FirstGroup plc 2019 full year results and strategy update
Thursday 30 May 2019
30 May 2019 FirstGroup results for the year to 31 March 2019 Overview
▪ Clear divisional strategies delivering better business performance:
− First Student: revenue/fleet growth while maintaining pricing discipline and margin progression
− First Transit: winning additional business in core markets and capturing opportunities in Mobility as a Service (MaaS) and Shared Autonomous Vehicles (SAV)
− Greyhound: responding to improvement plans; withdrawal from Western Canada; property disposals
− First Bus: passenger revenue growth through focus on customer convenience; 180bps margin expansion from cumulative effect of cost efficiency and network/depot consolidation actions
− First Rail: Despite uncertainties on SWR and TPE, division delivered strong operating profit in the year
▪ Delivered strong revenue, adjusted profit and adjusted EPS growth and generated substantial cash flow
▪ Future emphasis on core First Student and First Transit contracting divisions in North America through portfolio rationalisation plans:
− Unlocks long term sustainable value and growth opportunities for all shareholders and stakeholders
− Tangible, deliverable plan cognisant of constraints and friction costs required to maximise value
30 May 2019 FirstGroup results for the year to 31 March 2019 2 Financial review for the year to 31 March 2019
30 May 2019 FirstGroup results for the year to 31 March 2019 3 Financial summary
SWR- and 53rd Change in £m Mar 2019 Mar 2018 Change week-adjusted CCy1 change, in CCy2 Revenue 7,126.9 6,398.4 +11.4% +11.0% +5.7% Adjusted3 - EBITDA 670.3 690.6 (2.9)% (3.6)% - Operating profit 332.9 317.0 +5.0% +4.0% +10.5% - Margin % 4.7% 5.0% (30)bps (30)bps +20bps - Net finance costs (106.6) (120.0) (11.2)% - Profit before tax 226.3 197.0 +14.9% +13.1% - Effective tax rate % 22.5% 22.4% +10bps - Attributable profit 173.6 147.7 +17.5% +15.7% - EPS p 14.4p 12.3p +17.1% +15.2% Net cash inflow 197.3 110.5 +78.6% Net debt4 903.4 1,070.3 (15.6)% (17.2)% Net debt: EBITDA x 1.3x 1.5x Ring-fenced cash adjusted net 2.1x 2.1x debt: EBITDA x 1 Change in constant currency ('CCy') is based on retranslating FY 2018 foreign currency amounts at FY 2019 rates 2 Change excluding SWR franchise (which became part of First Rail in August 2017) and the 53rd week in the Road divisions, in constant currency 3 Before other intangible asset amortisation charges and certain other items 4 Net debt is stated excluding accrued bond interest 30 May 2019 FirstGroup results for the year to 31 March 2019 4 Revenue performance
rd ▪ Group revenue growth +5.7% in CCy excluding SWR and 53 week 425.1 7,126.9 ▪ Road divisions growth +2.0% on same basis, led by First Student
▪ Rail LFL passenger growth of 5.8% supplemented by transition of GWR from premium to subsidy and full year of SWR 272.8 1.1 6,701.8
94.1 15.2 11.5 6,398.4 24.8 6,342.7 (35.6)
(80.5)
SWR
revenue revenue
First Bus First
baseline
sub-total
Currency
First Rail First
Mar 2018 Mar 2018 Mar 2019 Mar 2019 Mar
(ex-SWR)
53rd week 53rd
Greyhound
First Transit First
Group Group items First Student First
30 May 2019 FirstGroup results for the year to 31 March 2019 5 Adjusted1 operating profit
▪ Road divisions’ operating profit +3.6% in CCy excluding 53rd week, with growth and margin progress in First Student and First Bus more than offsetting Transit and Greyhound
▪ GWR main contributor to Rail adjusted profit increase
▪ Change in Group items largely due to £7m of currency gains on bond settlement in prior year 14.5 332.9 20.6 16.0 3.1 (10.4) 317.0 (5.6) 309.4 (11.6)
(10.7)
profit profit
baseline
Currency
operating operating
First Bus First Rail First
Mar 2018 Mar 2018 Mar 2019 Mar
53rd week 53rd
Greyhound
First Transit First
Group items Group First Student First 1 Before amortisation charges and certain other items
30 May 2019 FirstGroup results for the year to 31 March 2019 6 Income statement – continued
Reported Change in £m Mar 2019 Mar 2018 change CCy
Adjusted1
Operating profit 332.9 317.0 +5.0% +4.0% Bond refinancing, Net finance costs (106.6) (120.0) (11.2)% lower net debt Profit before tax 226.3 197.0 +14.9% +13.1%
Tax (50.9) (44.2)
- Effective tax rate % 22.5% 22.4% +10bps Tax guidance unchanged Non-controlling interests (1.8) (5.1) MTR is 30% partner in SWR Attributable profit 173.6 147.7 +17.5% +15.7%
EPS p 14.4p 12.3p +17.1% +15.2%
1 Before amortisation charges and certain other items
30 May 2019 FirstGroup results for the year to 31 March 2019 7 Non-GAAP adjustments
Mar Mar £m ▪ Amortisation lower due to full utilisation of old 2019 2018 customer contract intangibles Amortisation charges (29.9) (70.9) ▪ Restructuring/reorganisation costs mainly relate to SWR onerous contract provision (145.9) - Greyhound withdrawal from Western Canada. Net cash cost of £4.8m in the year (see appendix) North America insurance reserves (94.8) (32.7) Restructuring and reorganisation (24.1) (26.0) − Group estimates that disposal proceeds from Guaranteed minimum pensions (21.5) - surplus properties in Western Canada will exceed the cash costs of restructuring, over time Manchester loss on disposal (16.2) - Profit on Greyhound Chicago sale 9.3 - ▪ £21.5m charge reflecting effect on our UK Bus and TPE onerous contract provision and Group schemes of the High Court’s recent ruling (1.1) (106.3) notional interest unwind regarding guaranteed minimum pensions on all UK Greyhound goodwill and other asset schemes - (277.3) impairments ▪ £16.2m loss on disposal of First Bus assets in Bond make-whole costs - (10.7) Manchester partially offset by £9.3m profit on sale of Other non-GAAP adjusting items (294.3) (453.0) Greyhound Chicago depot
Total non-GAAP adjustments (324.2) (523.9) ▪ Charge of £1.1m (2018: £nil) in the period for notional interest on unwind of £106.3m TPE onerous contract provision. TPE provision not utilised during the year
▪ North America insurance reserves and SWR provision discussed on following pages
30 May 2019 FirstGroup results for the year to 31 March 2019 8 North America insurance reserves
▪ North America continues to deliver legal judgments increasingly in favour of plaintiffs and punitive in certain regions
▪ Increasingly complex and judgmental area; reserve levels recommended by our actuarial advisors
▪ Adverse settlements, developments on a number of aged insurance claims and hardening backdrop in the wider motor claims environment has led to higher specific case reserves and adverse development factors
▪ As a result, we instructed an additional independent actuarial review of the expected risk position, including the claims handler’s reserve position − Confirmed a deterioration in the claims environment and increase in the expected level of settlements − Adjusting charge of £94.8m ($125.0m) to increase self-insurance reserve, reflecting the cost of meeting existing claims in the current environment − Expect the majority of these claims will be settled over the next five years − 2018/19 operating charge reflects the revised environment
▪ For 2019/20, charge is expected to increase in line with revenue growth in the businesses, plus inflation
▪ Group has a strong focus on safety and risk mitigation in this area will continue to be a key area of focus
30 May 2019 FirstGroup results for the year to 31 March 2019 9 SWR onerous contract provision
▪ SWR is a critical part of the national infrastructure: − Services from London Waterloo to destinations throughout south-west London and southern England − Franchise Train Operating Company owned 70:30 by FirstGroup and MTR – all costs, risks and rewards shared accordingly − Franchise is profitable to-date
▪ Looking forward, a number of issues have emerged which have frustrated our ability to deliver on our objectives for passengers: − Impact of changes in timetables, capacity, aging infrastructure and rolling stock − Functioning of the Central London Employment (CLE) revenue protection mechanism − Most significantly passenger revenue growth and future impact of the industrial action in addition to uncertainty as to the level of strike amelioration recoverable from the DfT
▪ We continue to be engaged in negotiations with the DfT to agree commercial and contractual remedies, and progress has been made, but there is a range of potential outcomes at present
▪ Therefore we have prudently provided for the potential future losses while negotiations continue with DfT: − Provided for the maximum unavoidable loss under the franchise agreement of £145.9m − FirstGroup’s 70% share is therefore £102.1m − FirstGroup’s 70% share of undrawn PCS and bonds is £65m
30 May 2019 FirstGroup results for the year to 31 March 2019 10 Group cash flow (£m)
542.9 Includes £88m of working capital inflows and net capital receipts, which will unwind in future years
172.5 366.1
(47.8)
193.6 199.6 197.3 (320.0) (88.8)
(25.5) (3.8) (29.9) (2.3)
flow
Acquisitions
flow
Exceptionals
Net cash flowcashNet
other
Road EBITDA Road
Free cash flowcash Free
Interest and tax and Interest
Pensions charge Pensions P&L of in excess
Road cash capex cash Road
otherprovisions
Rail operating cash operating Rail
Operating cash flow cash Operating
Road insurance andinsurance Road
Road operating cash operating Road Road working capital / working Road
30 May 2019 FirstGroup results for the year to 31 March 2019 11 Financial position
▪ Strong liquidity, stable financing position: net debt £903.4m (2018: £1,070.3m)
▪ Headroom under committed facilities plus free cash: £520.6m (2018: £766.4m)
▪ Net debt: EBITDA 1.3x (2018: 1.5x), or 2.1x adjusted for Rail ring-fenced cash (2018: 2.1x)
▪ £800m bank facility amended and extended to November 2023
▪ Long term facilities in place – average maturity 4.3 years (2018: 4.1 years)
▪ Rated investment grade by Standard & Poor's and Fitch
▪ 50% of net debt denominated in US Dollars via bank debt, finance leases and US private placement borrowing; 89% at fixed interest rates
▪ Jan 2019 bond repaid from cash in hand and bank debt; next bond maturity April 2021; aiming to rebalance further to shorter term / floating debt and USD over time
▪ Based on most recent actuarial valuations, the combined funding deficit of First Bus and Group schemes, taking into account the parent company guarantees, is approx. £250m higher than the accounting basis
30 May 2019 FirstGroup results for the year to 31 March 2019 12 2019/20 guidance
▪ Expect to deliver revenue growth and financial progress in the Road divisions in 2019/20, offset by Rail’s particularly strong adjusted profit contribution in 2018/19 moderating to more normal levels − Overall expect adjusted earnings to be broadly in line with our expectations
▪ Margin expectations are underpinned by structural change and efficiency programmes launched this year
▪ Interest charge and tax rates broadly stable
▪ Expecting the £88m First Rail cash working capital and capital grant inflow in 2018/19 to unwind in 2019/20; Road divisions’ free cash generation expected to increase − Group free cash flow before acquisitions therefore expected to be broadly neutral in 2019/20; ie. an average of approximately £100m between year just ended and year ahead
30 May 2019 FirstGroup results for the year to 31 March 2019 13 Portfolio strategy update and divisional reviews
30 May 2019 FirstGroup results for the year to 31 March 2019 14 Strategy overview
▪ Board executed thorough strategic review to ensure FirstGroup Business composition captures and creates value for shareholders: Student − Five market-leading public transportation businesses 46% − Limited synergies, particularly North America vs UK − Recognition of constraints and friction costs to overcome Rail 19%
Transit ▪ Right time for portfolio rationalisation, enabling future emphasis on 14% core North American contract businesses: Grey Bus 3% 18% − Clear and focused divisional strategies now delivering improved performance Contribution by adjusted operating profit − In First Student and First Transit we have a strong and profitable platform in emerging mobility services market UK − First Bus and Greyhound set on paths to increased value creation 37% Contract 60% ▪ Our portfolio rationalisation plan will: North − Unlock long term sustainable value and growth opportunities for all America Passenger shareholders from our market leaders First Student and First Transit 63% 21% Rail franchise − Opportunity to unlock value through Greyhound sale 19% By geography − Pursuing strategic alternatives to separate First Bus from the Group By business model
30 May 2019 FirstGroup results for the year to 31 March 2019 15 Portfolio rationalisation principles
▪ Focused on securing best value for shareholders – executing portfolio rationalisation plans with pace and discipline
▪ Full understanding of the regulatory procedures and stakeholder consultations including pensions which will be required to execute the plans responsibly
▪ Group will optimise management and functional structures to capitalise further on our unique platform in North American mobility services market
▪ Application of any proceeds will be evaluated in light of the Group’s capital structure and long-term liabilities, targeting an optimal balance sheet for delivering sustainable growth and shareholder returns
In parallel we will continue to drive forward the clear strategies now established in our divisions, underpinned by further efficiency programmes launched this year
30 May 2019 FirstGroup results for the year to 31 March 2019 16 First Student performance
▪ Delivered growth in revenue, fleet count and market share as forecast − Our returns-based bidding strategy has now cycled through most of the portfolio (a process which had resulted in lower retention rates in past few years) − Strong bid season last summer with excellent retention rates (92% of ‘at risk’ business) and above-inflation pricing − Significant new business wins, reflective of our high customer satisfaction scores and reputation for safety
▪ Good school start-up, managing driver shortage challenges and efficiencies: expanded margins by 50bps to 9.5%
$m Change in Year to 31 March 2019 2018 constant fx2 Revenue 2,424.9 2,350.6 +3.4% Adjusted1 operating profit 230.0 210.4 +9.1% Adjusted1 operating margin 9.5% 9.0% +50bps 1 Before amortisation charges and certain other items 2 Based on retranslating 2018 foreign currency amounts at 2019 rates
30 May 2019 FirstGroup results for the year to 31 March 2019 17 First Student platform
▪ Restored to a position of generating sustainable growth and returns from our multi-year contract portfolio, share shift and conversion
▪ Targeting development of complementary transportation technologies and services, entry into adjacent markets and organic and M&A-led growth
▪ Largest provider of student transportation in North America ▪ 42,500 yellow school buses, twice the size of the next largest competitor ▪ 5m student journeys per day ▪ Leading customer satisfaction and safety scores ▪ 9% revenues in charter services ▪ FirstView app now covers 350k students; rolling out service- only model for school board customers
Outsourcing and services and Outsourcing Market attractions ▪ Multi-year contracts with public sector customers, typically Contracted market low credit risk (c.$10bn) spend board ofschool areas Further ▪ Typically high levels of contract retention ▪ Customer service, security and safety track record often as important as price
Next3 ▪ Established relationships with local communities a barrier to entry Share shift and M&A ▪ Fragmented marketplace – multiple M&A opportunities
30 May 2019 FirstGroup results for the year to 31 March 2019 18 First Transit performance
▪ Solid year for contract retention (89% of ‘at risk’ contracts) and new business wins offset the completion of high margin Canadian oil sands contracts at the end of last year
▪ More than 20 contracts won in core areas such as shuttle, fixed route and paratransit, as well as emerging opportunities in autonomous vehicles and mobility services
▪ Targeted recruitment and retention initiatives partially mitigated impact of driver wage inflation but this and higher self-insurance charge in year affected margins
▪ Continue to optimise our procurement, driver operations and maintenance costs to improve margin while maintaining best overall value offering for clients
$m Change in Year to 31 March 2019 2018 constant fx2 Revenue 1,411.4 1,420.4 (0.4)% Adjusted1 operating profit 67.7 77.8 (12.7)% Adjusted1 operating margin 4.8% 5.5% (70)bps 1 Before amortisation charges and certain other items 2 Based on retranslating 2018 foreign currency amounts at 2019 rates
30 May 2019 FirstGroup results for the year to 31 March 2019 19 First Transit platform
▪ Well-established profitable platform to capture further long term growth in core markets, and deliver profitable growth in attractive adjacent markets ▪ Winning MaaS and SAV opportunities and leveraging our partnerships with Transportation Network Companies (TNCs) and other companies as transit management markets evolve
▪ First Transit is one of the largest private sector providers of transit management in North America ▪ 12,900 vehicles owned or operated ▪ Diversified portfolio of 330 contracts mainly in fixed route, paratransit, shuttle and vehicle services ▪ Established credentials in adjacent areas including commuter rail, bus rapid transit (BRT) ▪ New business models in Shared Autonomous Vehicles
(SAV) and Mobility as a Service (MaaS) Conversion tooutsourcing Conversion Market attractions Contracted market ▪ Multi-year contracts with public sector customers, typically
(c.$10bn) low credit risk NatEx
▪ Typically high levels of contract retention
First Transit First
Keolis Transdev MV ▪ Modest levels of capital required (apart from in shuttle) ▪ Aging populations and congestion trends provide support Share shift and acquisitions Adjacent for continued international growth through further markets outsourcing
30 May 2019 FirstGroup results for the year to 31 March 2019 20 Greyhound
▪ Challenging market place with low-cost airline competition and low oil prices
▪ Plans in place to improve profitability following the business review last summer − Airline-style revenue management system is delivering increased yields − Commercial team led by new Chief Commercial Officer from major airline − Addressing costs; Western Canada withdrawal; continue to rationalise property portfolio − Fleet, ticketing systems and terminal investments to enhance service for customers
▪ Incremental signs of progress since our plans were implemented – confident business can deliver at least mid-single digit margins in medium term
▪ Value for shareholders best delivered by seeking new owners to support delivery of its potential. As such a formal sale process for Greyhound is under way
$m Change in Year to 31 March 2019 2018 constant fx2 Revenue 846.7 912.7 (7.0)% Adjusted1 operating profit 14.2 32.8 (54.8)% Adjusted1 operating margin 1.7% 3.6% (180)bps 1 Before amortisation charges and certain other items 2 Based on retranslating 2018 foreign currency amounts at 2019 rates
30 May 2019 FirstGroup results for the year to 31 March 2019 21 First Bus performance
▪ LFL revenue growth of 1.6% through improved customer offering and network management
− Contactless and digital implementation continues to transform services for passengers and our efficiency as a business
▪ Fleet investments and local authority partnerships (supported by clean air agenda funding) – now a well invested business with good relationships in many of our markets
▪ Significant margin progress made: 180bps increase to 7.5%, with ongoing margin momentum
− Delivered through focused investment in operations and maintenance systems, as well as local network and depot optimisation programmes, including in Manchester
£m Change in Year to 31 March 2019 2018 constant fx2 Revenue 876.1 879.4 (0.4)% Adjusted1 operating profit 65.8 50.2 +31.1% Adjusted1 operating margin 7.5% 5.7% +180bps 1 Before amortisation charges and certain other items 2 Based on retranslating 2018 foreign currency amounts at 2019 rates
30 May 2019 FirstGroup results for the year to 31 March 2019 22 First Bus platform
▪ Having set First Bus on the path to increased profitability, now is right time to pursue structural alternatives to continue its progression and deliver value to shareholders, while managing the division’s longer term liabilities responsibly
▪ First Bus is one of the largest bus operators in the UK, with a fifth of the market outside London ▪ Urban expertise; serves two thirds of the UK 15 largest conurbations ▪ Successful partnerships in Doncaster, Leeds, Sheffield, York, Cornwall, Norfolk, Hampshire and the West of England ▪ 1.6m passengers a day ▪ 5,700 buses in operation
Market attractions ▪ Growth potential from strategies tailored to specific customer segments or to enhance convenience ▪ Opportunity in youth demographic, where car ownership is falling ▪ Local bus trips account for 59% of all journeys by public transport in England ▪ Bus services form an important component of local authorities’ ability to fulfil their air quality obligations ▪ Bus travel diversified by journey type
30 May 2019 FirstGroup results for the year to 31 March 2019 23 First Rail
▪ Franchise performance for passengers affected by May 2018 timetable issues, infrastructure challenges, and strike action in case of SWR − Worked hard with industry partners to improve service performance in 2019
▪ LFL passenger revenue growth +5.8%, passenger volumes +2.0%
▪ Engaged in negotiations with DfT to work through potential commercial and contractual amendments to reflect timetable deferrals and other issues, in accordance with current franchise agreements
▪ TPE provision not utilised in the year; decision to provide for SWR reflects a prudent view of the uncertainties we are currently experiencing
▪ We will continue to operate our existing portfolio of rail franchises in the UK in accordance with their terms
£m Year to 31 March Change 2019 2018 Revenue 2,666.7 1,968.8 +35.4% Adjusted1 operating profit 72.3 57.8 +25.1% Adjusted1 operating margin 2.7% 2.9% (20)bps 1 Before amortisation charges and certain other items
30 May 2019 FirstGroup results for the year to 31 March 2019 24 Portfolio rationalisation plan to unlock value
26% 15% 9% 12% 38% Revenue
46% 14% 3% 18% 19% Adj op profit
Focus on First Student and First Transit, our core contract businesses in North America
Process to sell Greyhound has commenced
Pursue structural alternatives to separate First Bus operations
Continue to operate existing First Rail franchises in accordance with their terms
30 May 2019 FirstGroup results for the year to 31 March 2019 25 Going forward
▪ Delivered strong revenue, adjusted profit and adjusted EPS growth this year
▪ Clear divisional strategies, outlined in November, have momentum
▪ Our portfolio rationalisation plans are the most appropriate means to deliver enhanced sustainable value for shareholders having regard to all our stakeholders
Our strategy provides a clear path to enable the Group’s future emphasis on our core North American mobility services contracting platform
$2.8bn revenues | 1,400 multi-year contracts | 55,000 vehicles owned or operated 70,000 employees | almost 800 locations across US and Canada
30 May 2019 FirstGroup results for the year to 31 March 2019 26 FirstGroup plc 2019 full year results and strategy update
Thursday 30 May 2019
30 May 2019 FirstGroup results for the year to 31 March 2019 Appendices
30 May 2019 FirstGroup results for the year to 31 March 2019 28 Financial results
£m Mar 2019 Mar 2018 Change
Revenue 7,126.9 6,398.4 +11.4% EBITDA1 670.3 690.6 (2.9)% EBITDA margin % 9.4% 10.8% (140)bps Operating profit2 332.9 317.0 +5.0% Operating profit margin % 4.7% 5.0% (30)bps Net finance costs (106.6) (120.0) (11.2)% Profit before tax2 226.3 197.0 +14.9% Non-GAAP adjustments (324.2) (523.9) n/m Loss before tax (97.9) (326.9) n/m Tax (10.1) 36.0 n/m Loss after tax (108.0) (290.9) n/m Basic EPS p (5.5)p (24.6)p n/m Adjusted EPS p 14.4p 12.3p +17.1%
1 Adjusted operating profit less capital grant amortisation plus depreciation 2 Before other intangible amortisation charges and certain other items
30 May 2019 FirstGroup results for the year to 31 March 2019 29 Divisional performance
Change Change Change Revenue Operating profit2 Operating margin2 ex SWR / ex SWR / ex SWR / 53rd week, 53rd week, 53rd week, Mar 2019 Mar 2018 Mar 2019 Mar 2018 Mar 2019 Mar 2018 in CCy1 in CCy1 in CCy1
£m First Student 1,845.9 1,771.1 +5.4% 173.5 156.5 +13.5% 9.4% 8.8% +70bps First Transit 1,075.8 1,072.7 +1.4% 51.5 58.2 (9.8)% 4.8% 5.4% (60)bps Greyhound 645.1 690.2 (5.2)% 11.4 25.5 (50.4)% 1.8% 3.7% (160)bps First Bus 876.1 879.4 +1.3% 65.8 50.2 +32.1% 7.5% 5.7% +170bps Group items 17.3 16.2 (41.6) (31.2) Road divisions 4,460.2 4,429.6 +2.0% 260.6 259.2 +3.6% 5.8% 5.9% - First Rail 2,666.7 1,968.8 +13.9% 72.3 57.8 +40.5% 2.7% 2.9% +70bps Total Group 7,126.9 6,398.4 +5.7% 332.9 317.0 +10.5% 4.7% 5.0% +20bps
$m3 First Student 2,424.9 2,350.6 230.0 210.4 9.5% 9.0% First Transit 1,411.4 1,420.4 67.7 77.8 4.8% 5.5% Greyhound 846.7 912.7 14.2 32.8 1.7% 3.6% North America 4,683.0 4,683.7 311.9 321.0 6.7% 6.9%
1 Growth excluding SWR franchise revenue (which became part of First Rail in August 2017) and the 53rd week in the Road divisions in 2017/18, in constant currency 2 Before other intangible amortisation charges and certain other items 3 US Dollar amounts include Canadian Dollars converted at the exchange rates prevailing in either period
30 May 2019 FirstGroup results for the year to 31 March 2019 30 First Student
$m Mar 2019 Mar 2018 Change in CCy1
Revenue 2,424.9 2,350.6 +3.4% Operating profit2 230.0 210.4 +9.1% Margin % 9.5% 9.0% +50bps
$m Revenue Operating profit2 Mar 2018 2,350.6 210.4 53rd week / Operating days (30.5) (1.2) Mar 2018 (52 Week) 2,320.1 209.2 Weather 4.3 4.2 Pricing above inflation 38.2 38.2 Net growth 15.0 4.7 Management initiatives - 16.8 Pay above inflation - (29.5) Insurance - (6.9) Inflation / FX / Other 47.3 (6.7) Mar 2019 2,424.9 230.0 1 Change in constant currency is based on retranslating 2018 foreign currency amounts at 2019 rates 2 Before amortisation charges and certain other items
30 May 2019 FirstGroup results for the year to 31 March 2019 31 First Transit
$m Mar 2019 Mar 2018 Change in CCy1
Revenue 1,411.4 1,420.4 (0.4)% Operating profit2 67.7 77.8 (12.7)% Margin % 4.8% 5.5% (70)bps
$m Revenue Operating profit2
Mar 2018 1,420.4 77.8 53rd week (26.7) (2.6) Mar 2018 (52 week) 1,393.7 75.2 Growth / new business / pricing (11.2) 1.6 Pay above inflation - (8.3) Hurricane impact 1.1 1.9 Insurance - (7.3) Inflation / FX / other 27.8 4.6 Mar 2019 1,411.4 67.7
1 Change in constant currency is based on retranslating 2018 foreign currency amounts at 2019 rates 2 Before amortisation charges and certain other items
30 May 2019 FirstGroup results for the year to 31 March 2019 32 Greyhound
$m Mar 2019 Mar 2018 Change in CCy1
Revenue 846.7 912.7 (7.0)% Operating profit2 14.2 32.8 (54.8)% Margin % 1.7% 3.6% (180)bps
$m Revenue Operating profit2
Mar 2018 912.7 32.8 53rd week (17.8) (3.1) Mar 2018 (52 week) 894.9 29.7 Revenue 0.8 0.8 Cost inflation - (19.2) Canada – shutdown impact (49.8) 4.1 Canada pre-shutdown (1.8) (1.8) Property gain - 8.1 Fuel rate - (5.3) FX / insurance / other 2.6 (2.2) Mar 2019 846.7 14.2 1 Change in constant currency is based on retranslating 2018 foreign currency amounts at 2019 rates 2 Before amortisation charges and certain other items
30 May 2019 FirstGroup results for the year to 31 March 2019 33 First Bus
£m Mar 2019 Mar 2018 Change in CCy1
Revenue 876.1 879.4 (0.4)% Operating profit2 65.8 50.2 +31.1% Margin % 7.5% 5.7% +180bps
£m Revenue Operating profit2
Mar 2018 879.4 50.2 53rd week (14.8) (0.4) Mar 2018 (52 weeks) 864.6 49.8 L4L Pax revenue growth 12.2 12.2 Cost inflation - (23.9) Management actions - 23.3 Fuel - 6.0 Other (0.7) (1.6) Mar 2019 876.1 65.8
1 Change in constant currency is based on retranslating 2018 foreign currency amounts at 2019 rates 2 Before amortisation charges and certain other items
30 May 2019 FirstGroup results for the year to 31 March 2019 34 First Rail
£m Mar 2019 Mar 2018 Change
Revenue 2,666.7 1,968.8 +35.4% Operating profit1 72.3 57.8 +25.1% Margin % 2.7% 2.9% (20)bps
Like-for-like passenger revenue, year to Mar 2019 Mar 2018
Great Western Railway (GWR) 5.1% 2.7%
South Western Railway (SWR) 6.0% n/a
TransPennine Express (TPE) 8.0% 10.0%
Hull Trains 4.7% 3.3%
Total 5.8% 4.1% ▪ Like-for-like volume increased by 2.0%
1 Before amortisation charges and certain other items
30 May 2019 FirstGroup results for the year to 31 March 2019 35 Rail cash flow 2018/19
▪ Rail is cash generative, with profit after tax equating to dividends available for the Group, albeit with some phasing of the funds flows ▪ First Rail “capital expenditure” is typically matched by franchise receipts, capital grants or other funding from third parties, agreed in advance of franchise start
Net Rail cash inflow £m Ring-fenced cash £m Cash from trading Opening ring-fenced cash 392 Rail operating profit 72 Working capital 75 Depreciation 81 Net capital receipts 13 Third party grant amortisation (26) PCS/AFC 36 Franchise payment capital amortisation (42) Other 9 13 133 85 Closing ring-fenced cash 525 Capital expenditure cash flows In-year capex spend (110) Franchise payment capital receipts 61 Third party capital grant receipts 62 Net capital receipts 13 Capital payments offset by capital receipts
Working capital/other 75 Temporary timing benefit, to reverse in future years
Net rail cash inflow for 2018/19 173
30 May 2019 FirstGroup results for the year to 31 March 2019 36 Rail cash flow – last five years
Net Rail cash inflow £m Ring-fenced cash £m Cash from trading Opening ring-fenced cash 361 Rail operating profit 331 Working capital 129 Depreciation 375 Net capital receipts 47 Third party grant amortisation (90) PCS/AFC (SWR £49m, TPE £32m) 81 Franchise payment capital amortisation (209) End of franchise outflows (178) 76 Start of franchise inflows 89 407 Other (4) Capital expenditure cash flows 164 Cumulative capex spend (449) Closing ring-fenced cash 525 Franchise payment capital receipts 344 Third party capital grant receipts 152 Net capital receipts 47 Capital payments offset by capital receipts; £103m funding balance remaining Working capital/other 128 £91m of working capital to reverse in future years
End of franchise outflows (178) Outflows: First ScotRail £(106)m, FCC (£(72)m Start of franchise inflows 89 Inflows: SWR £89m (89)
Net rail cash inflow for 2014/19 493
30 May 2019 FirstGroup results for the year to 31 March 2019 37 Greyhound Canada non-recurring costs
▪ Restructuring/reorganisation costs predominantly relating to Greyhound's withdrawal from Western Canada. Net cash cost of £4.8m in the year
▪ Group estimates that disposal proceeds from surplus properties in Western Canada will exceed the cash costs of restructuring, over time:
Future Est. Withdrawal from Western Canada (£m) Mar 2019 years total Restructuring charge (29.1) - (29.1) Gains on disposal of related properties 8.8 8.5 17.3 Net P&L impact (20.3) 8.5 (11.8)
Cash costs of restructuring (17.0) (7.5) (24.5) Proceeds from disposal of related properties 12.2 16.4 28.6 Net cash costs (4.8) 8.9 4.1
30 May 2019 FirstGroup results for the year to 31 March 2019 38 Current diesel hedge position
UK North America Year to 31 March 2019/20 2020/21 2021/22 2019/20 2020/21 2021/22
Annual volume (barrels 'm) 1.7m 1.1m 1.1m 1.3m 1.3m 1.3m % hedged 84% 45% 21% 52% 22% 11% Crude rate ($/barrel) $65.37 $65.43 $69.50 $61.90 $66.02 $71.13 Diesel rate ($/barrel) $77.77 $78.83 $82.88 $80.31 $81.89 $86.72 Equivalent cost per litre 35.4p 35.9p 38.2p 50.5¢ 51.5¢ 54.5¢
First First First Bus First Rail Greyhound Total Student Transit Annual volume (barrels 'm) 0.8m 0.9m 0.7m 0.1m 0.5m 3.0m
▪ Prices include crude and refining cost but exclude delivery margins, duty, taxes and BSOG ▪ Equivalent cost per litre reflects FX hedges placed at $1.38, $1.38 and $1.37 : £1.00 in 2019/20 to 2021/22 ▪ North America annual volume excludes c.2.3m barrels provided by customers or protected by contract escalators ▪ The decrease in expected annual volume consumption in 2020/21 reflects the end of the minimum GWR franchise term
30 May 2019 FirstGroup results for the year to 31 March 2019 39 Foreign exchange
▪ Lower US Dollar compared to March balance sheet date: 31 Mar 2019 31 Mar 2018 Closing rate for the balance sheet US$ $1.30 $1.40 Closing rate for the balance sheet CAN$ $1.74 $1.81
▪ Lower US Dollar compared to prior period effective rate: Year to Year to 31 Mar 2019 31 Mar 2018 Effective rate US$ earnings $1.32 $1.34 Effective rate CAN$ earnings $1.74 $1.75
▪ "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 company does business. During the year, 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
30 May 2019 FirstGroup results for the year to 31 March 2019 40 Net finance costs and taxation
Net finance costs, £m Mar 2019 Mar 2018 Bonds 59.9 84.3 Bank borrowings 14.0 8.8 Loan notes 1.1 1.1 Senior unsecured loan notes 8.9 1.3 Finance lease interest 2.7 4.6 Notional interest on long term provisions 14.6 11.0 Notional interest on pensions 8.1 10.2 Investment income (2.7) (1.3) Net finance costs 106.6 120.0
Taxation, £m Mar 2019 Mar 2018 Current tax (8.2) (8.9) Deferred tax (1.9) 44.9 Tax (charge)/credit (10.1) 36.0
Tax paid (7.5) (12.2)
Tax rate on adjusted profit before tax % 22.5% 22.4%
30 May 2019 FirstGroup results for the year to 31 March 2019 41 EBITDA by division
Revenue EBITDA1 EBITDA margin1 Mar 2019 Mar 2018 Mar 2019 Mar 2018 Mar 2019 Mar 2018
£m First Student 1,845.9 1,771.1 352.3 335.2 19.1% 18.9% First Transit 1,075.8 1,072.7 71.4 79.8 6.6% 7.4% Greyhound 645.1 690.2 38.6 58.8 6.0% 8.5% First Bus 876.1 879.4 119.7 116.3 13.7% 13.2% Group items 17.3 16.2 (39.1) (28.9) Road divisions 4,460.2 4,429.6 542.9 561.2 12.2% 12.7% First Rail 2,666.7 1,968.8 127.4 129.4 4.8% 6.6% Total Group 7,126.9 6,398.4 670.3 690.6 9.4% 10.8%
$m2 First Student 2,424.9 2,350.6 464.5 447.0 19.2% 19.0% First Transit 1,411.4 1,420.4 93.8 106.5 6.6% 7.5% Greyhound 846.7 912.7 49.9 76.9 5.9% 8.4% North America 4,683.0 4,683.7 608.2 630.4 13.0% 13.5% 1 Adjusted operating profit less capital grant amortisation plus depreciation 2 US Dollar amounts include Canadian Dollars converted at the exchange rates prevailing in either year
30 May 2019 FirstGroup results for the year to 31 March 2019 42 Capital expenditure
Mar Mar ▪ Disciplined investments principally in £m 2019 2018 vehicle fleet continues Passenger carrying vehicles (PCV) 408.2 249.1 ▪ Road cash capital expenditure in line IT including transformation & software 10.6 28.5 with expectations Equipment 25.4 18.9 ▪ Fleet investment prioritised to Facilities and depot development 12.6 10.5 − Student retention and volume growth Acquisitions 2.3 2.9 Road divisions capital investment 459.1 309.9 − Low-emission fleet in First Bus First Rail 112.0 129.6 − Greyhound fleet modernisation Total capital investment 571.1 439.5 ▪ Greyhound IT transformation largely Net creditor movement (11.5) (7.9) complete enabling future yield benefits Funded by operating lease (127.1) (6.0) Gross cash capex 432.5 425.6
1 Including assets acquisitions
30 May 2019 FirstGroup results for the year to 31 March 2019 43 Total capital expenditure and acquisitions
Fixed asset/Software additions Cash (including acquisitions) £m Mar 2019 Mar 2018 Mar 2019 Mar 2018
First Student1 232.3 186.0 257.8 205.1 First Transit 32.2 19.0 27.3 28.5 Greyhound 31.7 46.6 28.0 44.4 First Bus 25.1 42.8 17.9 20.9 First Rail 110.2 126.2 112.0 129.6 Group items 1.0 5.0 1.0 5.0 Total 432.5 425.6 444.0 433.5
▪ In addition, during the year we entered into operating leases for passenger carrying vehicles with capital values in First Bus of £61.9m, First Student of £27.0m, Greyhound of £34.8m and First Transit of £3.4m (2018: First Bus £6.0m)
1 Includes £2.3m cash and £2.2m fixed asset/software additions for the acquisition of CG Pearson Bus Lines, an Ontario-based provider of school and charter transportation services.
30 May 2019 FirstGroup results for the year to 31 March 2019 44 IFRS 16 (Leases) implementation
▪ From 1 April 2019, most leases currently classified as operating leases will be recognised as Right Of Use assets on the balance sheet, with a corresponding increase in lease liabilities and net debt. Prior periods not retrospectively restated
▪ Rail track access payments will not come on to the balance sheet (not Right Of Use assets) – nor will leases of <1 year duration or for low value items
▪ Based on the assessment performed to date expect to recognise Right Of Use assets and lease liabilities of c.£1.1bn as at 1 April 2019 − c.£0.8bn reflects Rail leases, the remainder being in respect of leased properties, PCVs and other leased assets
▪ Approximate impact based on position as at 1 April 2019 (excluding impact of new leases entered into subsequently: − EBITDA higher – lease costs of c.£490m no longer recognised − EBIT higher – lower lease costs partially offset by c.£460m higher depreciation charge − Interest charge higher – higher interest costs of c.£30m recognised − Adjusted EPS broadly unchanged − Cash flow unchanged − Headline net debt: EBITDA will increase
▪ No expected impact from IFRS 16 on bank facilities (‘frozen GAAP’) or credit rating agency views
30 May 2019 FirstGroup results for the year to 31 March 2019 45 First Rail commitments and bonds
SWR 31 March 2019, £m GWR TPE Total 70% share First Rail commitments Parent company support (PCS) incl AFC total commitment A 30.0 178.8 82.2 291.0 - Of which, unbonded commitment (non-cash) B 30.0 94.4 51.6 176.0 - Of which, PCS bond (non-cash) C - 84.4 30.6 115.0 Performance bond (non-cash) D 10.0 15.0 10.5 35.5 Season ticket bond (cash collateralised) E 29.6 3.0 52.4 85.0 Total First Rail bonds (C+D+E) 39.6 102.4 93.5 235.5 PCS and performance bond – 'downside' (A+D) 40.0 193.8 92.7 326.5
First Rail ring-fenced cash Ring-fenced cash as at 31 March 2019 226.8 80.3 217.6 524.7 - Current expected end of franchise date Mar 2020 Mar 2023 Aug 2024 - Estimated end of franchise cash outflows 168 21 117 307 ▪ PCS and performance bond (A+D) combined represent the maximum committed funding obligations accruing to the Parent in respect of franchise losses or non-performance over their contract lives − As at 31 March 2019, £81.5m of this maximum committed funding had been utilised ▪ Monies that cash-collateralise the season ticket bonds are part of the First Rail ring-fenced cash ▪ The additional cash in the First Rail ring-fence represents cash to be spent by the franchise or returned to the Parent over the life of the franchise
30 May 2019 FirstGroup results for the year to 31 March 2019 46 Defined Benefit (DB) pensions
Accounting position as at Cash March 2019 contributions £m Accounting Assets Liabilities Rail offsets FY 2019 deficit First Bus scheme 1,236.0 (1,445.0) - (209.0) 20.6 Group scheme 161.1 (134.5) - 26.6 5.0 First Bus LGPS schemes 1,296.3 (1,253.6)* - 42.7 17.5 UK (ex-Rail) total 2,693.4 (2,833.1) - (139.7) 43.1 First Rail schemes 2,077.9 (3,451.2) 1,370.2 (3.1) 38.6 North America schemes 468.0 (632.4) - (164.4) 27.2 Total Group DB schemes 5,239.3 (6,916.7) 1,370.2 (307.2) 108.9 ▪ UK schemes valued every three years (next valuations: Group scheme currently underway, main Bus scheme in 2019, LGPS schemes in 2019 and 2020; Rail Pension Scheme valuation is underway) ▪ First Bus and Group schemes benefit from FirstGroup plc funding guarantees; deficit reduction plans fully agreed for these schemes ▪ Based on most recent actuarial valuations, the combined funding deficit of First Bus and Group schemes, taking into account the parent company guarantees, is approx. £250m higher than the accounting basis ▪ First Bus and Group schemes closed to future accrual, three Local Government Pension Schemes (LGPS) closed to new members
* Adjusted for irrecoverable surplus
30 May 2019 FirstGroup results for the year to 31 March 2019 47 Pensions
Deficit Cash contributions P&L charge1 £m Mar Mar Mar Mar Mar Mar Mar Mar Mar 2019 2018 2017 2019 2018 2017 2019 2018 2017
North America (164.4) (162.7) (216.7) 27.2 17.6 14.0 11.1 10.3 9.9
First Bus (139.7) (108.4) (139.8) 43.1 62.4 50.0 34.8 21.5 16.7
First Rail (3.1) (2.6) (2.0) 38.6 31.5 21.9 38.7 31.8 21.7
Total (307.2) (273.7) (358.5) 108.9 111.5 85.9 84.6 63.6 48.3
▪ Group DB accounting deficit increased by £33.5m principally due to lower real discount rates and unfavourable foreign exchange movements partly offset by better asset returns
▪ The First Bus P&L charge includes a £21.5m past service cost relating to the Guaranteed Minimum Pension equalisation recognised in the year
1 Service costs excluding interest for defined benefit schemes
30 May 2019 FirstGroup results for the year to 31 March 2019 48 Financial position
£450m £400m £350m £350m £300m £325m £200m 8.75% £250m 5.25% 6.875% £200m Apr 2021 Nov 2022 Sept 2024 £150m bond1 bond £100m bond £50m
£0m
FY 21/22 FY FY FY 19/20 FY 20/21 FY 22/23 FY 23/24 FY 24/25 FY 25/26 FY 26/27 FY 27/28
H1 H1 19/20 H1 20/21 H1 21/22 H1 22/23 H1 23/24 H1 24/25 H1 25/26 H1 26/27 H1 27/28 Lease finance Bonds Loan notes Drawings under RCF Private placement notes
▪ Strong liquidity and stable financing position with net debt of £903.4m
− Headroom under committed facilities plus free cash: £520.6m (2018: £766.4m). £353.3m (2018: £603.0m) of undrawn facilities under committed bank revolving credit facility (RCF) expiring November 2023 following a two and a half year extension agreed in November 2018. Free cash of £167.3m (2018: £163.4m) excludes First Rail and other ring-fenced cash and deposits of £525.6m (2018: £392.3m)
− Long term facilities in place – average maturity 4.3 years (2018: 4.1 years)
1 The April 2021 bond has been swapped to floating rates and hence has a lower effective rate net of these swaps
30 May 2019 FirstGroup results for the year to 31 March 2019 49 ROCE
Group Road divisions ROCE ROCE As at 31 March 2018 9.5% 6.6%
Foreign exchange (0.6)% (0.3)%
ROCE at constant currency 8.9% 6.3%
Rail division trading 0.8% -
SWR contract provision 0.5% -
Road divisions trading 0.2% 0.2%
North America insurance provision 0.3% 0.2%
53rd week (0.3)% (0.3)%
Tax rate / other 0.1% -
As at 31 March 2019 10.5% 6.4%
30 May 2019 FirstGroup results for the year to 31 March 2019 50 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.
30 May 2019 FirstGroup results for the year to 31 March 2019 51