Tax on profit on ordinary activities
6 months to 6 months to Year to
30 30 September 31 March
September 2016 2017
2017 £m £m
£m
Current tax 0.8 1.8 (4.3)
Deferred tax (3.7) 0.2 40.8
Total tax (credit)/charge (2.9) 2.0 36.5
The tax effect of the adjustments disclosed in note 3 was a credit of £12.1m
(H1 2016: credit of £3.5m; full year 2017: credit of £17.3m).
7 Earnings per share (EPS)
EPS is calculated by dividing the profit attributable to equity shareholders of
£2.1m (H1 2016: £9.0m; full year 2017: £112.3m) by the weighted average number
of ordinary shares in issue of 1,206.2m (H1 2016: 1,204.3m; full year 2017:
1,204.8m). The number of ordinary shares used for the basic and diluted
calculations are shown in the table below.
The difference in the number of shares between the basic calculation and the
diluted calculation represents the weighted average number of potentially
dilutive ordinary share options.
30 September 30 September 31 March
2017 2016 2017
number number number
m m m
Weighted average number of shares used in 1,206.2 1,204.3 1,204.8
basic calculation
Executive share options 13.0 8.0 11.5
Weighted average number of shares used in 1,219.2 1,212.3 1,216.3
the diluted calculation
The adjusted EPS is intended to highlight the recurring results of the Group
before amortisation charges, ineffectiveness on financial derivatives and
certain other adjustments as set out in note 3. A reconciliation is set out
below:
6 months to 6 months to Year to 31
30 September 30 September March 2017
2017 2016
£m EPS £m EPS £m EPS
(p) (p) (p)
Basic profit / EPS 2.1 0.2 9.0 0.7 112.3 9.3
Other intangible asset amortisation 32.0 2.7 28.5 2.4 60.2 5.0
charges (note 9)
Ineffectiveness on financial derivatives 0.4 - (0.3) - (1.0) (0.1)
Other adjustments (note 3) - - (17.4) (1.4) (4.8) (0.4)
Tax effect of above adjustments (12.1) (1.0) (3.5) (0.3) (17.3) (1.4)
Adjusted profit / EPS 22.4 1.9 16.3 1.4 149.4 12.4
6 months to 6 months to Year to
30 September 30 September 31 March
2017 2016 2017
pence pence pence
Diluted EPS 0.2 0.7 9.2
Adjusted diluted EPS 1.8 1.3 12.3
8 Goodwill
£m
Cost
At 1 April 2017 1,960.1
Additions (note 19) 1.2
Foreign exchange movements (130.6)
At 30 September 2017 1,830.7
Accumulated impairment losses
At 1 April 2017 and 30 September 2017 4.0
Carrying amount
At 30 September 2017 1,826.7
At 31 March 2017 1,956.1
At 30 September 2016 1,887.4
Disclosures including goodwill by cash generating unit, details of impairment
testing and sensitivities thereon are set out on page 106 of the 2017 Annual
Report. The projections for First Student assume the incremental benefits of
the existing recovery plan, the programme to address contract portfolio pricing
together with an economic recovery.
The sensitivity analysis indicated that the First Student margin or growth
rates would need to fall in excess of 218 or 184 basis points respectively
compared to medium term double digit margin expectations for there to be an
impairment to the carrying value of net assets in this business. An increase in
the discount rate in excess of 161 basis points would have led to the value in
use of the division being less than its carrying amount.
9 Other intangible assets
Customer Greyhound Software Total
contracts brand and £m £m
£m trade name
£m
Cost
At 1 April 2017 491.0 74.7 42.9 608.6
Acquisitions (note 19) 0.7 - - 0.7
Additions - - 7.2 7.2
Disposals - - (1.6) (1.6)
Foreign exchange movements (32.7) (4.7) (3.0) (40.4)
At 30 September 2017 459.0 70.0 45.5 574.5
Amortisation
At 1 April 2017 415.5 35.7 6.8 458.0
Charge for the period 25.0 1.8 5.2 32.0
Disposals - - (0.9) (0.9)
Foreign exchange movements (28.9) (2.2) (0.7) (31.8)
At 30 September 2017 411.6 35.3 10.4 457.3
Carrying amount
At 30 September 2017 47.4 34.7 35.1 117.2
At 31 March 2017 75.5 39.0 36.1 150.6
At 30 September 2016 97.3 39.3 19.2 155.8
Intangible assets include customer contracts and the Greyhound brand and trade
name which were acquired through the purchases of businesses and subsidiary
undertakings and software. These are being amortised on a straight-line basis
over their useful lives which are between 3 and 20 years.
10 Property, plant and equipment
Land and Passenger Other plant Total
buildings carrying and £m
£m vehicle equipment
fleet £m
£m
Cost
At 1 April 2017 522.1 3,469.3 777.9 4,769.3
Acquisitions (note 19) - 1.6 - 1.6
Additions 4.1 128.3 64.7 197.1
Disposals (1.9) (18.6) (5.5) (26.0)
Reclassified as held for sale - (75.6) - (75.6)
Foreign exchange movements (19.9) (176.4) (23.5) (219.8)
At 30 September 2017 504.4 3,328.6 813.6 4,646.6
Accumulated depreciation and
impairment
At 1 April 2017 100.1 1,789.6 603.1 2,492.8
Charge for period 5.7 121.9 64.9 192.5
Disposals (1.1) (9.5) (5.4) (16.0)
Reclassified as held for sale - (75.6) - (75.6)
Foreign exchange movements (4.2) (91.3) (18.5) (114.0)
At 30 September 2017 100.5 1,735.1 644.1 2,479.7
Carrying amount
At 30 September 2017 403.9 1,593.5 169.5 2,166.9
At 31 March 2017 422.0 1,679.7 174.8 2,276.5
At 30 September 2016 417.8 1,653.1 175.8 2,246.7
11 Assets held for sale
30 September 30 September 31 March
2017 2016 2017
£m £m £m
Assets held for sale 3.0 3.9 2.9
These principally comprise First Student yellow school buses which are surplus
to requirements and are being actively marketed for sale. Gains or losses
arising on the disposal of such assets are included in arriving at operating
profit in the condensed consolidated income statement.
12 Trade and other receivables
Amounts due within one year 30 September 30 September 31 March
2017 2016 2017
£m £m £m
Trade receivables 420.7 352.4 457.3
Provision for doubtful receivables (7.7) (5.2) (4.2)
Accrued income 217.2 205.5 184.2
Other prepayments 79.3 83.4 79.0
Other receivables 70.8 60.5 74.6
780.3 696.6 790.9
13 Trade and other payables
Amounts falling due within one year 30 September 30 September 31 March
2017 2016 2017
£m £m £m
Trade payables 232.8 199.0 255.6
Other payables 230.7 189.2 217.6
Accruals 675.7 574.3 607.3
Deferred income 62.7 47.3 49.7
Season ticket deferred income 81.9 24.3 25.1
1,283.8 1,034.1 1,155.3
14 Borrowings
30 September 30 September 31 March
2017 2016 2017
£m £m £m
On demand or within 1 year
Finance leases (note 15) 56.7 55.9 65.3
Senior unsecured loan notes 36.9 77.1 80.0
Bond 8.125% (repayable 2018) 299.6 0.7 12.9
Bond 6.125% (repayable 2019) 10.4 10.7 3.0
Bond 8.75% (repayable 2021) 14.5 14.5 30.2
Bond 5.25% (repayable 2022) 14.3 14.6 5.8
Bond 6.875% (repayable 2024) 0.2 0.4 7.2
Total current liabilities 432.6 173.9 204.4
Within 1 - 2 years
Finance leases (note 15) 48.2 60.0 53.5
Loan notes (note 16) 9.5 9.6 9.5
Bond 8.125% (repayable 2018) - 298.8 298.8
Bond 6.125% (repayable 2019) 264.3 - 270.0
Senior unsecured loan notes - 38.4 -
322.0 406.8 631.8
Within 2 - 5 years
Finance leases (note 15) 39.2 91.5 64.8
Syndicated bank loans - 52.5 -
Bond 6.125% (repayable 2019) - 276.7 -
Bond 8.75% (repayable 2021) 364.3 377.8 369.0
403.5 798.5 433.8
More than 5 years
Finance leases (note 15) 0.1 - 0.1
Bond 5.25% (repayable 2022) 321.1 320.5 321.1
Bond 6.875% (repayable 2024) 199.6 199.6 199.6
520.8 520.1 520.8
Total non-current liabilities at amortised 1,246.3 1,725.4 1,586.4
cost
15 Hire Purchase (HP) contracts and finance leases
The Group had the following obligations under HP contracts and finance leases
as at the balance sheet dates:
30 September 2017 30 September 2016 31 March 2017
Minimum Present Minimum Present Minimum Present
payments value payments value payments value
£m of £m of £m of
payments payments payments
£m £m £m
Due within 1 year 58.2 56.7 57.4 55.9 66.9 65.3
Due within 1 - 2 50.8 48.2 63.1 60.0 56.4 53.5
years
Due within 2 - 5 42.6 39.2 100.1 91.5 70.2 64.8
years
Due in more than 5 0.1 0.1 - - 0.1 0.1
years
151.7 144.2 220.6 207.4 193.6 183.7
Less future (7.5) - (13.2) - (9.9) -
financing charges
144.2 144.2 207.4 207.4 183.7 183.7
16 Loan notes
The Group had the following loan notes issued as at the balance sheet dates:
30 September 30 September 31 March
2017 2016 2017
£m £m £m
Due within 2 - 5 years 9.5 9.6 9.5
17 Derivative financial instruments
30 September 30 September 31 March
2017 2016 2017
£m £m £m
Total derivatives
Total non-current assets 45.5 70.3 48.6
Total current assets 4.2 1.1 1.7
Total assets 49.7 71.4 50.3
Total current liabilities 13.7 36.3 29.5
Total non-current liabilities 4.7 18.1 8.6
Total liabilities 18.4 54.4 38.1
Derivatives designated and effective as
hedging instruments carried at fair value
Non-current assets
Coupon swaps (fair value hedge) 42.2 67.2 48.6
Fuel derivatives (cash flow hedge) 3.3 3.1 -
45.5 70.3 48.6
Current assets
Fuel derivatives (cash flow hedge) 4.2 0.9 0.6
Currency forwards (cash flow hedge) - 0.2 0.7
4.2 1.1 1.3
Current liabilities
Fuel derivatives (cash flow hedge) 9.0 36.3 29.4
Currency forwards (cash flow hedge) 4.5 - 0.1
13.5 36.3 29.5
Non-current liabilities
Fuel derivatives (cash flow hedge) 3.5 18.1 8.6
Currency forwards (cash flow hedge) 1.2 - -
4.7 18.1 8.6
Derivatives classified as held for trading
Current assets
Currency forwards - - 0.4
Current liabilities
Currency forwards 0.2 - -
The fair value measurements of the financial derivatives held by the Group have
been derived based on observable market inputs (as categorised within Level 2
of the fair value hierarchy under IFRS 7 (2009)).
17 Derivative financial instruments (continued)
Fair value of the Group's financial assets and financial liabilities that are
measured at fair value on a recurring basis:
30 September 2017
Fair value Carrying
value
Level 1 Level 2 Level 3 Total Total
£m £m £m £m £m
Financial assets
Cash and cash 428.8 - - 428.8 428.8
equivalents
Trade and other - 483.8 - 483.8 483.8
receivables
Derivative financial - 49.7 - 49.7 49.7
instruments
Financial liabilities
and derivatives
Financial liabilities - 1,892.0 - 1,892.0 1,678.9
Trade and other - 1,283.8 - 1,283.8 1,283.8
payables
Derivative financial - 18.4 - 18.4 18.4
instruments
30 September 2016
Fair value Carrying
value
Level 1 Level 2 Level 3 Total Total
£m £m £m £m £m
Financial assets
Cash and cash 310.5 - - 310.5 310.5
equivalents
Trade and other - 407.7 - 407.7 407.7
receivables
Derivative financial - 71.4 - 71.4 71.4
instruments
Financial liabilities
and derivatives
Financial liabilities 52.5 2,104.3 - 2,156.8 1,899.3
Trade and other - 1,034.1 - 1,034.1 1,034.1
payables
Derivative financial - 54.4 - 54.4 54.4
instruments
31 March 2017
Fair value Carrying
value
Level 1 Level 2 Level 3 Total Total
£m £m £m £m £m
Financial assets
Cash and cash 400.9 - - 400.9 400.9
equivalents
Trade and other - 527.7 - 527.7 527.7
receivables
Derivative financial - 50.3 - 50.3 50.3
instruments
Financial liabilities
and derivatives
Financial liabilities - 1,958.7 - 1,958.7 1,790.8
Trade and other - 1,155.3 - 1,155.3 1,155.3
payables
Derivative financial - 38.1 - 38.1 38.1
instruments
Level 1: Quoted prices in active markets for identical assets and liabilities.
Level 2: Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability either directly or indirectly.
Level 3: Inputs for the asset or liability that are not based on observable
market data.
There were no transfers between level 1 and level 2 during the current or prior
periods.
Financial Fair values (£m) at Fair Valuation technique(s) and key
assets/ value inputs
(liabilities) hierarchy
30 30 31
September September March
2017 2016 2017
Derivative contracts
1. Interest 42.2 67.2 48.6 Level 2 Discounted cash flow; future cash
rate swaps flows are estimated based on forward
interest rates and contract interest
rates then discounted at a rate that
reflects the credit risk of the
various counterparties.
2. Fuel (5.0) (50.4) (37.4) Level 2 Discounted cash flow; future cash
derivatives flows are estimated based on forward
fuel priced and contract rates and
then discounted at a rate that
reflects the credit risk of the
various counterparties.
3. Currency (5.9) 0.2 1.0 Level 2 Discounted cash flow; future cash
forwards flows are estimated based on forward
exchange rates and contract rates
and then discounted at a rate that
reflects the credit risk of the
various counterparties.
4. Trade and 483.8 407.7 527.7 Level 2 Carried at amortised cost using the
other effective interest rate method.
receivables
5. Trade and 1,283.8 1,034.1 1,155.3 Level 2 Initially measured at fair value,
other and are subsequently measured at
payables amortised cost using the effective
interest rate method.
6. Borrowings 1,892.0 2,156.8 1,958.7 Level 2 Measured either on an amortised cost
basis or at fair value. The fair
values are calculated by discounting
the future cash flows that will
arise under the contracts.
18 Provisions
30 September 30 September 31 March
2017 2016 2017
£m £m £m
Insurance claims 215.1 228.9 236.1
Legal and other 35.7 49.1 45.7
Pensions 2.3 2.6 2.4
Non-current liabilities 253.1 280.6 284.2
Insurance Legal and Pensions Total
claims other £m £m
£m £m
At 1 April 2017 391.0 60.4 2.4 453.8
Charged to the income 78.2 2.3 - 80.5
statement
Utilised in the period (93.5) (11.6) (0.1) (105.2)
Notional interest 5.6 - - 5.6
Foreign exchange movements (24.7) (1.9) - (26.6)
At 30 September 2017 356.6 49.2 2.3 408.1
Current liabilities 141.5 13.5 - 155.0
Non-current liabilities 215.1 35.7 2.3 253.1
At 30 September 2017 356.6 49.2 2.3 408.1
Current liabilities 154.9 14.7 - 169.6
Non-current liabilities 236.1 45.7 2.4 284.2
At 31 March 2017 391.0 60.4 2.4 453.8
Current liabilities 149.1 10.9 - 160.0
Non-current liabilities 228.9 49.1 2.6 280.6
At 30 September 2016 378.0 60.0 2.6 440.6
The current liabilities above are included within accruals in note 13.
The insurance claims provision arises from estimated exposures for incidents
occurring prior to the balance sheet date. It is anticipated that the majority
of such claims will be settled within the next six years although certain
liabilities in respect of lifetime obligations of £21.4m (H1 2016: £22.7m) can
extend for up to 30 years. The utilisation of £93.5m (H1 2016: £95.0m)
represents payments made largely against the current liability of the preceding
year.
The total insurance provision of £356.6m includes £25.6m which is recoverable
from insurance companies and is included within other receivables in note 12.
Legal and other provisions relate to estimated exposures for cases filed or
thought highly likely to be filed for incidents that occurred prior to the
balance sheet date. It is anticipated that most of these items will be settled
within 10 years. Also included are provisions in respect of costs anticipated
on the exit of surplus properties which are expected to be settled over the
remaining terms of the respective leases and dilapidation and other provisions
in respect of contractual obligations under rail franchises. The dilapidation
provisions are expected to be settled at the end of the respective franchise.
The pension's provision relates to unfunded obligations that arose on the
acquisition of certain First Bus companies. It is anticipated that this will be
utilised over five to 10 years.
19 Acquisition of businesses and subsidiary undertakings
30 September 30 September 31 March
2017 2016 2017
£m £m £m
Provisional fair value of net assets
acquired:
Property, plant and equipment 1.6 - -
Other intangible assets 0.7 - -
Other liabilities (0.3) - -
2.0 - -
Goodwill 1.2 - -
Satisfied by cash paid and payable 3.2 - -
On 11 August 2017, the Group completed the acquisition of Falcon
Transportation, a Chicago-based provider of school and charter transportation
services. The £3.2m consideration represent £2.9m cash paid in the period and £
0.3m of deferred consideration.
20 Called up share capital
30 September 30 September 31 March
2017 2016 2017
£m £m £m
Allotted, called up and fully paid
1,209.2m ordinary shares of 5p each 60.5 60.2 60.4
The Company has one class of ordinary shares which carries no right to fixed
income. The number of ordinary shares of 5p each in issue, excluding treasury
shares and shares held in trust for employees, at the end of the period was
1,206.4m (H1 2016: 1,204.3m). At the end of the period 2.8m shares (H1 2016:
0.9m shares) were being held as treasury shares and own shares held in trust
for employees.
21 Net cash for operating activities
30 30 31 March
September September 2017
2017 2016 £m
£m £m
Operating profit 57.4 77.9 283.6
Adjustments for:
Depreciation charges 192.5 165.7 352.9
Capital grant amortisation (3.7) (3.0) (5.3)
Amortisation charges 32.0 28.5 60.2
Impairment charges - - 4.5
Share-based payments 4.4 3.6 8.2
Loss/(profit) on disposal of property, plant 3.3 (17.2) (18.9)
and equipment
Operating cash flows before working capital 285.9 255.5 685.2
and pensions
(Increase)/decrease in inventories (0.1) 2.5 1.3
(Increase)/decrease in receivables (24.8) 39.7 (36.7)
Increase/(decrease) in payables 157.7 (44.0) 56.3
Decrease in provisions (19.3) (19.8) (30.6)
Defined benefit pension payments in excess (31.0) (26.1) (37.6)
of income statement charge
Cash generated by operations 368.4 207.8 637.9
Tax paid (7.1) (5.1) (10.2)
Interest paid (70.9) (73.5) (100.9)
Interest element of HP contracts and finance (2.4) (3.4) (6.4)
leases
Net cash from operating activities 288.0 125.8 520.4
22 Retirement benefit schemes
The Group operates or participates in a number of defined benefit pension
schemes which cover the majority of UK employees and certain North American
employees. The scheme details are described on pages 125 to 126 of the Annual
Report and Accounts for the year ended 31 March 2017.
The Group currently sponsors six sections of the RPS, relating to its
franchising obligations for its TOCs, and for Hull Trains, its Open
Access operator. The RPS is governed by the Railways Pension Trustee Company
Limited, and is subject to regulation from the Pensions Regulator and relevant
UK legislation. The RPS is a shared cost arrangement. All costs, and any
deficit or surplus, are shared 60% by the employer and 40% by the members. For
the TOC sections, under the franchising obligations, the employer's
responsibility is to pay the contributions requested by the Trustee, whilst
it operates the franchise. There is no residual liability or asset for any
deficit, or surplus, which remains at the end of the franchise period.
Since the contributions being paid to each TOC section are lower than the share
of the service cost that would normally be calculated under IAS19, the Group
does not make any contribution towards the sections' deficits. Therefore, the
Group does not need to reflect any deficit on its balance sheet. A franchise
adjustment (asset) exists that exactly offsets any section deficit that would
otherwise remain after reflecting the cost sharing with the members.
The market value of the assets at 30 September 2017 for all defined benefit
schemes totalled £4,994m (H1 2016: £4,154m; full year 2017: £4,141m).
Contributions are paid to all defined benefit pension schemes in accordance
with rates recommended by the schemes' actuaries. The valuations are made using
the Projected Unit Credit Method.
The key assumptions were as follows:
30 September 2017 30 September 2016 31 March 2017
First First North First First North First First North
Bus Rail America Bus Rail America Bus Rail America
% % % % % % % % %
Key assumptions used:
Discount rate 2.85 2.85 3.45 2.40 2.40 3.10 2.80 2.80 3.65
Expected rate of salary 3.55 3.55 2.50 3.45 3.20 2.50 2.00 3.35 2.50
increases
Inflation - CPI 1.95 1.95 2.00 1.85 1.85 2.00 2.00 2.00 2.00
Future pension increases 1.95 1.95 - 1.85 1.85 - 2.00 2.00 -
Amounts (charged)/credited to the condensed consolidated income statement in
respect of these defined benefit schemes are as follows:
6 months to 30 September 2017 First North Total First Total
Bus America non-rail Rail £m
£m £m £m £m
Current service cost (10.2) (5.3) (15.5) (29.1) (44.6)
Impact of franchise adjustment on - - - 17.9 17.9
operating cost
Net interest cost (1.6) (3.6) (5.2) (4.7) (9.9)
Impact of franchise adjustment on net - - - 4.7 4.7
interest cost
(11.8) (8.9) (20.7) (11.2) (31.9)
6 months to 30 September 2016 First North Total First Total
Bus America non-rail Rail £m
£m £m £m £m
Current service cost (8.2) (4.6) (12.8) (15.3) (28.1)
Impact of franchise adjustment on - - - 4.9 4.9
operating cost
Net interest cost (0.4) (3.7) (4.1) (2.6) (6.7)
Impact of franchise adjustment on net - - - 2.6 2.6
interest cost
(8.6) (8.3) (16.9) (10.4) (27.3)
Year to 31 March 2017 First North Total First Total
Bus America non-rail Rail £m
£m £m £m £m
Current service cost (16.7) (9.9) (26.6) (37.1) (63.7)
Impact of franchise adjustment on - - - 11.3 11.3
operating cost
Past service gain on TOC schemes - - - 4.1 4.1
Net interest cost (1.1) (7.7) (8.8) (5.8) (14.6)
Impact of franchise adjustment on net - - - 5.8 5.8
interest cost
(17.8) (17.6) (35.4) (21.7) (57.1)
Actuarial gains and losses have been reported in the condensed consolidated
statement of comprehensive income.
22 Retirement benefit schemes (continued)
The amounts included in the condensed consolidated balance sheet arising from
the Group's obligations in respect of its defined benefit pension schemes are
as follows:
As at 30 September 2017 First Bus North Total First Total
£m America non-rail Rail £m
£m £m £m
Fair value of schemes' assets 2,595.4 489.8 3,085.2 1,909.2 4,994.4
Present value of defined benefit (2,525.5) (675.4) (3,200.9) (2,721.8) (5,922.7)
obligations
Surplus/(deficit) before adjustments 69.9 (185.6) (115.7) (812.6) (928.3)
Adjustment for irrecoverable surplus1 (178.5) - (178.5) - (178.5)
First Rail franchise adjustment (60%) - - - 485.6 485.6
Adjustment for employee share of RPS - - - 325.0 325.0
deficits (40%)
Liability recognised in the condensed (108.6) (185.6) (294.2) (2.0) (296.2)
consolidated balance sheet
The amount is presented in the
condensed consolidated balance sheet as
follows:
Non-current assets 41.8 - 41.8 - 41.8
Non-current liabilities (150.4) (185.6) (336.0) (2.0) (338.0)
(108.6) (185.6) (294.2) (2.0) (296.2)
As at 30 September 2016 First Bus North Total First Total
£m America non-rail Rail £m
£m £m £m
Fair value of schemes' assets 2,603.6 513.9 3,117.5 1,036.6 4,154.1
Present value of defined benefit (2,777.5) (748.2) (3,525.7) (1,594.6) (5,120.3)
obligations
Deficit before adjustments (173.9) (234.3) (408.2) (558.0) (966.2)
Adjustment for irrecoverable surplus1 (89.5) - (89.5) - (89.5)
First Rail franchise adjustment (60%) - - - 332.2 332.2
Adjustment for employee share of RPS - - - 223.2 223.2
deficits (40%)
Liability recognised in the condensed (263.4) (234.3) (497.7) (2.6) (500.3)
consolidated balance sheet
The amount is presented in the
condensed consolidated balance sheet as
follows:
Non-current assets 20.0 - 20.0 - 20.0
Non-current liabilities (283.4) (234.3) (517.7) (2.6) (520.3)
(263.4) (234.3) (497.7) (2.6) (500.3)
As at 31 March 2017 First Bus North Total First Total
£m America non-rail Rail £m
£m £m £m
Fair value of schemes' assets 2,614.5 508.7 3,123.2 1,018.0 4,141.2
Present value of defined benefit (2,586.6) (725.4) (3,312.0) (1,519.9) (4,831.9)
obligations
Surplus/(deficit) before adjustments 27.9 (216.7) (188.8) (501.9) (690.7)
Adjustment for irrecoverable surplus1 (167.7) - (167.7) - (167.7)
First Rail franchise adjustment (60%) - - - 299.1 299.1
Adjustment for employee share of RPS - - - 200.8 200.8
deficits (40%)
Liability recognised in the condensed (139.8) (216.7) (356.5) (2.0) (358.5)
consolidated balance sheet
The amount is presented in the
condensed consolidated balance sheet as
follows:
Non-current assets 34.0 - 34.0 - 34.0
Non-current liabilities (173.8) (216.7) (390.5) (2.0) (392.5)
(139.8) (216.7) (356.5) (2.0) (358.5)
1The irrecoverable surplus represents the amount of the surplus that the Group
could not recover through reducing future company contributions to Local LGPS.
Responsibility statement
Each of the Directors confirms that to the best of his/her knowledge:
* The condensed set of financial statements, which has been prepared in
accordance with the applicable set of accounting standards, gives a true
and fair view of the assets, liabilities, financial position and profit or
loss of the issuer, or the undertakings included in the consolidation as a
whole as required by DTR 4.2.4R;
* The interim management report includes a fair review of the information
required by DTR 4.2.7R; and
* The interim management report includes a fair review of the information
required by DTR 4.2.8R.
The Directors of FirstGroup plc are listed on the Group's website at
www.firstgroupplc.com.
Tim
O'Toole
Matthew Gregory
Chief
Executive
Chief Financial Officer
14 November 2017
14 November 2017
Independent review report to FirstGroup plc
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
September 2017 which comprises the condensed consolidated income statement, the
condensed consolidated statement of comprehensive income, the condensed
consolidated balance sheet, the condensed consolidated statement of changes in
equity, the condensed consolidated cash flow statement and related notes 1 to
22. We have read the other information contained in the half-yearly financial
report and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set of financial
statements.
This report is made solely to the company in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim
Financial Information Performed by the Independent Auditor of the Entity"
issued by the Auditing Practices Board. Our work has been undertaken so that we
might state to the company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the company, for our review work, for this report, or for the conclusions
we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the Disclosure and Transparency
Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with IFRSs as adopted by the European Union. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with International Accounting Standard
34 "Interim Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 September 2017 is not prepared, in
all material respects, in accordance with International Accounting Standard 34
as adopted by the European Union and the Disclosure and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
London, United Kingdom
14 November 2017
FIRSTGROUP PLC : - Half-year Report
November 14, 2017 at 02:02 am EST
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