Governance report

Directors’ report and additional disclosures

The Directors present their report on the contract with the Company or a subsidiary Furthermore, the Articles include provisions affairs of the Group, together with the audited being a contract of significance in relation relating to confidential information, attendance financial statements and the report of the to the Company’s business. at Board meetings and availability of Board auditor for the year ended 27 March 2021. papers to protect a Director from breaching Powers of the Directors Information required to be disclosed in the their duty if a conflict of interest arises. The Directors are responsible for the Directors’ report may be found below and These provisions will only apply where the management of the business of the Company are incorporated into the Directors’ Report by circumstance giving rise to the potential conflict and may exercise all powers of the Company cross reference to the following sections of the of interest has previously been authorised by subject to applicable legislation and regulation Annual Report and Financial Statements in the Directors. The Board considers that the and the Company’s Articles. accordance with the Companies Act 2006 formal procedures for managing conflicts of (the 2006 Act) and Listing Rule 9.8.4R of the Directors’ indemnities interest currently in place have operated Financial Conduct Authority. and liability insurance effectively during the year under review. FirstGroup maintains liability insurance for its Election and re-election of Directors Information Page Directors and Officers. The Company has also Directors are required under the Articles granted indemnities to the extent permitted Sustainability 35 to submit themselves for election by by law to each of the Directors, the General governance shareholders at the AGM following their Counsel & Company Secretary and a number Greenhouse 55 appointment by the Board. Also, in of other executives and senior managers. gas emissions accordance with best practice and the Code, These indemnities are uncapped in amount all of our Directors put themselves forward Likely future 13 in relation to certain losses and liabilities which for re-election by shareholders annually. developments they may incur to third parties in the course of in the business Anthony Green, appointed 15 September acting as a Director or Officer of the Company 2020, and Peter Lynas and Jane Lodge, both Risk factors and 62 or any of its associated companies. Neither of whom were appointed with effect from principal risks; the indemnity, nor insurance cover provides 30 June 2021, will therefore retire and submit going concern and cover in the event a Director or Officer is themselves for election. All other Directors, viability statements proved to have acted fraudulently or except for David Robbie and Matthew Gregory Governance 93 dishonestly. The indemnity is categorised will submit themselves for re-election at the arrangements; as a ‘qualifying third-party indemnity’ for the forthcoming AGM. human rights and purposes of the Companies Act 2006 and anti-corruption and will continue in force for the benefit of Disclosure of information to the bribery matters Directors and Officers on an ongoing basis. external auditor Long-term 122 Each of the Directors who held office at the Conflicts of interest incentive schemes date of approval of this report confirm that, The Directors have a statutory duty under so far as they are aware, there is no relevant Financial 192 the Companies Act 2006 to avoid situations audit information (being information needed instruments and in which they have, or can have, a direct or by the auditor in connection with preparing related market indirect interest that conflicts, or may conflict, transactions their audit report), of which the Company’s with the interests of the Company. This duty auditor is unaware, and each of the Directors is in addition to the existing duty that a Directors has taken all the steps that they ought Director owes to the Company to disclose The Directors of the Company who served reasonably to have taken as a Director in to the Board any transaction or arrangement during the year, and those appointed after the order to make themselves aware of any under consideration by the Company. The end of the financial year, are shown on pages relevant audit information and to establish Company’s conflict of interest procedures 76-79. Jimmy Groombridge, Group Employee that the Company’s auditor is aware of are reflected in the Articles. In line with the Director, stepped down from the Board with that information. Companies Act 2006, the Articles allow the effect from 29 June 2020. David Robbie Directors to authorise conflicts and potential This confirmation is given and should be decided not to seek re-election this year and conflicts of interest where appropriate. The interpreted in accordance with the provisions stepped down from the Board with effect from decision to authorise a conflict can only be of Section 418 of the Companies Act 2006. 30 June 2021. Anthony Green was appointed made by non-conflicted Directors. Directors to the Board as Group Employee Director Share capital do not participate in decisions concerning on 15 September 2020. Peter Lynas and Jane As at 27 March 2021, the Company’s issued their own remuneration or interests. Lodge were appointed to the Board effective share capital was 1,221,811,146 ordinary 30 June 2021 and more recently, Matthew The General Counsel & Company Secretary shares of 5 pence, each credited as fully paid. Gregory informed the Board that he would not minutes the consideration of any conflict or The Company holds 157,229 ordinary shares be seeking re-election at the Company’s potential conflict of interest and authorisations in treasury, and the issued share capital of the forthcoming AGM. granted by the Board. On an ongoing basis, Company which carries voting rights of one the Directors inform the General Counsel & vote per share comprises 1,221,653,917 Details of the Directors’ interests in shares can Company Secretary of any new, actual or ordinary shares. be found in the Directors’ remuneration report potential conflict of interest that may arise or if on page 126. Further details of the Company’s issued share there are any changes in circumstances that capital are shown in note 28 to the Company’s During the year, no Director had any interest may affect an authorisation previously given. financial statements. in any shares or debentures in the Company’s Even when authorisation is given, a Director is subsidiaries, or any material interest in any not absolved from their duty to promote the The Company’s shares are listed on the success of the Company. London Stock Exchange.

142 FirstGroup Annual Report and Accounts 2021 Substantial shareholdings All of the Company’s employee share plans As at 27 March 2021, the Company had been notified under the FCA’s Disclosure, Guidance contain provisions relating to change of control. and Transparency Rule of the following interests in its total voting rights of 3% or more: On a change of control, options and awards granted to employees may vest and become

Number of % exercisable, subject to the satisfaction of any Governance report ordinary of total applicable performance conditions at the time. Name of shareholder shares voting rights Date of notification Coast Capital 168,200,445 13.79 23 March 2020 Employment of disabled persons Management, LLC Applicants with disabilities are given full and fair consideration during recruitment 1 Schroders Plc 146,958,561 12.04 1 March 2021 processes. We are committed to supporting employees with disabilities with regard to Ameriprise Financial Inc.2 133,739,566 10.95 17 February 2021 training, career development and promotion. Our policies on employee consultation and Lombard Odier Asset 61,385,767 5.03 24 June 2020 on equal opportunities for all employees can Management (Europe) Limited be found on page 40. Majedie Asset 60,915,714 4.99 3 February 2021 Employee engagement Management (UK) We remain committed to employee Between 27 March 2021 and the date of this report: involvement throughout the Group. Employees are kept well informed of the performance and 1 Schroders plc notified the Company on 7 May 2021 that they had decreased their holding to 146,501,916 ordinary shares which represented 11.989% of total voting rights as at the date of notification. strategy of the Group and other matters of concern through a variety of means including 2 Ameriprise Financial Inc. notified the Company on 15 July 2021 that their holding had decreased to 121,529,697 shares which represented 9.943% of total voting rights as at the date of notification. personal briefings, regular meetings, email and broadcasts by the Group Chief Executive and other senior managers. Refer to page 48 and Articles of Association Transfer of shares page 90 for further information. The description in this section summarises There are no specific restrictions on the size certain provisions of the Company’s of a holding, nor on the transfer of shares Stakeholder engagement Articles and applicable Scottish law which are both governed by the general The Board has determined that the Group’s concerning companies. This summary is provisions of the Company’s Articles and stakeholders are customers, investors, qualified in its entirety by reference to this prevailing legislation. The Directors are not government, employees, communities and our Company’s Articles and the Companies Act aware of any agreements between holders strategic partners and suppliers. The Board is 2006. The Company’s Articles may be of the Company’s shares that may result in aware that its actions and decisions impact amended by a special resolution of the restrictions on the transfer of securities or on our stakeholders. Effective engagement with Company’s shareholders. voting rights at any meeting of the Company. stakeholders is important to the Board as it strengthens the business and helps to deliver Shares Going concern and viability a positive result for all our stakeholder groups. The rights attached to the ordinary shares of Directors are required to consider if it is In order to comply with Section 172 of the the Company are defined in the Company’s appropriate to adopt the going concern basis Companies Act, the Board is required to take Articles. No person has any special rights of of accounting. Disclosure of the Directors’ into consideration the interests of stakeholders control over the Company’s share capital and deliberations to determine whether it is and include a statement setting out the way in all issued shares are fully paid. appropriate to adopt the going concern basis which Directors have discharged this duty of accounting in addition to consideration of Voting rights during the year. The Group’s stakeholders are the material uncertainties which may affect the identified on page 46 of the Strategic Report Shareholders are entitled to attend and vote at Group’s ability to continue to adopt this basis any general meeting of the Company. It is the and the statement of compliance with Section can be found in the Going Concern statement 172 is set out on page 96. Further information Company’s practice to hold a poll on every on page 72, the Audit Committee report resolution at general meetings. Every member on workforce engagement can also be found on page 102 and in note 2 to the financial on page 90. present in person or by proxy has, upon a poll, statements. In summary, the Directors have one vote for every share held. In the case of concluded that it is appropriate to prepare the Purchase of own shares joint holders of a share the vote of the senior financial statements on a going concern basis. At the AGM of the Company in 2020 authority who tenders a vote, whether in person or by was granted for the Company to purchase up proxy, shall be accepted to the exclusion of the Directors are also required to provide a to 10% of its ordinary shares. During the year votes of the other joint holders and, for this broader assessment of viability over a longer no ordinary shares were purchased. Under the purpose, seniority shall be determined by the period, which can be found on page 72. existing authority the Company may purchase order in which the names stand in the Register Employee share plans up to 121,982,993 ordinary shares. This of Members in respect of the joint holding. The Company operates a number of authority remains in place until the 2021 AGM, Dividend rights employee share plans, details of which are when the Company intends to seek a renewal. Shareholders may by ordinary resolution set out in note 36 and in the Directors’ declare dividends but the amount of the Remuneration Report on page 134. dividend may not exceed the amount recommended by the Board. The Directors are not recommending the payment of a final dividend this year.

FirstGroup Annual Report and Accounts 2021 143 Governance report

Directors’ report and additional disclosures continued

Political donations negotiate with the Company with a view to Failure by any of the operators to maintain At the 2020 AGM, shareholders passed a resolving any concerns arising from such its railway licence is a potential termination resolution to authorise the Company and its change of control. If the matter has not been event under the terms of the track access subsidiaries to make political donations to resolved within 30 days, an individual bank agreements. The Group’s railway operators political parties or independent election may cancel its commitment and the Company also lease rolling stock from specialist rolling candidates, to other political organisations, must repay the relevant proportion of any stock leasing companies such as Eversholt or to incur political expenditure (as such terms drawdown. Rail Group, Rock Rail Limited, Beacon Rail are defined in sections 362 to 379 of the 2006 Limited, Leasing Company The US$100m 4.17% notes due 2025, Act), in each case in amounts not exceeding Limited and Limited. A material US$175m 4.29% notes due 2028, the £200m £100,000 in aggregate. As the authority number of the individual leasing agreements 6.875% bonds due 2024 and the £325m granted at the 2020 AGM will expire, renewal include change of control provisions. The 5.25% bonds due 2022 issued by the of this authority will be sought at this year’s Group is also involved from time to time in Company may also be affected by a change AGM. Further details are available in the bidding processes for UK rail operating of control of the Company. In respect of the Notice of AGM. contracts and transport contracts further afield £200m 6.875% bonds due 2024 and the which customarily include change in £325m 5.250% bonds due 2022, upon a As a result of the broad definition used in circumstance provisions which would be change of control of the Company, provided the 2006 Act of matters constituting political triggered on a change of control and could that certain further thresholds in relation to donations, it is possible that normal business result in termination or rejection from further the credit rating of the bonds are met, the activities, which might not be thought to be participation in the relevant competitions. political expenditure in the usual sense, could bondholders have the option to require the be covered. Accordingly, authority is being Company to redeem the bonds. In respect Significant shareholders’ agreements sought as a precaution to ensure that the of the US$100m 4.17% notes due 2025, The Group, through First Rail Holdings Limited, Company’s normal business activities do not US$175m 4.29% notes due 2028, upon a has shareholders’ agreements governing its infringe the 2006 Act, but it is not the policy change of control, the Company must make relationship with MTR Corporation in relation of the Company to make donations to EU an offer to noteholders to prepay the entire to the SWR rail operator and with Trenitalia political organisations, nor to incur other unpaid principal amount of the notes held by in relation to the West Coast Partnership rail political expenditure in the EU. each bondholder (at par) together with interest operator. As is customary, these agreements accrued thereon. include provisions addressing change In the US it is far more common for businesses of control. to participate in the political process through First Rail a variety of methods. During the year the The Group’s contracted passenger rail Post balance sheet events Group’s US businesses incurred political operators, First TransPennine Express Limited, Information on material events that occurred expenditure in the US of $16,000 (2020/21: First Greater Western Limited, First MTR South from 27 March 2021 to the date of this report $19,024) in support of their business goals. Western Trains Limited (jointly owned with can be found on page 34 and note 39. MTR Corporation) and First Trenitalia West Branch disclosure Other than as explained above for our US Coast Rail Limited (jointly owned with The Group has a branch in France (First Travel businesses, no other political donations nor Trenitalia) are each party to a contractual Solutions Ltd), which was established on expenditure was incurred by the Company agreement with the Secretary of State for 28 March 2019. and its subsidiaries during FY21. Transport. These agreements are subject See Stakeholders – Government on pages 46 to termination clauses which may apply on a Streamlined Energy and Carbon and 37 for our approach to political donations change of control. First MTR South Western Reporting (SECR) compliance in the US. Trains Limited, First TransPennine Express In compliance with the SECR requirements, Limited, First Greater Western Limited, First our GHG emissions and our energy Change of control – Trenitalia West Coast Rail Limited and the consumption and energy and emissions significant agreements Group’s non-contracted rail operator, Hull reduction initiatives are reported on page 55. Financing agreements Trains Company Limited, each hold railway Management report As at 27 March 2021, the Group had a £800m licences as required by the Railways Act 1993 The Strategic and Directors’ reports together multi-currency revolving credit and guarantee (as amended); these licences may be revoked are the management report for the purposes facility between, amongst others, the on three months’ notice if a change of control of the FCA’s DGTR 4.1.5R. Company and The plc occurs without the approval of the Office of dated 7 November 2018, maturing in Rail and Road. All of these operators also The Strategic report was approved on behalf November 2023, which refinanced the require and hold track access agreements of the Board on 27 July 2021. Group’s existing revolving credit and guarantee with Network Rail Infrastructure Limited facilities. In addition the Group had a £60m, under which they are permitted to access David Isenegger three-year term loan facility with CaixaBank railway infrastructure. General Counsel & Company Secretary dated 19 June 2019 and a three-year term 27 July 2021 £60m revolving credit facility with China 395 King Street, Aberdeen AB24 5RP Construction Bank dated 11 October 2019. The Group also had a £250m bridge term facility for the purpose of refinancing the £350m bond due in April 2021. On 24 March 2021, the Group arranged a further £300m bridge term facility. Following any change of control of the Company, individual lenders may

144 FirstGroup Annual Report and Accounts 2021 Directors’ responsibility statement

Statement of Directors’ The Directors are also responsible for In the case of each Director in office at the responsibilities in respect safeguarding the assets of the Group and date the Directors’ report is approved: of the Financial Statements Company and hence for taking reasonable ■ so far as the Director is aware, there is no The Directors are responsible for preparing steps for the prevention and detection of fraud relevant audit information of which the the Annual Report and the Financial and other irregularities. Governance report Group’s and Company’s auditors are Statements in accordance with applicable The Directors are responsible for keeping unaware; and law and regulation. adequate accounting records that are ■ they have taken all the steps that they Company law requires the Directors to prepare sufficient to show and explain the Group’s and ought to have taken as a Director in order Financial Statements for each financial year. Company’s transactions and disclose with to make themselves aware of any relevant Under that law the Directors have prepared the reasonable accuracy at any time the financial audit information and to establish that the Group Financial Statements in accordance position of the Group and Company and Group’s and Company’s auditors are aware with international accounting standards in enable them to ensure that the Financial of that information. conformity with the requirements of the Statements and the Directors’ Remuneration Companies Act 2006 and the Company Report comply with the Companies Act 2006. Financial Statements in accordance with Ryan Mangold The Directors are responsible for the United Kingdom Generally Accepted Chief Financial Officer maintenance and integrity of the Company’s Accounting Practice (United Kingdom 27 July 2021 website. Legislation in the United Kingdom Accounting Standards, comprising FRS 101 395 King Street, Aberdeen AB24 5RP governing the preparation and dissemination “Reduced Disclosure Framework”, and of Financial Statements may differ from applicable law). Additionally, the Financial legislation in other jurisdictions. Conduct Authority’s Disclosure Guidance and Transparency Rules require the Directors to Directors’ confirmations prepare the Group Financial Statements in The Directors consider that the Annual accordance with international financial Report and Accounts, taken as a whole, is reporting standards adopted pursuant to fair, balanced and understandable and Regulation (EC) No 1606/2002 as it applies in provides the information necessary for the European Union. shareholders to assess the Group’s and Company’s position and performance, Under Company law, Directors must not business model and strategy. approve the Financial Statements unless they are satisfied that they give a true and fair view Each of the Directors, whose names and of the state of affairs of the Group and functions are listed in Board of Directors Company and of the profit or loss of the Group confirm that, to the best of their knowledge: for that period. In preparing the Financial ■ the Group Financial Statements, which have Statements, the Directors are required to: been prepared in accordance with ■ select suitable accounting policies and then international accounting standards in apply them consistently; conformity with the requirements of the Companies Act 2006 and international ■ state whether applicable international financial reporting standards adopted accounting standards in conformity with the pursuant to Regulation (EC) No 1606/2002 requirements of the Companies Act 2006 as it applies in the European Union, give a and international financial reporting true and fair view of the assets, liabilities, standards adopted pursuant to Regulation financial position and profit of the Group; (EC) No 1606/2002 as it applies in the European Union have been followed for the ■ the Company Financial Statements, which Group Financial Statements and United have been prepared in accordance with Kingdom Accounting Standards, comprising United Kingdom Accounting Standards, FRS 101 have been followed for the comprising FRS 101, give a true and fair view Company Financial Statements, subject to of the assets, liabilities, financial position and any material departures disclosed and loss of the Company; and explained in the Financial Statements; ■ the Strategic Report includes a fair review of ■ make judgements and accounting estimates the development and performance of the that are reasonable and prudent; and business and the position of the Group and Company, together with a description of the ■ prepare the Financial Statements on the principal risks and uncertainties that it faces. going concern basis unless it is inappropriate to presume that the Group and Company will continue in business.

FirstGroup Annual Report and Accounts 2021 145