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FirstGroup PLC (FGP)

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Wednesday 15 August, 2012

FirstGroup PLC

Statement re Rail Franchise Award

                                       Embargoed until 7:00am on 15 August 2012

                         FIRSTGROUP PLC ("The Group")                          


  Delivering benefits for passengers, value for taxpayers, opportunities for   
                    employees and returns for shareholders                     

FirstGroup, the leading transport provider in the UK and North America, is
delighted to have been awarded the contract by the Department for Transport
("DfT") to operate the new InterCity West Coast rail franchise until 2026.

The new franchise will offer substantial improvements in the quality and
frequency of services which will attract far greater numbers of passengers,
enabling InterCity West Coast to achieve a modal share comparable to other
intercity franchises in the UK. This growth will create greater long term
opportunities for employees; generate solid returns for shareholders and
justify the substantial Government investment of £9 billion that this railway
has received by providing better value for taxpayers.

InterCity West Coast is unique because it has a considerable amount of unused
capacity that will expand further with the addition of 106 new Pendolino
coaches by the start of our new franchise. This capacity exists on the key
growth corridor for the UK economy, linking a number of the UK's largest and
growing major urban areas including London, the West Midlands, Greater
Manchester, Liverpool and Glasgow. We will add to that capacity through the
introduction of 11 new 125mph six-car electric multiple units to operate on
Birmingham-Glasgow services, which will free up the Voyager trains to deliver
direct services and improve connectivity to even more destinations.

The new franchise will commence on 9 December 2012 and run for 13 years and 4
months. The route, which currently has annual revenues of around £900m, is
expected to generate an operating margin of approximately 5% over the life of
the franchise, and will return a premium to the Government of £5.5 billion at
net present value over the franchise term. Over the past ten years revenues on
the franchise have increased at a compound annual growth rate (CAGR) of 10.2%,
despite limited incentive to increase passenger revenues as a result of revenue
share/support arrangements during the last five years. For the new franchise a
CAGR of 10.4% is expected, which is supported by passenger and revenue focused
operating investment and backed by substantial capacity increases. Improvements
to drive additional passenger growth will be supported by operating investment
of £350m in the first five years of the new franchise.

Commenting, Tim O'Toole, Chief Executive said:

"We are delighted to be selected by Government to operate this unique railway
which connects communities across the country and plays a vital role in the
UK's economic growth. Our winning bid is a deliverable proposition that is
compelling for all who want to see a greater use of our rail networks. We will
be making significant improvements including reduced journey times and
introducing new direct services. We will improve marketing and deliver a smart
ticketing system, refreshed and improved train interiors, station upgrades and
even better catering. In support of our commitment to generate increased
passenger growth we will be reducing Standard Anytime fares by 15% on average.

"With a strong focus on service quality we will continue to invest in front
line staff and look forward to welcoming new employees to the Group, providing
them with long term opportunities from an enhanced and reinvigorated railway.
Our bid also delivers value for taxpayers by returning premiums to the
Government underpinned by sustainable growth in passenger numbers and revenues
from the utilisation of significant available capacity. The new franchise will
provide an economic return for our shareholders and is value enhancing from day

"As the UK's largest rail operator with a highly experienced management team,
we have established a vast wealth of knowledge with unrivalled expertise in
operating every type of rail franchise. We have a proven track record of
generating growth from investment in customer service enhancements and
innovation, together with a strong focus on operational delivery and financial

"The award of Intercity West Coast marks a key milestone in renewing and
developing our long-term UK Rail portfolio. We look forward to bringing an
exciting mix of innovation, and customer and service improvements to InterCity
West Coast and creating a better railway for all."

Key highlights of the new franchise include the following benefits for

Timetable and trains

  * Transforming the on-board environment with a major refurbishment of
    Pendolino and Voyager interiors, with new seats throughout and improved
    luggage space
  * Introducing 11 new 125mph six-car electric trains for Birmingham - Scotland
    services which will create 12,000 additional seats per day. This is on top
    of the 28,000 new seats that will be provided by the additional 106
    Pendolino carriages that are coming into service in time for the start of
    the new franchise. This means there will be 40,000 extra seats by 2016,
    compared with 2011
  * Improved journey time of 15 minutes for trains between London and Glasgow
  * Introducing new direct services from London to Blackpool, Telford,
    Shrewsbury and Bolton providing a new direct link to the capital for more
    than 500,000 people
  * Doubling frequency of London to Preston services and adding capacity to
    Chester and North Wales
  * Improving connectivity with more stops at Nuneaton and Milton Keynes
  * Reliability and punctuality improvements to increase Public Performance
    Measure to over 90% (from current level of 85.9%) through targeted
    investment and a new alliance with Network Rail
Fares and ticketing

  * Reducing Standard Anytime fares by 15% on average
  * Installation of automatic ticket gates at 21 stations, including the major
    terminals of London Euston, Manchester Piccadilly, Liverpool Lime Street
    and Glasgow Central
  * Investment in greater yield management capability to help grow demand with
    increased marketing and introducing a new customer loyalty programme
Enhanced customer offering and innovation

  * Smart ticketing system introduced across the network
  * Free upgraded high speed Wi-Fi and enhanced mobile phone coverage following
    train refurbishment
  * Enhanced catering service offered with increased at seat catering for
  * Improved information systems including new customer mobile apps
  * Station investment includes improving accessibility, security and passenger
  * Commitment to high quality service including a greater emphasis on customer
    facing staff on trains and at stations
Additional information:

New franchise capital requirements and guarantees:

  * Minimal cash requirement - £10m ordinary share capital in cash
Contingent capital:

  * £190m subordinated revolving loan facility, supported by 3 year bank
    guarantees, no indexation
  * £45m performance bond increasing at RPI per annum, no requirement to be
    cash backed
  * £5m limited liability season ticket bond increasing by RPI. Matching
    advance cash for season ticket travel
  * £15m station repair unsecured guarantee increasing by RPI

A conference call for analysts and investors will be held at 9:00am today.   

An accompanying presentation will be available at from 8:30 

  Please call +44 (0) 20 7291 0507 or 0512 in advance to register and receive  
                               joining details.                                

Contacts FirstGroup:

Tim O'Toole, Chief Executive

Nick Chevis, Acting Finance Director

Rachael Borthwick, Group Corporate Communications Director

Tel: +44 (0) 20 7291 0508 / +44 (0) 7771 945432

Brunswick PR:

Andrew Porter

Tel: +44 (0) 20 7404 5959

Michael Harrison

Tel: +44 7834 502406