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Interim Management Statement

Released 07:00 10-Jul-2014

Interim Management Statement

Thursday 10 July 2014

                                FIRSTGROUP PLC                                 

              FIRST QUARTER 2014/15 INTERIM MANAGEMENT STATEMENT               

FirstGroup plc ("the Group"), the leading transport operator in the UK and
North America, reports the following update on trading since the start of our
2014/15 financial year ("the full year") on 1 April 2014.

Summary

Trading in line with management's expectations and our transformation
programmes, as set out at our investor day in January 2014, are progressing
well:

  * First Student: encouraged by progress of contract portfolio pricing
    programme
   
  * First Transit: continued strong financial performance with modest capital
    requirement
   
  * Greyhound: improved revenue trends helped by more stable economy
   
  * UK Bus: revenue growth underpinned by increased passenger volumes
   
  * UK Rail: robust passenger revenue growth maintained
   
Commenting, Tim O'Toole, Chief Executive, said:

"Trading during the first quarter was in line with our expectations and our
transformation programmes are on track. In First Student we are encouraged by
the progress we have made to address pricing in our contract portfolio and by
our overall retention rate which, to date, is at the upper end of our planning
assumptions. In UK Bus and Greyhound the actions we are taking are achieving
good growth. Across the Group we are confident that we have the right
programmes underway to build on our market-leading positions and improve
performance to create sustainable value over the medium term and beyond."

First Student

Delivering the turnaround at First Student is a key priority. We have
accelerated our programme to address contract portfolio pricing, ensuring an
appropriate level of return on contracts won or retained. Our results to date
in this year's bidding season, which we are currently two thirds of the way
through, are at the upper end of our planning range. We have achieved average
price increases of 4%, with many instances of significantly greater rises. We
expect the proportion of low margin contracts in our portfolio to be below 30%
in 2014/15 (from 36% in 2013/14), and as additional multi-year contracts come
up for renewal we will continue to reduce this further. We are encouraged by
our contract retention rate during our re-pricing programme which, to date,
stands at 88% and is at the upper end of our planning assumptions. During this
bid season we also secured additional business through newly outsourced
contracts as well as contracts won from competitors. The underlying market has
been largely supportive with school districts bolstered by economic recovery
and we have continued to see modest organic growth within existing contracts.

Further cost savings continue to be achieved through the rigorous application
of uniform practices in areas such as driver labour, maintenance, fuel use and
procurement procedures, together with further optimisation of overhead
structures. We are targeting a further $50m of annual cost savings over the
medium term, of which $11m have been delivered since the start of the 2014/15
financial year. As previously indicated, the full benefit of these cost savings
is currently supressed by cost inflation which is running slightly ahead of
price indexation in our multi-year contracts which have yet to come up for
renewal.

We remain on track to deliver our targets in respect of the full year. Due to
the timing of the school summer holidays, First Student's results are
significantly weighted to the second half of our financial year, typically with
less than 10% of annual operating profit generated during the first half of the
year, and is therefore prone to greater volatility. In the first half of 2014/
15 there will be fewer operating days than in the same period of the prior year
reflecting the fact that all of the Easter vacation days occur in the period,
and these are not fully offset by the operating days reinstated after the
weather-related school closures in the prior year. As a consequence of the
reduced number of days compared with the prior year, we expect First Student's
operating profit for the first half of 2014/15 to be lower than in the same
period last year. Although there remains a significant number of contracts
still to be finalised in the current bid season, we are encouraged by the
pricing and retention rates achieved to date. We are confident that full year
revenues will be towards the upper end of our planning assumptions, with
operating margin in excess of 7.5% for the full year.

First Transit

First Transit delivered another solid performance in the first quarter with new
business wins in our paratransit, fixed route and vehicle maintenance segments.
For the year we expect to deliver good margins with relatively modest capital
investment. Going forward we will continue to leverage our unrivalled
management expertise and reputation to develop opportunities in existing and
new markets.

Greyhound

During the first quarter like-for-like revenue increased by 3.4% compared to
the same period last year, continuing the improving trends seen over the course
of the prior year (excluding the impact of severe weather in Q4). There was
strong demand for our long distance operations and Greyhound Express, which
benefits from passenger feed from our unique national network, achieved
like-for-like revenue growth of 6.9% in the period, while maintaining its
profitable expansion with new services in the south west.

Our programme to enhance Greyhound's commercial proposition is on schedule, and
includes the necessary IT development, recruitment and training work to bring
airline-style yield management to the traditional network. During the period we
continued to expand our sales channels, driving increased online transactions
through dedicated mobile apps and the recent launch of a mobile version of our
website. We expect to see Greyhound's performance continue to improve
throughout the year as we work towards our medium term target of a 12% margin.

UK Bus

During the period like-for-like passenger revenue increased by 2.7%. We are
seeing the results from our transformation programme to improve our commercial
proposition, drive volume growth and regain pricing competitiveness in line
with the market. As we rebase our local fares and networks we are stimulating
passenger growth with like-for-like volumes increasing by 2.7% in the first
quarter. To date, we have completed 12 major redesigns together with numerous
other upgrades and initiatives. The programme of significant network changes is
now nearing completion, though our management structure is now locally focused
to ensure that commercial opportunities continue to be developed.

Operating discipline, cost optimisation and focused investment in our fleets
and our people are improving our service delivery and increasing customer
satisfaction. Mobile ticketing has been introduced on our networks in Aberdeen,
Worcester and Manchester and we are on track to complete the roll out of mobile
ticketing systems nationwide by December 2014.

While there is still some way to go, we are delivering our plan as forecasted
to restore double digit margins to UK Bus by 2017. We expect improvements in
underlying revenue and margin in both the first and second half of 2014/15
compared with the prior year, with progress particularly weighted to the second
half of the year as we reach the anniversaries of a number of fares changes.

UK Rail

Our UK Rail division delivered a robust performance with like-for-like
passenger revenue increasing by 6.6% in the period. In the recent National
Passenger Survey all of our train operating companies saw steady or increased
customer satisfaction ratings, with First ScotRail and First Hull Trains
recording their highest ever scores.

Although we did not secure one of the first three franchise competitions that
came to market, we remain confident of delivering on our medium term targets
through disciplined bidding to generate an economic return for shareholders.
Going forward, we will participate in a range of competitions with the
objective of achieving earnings on a par with the last round of franchising, at
an acceptable level of risk. We are shortlisted for two further competitions
during 2014/15 as part of the pipeline of 14 major UK rail franchise
opportunities. We are also progressing negotiations with the Department for
Transport (`DfT') to operate our First TransPennine Express franchise until
February 2016, and remain in discussion with DfT in respect of a potential
longer direct award for First Great Western, during the period when a
substantial programme of works will take place on the network.

Glasgow 2014 Commonwealth Games

In the period, First UK Bus and First ScotRail have stepped up preparation for
their key role as official supporters of the Glasgow 2014 Commonwealth Games,
providing passenger rail and bus services. First ScotRail is planning the most
extensive train timetable that Scotland has ever seen in support of the Games,
while our UK Bus division was awarded the contracts to transport athletes,
technical officials, media and sponsors during the Games, and provide
additional shuttle services to transport the large numbers of spectators
expected.

Financial position

We remain focused on strengthening the financial position of the Group
including reducing leverage by improving the performance of our businesses, and
generating strong sustainable cash flows in the medium term. We have previously
outlined our programme to invest approximately £400m per annum across the Group
over the next three years, to support growth and deliver our target ROCE
levels.

As previously indicated there will be a c.£70m cash outflow associated with the
end of the First Capital Connect contract. Although there is a clear medium
term benefit to the progress made in the First Student bidding season, contract
retention at the upper end of our planning assumptions will lower the short
term cash flow benefits of cascading buses in the current year. Taking this and
the other cash flow movements into account we currently expect the total cash
outflow for the full year to be approximately £100m.

Our recent bank facility refinancing combined with slightly lower rates on
floating rate debt, have contributed to lower than previously expected interest
costs. The current US dollar exchange rate movements may have an impact on the
divisional operating profit mix but the net impact on EPS will be minimal due
to our natural hedge, whereby our exposure on US dollar earnings in North
America is largely offset by US dollar denominated interest costs and fuel
purchases for our UK businesses.

Contacts at FirstGroup:
Rachael Borthwick, Group Corporate Communications Director
Faisal Tabbah, Group Investor Relations Manager
Stuart Butchers, Group Media Relations Manager
Tel: +44 20 7725 3354

Contacts at Brunswick PR:
Michael Harrison/Ben Fry, Tel: +44 20 7404 5959

Notes
Unless otherwise stated, all financial figures refer to the three month period
ended 30 June 2014 (the `period' or `the first quarter'), with growth compared
to the same period in 2013. All operating figures refer to the latest available
period, with growth compared to the same period in 2013. No account is taken of
foreign exchange translation effects in the description of divisional
performance and outlook.

Figures presented in this interim management statement are not audited. Certain
statements included or incorporated by reference within this announcement may
constitute "forward looking statements" in respect of FirstGroup plc's
operations, performance, prospects and/or financial condition. Such statements
are based on FirstGroup plc's current expectations and beliefs concerning
future events and are subject to a number of known and unknown risks and
uncertainties that could cause actual events or results to differ materially
from any expected future events or results referred to in these forward looking
statements. Such statements are also based on numerous assumptions regarding
FirstGroup plc's present and future strategy and the environment in which it
operates, which may not be accurate. FirstGroup plc undertakes no obligation to
update any forward looking statements contained in this announcement or any
other forward looking statements it may make. Nothing in this announcement
should be construed as a profit forecast. Past performance cannot be relied
upon as a guide to future performance and persons needing advice should consult
an independent financial adviser.

FirstGroup plc (LSE: FGP.L) is the leading transport operator in the UK and
North America. With revenues of more than £6.7 billion and around 117,000
employees, we transport around 2.5 billion passengers every year. Each of our
five divisions is a leader in its field: First Student is the largest provider
of student transportation in North America with a fleet of around 49,000 yellow
school buses, First Transit is one of the largest providers of outsourced
transit management and contracting services in the US, while Greyhound is the
only national operator of scheduled intercity coach services across North
America. In the UK, FirstGroup is one of Britain's largest bus operators
running a fleet of some 6,400 buses, and we operate approximately a quarter of
the UK passenger rail network, carrying more than 330 million passengers a
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

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Interim Management Statement - RNS