Business review

First Student

Year to 31 March 2020 2019 costs. We attribute this continuing retention success to our excellent safety track record Revenue $2,474.9m $2,424.9m and consistent focus on building sustained customer relationships over many years, Adjusted operating profit $205.9m $227.1m resulting in this year’s record-breaking willingness to recommend and satisfaction Adjusted scores, which saw fully 75% of our customers operating margin 8.3% 9.4% rating us nine or ten on a ten-point scale for overall satisfaction. Average number of employees 48,000 48,000 Our retention success was supplemented with organic growth, continuing conversions from Paul Osland First Student revenue was $2,474.9m or in-house to private provision and good net President, First Student £1,940.4m (2019: $2,424.9m or £1,845.9m), market share gains from our larger competitors, representing growth in constant currency in several cases at higher pricing than ■■ Sustainable and resilient of 2.2%. This comprised growth of 4.1% in proposed by the incumbent. returns from our market constant currency to the end of February We also continued to build out our ability 2020, benefiting from the pricing and contract leading multi-year contract to supplement growth and expand our wins we achieved in the summer 2019 bid portfolio in the home-to- addressable market via acquisitions in this season as well as from acquisitions made school market fragmented segment of the mobility services in the year. This was partially offset in March industry. Since the start of the financial year we ■■ Opportunities for organic when substantially all North American schools have closed three transactions adding a total had closed by the end of the month due to the and M&A-led growth, of 850 . The most notable was Hopewell coronavirus pandemic, albeit we continued entry into adjacent Transportation, a leading provider of to recover a proportion of our expected markets and provision of transportation for students with special needs home-to-school revenue from school board in the Chicago, Illinois area, utilising smaller complementary services customers as noted below. ‘vans’. Special needs transportation is a faster Adjusted operating profit was $205.9m growing part of the overall student transportation or £158.8m (2019: $227.1m or £171.2m), market. This is also a segment where Share of outsourced market representing an adjusted operating profit margin specialised training for frontline employees (around 38% of total market) of 8.3% (2019: 9.4%). Prior to the effect of the is especially valuable, which is an area where outbreak, net growth, management efficiencies Hopewell Transportation has always been and continued contract pricing discipline were strong, and plays to our longstanding goal largely offsetting the wage inflation from the to recruit, train and retain the safest and best tight US employment market experienced driver population in the industry. We assess all during the year and higher self-insurance of our transaction opportunities on the same costs. The division reported a statutory returns criteria as any other avenue for growth. profit of £89.4m (2019: £115.3m) including Since the start of the coronavirus pandemic, the amortisation of intangibles, and after we have begun to see fewer participants in First Student’s £52.5m portion of the North bids due to capital constraints, and situations First Student 21% American self-insurance charge and profit where incumbents have withdrawn from their 11% on sale of property of £8.0m in the year. contract obligations for the next school year. Additionally, some operators have become STA 7% Year in review more willing to discuss acquisitions. NA Central, Krapf, Cook Illinois 4% Following another strong bid season over Others 57% the summer of 2019, First Student grew our We further grew our market-leading school already market leading school fleet and bus charter business by redesigning the market share for the second year in a row; consumer experience of finding our services, 2020 approximate we have contracts to operate c.43,000 buses getting quotes, and booking trips despite the revenue by type at year end (2019: 42,500) with strong pricing impact of the pandemic. In the year, charter accompanying this growth. Our operational generated revenues of $204.7m (2019: excellence drove record high customer $203.6m) or 8% of divisional revenues. satisfaction scores which underpinned our Throughout the year we have worked to contract retention rate of 88% (2019: 92%) on improve the efficiency of our procurement, business up for renewal, which was ahead of maintenance and operational practices as our expectations. Across our entire portfolio well as investing in innovations to enhance of multi-year relationships, retention was 96% the quality of our services for our school board (2019: 97%). This was notwithstanding the customers, student passengers and their pricing requirements we had to seek from our parents. In addition to the continued expansion Home-to-school contracts 92% customers due to the tight US employment of our FirstView® bus tracking app, this year market last year and resulting persistent driver School and third-party charter 8% we have been developing and scale-testing shortages as well as higher self-insurance our tablet-based driver workflow system

18 FirstGroup Annual Report and Accounts 2020 Strategic report

DriverHub, which provides real-time navigation agreements reached with customers Current trading and the future assistance, provides data links into our since March. While some school districts may start earlier or operations and maintenance systems, and later and with potentially varying approaches Key cost actions to mitigate the reduced enables us to monitor and coach our drivers’ to maintaining social distancing, we are service activities include the temporary on-road performance individually, further currently preparing for the majority to restart furloughing of employees, insurance savings, enhancing our focus on safety. in August and early September, at the end of salary deferrals and reductions, the ending of the summer holidays. We are not anticipating We are also actively exploring opportunities all non-essential contract staff, together with that summer school activities will take place at the frontier of the transition to alternative some more permanent reductions in headcount this year, and are assuming at present that fuel-powered school bus services, with a where unavoidable. In some cases, the terms discretionary charter services will take longer number of electric vehicle pilots now underway of the Federal Pandemic Unemployment to be restored than home-to-school services. and 6% of our fleet currently powered by Compensation program meant it was more First Student is always a highly seasonal alternative fuels. School start-up last autumn appropriate to assist our people to use this business, with much lower activity levels over went well, and we are confident that our scheme temporarily than to maintain their the school summer holiday period contributing playbook is in good shape to restore service employment. First Student is also making to a significant weighting to the second half of at the right time for each of our customers use of the CARES Act employee retention our financial year in terms of profitability. whenever they need it in the months ahead. tax credit for companies whose business has been disrupted by government order, as well Coronavirus response First Student is the clear market leader in the as other government tax deferral and other provision of contracted public transportation All schools served by First Student in North schemes to the extent possible. All non- services across 40 US states and seven America were closed by the end of March as essential capital expenditure has been Canadian provinces, as well as a significant federal, state and local authorities responded reviewed in accordance with customers’ provider of charter bus services. The business to the coronavirus pandemic. The school requirements and some discretionary spend has long-term, trusted relationships with closures also resulted in the cancellation of has been deferred, reprofiled or converted a high-quality client base of schools across school charter trips and we have also seen a to leasing. the continent, generating stable predictable significant decline in the demand for external revenues. The business benefits from its charters. While we have already restarted During the coronavirus crisis we have been substantial scale, best-in-class operating some school routes in and British very proud of the hundreds of First Student track record, renowned customer service and Columbia the majority of our school board locations that have been actively supporting strong safety expertise, which are testament to customers are not anticipating restarting school districts with a variety of services. the long-term strategy of the highly experienced school activities again before the end of the Our drivers have delivered more than 1.4 million management team. We are confident that this summer holidays. Although some of our meals and counting to students across North is a very strong, resilient platform with several 1,100 contracts include guaranteed minimum America, as well as instructional materials, opportunities in its marketplace to add value revenue commitments (mainly in ), the including books and laptops. Many First for all stakeholders. majority do not. First Student therefore rapidly Student locations have provided transportation began very active and productive discussions shuttles for healthcare workers and others with all of our school board customers on on the frontline of the pandemic, while First a contract-by-contract basis to agree a level Transportation Solutions has also supported of payment to ensure we retain the capability more than 25 school districts with the logistics to restart services when each school takes and planning of their own meal and school the decision to reopen. As the leader in the supply deliveries. industry, we have reinforced the importance We are in active discussions with our of maintaining the driver and operational stakeholders about how we will support capability for our customers through the restarting schools safely and efficiently at current situation by engaging with industry the appropriate time, in accordance with bodies and the sector. It should be noted their local requirements. We have set up a that most school districts remain fully funded cross-functional team of experts to establish to continue to provide education, school guidelines for leading our business and our transportation and other services, and stakeholders through the changes to our received additional funding to do so under services that will be required to do so, the CARES Act and subsequent coronavirus including maintaining social distancing (which response spending. To date First Student has may require more buses or potentially split shift agreed terms to receive either full or partial school days), protective personal equipment payment from customers representing c.74% (PPE), enhanced bus and location cleaning of our bus fleet, based on which we have been and disinfection regimes, potential testing and recovering c.52% of the home-to-school screening protocols and additional driver revenue expected prior to the crisis. A number training. Initial indications suggest that driver of customers have reduced the amount of recruitment is likely to be less of a challenge revenue reimbursement to reflect our ability to in some regions than in previous years. mitigate certain labour and fuel-related costs while no services are running. Adjusting for this, our effective recovery rate is c.61% of our pre-crisis expectations, based on the

FirstGroup Annual Report and Accounts 2020 19 Business review continued

First Transit

Year to 31 March 2020 2019 expand our largest paratransit contract which operates in the greater Chicago area. Revenue $1,488.4m $1,411.4m In emerging mobility services, our partnership Adjusted with Lyft to provide wheelchair accessible and operating profit $36.2m $64.8m other paratransit services has been extended to several more US cities. We have continued Adjusted to position ourselves as a leader in the operating margin 2.4% 4.6% maintenance and operation of both autonomous Average number vehicles (AV) and electric vehicles (EV) with of employees 20,000 19,500 recent wins in Houston and . After the year end we were awarded a contract on Brad Thomas ’s revenue was $1,488.4m or a US military base to be the maintenance and President, First Transit £1,171.4m (2019: $1,411.4m or £1,075.8m), operations partner for an innovative ‘stackable’ an increase of 5.6% in constant currency. AV pilot – using AV technology that has been ■■ Well-established platform This comprised growth of 6.6% in constant retrofitted to traditional manned vehicles. to capture long-term currency to the end of February, reflecting Our contract retention rate on ‘at risk’ positive pricing, new contract opportunities growth in evolving transit contracts was flat at 89% (2019: 89%), throughout the portfolio and some pass- management markets despite the loss of the two relatively large through revenue, followed by a meaningful ■■ underperforming contracts mentioned at Winning MaaS and SAV reduction in activity levels during March the half year stage. Since the start of the opportunities and with the start of the coronavirus pandemic. coronavirus pandemic, we have seen some leveraging our partnerships Adjusted operating profit was $36.2m commercial bidding processes slow down with Transportation or £28.3m (2019: $64.8m or £49.3m), given the current uncertainties about the pace Network Companies representing an adjusted operating margin of emergence from current travel restrictions; (TNCs) and others of 2.4% (2019: 4.6%). Prior to the outbreak the in several cases our customers have proposed division was experiencing a number of cost extensions to existing contracts that were Approximate share of c.$29bn headwinds, principally higher self-insurance approaching their end dates. We continue North American transit market and legal costs, driver shortages in certain to assess all commercial opportunities on a areas, changing business mix and the two rigorous risk-adjusted return on investment adverse legal judgments in the first half of basis, using our broad-based expertise the year, which were being partially offset by and leading operational and maintenance pricing, net growth and cost efficiencies. The delivery platforms. abrupt impact of the pandemic on revenue Throughout the year we continued to during the final month of the financial year was drive through further cost efficiencies and partially offset through variable cost reductions, operational improvement from investments but nevertheless had a meaningful impact. in lean maintenance, predictive analytics, The division reported a statutory loss of procurement, systematic employee £(21.9)m (2019: profit of £23.1m) including engagement/retention programmes and First Transit 5% the amortisation of intangibles, the division’s further back office alignment with First Student Other outsourced providers 29% £43.5m portion of the North American where value-adding, in order to help mitigate self-insurance adjusting item charge and In-house 66% the cost headwinds we face. Although for the a legacy pension settlement, which are most part we operate vehicles procured and disclosed separately from adjusted owned by our customers, wherever possible 2020 approximate operating profit. revenue by type we continue to roll out the DriveCam safety Year in review system, which complements our safety In the year First Transit continued to build its standards and procedures and our broad portfolio of both existing and emerging behavioural change programme. multi-year mobility services contracts, benefiting Coronavirus response from consistently highly rated customer Clearly the onset of the coronavirus outbreak service credentials and its reputation for and government actions to control its spread safe, innovative and best value solutions to toward the end of the last financial year will customers. We were pleased with fixed route have a significant impact on the coming year. and paratransit wins in Merced, Arlington The majority of First Transit’s contracts reflect and San Bernardino from two of our largest payment for making services available over Fixed route 36% competitors, along with securing the shuttle agreed time periods, with the principal Paratransit 36% contract between airport terminals and the exception being in paratransit where the Shuttle 17% new taxi/Transportation Network Company revenue is driven more by the volume of trips (TNC) passenger waiting lots at Los Angeles Vehicle services 10% undertaken by the business. Our fixed route airport. Additionally we were pleased to Rail 1% operations are largely classed as essential services so, despite a significant reduction

20 FirstGroup Annual Report and Accounts 2020 Strategic report

in ridership and increasing orders to ‘shelter Current trading and the future in place’ by the majority of US states, we saw We continue to plan for a range of potential service requirements reduce by only c.30% scenarios, but it is likely that customers in overall. Paratransit operations are seeing different regions and sub-segments of the non-essential trips decline, although the division seek to raise service levels from their requirement for social distancing has offset current provision at varying rates. Based on this to some extent, with overall activity levels such decisions made so far and the latest down c.50%. Shuttle operations are seeing discussions with our customers, our overall service reductions in certain airport contracts expectation is that revenues will only gradually and all university clients have now reduced improve from their present levels over the service requirements significantly to holiday summer, and will begin to step up further timetables and/or engaged e-learning protocols. from September. Overall the division has on average experienced Notwithstanding the near-term uncertainties, a reduction of c.35% in its activity levels. the market for mobility services in North While many of our drivers and other America continues to evolve and we are employees have continued to maintain the embracing the disruption. We aim to stay essential transport links that our customers at the forefront of the changes, providing rely on, they have also been delivering food simplified mobility solutions that enhance our supplies across our communities to vulnerable customers’ lives. Our services are a compelling members of the community. option for both local authorities and private customers to outsource their transportation The CARES Act made available $25bn for “the management needs. We remain focused on operating expenses of transit agencies related bids that provide good value to clients while to the response to a coronavirus public health achieving appropriate margins with modest emergency” which has been helpful for many capital investment, as we continue to build of our transit agency customers, although it our platform in mobility services over time. does have a complex interplay with other aspects of the Act most notably the short-term funding made available to workers under the Federal Pandemic Unemployment Compensation program. Since the onset of the outbreak we have maintained an active dialogue with our customers regarding payment through any reductions in service to ensure the operations are in a position to restore normal levels of operation efficiently at the appropriate time. Of those contracts with a material reduction in service, we have agreed terms to date with the result that we are currently recovering the equivalent of 79% of the divisional revenue expected prior to the crisis. Key cost actions to mitigate the reduced service activities include the temporary furloughing of employees under the various emergency schemes put in place to support workers through the crisis, salary deferrals and reductions, the ending of all non-essential contract staff, together with some more permanent reductions in headcount where unavoidable. We have also utilised government tax deferral and other schemes to the extent possible. First Transit is not as capital intensive as some of the Group’s other businesses, but all non-essential capital expenditure has been deferred or halted.

FirstGroup Annual Report and Accounts 2020 21 Business review continued

Greyhound

Year to 31 March 2020 2019 Year in review During the year Greyhound sought to build on Revenue $766.0m $846.7m its iconic brand and unique scale by continuing to transform all areas of its customer experience Adjusted operating profit $(15.3)m $2.7m and cost efficiency through investment in technology. During the year the business has Adjusted delivered further enhancements to its website, operating margin (2.0)% 0.3% mobile app, customer call handling, revenue management and digital ticketing systems Average number while completing the roll out of the new of employees 5,500 5,500 on-board entertainment platform to the entire US active fleet. These developments, coupled Dave Leach Greyhound’s revenue was $766.0m or with disciplined fleet investments and several President, Greyhound £603.2m (2019: $846.7m or £645.1m), maintenance, procurement and operational reflecting an increasingly challenging trading ■■ projects during the year will deliver recurring Access available environment throughout the year. Lower fuel savings over time. Meanwhile these bus funding via states prices which typically make travel by car more improvements also resulted in improved ■■ cost-competitive, continuing reductions in Capture maximum value customer perceptions, increased punctuality immigration-related demand in the southern from our brand and and lower emissions. At 33.6g CO2(e) per border states and intensifying competition in passenger km, intercity travel by Greyhound nationwide network several markets from both coach and low-cost already offers the lowest per-passenger ■■ airline operators all contributed to a (3.5)% Deliver improved carbon emissions of modal alternatives reduction in like-for-like revenues to the end performance potential – around 87% lower emissions than an of February, which was then compounded equivalent domestic passenger plane from revenue, cost and by a further reduction in passenger demand journey and 81% lower than the average fleet management plans in March with the onset of the coronavirus US passenger car. ■■ Continue property pandemic. Greyhound total revenue for the full rationalisation year reduced by (9.4)% in constant currency, We continue to review our terminal footprint, representing a reduction of (5.7)% in the US looking for opportunities to move to intermodal Distribution of Greyhound and a (45.3)% reduction in Canada, due to our transport hubs or new facilities better tailored passengers (by mileage band) decision to withdraw from significant parts of to our needs. In addition to a number of smaller that business during the prior year. terminal changes, this year we completed the sale of Richmond, VA, with the gain on sale Despite further management action including of $6.1m or £4.8m included in adjusted commercial initiatives, mileage reductions, operating profit. profit on certain property sales of $10.6m or £8.3m (2019: $10.8m or £8.4m) and the Greyhound has been actively responding to withdrawal from Western Canada, the reduction the changes in demand throughout the year in revenue during the year and higher-self with tactical commercial initiatives to target insurance costs were not fully offset and as overall revenue per mile growth, by optimising a result, Greyhound’s adjusted operating loss 1-200 miles 43% pricing and capacity allocation across our was $(15.3)m or £(11.6)m (2019: profit of $2.7m different markets and adjusting mileage in 201-450 miles 39% or £2.6m). The division reported a statutory response to demand changes. 451-1,000 miles 12% loss of £(253.4)m (2019: loss of £33.8m) Coronavirus response 1,000+ miles 6% reflecting restructuring and reorganisation The pricing, mileage and capacity optimisation costs associated with the withdrawal from activity was stepped up as the coronavirus 2020 approximate Western Canada, Greyhound’s £45.3m share outbreak and government advice developed revenue by type of the North American self-insurance adjusting in March, with Greyhound revenues initially item charge, and the £186.9m of impairments reducing by c.80%, compounded by border in the carrying value of the assets, partially closures between the US and Canada. offset by property disposals. Following the Greyhound rapidly reduced capacity and cost further impairment and the effects of IFRS 16, (principally through reduced variable costs, Greyhound is carried at a cash generating unit furlough and permanent headcount value of £188.7m ($235.2m). The net book reductions) to match lower demand levels, value of £(156.3)m ($(194.7)m) is stated after including through the temporary cessation £172.4m ($214.8m) for pensions deficits under of the entirety of its Canadian services from IAS 19 and £111.4m ($138.8m) relating to the Passenger 81% 13 May 2020, and is utilising government tax self-insurance reserve provision. The impairment Package Express 4% deferral and other schemes as appropriate. has been recognised in the results on a Food 2% In the US during the first quarter of the current pro-rata basis against the assets of the division year, Greyhound operated c.40% of its Charter 1% excluding property. The valuations in excess pre-outbreak timetabled mileage, sufficient to Others 12% of book value suggest no impairment to the ensure that the community-critical transportation carrying value of Greyhound’s property.

22 FirstGroup Annual Report and Accounts 2020 Strategic report

network that it provides is maintained. Almost Current trading and the future all of its main coach competitors have not Greyhound’s current focus is on continuing been operating during this period. to secure support for its community-critical services from the CARES Act funding via state As the only national intercity bus operator, agencies, while very actively managing service Greyhound urgently sought federal and levels and cost to match observed demand. state assistance to sustain its network through As certain states have begun to ease ‘shelter the present crisis, and also sought to obtain in place’ restrictions and government advice relief on rents and fees for intermodal facilities has evolved, we are beginning to experience from government transportation agencies. an incremental increase in passenger Following these efforts, the emergency federal volumes, to c.70% below pre-pandemic levels appropriations bill (the ‘CARES Act’) signed in June compared with c.85% below in March/ into law on 27 March 2020 specifically April. Revenue is currently c.60% below allocated $326m in funds to US states to fund pre-pandemic levels, reflecting increased continued intercity bus transportation via Title yields. As volumes increase, we are focused 49 section 5311(f) of the US Code. The CARES on delivering a safe, punctual service for our Act also waived normal requirements for passengers while maintaining our discipline matching state funds. Given its scale as the around incremental cost and agreeing further only provider of a national network of coach intercity bus funding contracts with the states services across 44 US states, Greyhound we operate in. anticipates being a major recipient of this funding. Greyhound continues to work through A sale process in respect of Greyhound the processes to access the CARES Act is ongoing and we will update the market funding for services in each state where it as appropriate. operates. A number of these states already have pre-existing arrangements where minor amendments to contracts are required before Greyhound’s submissions can be processed. Where new or additional arrangements are required, Greyhound is working to expedite securing contracts and commencing billing. Greyhound has deferred or halted all non-essential capital expenditure, and has improved the cost per mile, operational performance and customer perception of its active fleet by primarily operating its newest and most efficient buses. Greyhound has invested in industry-leading enhanced cleaning regimes for its buses and locations, mandated the use of face coverings on all its operations across the country and actively led the industry in providing prospective passengers with the latest coach travel safety information, as well as instituting a flexible booking policy to ease passengers’ concerns. Greyhound has been supporting our communities during the outbreak by providing free transport to first responder and frontline medical professional volunteers travelling to another town or city to provide assistance, and is also delivering vital medical supplies and safety equipment in partnership with the American Red Cross.

FirstGroup Annual Report and Accounts 2020 23 Business review continued

First Bus

Year to 31 March 2020 2019 reducing boarding time. We have made regular upgrades to our highly regarded Revenue £835.9m £876.1m passenger app which reached 1m monthly active users during the year, including in recent Adjusted months being the first large operator to bring operating profit £46.1m £65.1m to our app the capability for passengers to Adjusted check in real time how full each bus is, operating margin 5.5% 7.4% including for wheelchair spaces, helping them to make more informed travel decisions. This Average number exciting development was delivered in just two of employees 15,500 16,500 weeks given buses’ reduced capacity under social distancing rules. Contactless and our Giles Fearnley First Bus reported revenue of £835.9m (2019: mobile app have become the preferred Managing Director, First Bus £876.1m), in part reflecting the sale of two payment mechanisms for our passengers, operating depots during the year. Adjusting for ■■ overtaking cash and now accounting for more Manage transition beyond this and other factors, like-for-like passenger current industry funding than half of all commercial revenue. We have revenue increased by +0.7%, with commercial introduced capped fares via contactless support arrangements passenger volumes decreasing by (4.3)% payments in and Doncaster, ■■ including the effects of coronavirus. The role representing a price promise to customers Prioritise partnerships of buses has been increasingly recognised with local authorities as well as significantly faster boarding times, during the year, highlighted in particular by and are developing plans for further roll out. ■■ Transition to low- and significant and high profile commitments to We are working alongside other companies then zero-emissions fleet invest in the industry’s future by the UK in developing similar multi-operator products. Government. First Bus delivered like-for-like ■■ Frictionless customer passenger revenue growth of 1.8% to the We have continued to take action to improve offering to drive growth end of February, with the local operations our efficiency, including by continuously experiencing varying demand patterns due to optimising networks to both meet existing ■■ Deliver further benefits from changing retail footfall, challenging congestion and stimulate new demand for our services, cost efficiency programme issues and differing local economic conditions. deploying our resources accordingly. We can Clearly the imposition of government guidelines now do this in much finer detail than ever before by interrogating the much richer data Approximate First Bus market share to avoid all but essential travel in early March sets we have available to us as a result of the of UK market outside to check the spread of coronavirus meant passenger volumes and revenues were GPS-enabled ticketing system rolled out in significantly affected from that point, as previous years, enabling us to identify significant discussed further below. efficiencies by matching timetables with actual running times. We are also implementing Adjusted operating profit was £46.1m improvements to our back office procedures, (2019: £65.1m) and adjusted operating margin for example by redesigning engineering was 5.5% (2019: 7.4%), mainly reflecting the practices to be leaner and more agile. substantial reduction in passenger demand in March which was difficult in the short term Our capital investment this year was focused to offset through cost reductions. The division on areas where we work closely with First Bus 20% also experienced poorer weather in the stakeholders to progress our shared ambitions Others 80% previous summer which capped like-for-like to deliver thriving and sustainable bus services, growth and higher hedged fuel prices and with investment in Leeds, Glasgow, Norfolk, other inflation, which was not fully offset by Portsmouth and Bristol. Buses have a huge continued cost efficiencies and the actions role to play in creating a connected and 2020 approximate we have been taking to improve the passenger healthy world by contributing to local prosperity revenue by type experience. The division reported a statutory and growth and there is growing recognition operating profit of £32.4m (2019: £27.4m) as a of this by all stakeholders. In February result of restructuring and reorganisation costs we welcomed the UK Government’s and trading losses up to the point of disposal announcement of a new £5bn, five-year of the two depots sold in Manchester. funding package for buses, cycling and walking which will include support for simpler Year in review fares, thousands of new green buses, We are creating a better offering to our improved routes and higher frequencies passengers, designed and delivered around across . The Scottish Government their needs and aspirations, with a particular has also announced more than £500m in focus on easy, innovative and convenient Passenger revenue 67% investments for infrastructure, including new ticketing. We were the first major bus operator Concessions 25% bus priority routes and other schemes to to offer contactless payment on every bus, Tenders 4% encourage more people to use which simplifies payment, enhances and reduce congestion across the country. Other 4% convenience and speeds up journeys by

24 FirstGroup Annual Report and Accounts 2020 Strategic report

Across all our networks we work very closely our core network and increasing the destinations an initial 12-week period backdated to 12 May, with all our stakeholders, including local offered. We upgraded our services to Glasgow is designed to support the industry while social authorities, to determine the most effective airport through investments in high-specification distancing guidelines require buses to run application of these monies to improve the double-deckers, significantly increasing capacity. substantially below their potential capacity, and passenger offering. The landmark West will be kept under review. Bus operators will Following a review of our Manchester Yorkshire bus alliance has made good be able to claim funding for the difference operations in anticipation of changes progress in delivering bus priority measures between their revenue from passenger and proposed to the structure of that market we during the year. In March the UK Government other non-tendered contractual sources and completed the sales of our Queen’s Road and committed to significant Transforming Cities the costs of operating services. Recoverable Bolton depots during the first half of the year. Fund spending on bus priority in Leicester, costs include all reasonable operational costs We continue to operate from Oldham and on , South Yorkshire and West as well as depreciation, pension funding and the award-winning Vantage guided bus route. Yorkshire with the DfT negotiating further debt finance costs reasonably allocated to settlements for Norwich, Portsmouth/Solent Coronavirus response English local bus services. In June, the and Stoke at year end. An outline Bus Deal When the coronavirus pandemic began to Scottish Government announced their has been agreed with Bristol, and discussions escalate in the UK in the second half of March, intention to put in place a similar system, are continuing on a Bus Deal for Glasgow. within days First Bus experienced c.90% and discussions are ongoing with the Welsh declines in fare-paying passenger revenue and Government to secure the additional funding We are a leader in the industry for low concessionary volumes. Across all our networks necessary to support increases in service emission buses and our vehicles play a key we rapidly reduced service levels in consultation capacity there through the recovery period. role in helping reduce congestion on the with our local authority partners and were able roads, improving air quality and lowering Our bus operations perform a vital service and to do so following relaxation of usual notice carbon emissions. We are focused on First are a critical piece of the daily lives of many periods, which was granted by the Traffic Bus becoming a leader in the transition to people in communities across the country. Commissioners. On the back of funding grants a low-carbon future for public transportation, Our team has offered additional support and we initially reduced service levels to c.40% of and are committing to operate a zero-emission assistance to these communities during the normal capacity, with a corresponding mileage bus fleet by 2035, and do not plan to purchase pandemic, including making space available reduction, in order to continue to transport any new diesel buses after December 2022. at our bus terminals for community initiatives, healthcare and other key workers. The We look forward to working closely with our and drivers volunteering to complete additional business furloughed c.55% of its workforce supply chain, industry partners and the UK training in order to drive local authority vehicles. under the UK Government’s job retention Government to ensure that our shared scheme in this period. Working with our Current trading and the future ambitions can be taken forward following the industry partners and the Confederation of the Our current priority is to ensure First Bus is current crisis. We are already pioneers in the Passenger Transport (CPT), we engaged with able to support increases in passenger use of various alternative fuel buses, and over the government to agree an initial three-month demand in an effective and efficient way, the last two years we have made considerable industry-wide funding agreement for crucial under the terms of the government funding progress in downsizing the diesel fleet and services provided by regional bus operators in schemes noted above, while achieving a securing clean air compliance. 35% of our fleet England. This funding totalled £167m across stronger bus division for the future for all of is now comprised of either Euro VI-compliant the industry and completed a package of our stakeholders. We will continue to actively diesels or gas, electric or fuel cell vehicles. measures to maintain vital bus services and address our cost base through our In the year we introduced 193 new Euro VI networks committed by the DfT, Scottish and comprehensive efficiency programme, the or better buses, including 74 methane gas Welsh Governments to continue to (either benefits of which we expect will be more powered ‘bio-buses’ for Bristol and currently themselves or by directing local authorities evident once the effects of the coronavirus have 30 electric vehicles on order – including to) fund the Bus Service Operators Grant, pandemic begin to subside. 21 double-decker buses for the York Park & concessionary fares and contracts for tendered Ride network and nine single-deckers for Uncertainty remains about near-term customer services at levels prior to the pandemic. Leeds. We have also taken delivery of two demand due to coronavirus. While local single deck electric buses, funded by SP At the end of May a further COVID-19 Bus economic activity is weak and social distancing Energy Networks, for Glasgow. We continue Service Support Grant (CBSSG) Restart guidelines require buses to run substantially to bring hydrogen-powered buses into use programme for England was announced, below their potential capacity, a degree in Aberdeen, preparing to launch 15 double- which built on the previous funding of funding will remain critical to our ability deckers in the city with funding assistance arrangements. Under the new scheme to sustain service levels. However, the from the City Council, the EU and the Scottish regional bus services in England have initially fundamentals of First Bus are sound and Government. The coronavirus pandemic has been allocated £254m in additional funding by coronavirus does not change the principles led to temporary deferrals in our fleet investment the DfT allowing us to increase bus service of what we are doing, nor that bus travel will for 2020/21; future investment will be focused capacity as government guidance on travel play a critical role in restoring the economies on our environmental and partnership restrictions eases, supporting the restart of of the local communities in which we operate. commitments, while improving operating costs. our local economies and getting people We will lead the way on sustainability including back to work. Within four days of this funding delivering a zero-emission fleet by 2035. During the year we successfully launched our being confirmed, we had increased services Being the partner of choice for public Bright Bus tour services in Edinburgh, which to c.80% of pre-pandemic levels, passenger authorities and the travel preference of our competed well against the market leader. volumes have begun to increase and the passengers will enable us to deliver an We took on full responsibility for services to majority of our furloughed employees had improved and sustainable business in future. Swansea’s Park & Ride site, integrating it into returned to work. The funding, which runs for

FirstGroup Annual Report and Accounts 2020 25 Business review continued

First Rail

Year to 31 March 2020 2019 the quality of rail journeys for our customers on Avanti, and we look forward to performing Revenue £3,185.9m £2,666.7m the role of ‘Shadow Operator’ to the HS2 programme. Adjusted operating profit £68.9m £68.8m GWR’s new environmentally-friendly fleets of commuter Electrostar trains and bi-mode Adjusted InterCity Express Trains (IETs) have delivered operating margin 2.2% 2.6% more seats and increased levels of punctuality. Average number The new trains, in turn, allowed us to redeploy of employees 14,000 12,500 the rolling stock previously used in London and the Thames Valley to enhance capacity on Steve Montgomery First Rail revenue increased to £3,185.9m routes in the South West. The largest timetable Managing Director, First Rail (2019: £2,666.7m), principally reflecting the change since the 1970s was successfully inclusion of the ’s introduced in December 2019, taking ■■ Deliver enhanced services franchise from December advantage of the new trains to offer faster in accordance with our 2019 and passenger revenue growth, higher journey times and more frequent services to contractual agreements subsidy receipts and final settlement of certain key locations. All of these changes led to the highest levels of customer satisfaction GWR ■■ Work alongside government GWR contractual amendments. Excluding Avanti, like-for-like passenger revenue growth has recorded and a significant improvement and industry partners to was 0.2% with passenger volume decreasing in its independent Passenger shape longer term industry by (1.3)% reflecting changing work patterns Survey (NRPS) score in the period. During the structure, focused and lifestyles resulting in a shift away from period GWR also took over the operational on passengers season tickets towards pay-as-you-go aspects of Heathrow Express and is working offerings as well as the coronavirus impact. closely with contractor on ■■ Seek appropriate balance Operational conditions across the industry further improvements to the service. In the of risk and reward in any this year were challenging with infrastructure period the Group signed a direct award future commitments upgrade works across our networks and the agreement with the DfT to continue operating industrial action in SWR affecting our franchise GWR until March 2023, with a possible performance levels. UK macroeconomic extension of up to one further year at the Passenger revenue base uncertainty also weighed on passenger DfT’s discretion. Our experience of managing of First Rail operations revenue in the year and the effect of the route over many years will be crucial to coronavirus is likely to prolong this uncertainty. facilitating the ongoing transformation of GWR through the biggest changes to the network in Adjusted operating profit was £68.9m (2019: a generation. In the near term the structure is £68.8m) with a margin of 2.2% (2019: 2.6%). superseded by the Emergency Measures Divisional profitability was driven by the Agreements put in place across the industry additional capacity and services as a result by the UK Government as discussed below, of the introduction of new trains by GWR and but at the conclusion of the Emergency the inclusion of Avanti, offset by the impact Measures Agreement period, GWR will of the coronavirus outbreak and moving to operate services as a franchise with revenue Leisure 46% the Emergency Measures Agreements from risk shared with the DfT through a Forecast 1 March, while the expected effect of first time Business 29% Revenue Mechanism (FRM), which also makes adoption of IFRS 16 on First Rail’s adjusted Commuter 13% provision for a revenue rebasing exercise for operating profit was less than expected. Travelcard (including Oyster) 12% GWR as required. The division reported a statutory operating profit of £67.8m (2019: loss £77.1m). SWR’s performance was principally challenged in the year to March 2020 by Year in review 2020 approximate industrial action by the RMT trade union which In August 2019 we were pleased that our revenue by type caused significant issues for our passengers 70:30 rail venture with was awarded throughout the year, including an unwarranted the West Coast Partnership contract to month-long strike in December 2019. We are operate existing InterCity services on the West committed to delivering a resolution to this Coast Mainline, and to help deliver High Speed dispute which remains ongoing despite our 2 (HS2). After a successful mobilisation and a offer of an agreement that means no-one constructive handover period with the previous loses their job and a guard is kept on every operators we launched the operation with the train. We are resolved to finding a solution that new brand of Avanti West Coast in December will be of benefit to everyone involved with 2019. Since launch, Avanti performed in line SWR, in particular our customers. Ongoing with our expectations until the final weeks of Passenger revenue 81% Network Rail infrastructure problems outside March. Our future plans for new, greener Franchise subsidy and EMA funding 12% of our control have also continued to have an electric and bi-mode trains, more services Other income 7% impact on our performance and we continue and new destinations will significantly enhance to work with them to mitigate these. In the

26 FirstGroup Annual Report and Accounts 2020 Strategic report

meantime, we are focused on delivering including smartcards, barcodes and auto- Our First Rail teams are also using their unique improvements to the passenger experience renewing or flexible season tickets. position as part of the essential fabric of the and as part of this we introduced refurbished communities in which they operate to deliver First Rail and our partners are industry leaders trains to the Portsmouth-London line in late support and assistance during this challenging in reducing carbon emissions. This includes 2019, with new suburban rolling stock due in time. We are responsible partners with our the introduction of bi-mode diesel and the next few months. Timetable changes in customers and communities and we work overhead electric powered trains enabling us May and December 2019 added more than with community organisations across the to make use of electrification where available, 350 new services per week and we also network. In particular, we were pleased the whilst still being able to operate on shorter announced a package of investment for the Rail to Refuge scheme with Women’s Aid, sections of non-electrified track. We are Isle of Wight’s railway. which offers free rail travel to those fleeing signatories to the UK Government’s challenge domestic violence, went nationwide during the Our long-term ambition for our TPE franchise to take all diesel-only trains out of service by lockdown period following a successful trial in is for it to continue evolving into the true 2040 and this progress will be made easier as GWR. Where we have a catering offer, our rail intercity network for the North. To that end, the UK power grid further decarbonises and companies have been donating food from capacity is being significantly increased and our rail network is progressively electrified. on-board shops to NHS teams and charities. we began to introduce the first of 220 new Coronavirus response carriages from late 2019, comprising Hitachi Current trading and the future In line with the wider UK rail industry, IET-type trains and a further intercity fleet First Rail is currently operating in accordance passenger volumes in our businesses reduced from CAF. Although TPE delivered growth and with the terms of the Emergency Measures substantially from the second half of March traded ahead of expectations during the first Agreements in place. There is uncertainty 2020 as government advice and regulations half of the year, in the second half the franchise about the level of future passenger demand changed, with revenue c.95% lower. Following experienced difficult operating conditions and revenue growth in the light of the consultation with the DfT, the industry began due to the delayed delivery of these new train challenging circumstances of coronavirus. operating a reduced timetable from 23 March. sets and infrastructure issues affecting our Throughout the pandemic we have been Services are gradually being restored beginning performance. We were able to meet a major in discussions with the DfT concerning the with the 2020 timetable change on 18 May commitment by introducing a new direct commercial effects on our train operating although demand remains at unprecedentedly -Glasgow service in December, companies, and what continuing support low levels. To try and ensure current social although further key changes which were or contractual variations may be needed in distancing can be maintained in line with included in the original bid have not yet taken due course. Those discussions are continuing. government advice, some of our rail businesses place due to industry-wide decisions not to In preparing the accounts the Directors have introduced demand management measures alter timetables at the scale originally envisaged. assumed that the Emergency Measures such as limiting the number of advance tickets Our revised plans for transforming the franchise Agreements or a similar structure on sale for certain services, and we worked are continuing and all of our new trains are remain in place until the end of their with our partners to ensure our customers now expected to be in service within the next respective franchises. could use stations safely. 12 months. Over time our rail portfolio has generated good The UK Government acted swiftly to sustain In December 2019 our open access operator returns overall despite challenging recent the country’s critical rail networks during the began operating a new leased fleet, industry conditions. The UK’s rail franchising pandemic, ensuring services could continue which significantly improved the passenger system is currently undergoing a major review to be operated for essential workers to travel experience on what was already a successful led by Keith Williams of the most appropriate by rail to perform their vital roles. In March all route, and removed some of the performance commercial model to deliver services in future, of the Group’s rail franchises entered into uncertainty that the previous fleet was causing. and we look forward to the outcome of this Emergency Measures Agreements with the We are carefully considering our plans for review in order to understand the balance of UK Government which will last until September, a second open access operation on the risks and rewards on offer for future UK rail or longer if required, and which provide East Coast mainline in light of the current opportunities. Notwithstanding these issues, continuity and certainty. For the duration of demand environment. we are focused on working with our industry these agreements, the government will waive partners to deliver better customer We were pleased that in the autumn 2019 our revenue, cost and contingent capital risk experiences at all our train operating NRPS, all of the rail operations we controlled in and pay our train operating companies a fixed companies, which will in turn result in the period achieved year-on-year improvements management fee, which varies according passengers returning to the railway over time. in overall satisfaction, with GWR being a to the individual profile of the franchise. standout performer having fully delivered new There is also the potential for an additional trains into operation. All of our rail companies performance-based fee. In preparing the have further plans to improve the passenger accounts the Directors have assumed that the experience, principally by delivering new trains Emergency Measures Agreements or a similar along some or all of their routes. Customers structure remain in place until the end of their will see benefits including more seats and respective franchises. Hull Trains was space, better Wi-Fi and on-board entertainment not eligible for the Emergency Measures options and several other fleets are being Agreement system and as a result we completely refurbished to provide customers announced on 29 March that our Hull Trains with similar amenities. Our franchises are also open access business would suspend working to introduce convenient types of ticket operations for a period.

FirstGroup Annual Report and Accounts 2020 27