UK Rail Since Rail Franchising Began We Have Built up Expertise and Experience Running Every Type of Network, Which Gives Us
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Business review UK Rail Market overview First Great Western First Hull Trains One of the UK’s most experienced rail First TransPennine Express First Capital Connect operators, carrying around 280m passengers (until 14 September 2014) First ScotRail and operating over a fifth of the UK’s (until 1 April 2015) passenger rail network in the year. Since rail franchising began we have built up expertise and experience running every type of network, which gives us confidence that we will grow our franchise portfolio through disciplined bidding over time. Dave Gausby Interim Managing Director, UK Rail Market review and trends Passenger rail services are primarily provided by private train operating companies through franchises awarded by the relevant authority, but may also be provided on an ‘open access’ basis. Operators are responsible for the day-to-day management and operation of train services. Many elements of the service provided to passengers are mandated as part of the franchise contract and others are left to commercial judgement. Total franchised passenger revenues in the UK are more than £9bn per annum. Rail tracks and infrastructure (signalling and some major stations) are owned and managed by Network Rail. Operators typically lease rolling stock from leasing companies. Passenger growth across the industry continues to increase year on year, and recently reached a post-war high of 1.6bn. The Government continues to invest in infrastructure and new rolling stock across the country to maintain performance and meet passengers’ requirements on the increasingly congested network. Innovations such as smart ticketing, social media and mobile phone technology continue to be incorporated across the sector. Closer working relationships between Network Rail, regulators and train operating companies continue to be positively encouraged by Government in order to facilitate these infrastructure upgrades and innovations. During the year the Department for Transport (DfT) has continued to progress its competition timetable, with a number of third generation franchises being awarded. 36 FirstGroup Annual Report and Accounts 2015 Strategic report miles AroundUK Rail 8bn passenger 2,800UK Rail diesel and electric miles[XXX]m travelled passenger last kilometres year travelled rollingDiesel and stock electric vehicles rolling per year stock vehicles Customers Strategy and performance Rail markets differ but are generally categorised into three sectors: London and south east commuter services; regional; and long distance. In addition, certain networks also offer sleeper services. Parts of the 2015 2014 First Great Western franchise fall into all four categories, though Revenue £2,207.1m £2,870.1m it and First Hull Trains have a large proportion of long distance and leisure travellers. First TransPennine Express and First ScotRail carry Operating profit £74.1m £55.2m a large number of commuters into the major towns and cities on their networks, and also serve a significant leisure market, while First Capital Operating margin 3.4% 1.9% Connect passengers were principally commuters to and from London. Number of employees 7,500 1 14,000 Competitors The main competitor to rail services in the UK is the private car. We 1 Excludes employees associated with the First Capital Connect and First also face competition on some of our passenger flows from other rail ScotRail franchises, which we no longer operate going forward. services and, to a lesser extent, from long distance coach services and Financial performance airlines. Our UK Rail division bids for franchises against other operators Our UK Rail division continues to benefit from robust growth in of current UK rail franchises and public transport operators from passenger volumes, with like-for-like passenger revenue increasing other countries. by 6.7% during the year, at the top end of our expectations. On a Market attractions reported basis revenues declined to £2,207.1m (2014: £2,870.1m), reflecting a reduction in First ScotRail subsidy (with a matching ■■ More than £9bn of long term contract-backed passenger revenue available through 19 major franchise opportunities, of which more reduction in track access charges, so does not affect operating profit), than two thirds by revenue will be let before 2020 the end of revenue support arrangements in First Great Western and First Capital Connect, and the completion of the First Capital Connect ■■ New franchises typically have significant revenue opportunity/risk franchise at the end of the first half. Adjusted operating profit was with some revenue protection, clear contingent capital £74.1m (2014: £55.2m), representing a margin of 3.4% (2014: 1.9%), requirements but low overall capital intensity in part reflecting First Great Western moving to normal commercial ■■ Regulated environment, including Government capped regulated terms part way through last year. Like-for-like passenger volumes fare increases increased by 4.2% in the year. ■■ Historically high levels of passenger numbers across the country. Our strengths Significant participant in the UK rail market since privatisation Passenger revenue base of FirstGroup Experienced in running every type of passenger rail UK Rail franchises operation – intercity, regional, commuter, sleeper and open access Strong commercial, rolling stock and major infrastructure upgrade project capabilities Highly experienced management team – with a strong record of operational delivery and disciplined bidding. Leisure 51% Business 32% Commuter 17% FirstGroup Annual Report and Accounts 2015 37 Business review UK Rail continued Focused and disciplined bidding competitive franchise, expected on 1 April 2016 (the contract includes During the year the DfT has made progress in line with its UK rail an extension clause of up to 11 months at the DfT’s discretion). As one refranchising timetable originally announced in March 2013 and of three shortlisted bidders for that competition, we submitted our bid updated periodically since then. As part of this timetable, we were proposal at the end of May. The new franchise is due to be awarded in pleased to sign two agreements in March 2015 with the DfT, October 2015. securing First Great Western for up to four and a half more years and First TransPennine Express for an additional year. As a result we Naturally we were disappointed not to secure any of the franchise will continue to run our largest franchise First Great Western to at least competition awards announced in the year. As a result two of our 1 April 2019, with a further extension of up to one year at the DfT’s franchises ended during the year, with First Capital Connect and discretion. This underscores the DfT’s confidence in our ability to First ScotRail being handed over to their new operators on 14 deliver stability, good value and better services for our passengers September 2014 and 1 April 2015 respectively. Our approach to during the period in which the Great Western Mainline modernisation bidding for UK rail franchises has been and will continue to be programme is being implemented. The programme involves significant disciplined, aiming to deliver ambitious improvements for passengers upgrades to infrastructure including signalling and electrification, which and appropriate returns for shareholders, at an acceptable level of risk. will allow for new or refurbished trains on every part of the network, Continuous improvement in operating resulting in more frequent and faster journeys and an increase in the and financial performance number of seats over the period to the end of the decade. We will also Our operating companies have continued to outperform the industry be running First TransPennine Express to the start of the next in delivering punctuality and customer satisfaction improvements since 2006, despite some significant infrastructure challenges over that time. We pioneered closer partnership working with Network Rail and other industry participants to deliver infrastructure upgrade projects whilst minimising disruption for passengers, expertise which is increasingly vital as the Government’s reinvestment in the national rail infrastructure continues to increase over the coming years. One of the largest such programmes is the £7.5bn Great Western Mainline upgrade, where First Great Western will continue to support the substantial infrastructure upgrade work taking place throughout the network, as well as preparations for the introduction of the InterCity Express Programme, Crossrail and a new fleet of local electric trains. In the year, the £895m Reading area remodelling project saw the entry into operation of a Focus on new viaduct, substantially increasing capacity at a major network UK Rail bottleneck, and the reopening of the upgraded Reading station itself. The overall project remains a year ahead of schedule thanks in part to excellent partnership working across the industry. First Capital Connect First Great supported the preparations for the Class 700 train fleet introduction during the year as part of the £6bn Thameslink Programme. First Western expands TransPennine Express began operating new trains and an upgraded timetable in May 2014, delivering 90,000 extra seats per week, Pullman dining benefiting from the Government’s North of England electrification projects, part of a national investment of more than £1bn in the North’s railways, and helping central and local government achieve its vision for a ‘Northern Powerhouse’. Fine dining on trains has returned as First Great Western offers