Firstgroup Plc Half-Yearly Results for the Six Months to 30 September 2014

FirstGroup plc Half-yearly results for the six months to 30 September 2014

Wednesday 5 November 2014 Tim O’Toole Chief Executive

2 Overview

• Trading for the Group in line with our expectations

– Encouraging progress with First Student turnaround

– Good performances in First Transit and UK Rail

– Core Greyhound customers and some local UK Bus markets not seeing benefit from improving macroeconomic trends

• Results more weighted to H2 than usual this year

• Negotiating FGW and FTPE direct awards with DfT

• Multi-year transformation programme on track; confident our plans will deliver sustainable improvements in shareholder value

3 Chris Surch Group Finance Director

Financial review

4 Key highlights

• Adjusted operating profit £103.6m up 2.4%

• Adjusted EPS 1.8p up 63.6%

• Net cash outflow of £91.0m (H1 2013: £103.0m outflow)

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

• Underlying capital investment £222m (ex-UK Rail)

• Net debt to EBITDA: 2.5x due to seasonal swings (FY 2014: 2.2x)

• ROCE 7.8% (H1 2013: 7.9%)

5 Financial summary

Sep 2014 Sep 2013 restated1 Change

Revenue £2,941.1m £3,300.7m (10.9)%

Adjusted2 - EBITDA3 £253.3m £260.5m (2.8)% - Operating profit £103.6m £101.2m +2.4% - Margin % 3.5% 3.1% +0.4pp - Interest £(70.3)m £(81.6)m (13.8)% - Profit before tax £33.3m £19.6m +69.9% - Attributable profit £21.6m £10.3m +109.7% - EPS4 1.8p 1.1p +63.6%

1. Restated for the reclassification of UK Rail bid costs and property profits or losses

2. Before amortisation charges, ineffectiveness on financial derivatives and certain other items

3. Adjusted operating profit less capital grant amortisation plus depreciation

4. Change in EPS is less than for profit attributable to ordinary shareholders due to the increased weighted average number of shares in issue following the rights issue completed in H1 2013

6 Group revenue bridge

£m Revenue Change

H1 2013 3,300.7 (10.9)%

UK Rail revenue support (192.7)

UK Rail reduction in First ScotRail subsidy (98.2)

UK Bus operations sold or closed in prior period (56.0)

Foreign exchange (122.4)

H1 2013 comparator 2,831.4 +3.9%

Growth / other 109.7

H1 2014 2,941.1

7 Divisional performance

Revenue (£m) Operating Profit1 (£m) Operating Margin1 (%)

Sep 14 Sep 13 Sep 14 Sep 132 Sep 14 Sep 132

Student 605.7 666.4 4.5 10.4 0.7% 1.6%

Transit 410.2 408.7 29.5 31.4 7.2% 7.7%

Greyhound 314.0 333.7 29.9 32.1 9.5% 9.6%

UK Bus 449.2 490.7 16.9 15.9 3.8% 3.2%

UK Rail 1,155.6 1,395.2 40.0 25.8 3.5% 1.8%

Group items 6.4 6.0 (17.2) (14.4)

Total 2,941.1 3,300.7 103.6 101.2 3.5% 3.1%

1. Before amortisation charges, ineffectiveness on financial derivatives and certain other items

2. Restated for the reclassification of UK Rail bid costs and property profits or losses

8 Non-trading items Sep 14 Sep 13 £m £m Amortisation charges (25.8) (25.9)

Gain on disposal of property 26.1 - Legal claims (12.2) - IT licences (8.7) - UK Bus depot sales and closures (2.4) 15.3 Ineffectiveness on financial derivatives - (17.0) Other (0.4) - Other non-GAAP adjusting items 2.4 (1.7)

Total non-GAAP adjustments (23.4) (27.6) • Gain on disposal of property was realised on sale of Greyhound garage in Miami. £31.6m cash proceeds of this disposal were received during the period • Legal claims charge relates to two separate claims that pre-date the Laidlaw acquisition • IT licences have been written off as the related project objectives will now be achieved through a less costly and more appropriate alternative

9 Net cash flow £253.3m

£43.9m

(£15.2m) - (£268.5m) (£12.4m) (£7.5m)

(£84.6m) (£91.0m)

EBITDA

Pensions

Provisions

Net cash flow cash Net

Interest and tax and Interest

Capital expenditure Capital

Working capital / other / capital Working Property disposal proceeds disposal Property • Full year net cash outflow is expected to be approximately £100m including £70m outflow for FCC in H2

10 Financial position

• Strong liquidity and stable financing platform to drive forward transformation – Long term facilities in place – next refinancing 2019 – Average debt maturity 5.7 years (2013: 6.5 years) – Liquidity – headroom under committed facilities plus free cash: £943m (2013: £1,003m) – Mid-year net debt: EBITDA ratio 2.5x (FY 2014: 2.2x)

£500m

£400m

£300m

£200m

£100m

£0m

FY 22/23 FY FY FY 14/15 FY 15/16 FY 16/17 FY 17/18 FY 18/19 FY 19/20 FY 20/21 FY 21/22 FY 23/24

H1 16/17 H1 H1 15/16H1 17/18H1 18/19H1 19/20H1 20/21H1 21/22H1 22/23H1 23/24H1 24/25H1

Lease finance Drawings under £800m RCF at 30 Sept 14 Private placement notes £200m bond 2024 £325m bond 2022 £350m bond 2021 £250m bond 2019 £300m bond 2018

11 Tim O’Toole Chief Executive

Business review

12 First Student

• Successful contract portfolio pricing programme this year

– Average price increases of c.4.5% on contracts up for re-bid this season (approx. one-third of bus fleet) – timing of school year means benefit will be seen in H2

– 90% contract retention – customer recognition of our overall value proposition

• Reduced proportion of low margin contracts from 36% to c.28% this year – multi-year programme to build on this improvement

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

13 First Transit

• Outsourcing and demographic trends continue to create opportunities to grow our diverse contract portfolio, with modest capital requirements

• Growth profile this year driven by timing of available opportunities and two larger contracts rolling off in H2

– Profitable contract wins continued; several start up towards end of current financial year

– H1 revenue growth of 9.0% expected to moderate to c.4% for full year

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

14 Greyhound

• Greyhound Express delivered profitable like-for-like growth of 5.8%

• Core Greyhound customers not yet benefiting from improving economy

• Programme underway to equip traditional Greyhound with the tools to reduce dependence on the macroeconomic cycle

– Good progress with technology rollout in the period

– Improved CRM capability (web, mobile, loyalty)

– Key systems upgrades for real-time pricing and yield management in place over next 12 months

• Continue to utilise more flexible cost model to protect margin

15 US consumer sentiment by income band

105 Change over last twelve months: Top third: 11.4% up Middle third: 2.4% up 95 Bottom third: 0.6% up

75 Index value Index 65

45 2008 2009 2010 2011 2012 2013 2014 Bottom third Middle third Top third

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

16 UK Bus

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

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

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

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

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

– Targeting double the amount in further efficiencies in H2

17 UK Rail

• Robust revenue and passenger volume growth coupled with strong operating performance

• Negotiating with DfT for First Great Western direct award to at least March 2019

• Shortlisted for TransPennine Express from February 2016; negotiating direct award up to that time

• Submitted InterCity East Coast bid in June 2014; result expected shortly

• Franchise competitions: remain ambitious but disciplined in bidding, in order to secure business at acceptable economic levels

18 Summary

• Trading in the period in line with our expectations

• Results more weighted to H2 than usual this year

• Strong liquidity and stable financing platform to progress transformation

• Focused on achieving our medium term financial targets

• Confident our plans will deliver sustainable improvements in shareholder value

19 FirstGroup plc Half-yearly results for the six months to 30 September 2014 Appendices

21 First Student

Sep 14 Sep 131 Change $m $m

Revenue 1,013.1 1,029.7 (1.6)%

Operating profit 6.0 17.3 (65.3)%

Margin % 0.6% 1.7% (1.1)pp

Operating $m Revenue profit Sep 131 1,029.7 17.3 Net growth / op days / other (20.4) (16.0) Exit of loss making contracts (21.6) - Inflation 18.7 (7.0) Mgmt initiatives 5.0 6.1 Weather 11.8 6.2 CAN$ fx (10.1) (0.6) Sep 14 1,013.1 6.0

1. Restated for the reclassification of property profits or losses 22 First Transit

Sep 14 Sep 13 Change $m $m

Revenue 687.7 630.8 9.0%

Operating profit 49.3 48.6 1.4%

Margin % 7.2% 7.7% (0.5)pp

Operating $m Revenue Profit Sep 13 630.8 48.6

Net growth 64.1 2.5

CAN$ fx / Other (7.2) (1.8)

Sep 14 687.7 49.3

23 Greyhound

Sep 14 Sep 131 Change $m $m

Revenue 527.0 514.7 2.4%

Operating profit 50.3 49.6 1.4%

Margin % 9.5% 9.6% (0.1)pp

Operating $m Revenue profit Sep 131 514.7 49.6 Passenger revenue 18.0 18.0 Product improvement - (5.3) Increased marketing - (2.8) Inflation / other - (9.5) CAN$ fx (5.7) 0.3 Sep 14 527.0 50.3

1. Restated for the reclassification of property profits or losses 24 UK Bus

Sep 14 Sep 131 Change £m £m

Revenue 449.2 490.7 (8.5)%

Operating profit 16.9 15.9 6.3%

Margin % 3.8% 3.2% 0.6pp

Operating £m Revenue profit Sep 131 490.7 15.9 Depot closures and sales (56.0) - Sep 13 adjusted 434.7 15.9 Revenue growth 14.5 8.8

Cost inflation / other - (11.8)

Cost efficiencies - 5.8 Restructuring - (1.8) Sep 14 449.2 16.9

1. Restated for the reclassification of property profits or losses 25 UK Rail

Sep 14 Sep 131 Change £m £m

Revenue 1,155.6 1,395.2 (17.2)%

Operating profit 40.0 25.8 55.0%

Margin % 3.5% 1.8% 1.7pp

1. Restated for the reclassification of UK Rail bid costs 26 Financial results Sep 14 Sep 131 Change £m £m Revenue 2,941.1 3,300.7 (10.9)% EBITDA 2 253.3 260.5 (2.8)% EBITDA % 8.6% 7.9% 0.7pp Operating Profit 3 103.6 101.2 2.4% Margin % 3.5% 3.1% 0.4pp Interest (70.3) (81.6) (13.8)% Profit before tax 3 33.3 19.6 69.9% Non-GAAP adjustments (23.4) (27.6) (15.2)% Profit/(loss) before tax 9.9 (8.0) n/m Tax (2.4) 11.8 n/m Profit after tax 7.5 3.8 97.4% Basic EPS 0.3p (0.1)p n/m Adjusted EPS 1.8p 1.1p 63.6%

1. Restated for the reclassification of UK Rail bid costs and property profits or losses

2. Adjusted operating profit less capital grant amortisation plus depreciation

3. Before amortisation charges, ineffectiveness on financial derivatives and certain other items

27 Capital expenditure

Cash Fixed Asset Additions

Sep 14 Sep 13 Sep 14 Sep 13 £m £m £m £m

First Student 128.5 96.5 106.5 96.4 First Transit 15.7 8.1 15.3 8.0 Greyhound 35.8 32.6 35.8 32.6 UK Bus 41.1 35.6 63.2 61.0 UK Rail 35.2 21.1 33.5 20.4 Group items 1.2 0.8 1.2 0.8 Total 257.5 194.7 255.5 219.2

Cash 257.5 156.3 255.5 180.8 New finance leases - 38.4 - 38.4 Total capital expenditure 257.5 194.7 255.5 219.2

28 Pensions

Deficit Cash contribution P&L charge1

Sep Mar Sep Sep Mar Sep Sep Mar Sep £m 2014 2014 2013 2014 2014 2013 2014 2014 2013 North America (154.7) (152.4) (152.0) 14.4 20.0 21.5 3.5 6.9 3.7

UK Bus2 (129.2) (94.2) (45.3) 29.7 53.6 25.4 17.0 30.4 15.5

UK Rail (7.4) (14.1) (7.9) 22.9 48.3 28.6 31.3 56.9 24.5 Total (291.3) (260.7) (205.2) 67.0 121.9 75.5 51.8 94.2 43.7

1. Service costs excluding interest

2. September 2014 P&L charge includes £4.1m of defined contribution arrangements

• Group deficit increased by £30m principally due changes in actuarial assumptions, in particular significantly lower discount rates partly offset lower inflation rates and better than expected returns on assets

29 Diesel hedge position

UK North America

2014/15 2015/16 2016/17 2014/15 2015/16 2016/17

Annual volume (barrels’m) 2.2 1.4 1.1 1.5 1.5 1.5

% hedged 93% 90% 34% 78% 67% 27%

Crude rate ($/barrel) $101.21 $98.03 $97.30 $89.93 $87.20 $86.11

Diesel rate ($/barrel) $122.41 $117.24 $114.24 $118.63 $115.59 $112.60

Equivalent cost per litre 48.1p 46.1p 44.9p US 74.6c US 72.7c US 70.8c

UK Bus UK Rail Student Transit Greyhound Total

Annual volume (barrels’m) 1.1 1.1 0.7 0.1 0.7 3.7

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

30 Net finance costs

Sep 14 Sep 13 £m £m Bonds 43.0 45.6 Bank borrowings 7.9 13.3 Loan notes 0.5 0.5 Senior unsecured loan notes 2.0 2.0 Finance lease interest 5.5 7.3 Notional interest on long term provisions 7.4 10.0 Notional interest on pensions 4.8 3.6 Investment income (0.8) (0.7) Net finance costs before adjustments 70.3 81.6 Hedge ineffectiveness on financial derivatives¹ - 17.0 Net finance costs 70.3 98.6

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

31 Foreign exchange • Lower US Dollar compared to March:

Sep 14 Mar 14 Sep 13

Closing rate for the balance sheet US$ $1.63 $1.66 $1.61

Closing rate for the balance sheet CAN$ $1.81 $1.84 $1.66

• Higher US Dollar rate compared to last half year:

Sep 14 Mar 14 Sep 13

Effective rate on US$ earnings $1.65 $1.61 $1.56

Effective rate on CAN$ earnings $1.82 $1.69 $1.59

• The higher US Dollar rate negatively impacted revenue by £122m this half year compared to last half year • The impact on EBIT was negligible due to our “natural hedge” whereby US Dollar denominated fuel costs in the UK and US Dollar denominated interest costs offset the exposure of US Dollar EBIT

32 Taxation

Sep 14 Sep 13 £m £m

Current tax 2.5 2.0

Deferred tax (0.1) (13.8)

Tax charge/(credit) 2.4 (11.8)

Tax paid 3.1 4.2

Tax rate on Adjusted profit before tax 22.0% 22.0%

33 UK Rail Passenger revenue growth

Six months to: Sep 14 Mar 14 Sep 13 Mar 13

FCC 6.8% 8.1% 6.9% 6.3%

FGW 7.0% 4.9% 4.6% 6.7%

FSR 4.7% 5.5% 6.2% 6.6%

FTPE 6.2% 5.6% 6.3% 7.8%

Hull Trains 9.7% 5.2% 8.0% 9.4%

Total 6.5% 6.0% 5.7% 6.7%

• Continued solid demand across all of our franchises – passenger volumes increased by 3.5%

34 UK Rail subsidy/(premium) profile

£m FCC FCC DA FGW FGW DA FSR FTPE Total

FY 2012/13 (228.2) - (435.3) - 447.2 57.0 (159.3)

HY 2013/14 (118.0) - (234.2) - 231.2 30.8 (90.2)

FY 2013/14 (254.4) - (273.9) (22.0) 506.9 65.7 22.3

HY 2014/15 - (69.9) - (53.7) 133.0 24.8 34.2

• FGW and FCC franchise payment decrease for HY reflects the direct award profile and CP5 profile changes • FSR HY subsidy reduction reflects principally CP5 profile changes

35 Revenue support/profit share

Sep 14 Mar 14 Sep 13 Six months to: £m £m £m FCC Revenue Support - 20.3 39.3

FGW Revenue Support - 24.0 153.4

FTPE Profit Share - - (1.4)

Total - 44.3 191.3

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

36 UK Rail bonds

Sep 14 Sep 13 £m £m

FTPE Performance bond 10.6 10.6

FSR Performance bond 25.0 25.0

FSR Season ticket bond 5.4 5.2

FSR Maintenance bond 20.7 20.7

FCC Performance bond 10.0 22.6

FCC Season ticket bond 58.9 58.0

FGW Performance bond 10.0 63.4

FGW Season ticket bond 26.4 19.8

Total 167.0 225.3

37 UK Rail ring-fenced cash

Sep 14 Sep 13 £m £m

FCC 39.7 74.7

FGW 116.4 14.8

FSR 73.1 85.6

FTPE 46.7 43.1

Total 275.9 218.2

38 Disclaimer

Certain statements included or incorporated by reference within this presentation may constitute “forward looking statements" in respect of FirstGroup plc's operations, performance, prospects and/or financial condition. Such statements are based on our current expectations and beliefs concerning future events and are subject to a number of known and unknown risks and uncertainties that could cause actual events or results to differ materially from any expected future events or results referred to in these forward looking statements. Such statements are also based on numerous assumptions regarding our present and future strategy and the environment in which we operate, which may not transpire. We undertake no obligation to update any forward looking statements contained in this presentation or any other forward looking statements we may make.

Nothing in this presentation should be construed as a profit forecast. Past performance cannot be relied upon as a guide to future performance and persons needing advice should consult an independent financial adviser.

Nothing contained in this presentation is intended to constitute an invitation or inducement to engage in investment activity for the purposes of the prohibition on financial promotions in the UK Financial Services and Markets Act 2000. In making this presentation available, FirstGroup plc makes no recommendation to buy, sell or otherwise deal in shares of FirstGroup plc or in any other securities or investments whatsoever and you should neither rely nor act upon, directly or indirectly, any of the information contained in this presentation in respect of any such investment activity.