Firstgroup 2017 Annual Report and Accounts
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Principal and registered office London corporate office FirstGroup plc FirstGroup plc FirstGroup plc FirstGroup plc 395 King Street 50 Eastbourne Terrace Annual Report and Accounts Aberdeen AB24 5RP Paddington Tel. +44 (0)1224 650100 London W2 6LG 2017 Fax. +44 (0)1224 650140 Tel. +44 (0)20 7291 0505 Fax. +44 (0)20 7636 1338 Annual Report and Accounts 2017 Registered in Scotland number SC157176 www.firstgroupplc.com FirstGroup plc is a leading transport operator in the UK and North America. With £5.7 billion in revenue and more than 100,000 employees, we transported around two billion passengers last year. Our vision is to provide solutions for an increasingly congested world... keeping people moving and communities prospering. Designed and produced by MerchantCantos www.merchantcantos.com Printed by Park Communications on FSC® certified paper. Park is an EMAS certified company and its Environmental Management System is certified to ISO 14001. 100% of the inks used are vegetable oil based, 95% of press chemicals are recycled for further use and, on average 99% of any waste associated with this production will be recycled. This document is printed on Amadeus Offset 100, a paper containing 100% post consumer recycled fibre certified by the FSC®. The pulp used in this product is bleached using an elemental chlorine free (ECF) process. Each of our five divisions is a leader in its field: in North Strategic report America, First Student is the largest provider of student transportation with a fleet of around 44,000 yellow school buses, First Transit is one of the largest providers of outsourced transit management and contracting services, while Greyhound is the only nationwide operator of scheduled intercity coaches. In the UK, First Bus is one of Britain’s largest bus operators, transporting 1.6 million passengers a day, and we are one of the country’s most experienced rail operators, carrying around 130 million passengers last year. At the start of each of the three sections of the Annual Report and Accounts, we show some of the successes we have had in the year in helping customers to make informed choices, improving local environmental performance and enhancing the customer experience. Contents Strategic report Financial statements Chairman’s statement 04 Consolidated income statement 86 Chief Executive’s report 06 Consolidated statement of comprehensive income 87 Our business model and strategy 08 Consolidated balance sheet 88 Our markets 10 Consolidated statement of changes in equity 89 Business review 14 Consolidated cash flow statement 90 Financial review 24 Notes to the consolidated financial statements 91 Independent auditor’s report 137 Key performance indicators 28 Group financial summary 143 Principal risks and uncertainties 32 Company balance sheet 144 Corporate responsibility 38 Statement of changes in equity 145 Notes to the Company financial statements 146 Governance Shareholder information 150 Financial calendar 151 Board of Directors 44 Glossary 152 Corporate governance report 46 Directors’ remuneration report 63 Directors’ report and additional disclosures 80 Directors’ responsibilities statements 84 FirstGroup Annual Report and Accounts 2017 01 Financial summary of the year ■■ Significant improvement in operating ■■ Group adjusted1 operating margin Revenue results and substantial cash improved to 6.0%, with 250bps (as % of Group) generation delivered as planned increase in First Student margin partially offset by rebased First Rail ■■ Contract portfolio enhanced with margin and higher fuel costs due South Western rail award and to stronger dollar in UK businesses other wins across the Group ■■ Adjusted1 EPS increased by 20.4% ■■ +8.3% Group revenue growth and +12.7% adjusted1 operating profit ■■ Statutory operating profit increased growth, driven by First Student by 15.1% and statutory EPS increased and First Transit and favourable by 24.0%, with gains on disposal of currency translation a Greyhound property largely offset by First Student 32% First Transit 18% reorganisation and restructuring costs ■■ In constant currency, Group revenue Greyhound 12% was (0.5)% and adjusted1 operating ■■ Substantial increase in net cash inflow First Bus 15% First Rail 23% profit +2.3%. Excluding First Rail to £147. 2m where revenue and margin ■■ Net debt: EBITDA ratio reduced to rebased under new contracts, Adjusted operating profit 1.9x (2016: 2.3x) the ‘Road’ divisions increased (as % of Group) revenue and adjusted operating profit by +0.3% and +10.3% in constant currency respectively Change in constant Change currency2 Change Revenue £5,653.3m +8.3% (0.5)% First Student 45% 2016: £5,218.1m First Transit 20% Greyhound 11% Adjusted1 operating profit Statutory operating profit First Bus 10% £339.0m +12.7% +2.3% £283.6m +15.1% First Rail 14% 2016: £300.7m 2016: £246.3m Adjusted1 operating profit margin Statutory operating profit margin Group revenue by geography 6.0% +20bps +20bps 5.0% +30bps 2016: 5.8% 2016: 4.7% Adjusted1 profit before tax Statutory profit before tax £207.0m +23.0% £152.6m +34.4% 2016: £168.3m 2016: £113.5m Adjusted1 EPS Statutory EPS 12.4p +20.4% 9.3p +24.0% 2016: 10.3p 2016: 7.5p UK 38% 3 Net debt US 55% Canada 7% £1,289.9m (8.5)% (11.2)% 2016: £1,410.2m 1 ‘Adjusted’ figures throughout this document are before other intangible asset amortisation charges and certain other items as set out in note 4 to the financial statements. 2 Changes ‘in constant currency’ throughout this document are based on retranslating 2016 foreign currency amounts at 2017 rates. 3 Net debt is stated excluding accrued bond interest. 02 FirstGroup Annual Report and Accounts 2017 Strategic report Strategic report Helping customers to make informed choices We search for the best examples of innovation from inside and outside the industry and introduce them for the benefit of our passengers and local communities Improved website Greyhound is continuing to improve the online booking process for customers by making it even quicker and easier to purchase a ticket on Greyhound.com. Following a complete redesign in 2015, the site now features a fresh, modern design, simple navigation and rich content. The site was built from the ground up to help our customers find the best fares, book more easily, and check out travel tips and suggestions for their next trip. During the year we have also completely redesigned our mobile app. Both the new app and website allow users to easily and conveniently search schedules, book trips, find terminal locations, access an updated loyalty scheme and track the real-time location of their bus. Relaunch of passenger journey cards We have relaunched our industry leading ‘Safe Journey Cards’ and ‘Better Journey Cards’ for passengers using First Bus services. These cards are designed to help passengers discreetly communicate a specific message to the driver and are supported by a number of charities including Disability Action Alliance. The relaunch has seen an increase in usage and positive feedback from our passengers. Better customer Contactless payment journey planning First Bus has continued to develop its offerings for customers to pay for A new customer journey app was services using contactless launched by TPE in December technology, reducing boarding time giving customers the option to and helping customers plan their purchase tickets and reserve journeys with ease. A successful seats on their phone, and plan launch of smartcards and mobile their complete end-to-end journey. payment mechanisms, as well as This app is also being extended the initiation of payment through to GWR and Hull Trains customers contactless credit and debit cards, in early 2017/18. In future releases, will be rolled out across all customers will receive personalised operations throughout 2017/18. journey alerts, making them aware of the progress of their train as well as connections. FirstGroup Annual Report and Accounts 2017 03 Chairman’s statement The Group’s response to the tragic incident was led by Tim O’Toole, Chief Executive, who attended the scene that afternoon together with Transport for London (TfL) to ensure all necessary steps were being taken to provide assistance to the victims, their families and friends and to the emergency services. The Board is fully apprised of all matters relating to the incident and endorses the The derailment of a tram in comprehensive, swift and appropriately focused response. It is absolutely essential Croydon on 9 November 2016 that the reasons for the derailment are established, and we continue to provide was a tragedy that shocked and full support to all ongoing investigations. saddened us all. The thoughts of Strategic progress During the year, the Group has continued to everyone at FirstGroup remain make progress in enhancing its long term ability to generate sustainable value, by investing in with those affected, their families, its capital assets and customer offerings while friends and colleagues. working to deliver improved margins through pricing and cost efficiency programmes. The substantial improvement in First Student’s margin this year reflects a step change in the value creation we derive from our market leadership in the North American school bus industry. First Transit continues to extend its 60 years of expertise in transport contracting into additional service lines and geographies, while Greyhound’s results are beginning to benefit from our investment in the transformation of its entire business model. While we continue to face macroeconomic uncertainty in the UK, First Bus has developed tailored local plans to preserve value in the face of mixed market conditions, and we are confident that our First Rail business represents a source of long term value, buttressed by the recent award of the South Western franchise with our partner MTR Corporation, which was won by focusing on quality of service to the passenger. This reflects our increasing focus throughout the Group on listening to our passengers and understanding their needs, and then bringing expertise and innovation together from across our organisation and beyond in order to deliver quality services for our customers.