Final Results
FIRSTGROUP PLC
PRELIMINARY RESULTS FOR THE YEAR TO 31 MARCH 2016
Overview:
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Operating profit maintained despite smaller rail portfolio and challenging trading environment in some businesses, in line with prior update on fourth quarter trading
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Solid progress made in the year to position the Group for future growth and higher returns
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Contract portfolio enhanced with TransPennine Express rail award and other wins across the Group
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Wolfhart Hauser appointed as Chairman and Matthew Gregory joined as CFO in the year
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Continued disciplined bidding and cost efficiencies, as well as lower fuel costs and additional First Student operating days expected to result in strong progress for the Group in the year ahead
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Significantly increased cash generation expected in 2016/17
Financial summary 2015/16:
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Underlying1 revenue broadly flat. Reported revenue decreased by 13.8% due to changes in rail portfolio
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Adjusted2 operating profit in line with prior year, and adjusted2 EPS increased by 5.1%
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Statutory operating profit and EPS increased by 0.2% and 21.0% respectively
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Net cash inflow for the year (before end of rail franchise outflows) was ahead of expectations at £36.0m
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Net debt:EBITDA flat at 2.3 times
| 2016 | 2015 | Change | |
| Underlying1 revenue | £5,218.1m | £5,232.3m | (0.3)% |
| Adjusted2 | |||
| - Revenue | £5,218.1m | £6,050.7m | (13.8)% |
| - EBITDA3 | £615.9m | £624.4m | (1.4)% |
| - Operating profit | £300.7m | £303.6m | (1.0)% |
| - Operating profit margin | 5.8% | 5.0% | +80bps |
| - Profit before tax | £168.3m | £163.9m | +2.7% |
| - Attributable profit | £123.5m | £117.5m | +5.1% |
| - EPS | 10.3p | 9.8p | +5.1% |
| Statutory | |||
| - Revenue | £5,218.1m | £6,050.7m | (13.8)% |
| - Operating profit | £246.3m | £245.8m | +0.2% |
| - Profit before tax | £113.5m | £105.8m | +7.3% |
| - Attributable profit | £90.3m | £75.2m | +20.1% |
| - EPS | 7.5p | 6.2p | +21.0% |
| Net debt4 | £1,410.2m | £1,407.3m |
1 ‘Underlying’ revenue throughout this document is in constant currency and adjusts for changes in First Rail franchise portfolio.
2 ‘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.
3 EBITDA is adjusted operating profit less capital grant amortisation plus depreciation.
4 Net debt is stated excluding accrued bond interest.
Commenting, Chief Executive Tim O'Toole said:
"Overall we have made encouraging progress this year toward a profile of more consistent financial returns for the Group. As we indicated at the start of the year, a smaller rail franchise portfolio and fewer operating days in our school bus business were factors that would make delivering headline growth this year challenging. However, by being flexible with our plans we have delivered a comparable adjusted operating profit to last year and a net cash inflow ahead of our expectations.
"The Group expects to make strong progress in the year ahead despite a challenging trading environment in several of our markets. This will come from our continued focus on disciplined contract bidding and rigorous cost efficiency programmes, as well as lower fuel costs and more First Student operating days compared with the year just ended. Following several years of reinvestment we expect to deliver a significant increase in net cash generation. Overall, we expect the considerable efforts of our people in recent years to be reflected in a significant improvement in our profile of sustainable returns and cash generation going forward."
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Contacts at FirstGroup:
Faisal Tabbah, Head of Investor Relations
Stuart Butchers, Group Head of Media
Tel: +44 (0) 20 7725 3354
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Notes
FirstGroup plc (LSE: FGP.L) is the leading transport operator in the UK and North America. With £5.2 billion in revenues and 110,000 employees, we transported around 2.2 billion passengers last year. Each of our five divisions is a leader in its field: In North America, First Student is the largest provider of student transportation with a fleet of around 47,000 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 coach services. In the UK, FirstGroup is one of Britain's largest bus operators running a fleet of some 6,200 buses, and we are one of the country's most experienced passenger rail operators, carrying around 140 million passengers last year.
Our vision is to provide solutions for an increasingly congested world... keeping people moving and communities prospering.
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Chairman's statement
I am pleased to make my first report to you as Chairman of FirstGroup. Every day, FirstGroup’s 110,000 people are responsible for providing vital transportation services for millions of customers across our core markets in the UK and North America. The Group’s five divisions have considerable opportunities to support economic activity and improve social wellbeing by linking together the customers and communities they serve.
The transportation services provided by FirstGroup have always been a critical enabler of economic and social activity, and the economic and environmental challenges of increasing urbanisation, congestion, and demographic change mean that this is likely to remain so for the foreseeable future. At the same time, expectations for service quality and convenience – at reasonable cost – are increasing on the part of passengers and the governments we work with. Meanwhile the digital economy continues to offer opportunities and risks throughout the Group, changing how customers expect to interact with the Group, how tickets are offered and revenue is collected, and how costs, employees and networks are managed.
In this environment, FirstGroup has significant advantages and opportunities thanks to its scale and experience, both within each of the markets served, and as a Group. As a significant service provider in each business line with increasingly strong relationships with customers and passengers, a robust safety culture and improving financial and operational performance, the Group has sound foundations for the future. Without doubt there are significant challenges to face and commitments still to deliver, but I am confident that FirstGroup has opportunities to deliver sustainable growth and good financial returns through ever more rigorous focus on customers’ needs going forwards.
In recent years, the Group has been investing in its capital assets and customer offerings while working to deliver improved margins through pricing and cost efficiency programmes. Throughout this time, the focus has been on enhancing the Group’s long term ability to generate sustainable value, not on short term fixes. Advances have been made in several areas – notably First Student’s bidding strategy, the reset of First Bus’ networks and fares, and the retooling of Greyhound’s entire business model. First Transit has extended the range of its expertise by service line and by geography, and the Group’s medium term future in the UK rail industry has been secured through the Great Western Railway (GWR) and TransPennine Express (TPE) contract awards, as well as through open access operations. Meanwhile, cost efficiencies continue to be delivered, and a step-change in the level of collaboration across the organisation is underway, particularly in terms of smart ticketing and other customer-facing technologies.
Although challenges have emerged along the way, and plans have evolved in response, I am confident the continuation of this disciplined strategy will see the Group return to a position of significant free cash flow generation in the 2016/17 financial year and beyond. Over time this will allow the Group’s leverage and interest costs to reduce towards an optimum long term level, while increasing shareholder returns. The Board recognises that dividends are an important component of total shareholder return for many investors and remains committed to reinstating a sustainable dividend at the appropriate time, having regard to the Group’s financial performance, balance sheet and outlook.
Results for the year
Underlying revenue was broadly flat, while reported revenue decreased by 13.8% mainly due to changes in the rail franchise portfolio. Group adjusted operating profit was, however, comparable to the prior year, benefiting from cost efficiencies in First Student and First Bus and a good performance from First Rail, though we were disappointed that costs associated with driver shortages in First Student did not allow the Group to report more progress this year. Adjusted EPS increased by 5.1% and net cash inflow for the year (before end of rail franchise outflows) was £36.0m, which is expected to increase going forwards.
The Board
On 1 December 2015 Matthew Gregory was appointed to the Board as Chief Financial Officer, succeeding Chris Surch on his retirement. We thank Chris for his contribution over his three years with the Group. Matthew has already begun to bring his considerable financial, strategic and international experience to bear and I am sure he will make a significant contribution to the Group and its future development.
I would also like to thank my predecessor as Chairman, John McFarlane, who stepped down from the Board at the conclusion of the AGM in July 2015. It is clear to me that in the short time he was at FirstGroup he made an important contribution to the Group’s strategy and its focus on delivery.
Our people
Since joining the Group in May 2015, I have had the opportunity to meet with many front line employees in all of the Group’s divisions. I have been extraordinarily impressed by the commitment and dedication shown by them and all our 110,000 people, who have continued to focus on the task of delivering high-quality services to our customers through some challenging years for the Group. On behalf of the Board I would like to extend my sincere gratitude to all of our employees for their hard work during the year, which has allowed the Group to lay foundations for further success into the future.
With a clear strategy for delivering improved financial performance and a growing focus on attracting new customers to our services, the Group is well placed to deliver more sustainable cash generation and returns going forward. Notwithstanding a number of headwinds in some markets, the Board is confident that the Group’s increasing ability to deliver the innovative, efficient and reliable transport solutions that customers and communities need to flourish will allow FirstGroup to drive increasing shareholder value in the future.
Wolfhart Hauser
Chairman
14 June 2016
Chief Executive's review
Overall we have made encouraging progress this year in repositioning FirstGroup for improved financial performance and more consistent returns – more befitting our strong service capabilities and our market positions in our five business divisions.
As we indicated at the start of the year, a smaller rail franchise portfolio and fewer operating days in our school bus business were factors that would make delivering headline earnings growth this year challenging. However, by being flexible with our plans we have delivered a comparable adjusted operating profit to last year as well as a net cash inflow ahead of our expectations, despite several headwinds – some anticipated at the start of the year and some emerging in our markets over the course of the last twelve months. We have done so by adapting our plans in response to evolving market conditions, while maintaining our focus on our five strategic objectives: focused and disciplined bidding in our contract businesses; driving growth through attractive commercial propositions in our passenger revenue businesses; continuous improvement in operating and financial performance; prudent investment in our key assets (fleets, systems and people); and maintaining responsible partnerships with our customers and communities.
Our performance in the year
In this regard, our First Bus division reacted well to disappointing passenger volume trends across the industry in the year, rapidly adjusting commercial and cost efficiency plans including our depot footprint while maintaining a focus on long term investments in smarter ticketing, improved connectivity for our passengers and better partnerships with our local authorities. In Greyhound we also flexed our operations in response to reduced passenger demand from lower fuel prices – which continued to fall over the course of the year – while improving our medium term prospects through investment in yield management and other systems. In First Student we delivered another year of contract awards at prices more reflective of the capital we employ whilst delivering significant cost efficiencies, though disappointingly this was offset by higher than planned costs incurred in response to worsening driver shortages in some of our locations as US employment markets continue to tighten. In response to this challenge we have taken a number of additional cost reduction actions including a realignment of our regional and central services structures at the start of the 2016/17 year. We are also reflecting these cost challenges in our bid proposals going forward and continue to upgrade our employee recruitment and retention practices. First Transit has continued to win contracts in our core markets but also in adjacent areas such as Bus Rapid Transit (BRT) and new geographies, though the oil price resulted in lower activity in the Canadian oil sands region, as expected. The recent wildfire which devastated the city of Fort McMurray presents further challenges for this part of First Transit’s business in the coming months. In First Rail we have continued to develop our franchise portfolio, winning the new seven year TransPennine Express contract in the year and securing opportunities to grow our open access operations, while maintaining good passenger volume and revenue growth and strong financial performances across all our networks. We continue to be active in a number of upcoming rail franchise competitions.
We are encouraged by the overall progress we have made to strengthen our businesses in recent years. Although our plans have had to adapt to changing circumstances, the Group is now in a position to deliver sustainable cash generation. Going forward, we will continue to drive progress with our pricing, margin and operational improvement plans in order to complete the programme we set out in 2013, but will also place increasing emphasis on growth. Across the Group we are already enhancing our ability to understand and interact with our passengers throughout their experience of our services, while providing more and better journey information and related services tailored to their needs. In this area our scale and the range of experience and expertise available throughout the Group is a significant asset. For example, First Bus is already working very closely with the Greyhound team on using IT to deepen customer relationships.
Our sustained reinvestment in our non-rail fleets and systems is now largely complete, and going forward our capital allocation decisions will increasingly focus on the maintenance of our existing asset portfolio and selected growth opportunities with good returns. As we continue to focus on increasing our operating earnings, our free cash flow is expected to improve over time. We also expect our financing costs to continue to reduce as cash flow increases and our relatively high coupon bonds mature over time.
People
In the year we welcomed two new members to the Board. Wolfhart Hauser joined the Board in May 2015 and became Chairman at the conclusion of the AGM in July. With his considerable track record of sustained value creation, Wolfhart has already begun to make important contributions to the development of the Group. In December 2015 Matthew Gregory joined the Group as Chief Financial Officer, succeeding Chris Surch on his retirement. Matthew’s financial, strategic and international experience will be invaluable as FirstGroup’s strategy continues to evolve. I echo the sentiments of the Chairman in thanking Chris Surch for his contribution to the Group since he joined in 2012.
We continue to invest in our people throughout the Group, giving them leadership, professional development and other support which is increasing the level of collaboration throughout our organisation and leveraging the extraordinary breadth of expertise across our business.
Outlook
In the coming year we expect the Group to make strong progress despite a challenging trading environment in several of our markets. This will come from our ongoing focus on disciplined contract bidding and our cost efficiency programmes, as well as lower fuel costs and a higher number of First Student operating days compared with the prior year. We also expect to deliver a significant increase in net cash generation for the first time since we launched our transformation of the Group in 2013.
In the year ahead we expect First Student’s ‘up or out’ contract pricing programme to offset cost inflation and our performance to benefit from further cost efficiencies, a higher number of operating days and a reduction in our fuel costs due to our hedging profile. Although these will be partially offset by the driver shortage headwinds we are experiencing, we expect significant margin progression for 2016/17 to at least 9%. In First Transit we will continue to bid for contracts offering good margins with modest capital investment, and expect to return to overall growth, despite further reductions in demand for our shuttle services in the Canadian oil sands region due to the oil price and recent wildfire. Although Greyhound’s passenger revenue decline trend has shown signs of moderating, we expect a year of muted passenger demand and modest margin benefits as our systems upgrades begin to build and we continue to flex operations in response to the demand environment. In First Bus we expect market conditions to remain challenging in the year ahead. We therefore expect moderate margin progression from the full year benefits of past cost saving actions, additional cost and operational efficiency initiatives and some benefits from our fuel hedging programme. We are expecting the rate of passenger revenue growth in First Rail to moderate in line with recent industry-wide trends and our divisional margin will rebase toward industry norms following the start of the new TPE franchise.
Overall, we expect the considerable efforts of our people in recent years to be reflected in a significant improvement in our profile of sustainable returns and cash generation going forwards.
Tim O'Toole
Chief Executive
14 June 2016
Operating and financial review
Changes in the First Rail franchise portfolio resulted in reported Group revenue decreasing by 13.8% in the year to £5,218.1m (2015: £6,050.7m). Excluding the rail portfolio changes, underlying revenue decreased by 0.3%.
Group adjusted operating profit decreased by 1.0% to £300.7m (2015: £303.6m), reflecting an improved financial performance in First Bus and the continuing First Rail operations as well as the change in basis of estimate for accounting for First Rail pensions, partially offset by a reduced contribution from Greyhound and from First Student due to fewer operating days and higher driver shortage-related costs.
Adjusted profit attributable to ordinary shareholders was £123.5m (2015: £117.5m), with lower net finance costs and a lower non-controlling interest charge being partly offset by lower adjusted operating profit and a higher effective tax rate.
Adjusted EPS was 10.3p (2015: 9.8p), an increase of 5.1%. EBITDA was £615.9m (2015: £624.4m).
Statutory operating profit was £246.3m (2015: £245.8m). Statutory profit before tax of £113.5m (2015: £105.8m) reflects the slightly higher statutory operating profit and lower net finance costs.
The net cash inflow for the year before First Rail end of franchise cash flows was £36.0m (2015: £39.4m), ahead of expectations but slightly lower than the prior year. This cash inflow, combined with the end of First Rail franchise outflows of £20.8m (2015: £107.9m) and movements in debt due to foreign exchange, resulted in a net debt increase of £2.9m (2015: £103.5m).
As at 31 March 2016, the net debt:EBITDA ratio was 2.3 times (2015: 2.3 times). Liquidity within the Group has remained strong. At 31 March 2016 there was £940.2m (2015: £1,023.8m) of committed headroom and free cash, being £800.0m (2015: £800.0m) of committed headroom and £140.2m (2015: £223.8m) of free cash. Our average debt maturity was 4.4 years (2015: 5.2 years).
During the year gross capital investment of £413.3m (2015: £425.1m) was invested in our business. Our sustained reinvestment in our non-rail fleets and systems is now largely complete, and going forward our capital allocation decisions will increasingly focus on the maintenance of our existing asset portfolio and selected growth opportunities with good returns. In the year ahead we expect capital investment for the Group (excluding in First Rail, where such expenditures are typically matched by franchise receipts or other funding) to decrease modestly. ROCE was 7.2% (2015: 7.4% at constant exchange rates). However, after adjusting for the changes in First Rail franchise portfolio, lower number of First Student operating days and the change in the basis of estimate for accounting for First Rail pensions, ROCE would have increased by 60 basis points.
| Year to 31 March 2016 | Year to 31 March 2015 | |||||
Revenue £m |
Operating profit1 £m |
Operating margin1 |
Revenue £m |
Operating profit1 £m |
Operating margin1 £m |
|
| First Student | 1,553.5 | 112.6 | 7.2% | 1,478.8 | 114.9 | 7.8% |
| First Transit | 864.8 | 60.1 | 6.9% | 844.8 | 59.7 | 7.1% |
| Greyhound | 605.1 | 35.5 | 5.9% | 609.6 | 41.7 | 6.8% |
| First Bus | 870.9 | 52.0 | 6.0% | 896.1 | 51.8 | 5.8% |
| First Rail | 1,308.4 | 72.9 | 5.6% | 2,207.1 | 74.1 | 3.4% |
| Group2 | 15.4 | (32.4) | 14.3 | (38.6) | ||
| Total Group | 5,218.1 | 300.7 | 5.8% | 6,050.7 | 303.6 | 5.0% |
| North America in US Dollars | $m |
$m |
% |
$m |
$m |
|
| First Student | 2,332.7 | 165.0 | 7.1% | 2,368.6 | 177.3 | 7.5% |
| First Transit | 1,303.4 | 90.6 | 7.0% | 1,362.1 | 96.1 | 7.1% |
| Greyhound | 914.0 | 54.4 | 6.0% | 986.0 | 68.5 | 6.9% |
| Total North America | 4,550.1 | 310.0 | 6.8% | 4,716.7 | 341.9 | 7.2% |
1 Adjusted. 2 Tramlink operations, central management and other items.
First Student
First Student’s revenue was $2,332.7m or £1,553.5m (2015: $2,368.6m or £1,478.8m). Revenue increases from improved prices, including the second year of our successful contract pricing strategy, moderate organic growth and a more normal weather season were offset by contracts not renewed. The decrease of 1.5% on a US Dollar basis was driven principally by the lower number of school days on which First Student operated in the year, due to the timing of the school calendar. Schools will make these days up at the end of the academic year or the start of the next, so will fall into our 2016/17 financial year.
Adjusted operating profit was $165.0m or £112.6m (2015: $177.3m or £114.9m), resulting in an adjusted operating margin of 7.1% (2015: 7.5%). As anticipated, the effect of the lower number of operating days was $17m of profit, or a reduction in margin of 0.6%. Our operating results benefited from the second year of improved contract portfolio pricing and recovery of operating days lost to weather in the prior year, which more than offset non-employee cost increases. However, worsening driver shortages in some of our markets resulted in higher than planned employee costs in the year. Our cost efficiency programme delivered $14m in savings in the year, less than originally targeted as a result of the driver shortage challenges, which made consistent implementation of best practice procedures more difficult in affected locations. We have taken action to mitigate the impact of the driver shortages going forward whilst continuing to deliver our cost efficiency savings: shortly after the year end we realigned our regional management and central service structures, resulting in the elimination of 130 positions, which will assist in making margin progress in 2016/17.
Focused and disciplined bidding
Over the past two years, our bidding strategy has focused on increasing contract pricing on new bids and renewals to ensure that we achieve appropriate returns on the capital required to deliver our services. In the year we completed our second bid season under the new pricing strategy, achieving a higher average price increase of 5.3% compared with the first season (4.5%). As is typical, approximately one-third of our bus portfolio was up for renewal in the 2015 bid season. Our contract retention rate was modestly ahead of our expectations at 86% for contracts at risk, or 94% across our total portfolio. Pricing across the marketplace was firmer than in previous years, though we continue to see limited organic growth or conversions from in-house to private provision, and some smaller local operators continue to bid aggressively to retain business. Net of ‘share shift’ movements and our decision to retire a number of excess buses from the fleet, our overall bus portfolio at the end of the year was approximately 47,000. In the 2016 bid season, which is now underway, we are reflecting the cost inflation challenges we are experiencing in our pricing for new contract bids and renewals, which we would expect to result in the loss of some business as we have experienced in prior years.
Continuous improvement in operating and financial performance
Our biggest operating and financial challenge in the year was responding to more significant than usual challenges recruiting and retaining drivers in some of our locations, as a result of the improving US economy and tightening employment markets. Short term remedies for a shortage of drivers result in higher costs from more overtime, increased employee joining incentives and, in the worst affected areas, expenditure required to bring in and house additional drivers from elsewhere in our business. Shortages also limit the growth of charter revenues and make implementation of best practice procedures more difficult in the areas affected. We are deploying appropriate recruitment incentives aligned to local conditions in the areas affected, investing in our targeting and marketing to potential employees, and improving our retention and on-boarding processes which we expect to assist in mitigating the impact of this ongoing challenge. We have increased our target for cost efficiencies in 2016/17, and shortly after the end of the year we took an important step towards this with the realignment of regional management and central services noted above. We are also upgrading our maintenance practices, benefiting from the expertise of First Transit’s vehicle maintenance services segment.
Notwithstanding challenges elsewhere, we have made significant progress reducing certain cost categories this year, by continued rigour in raising compliance with best practice operational procedures, disciplined overhead cost management across our 500 locations, reducing non-driving time through our Focus GPS system, more efficient engineering via lean engineering practices, and fuel efficiency savings from our DriveSMART driver training scheme. Overall our management initiatives have delivered recurring cost savings of $14m in the year.
Prudent investment in our key assets
We continue to be at the forefront of the industry for investment in systems and processes that enhance customer service levels, improve fuel efficiency and further differentiate our services. We have deployed MyFirstPass (swipe card-based location tracking) in a number of locations, and we continue to build our non-school charter offering, which is attractive from an asset utilisation perspective and where revenues increased by 3.5% in the year. We continue to invest in new buses, refurbishments and on-board technology in the year; our average fleet age reduced slightly to 7.3 years.
Responsible partnerships with our customers and communities
Our services form an integral part of the school experience for the millions of children in our care each day, and we take our responsibilities to them and to their parents, schools and communities very seriously. We have maintained last year’s high customer service scores, and continued to invest in safety, completing the roll out of our new Be Safe training programme to all front line managers and supervisors, resulting in a positive impact on our already strong passenger and employee safety metrics. Continuous improvement in our customer service and safety track record is deeply embedded in our values as an organisation, and is a core part of our proposition to our customers and passengers. In addition to cost savings, the fuel efficiency savings from our DriveSMART programme continue to reduce our environmental impact, and we added another 450 alternative fuel buses in the year, taking our fleet to more than 1,700 and making us one of the largest private operators of such school buses in North America.
Future priorities
First Student is a leader in our marketplace, both in terms of our size and the quality and safety of the services we provide. We will continue to improve our financial performance through our contract pricing strategy and operating efficiency programmes to drive appropriate returns on the capital we invest. In the longer term, our unique market position, customer proposition and improving operational efficiency will ensure we are increasingly well placed to grow through further conversion, tuck-in acquisitions and organic opportunities.
Outlook
In the year ahead we expect First Student’s ‘up or out’ contract pricing programme to largely offset cost inflation and to benefit from further cost efficiencies, a higher number of operating days and a reduction in our fuel costs due to our hedging profile. Although these will be partially offset by the driver shortage headwinds we are experiencing, we expect significant margin progression for 2016/17 to at least 9%.
As usual, First Student’s operating results will be significantly weighted to the second half because of the overlay of our financial year on the North American school calendar.
First Transit
First Transit revenue was $1,303.4m or £864.8m (2015: $1,362.1m or £844.8m). As expected, this is a reduction of 4.3% compared to the same period last year in US Dollar terms, reflecting significantly reduced activity in the Canadian oil sands region and hence demand for our shuttle services there, as a result of lower oil prices.
Adjusted operating profit was $90.6m or £60.1m (2015: $96.1m or £59.7m), resulting in a US Dollar adjusted operating margin of 7.0% (2015: 7.1%), which is in line with our expectations and medium term goals.
Focused and disciplined bidding
In our sixtieth year of operation, First Transit’s seasoned management team and bidding expertise have sustained our strong track record of new business wins and high contract retention rates across a growing range of services and geographies. In the year we were awarded 18 new contracts, of which nearly 20% by value were outsourced by public authorities for the first time. New business wins included paratransit contracts in Houston, Chicago and Minneapolis, several Non-Emergency Medical Transportation (NEMT) call centre management contracts in the Midwest, and three new vehicle maintenance contracts in Florida, including one for Florida International University.
Our shuttle segment, which is the only part of the division in which we provide capital for vehicles, also continues to win new business. In the period we were awarded a contract at Sacramento Airport thanks to a new partnership arrangement with LAZ Parking, one of the largest parking companies in America, and expanded our presence at Philadelphia International Airport with the award of the American Airlines passenger shuttle operations.
We also expanded our international footprint, partnering with the government of Panama to provide transit management for the MetroBus system in Panama City, and have signed a small employee shuttle contract in India, which has meaningful potential for future growth. We are also active in the emerging market for closed-system BRT services in North America, where we are managing the CTfasttrak system in Connecticut.
Retaining existing clients is also an important element of our bidding strategy. 90% by value of our contracts subject to rebid were renewed, reflecting our customers’ trust in our service capabilities and competitive pricing. We renewed key contracts in Antioch, Portland, Denver, New Jersey, Hartford and Washington, DC in the year, maintaining our portfolio at around 350 contracts.
Continuous improvement in operating and financial performance
First Transit continues to be competitive due to our national service platform, technology infrastructure and management expertise. Despite an increasingly challenging employment market, our ongoing investment in recruitment, retention and continuous training of our people (including the applicant tracking system developed by First Bus that was introduced last year) has ensured we have the depth of expertise required for our bid submissions and for subsequent service delivery.
Prudent investment in our key assets
We continue to invest in technology initiatives, rolling out our paperless engineering shop system and developing our predictive analytics tools throughout our engineering operations. Our management information dashboard and mobile apps enable us to continue to deliver a meaningful point of difference compared to competitors, with cost efficiencies for our clients, better information for passengers and improved financial performance for our business.
Responsible partnerships with our customers and communities
Our commitment to safety, technical and operational knowledge and professionalism is particularly recognised by our customers and we continued to focus on improving our safety KPIs in the year, while our overall customer satisfaction score remains high. We are at the forefront of the industry in developing mobile apps for our clients allowing registered riders to access timetables, the location of services in real time and monitor disruption to services.
Future priorities
First Transit’s international scope, scale and management expertise, coupled with our high level of investment in our people and technology and our long-standing customer and industry relationships, will ensure we continue to deliver good margins and returns into the medium term. We continue to see attractive opportunities for additional growth in our core service markets, particularly in paratransit work and in the shuttle segment. Potential opportunities are also growing in light rail, commuter rail and BRT in North America, where we continue to benefit from the strong expertise in our UK divisions as we explore potential opportunities in these areas. Our international team will continue to develop opportunities for geographic growth in a disciplined and low risk way.
The expertise of our people and the quality of our technology gives First Transit a competitive advantage. Our track record of innovation and cost efficiencies ensures that, despite an increasingly competitive market, we will remain the cost efficient supplier of choice for customers old and new. We continue to anticipate achieving a margin of approximately 7% in the medium term, which we believe is attractive in the context of the limited capital employed in the division.
Outlook
Our pipeline of opportunities has strengthened over the year and we remain very confident that our services offer a compelling outsourcing option for local authorities and private customers. Although we expect some further reductions in demand for our shuttle services to the Canadian oil sands sector due to the oil price and the recent wildfire which devastated the city of Fort McMurray, we anticipate that First Transit will return to overall growth in 2016/17, while maintaining margins.
Greyhound
Greyhound’s US Dollar revenue decreased to $914.0m or £605.1m (2015: $986.0m or £609.6m) in the year, reflecting the more difficult customer demand environment experienced across the intercity coach industry since fuel prices fell sharply between September and December 2014. While lower fuel prices reduce our own cost base they also improve the affordability of alternative forms of transport for some trips (particularly from airlines on longer distance trips), relative to Greyhound. We were encouraged by the relatively more resilient performance of our point-to-point Greyhound Express revenues, where like-for-like revenue decreased by 1.9% over the year, compared with a like-for-like decrease of 4.9% for the division as a whole. The rate of revenue decline began to moderate over the course of the year; in our final quarter our overall like-for-like revenue decline for the division was 2.1%, and Greyhound Express revenues were flat compared with the prior year.
By comparison with previous periods of significant fuel price reductions we have been more successful flexing our business model by actively managing timetables and other costs to partially mitigate the impact of lower demand on our margins. Greyhound’s adjusted operating profit was $54.4m or £35.5m (2015: $68.5m or £41.7m), an adjusted US Dollar operating margin of 6.0% (2015: 6.9%).
Compared with our US operations, the lower oil price has had a more adverse effect on passenger demand for our services in Canada (approximately 16% of Greyhound's revenues), both directly and through the impact on the health of the economy. There are regulatory and structural constraints in this market and, despite extensive management action, Greyhound Canada was loss-making in 2015/16. We are pursuing further options to address the performance of our Canadian business.
Driving growth through attractive commercial propositions
Greyhound is one of the most iconic brands in transport, with a unique national network. Passengers from our traditional network, which operates across North America, also help us feed our point-to-point Greyhound Express service. Since inception, our point-to-point brands have operated modern buses equipped with free Wi-Fi, power outlets, leather seats, extra legroom and guaranteed seating, and all of these amenities have now been extended across our traditional network. Moreover, Greyhound Express and BoltBus have always operated with airline-style yield management, real-time pricing and customer relationship systems, and we have been investing in recent years to bring these systems to bear on our much larger, traditional Greyhound network nationwide. From a passenger-facing perspective the key additions in the past year include our upgraded responsive website, new mobile apps (which include Uber and Apple Wallet integration), investment in customer relationship management systems and services such as ‘where’s my bus?’ tracking technology. We are now retraining and redeploying our passenger-facing terminal employees to focus on delivering an improved customer experience, both through the new technologies available and by learning from the hospitality industry.
All of these changes complement the complex transformation of our entire pricing and ticketing business model, which has now been upgraded to give us access to algorithmic pricing and yield management tools across our entire network of 3,800 locations generating more than 50,000 different journey combinations in a typical month. Amongst other opportunities, these tools will increase our ability to stimulate demand throughout the macro-economic cycle, and allow us to shift demand to off-peak times more easily, resulting in better utilisation of existing seat inventory. This project enhances Greyhound’s opportunities for growth, margin expansion and returns over the medium term. The benefits of these new systems will take time to build as we develop our database of passenger demand trends and our expertise in using the tools throughout our network. The overhaul of our IT infrastructure has also allowed us to enhance our business model in other ways, such as permitting bus-side ticket scanning via a drivers’ smartphone app (allowing real-time inventory management). We will continue to build on these systems in the future, including through further changes to our loyalty programmes.
During the year we also extended our geographic presence, becoming the first international coach operator to launch domestic services in Mexico, and we are pleased with the progress to date. The Mexican coach market offers significant opportunities for future growth.
Continuous improvement in operating and financial performance
In a volatile demand environment, our financial performance is highly dependent on our ability to rapidly flex mileage and to maintain tight control of all our operating costs. Overall mileage was reduced across the business by 5.8% in the year. We have also continued to review our location footprint and property portfolio for opportunities to improve the customer experience, which resulted in the disposal of properties in Raleigh, Fresno and Baltimore in the year. In addition, we took the decision to discontinue our separately branded YO! Bus services, folding the key routes into our wider network. We have also adjusted our marketing, maintenance and central overhead expenses and practices to reflect the demand environment.
Prudent investment in our key assets
Our most important area of investment is the customer experience programme to equip our traditional business with real-time dynamic pricing and yield management capabilities, together with improved customer relationship management tools. As the IT investment phase begins to wind down, our focus will move to enhancing employee training, particularly in the new tools becoming available to passengers.
In light of recent demand trends, we opted not to acquire additional vehicles during the year. Our expansion into the Mexico domestic market – which under relevant legislation is terminal-based – did not require significant investment in the year, but is projected to increase over time.
Responsible partnerships with our customers and communities
The increased customer engagement that our new systems are bringing will allow us to deliver a more personalised service, responsive to the individual needs of our passengers. Through the rollout of a refreshed safety programme to our employees, we have made significant progress in the year across our key metrics.
Future priorities
Completing the transformation of our business into a customer-centric, IT-enabled enterprise, with real-time pricing and yield management and the latest customer relationship management capabilities is a key priority in the coming years. Coupled with the improvements already made to the on-board and terminal amenities, we have a significant opportunity to revive Greyhound’s iconic brand and reputation in the minds of customers. We are also determined to improve our returns in Canada, which currently mask our performance in the US, and will seek to deliver on the growth opportunity we see in the Mexican coach market.
Greyhound, Greyhound Express and BoltBus now offer a productive, relaxing and cost-effective travel proposition for our customers across the US, with a business model that is cash generative and creates value for the Group. Our systems upgrades are making this business more resilient and more capable of stimulating demand in a range of market conditions.
Outlook
Although the passenger revenue decline trend has begun to moderate, we expect 2016/17 to be a year of muted passenger demand. We anticipate modest margin benefits as our systems upgrades begin to build and we continue to flex operations in response to the demand environment, recognising the impact that fluctuations in the oil price will continue to have.
First Bus
First Bus reported revenues of £870.9m (2015: £896.1m) for the year, with like-for-like passenger revenue (excluding the contribution from closure and disposal of businesses) increasing by 0.3%. Revenues in the second half of the year were adversely affected by lower than expected passenger volumes, driven by lower high street retail footfall, exceptionally wet weather, flooding and congestion impairing services in several of our markets. This has been coupled with a reduction in tendered contracts funded by local authorities in a number of our markets, and some evidence of lower fuel prices encouraging more car usage. We continued to experience weakening concessionary revenues throughout the year, while like-for-like commercial passenger revenues increased by 1.1%. Our markets in the south of the UK continue to see more positive trends than our operations in the north and Scotland.
We have been taking action throughout the year to offset the challenging market backdrop by merging or closing a number of depots and reducing administrative overheads in order to maintain our margin progress. Adjusted operating profit was £52.0m (2015: £51.8m) and adjusted operating margin was 6.0% (2015: 5.8%), after the restructuring costs of £3.8m (2015: £1.4m) incurred in the year. Overall we delivered cost efficiencies of more than £20m in the year.
Driving growth through attractive commercial propositions
Our local management teams are continually reviewing networks, timetables and pricing strategies to ensure we are focused on local market needs and growth opportunities. We work closely with all our local authority partners as they respond to their own financial pressures and review their tendered services, looking to find ways to integrate such services into the commercial network wherever possible. Networks serving universities and hospitals are also important to our local growth plans. During the year we secured rights to serve both York and West of England university campuses and developed a commercial network serving Swansea University’s new site. We have enhanced our service to Bristol’s Southmead Hospital and the new Queen Elizabeth University Hospital in Glasgow. In Bristol several changes to key corridors and the night bus network have also contributed to good volume growth. We have also been progressively replacing single deck vehicles with double deckers to increase capacity. However, our ambitions in Bristol and some other cities are increasingly hindered by growing congestion, which frequently sees central Bristol gridlocked.
We continue to bid for tender contracts, securing a five year car park contract at Dublin Airport and beginning operation of the first Park & Ride service in Leeds. We are the preferred bidder for the second. In Manchester we secured the contract for Vantage, a flagship investment in BRT by Transport for Greater Manchester, which started operating in April 2016. We were also the lead contractor for the Rugby World Cup, providing spectator transport to Twickenham and Milton Keynes stadia and VIP and media transport for all venues.
Continuous improvement in operating and financial performance
Through our depot optimisation and maintenance enhancement programmes, and continued investment in our bus fleet, we remain focused on punctuality and service reliability, which alongside value for money are key drivers of passengers’ appetite for bus services. We have also delivered cost reductions of more than £20m in the year. Across the business, efficiencies have been delivered through reduced fuel consumption and better procurement, scheduling and engineering processes. We have further optimised our operating bases – depots at Parkhead in Glasgow and Newcastle-under-Lyme have been closed with operations transferring elsewhere. In Colchester we invested in a new depot replacing three sites and Bracknell and Braintree operations have been scaled back with certain services now operated from nearby sites. The year saw the closure of our Hereford depot and the sale of the residual South Devon business. Structural changes have also been made to our final salary pension schemes to reduce cost.
Undertakings dating back more than a decade, which placed several restrictions on our flexibility to adjust fares and timetables in our Glasgow and Scotland East businesses, have now been lifted by the Competition and Markets Authority. After the year end we announced the closure of two depots in the region as we respond to current market conditions.
Prudent investment in our key assets
We continue to invest in our mobile and digital platforms to improve our customers’ ability to find service information more simply and reliably. We now offer mobile ticketing across all of our services and are developing enhanced mobile capability to provide multi-modal planning, real time travel information and smart ticketing. We are also working with data aggregators such as CityMapper and Google Transit to make our real-time information more widely available. Our website has been relaunched with easy to use journey planning, latest information and search functionality. We have delivered our commitment to multi-operator smart ticketing across the city regions in England and are working to deliver a similar scheme for the key city regions in Scotland. We have also committed to work over the coming year with other operators to develop plans to bring contactless EMV technology to our services.
A fundamental part of our transformation is fleet renewal. In the year we took delivery of 385 vehicles and have announced a £70m order for a further 305 buses since the year end. All buses delivered since mid-2015 are equipped with Euro VI engines, Wi-Fi as standard and an increasing number have USB charging points and next stop audio visual announcements. These investments improve our customer offer, ensure our compliance with disability access legislation and make a major contribution to the clean air agendas of the cities we serve.
Responsible partnerships with our customers and communities
Buses remain a critical enabler of economic growth, with more commuters reliant on the UK national bus network every day than on any other form of public transport. We share the aim of local councils and national Government to get more people out of their cars and using buses. In November we welcomed confirmation that Government funding of the Bus Services Operators’ Grant (BSOG) in England will be maintained through to 2020/21. We are delighted that the new Bus Services Bill gives strong support for enhanced partnerships and provides additional tools for councils and operators jointly to deliver improvements for customers. We believe that local authorities’ objectives for bus services in their area are best delivered through partnerships where the commercial incentive remains with the operator, rather than a complex franchise-based alternative which may not deliver changes or benefits for some years, and where financial risk and additional cost passes to the local authority.
We continue to explore opportunities to work in closer partnership with local authorities in our markets, building on the success we have had to date in increasing both passenger volumes and satisfaction. In November the Sheffield Bus Partnership introduced a new network focused on the economic and social needs of the city while ensuring resources are closely matched with demand. We have also worked to deliver a Rotherham Partnership and one for Doncaster (implemented in May 2016). In Cornwall, we are working increasingly closely with the County Council to deliver a fully integrated public transport network embracing information, ticketing and connections with rail. We were a sponsor of Bristol European Green Capital 2015, during which we trialled a number of bio-methane and advanced hybrid buses, which are influencing our discussions with Bristol on future fuel technologies.
Future priorities
Our strategy is based on delivering an increasingly digitally enabled customer proposition coupled with sustainably improved operating disciplines and strong local authority partnerships. We believe this is the most responsive, efficient and cost-effective way to deliver the outcomes that bus passengers, local authorities and taxpayers want and we will continue to enhance our ability to deliver these outcomes going forward.
Outlook
We expect market conditions to remain challenging in the year ahead. We therefore expect moderate margin progression from the full year benefits of past cost saving actions, additional cost and operational efficiency initiatives and some benefits from our fuel hedging programme.
First Rail
Our First Rail division continues to benefit from growth in passenger volumes, which increased by 2.9% on a like-for-like basis, although we have experienced some slowing in passenger demand growth after recent terror attacks in Paris and Brussels and in areas affected by flooding over the winter. Our continuing operations increased like-for-like passenger revenues by 6.3%. Revenues declined on a reported basis to £1,308.4m (2015: £2,207.1m), reflecting the end of the First Capital Connect and First ScotRail franchises.
Our financial performance was towards the top of our range of expectations with adjusted operating profit of £72.9m (2015: £74.1m), representing a margin of 5.6% (2015: 3.4%). This reflects strong financial performances across all our networks as well as the change in the basis of estimate for accounting for pensions. The latter change, which has been made to more accurately reflect the commercial terms of our current franchises and the pension contributions expected to be paid, had a full year benefit of £18.6m to operating profit.
Focused and disciplined bidding
In September we began operating Great Western Railway (GWR) under the commercial terms of a new direct award which runs to 1 April 2019, with a further extension of up to one year at the discretion of the Department for Transport (DfT).
TransPennine Express (TPE) also operated under the terms of a year-long direct award during the course of the year but we were awarded the competed franchise contract in December 2015. Our new franchise, which will operate from April 2016 until at least 2023, will result in new, faster and more frequent intercity train services between the north of England and Scotland’s major towns and cities.
Outside of franchising, the Office of Rail and Road (ORR) recently approved our application for new open access services between London, north east England and Edinburgh, offering a single class of service on a new fleet of trains designed to encourage travellers to switch from air or coach travel to rail. The ten year track access agreement will allow us to start running five trains a day each way by 2021. In March Hull Trains also secured a further ten years of track access running until December 2029. The agreement enables us to procure new bi-mode trains that will take full advantage of the benefits of the electrified East Coast Mainline in due course.
Continuous improvement in operating and financial performance
We have a strong track record for close partnership working with Network Rail and other industry participants to deliver infrastructure upgrade projects whilst minimising disruption for passengers. The Government’s investment in rail infrastructure continues, with the £7.5bn investment in the Great Western Mainline and work on the TransPennine route both key parts of the national programme. Following Network Rail’s review of its schedule of projects, we are working closely with them and with the DfT to support the substantial infrastructure upgrades taking place throughout the network and ensure delivery of work within appropriate timescales. We also support the Shaw Report’s conclusions which enhance the industry’s focus on customer needs going forwards.
In March 2016 we finalised a formal alliance between GWR and Network Rail covering five key areas of working, committing both companies to a more aligned approach. It covers improved joint planning for major upgrade projects such as electrification, to help minimise disruption for passengers as much as possible. A similar partnership has been signed with TPE.
Prudent investment in our key assets
With the commencement of the new GWR direct award in September 2015, we launched new branding which reflects the line’s strong heritage. This change is consistent with our emphasis on developing local brands that connect with our customers and the communities in which we operate. Alongside the ongoing investment in the rail network, there will be a substantial fleet upgrade. As well as the InterCity Express trains already due to be introduced during the direct award period, in the year we secured approval to procure 29 new long distance trains, creating more than 1,000 additional peak-time seats into and out of Paddington every day. Overall, we will create 3m more seats across the network by December 2018, as well as quicker journey times and more frequent services.
During the new TPE franchise more than £500m will be invested to transform rail services across the North and Scotland. There will be a large increase in the number of carriages compared with today, providing 13m more seats, and the customer experience will be enhanced over time with almost three quarters of the fleet being new. Introducing state-of-the-art intercity trains will mean faster and more reliable journeys with more seats and luggage space. The remaining vehicles will be extensively refurbished and our stations will also benefit from £18m of investment in customer facilities. During the year we continued to progress the roll out of free Wi-Fi services both on-train and in-station throughout the GWR network and this will also be introduced on all TPE trains and stations going forwards.
Responsible partnerships with our customers and communities
In the latest independent Transport Focus National Rail Passenger Survey (completed during autumn 2015) all of FirstGroup’s three train operating companies scored above the national average for customer satisfaction. Hull Trains topped the national table with their highest ever score at 97%, ten points higher than the average of long-distance operators. GWR increased its year-on-year measure for overall satisfaction by three points to 84%, its highest score since the survey began in 1999. TPE scored 83%, up a point year-on-year.
More than 40 schemes are benefiting in the year as part of GWR’s £2.2m Customer and Communities Improvement Fund, supporting social need in areas we serve. A similar fund is being introduced by TPE which will continue to work with community groups across the network. The team will also work with Job Centre Plus to provide discounted travel for jobseekers and help them back into the workforce, and will also provide discount schemes for 16 to 18 year olds and customers travelling in large groups.
Future priorities
We continue to demonstrate the extensive operational strengths as well as the fleet and infrastructure upgrade capabilities that we have built up through our involvement in the rail industry since privatisation. We have secured a longer future for all three of our rail operating companies as well as a new open access opportunity, and this gives us a strong position in First Rail to build on over the medium term. With more than half of the UK rail network by passenger revenue expected to be refranchised by 2020, we will continue to examine each bidding opportunity on its merits.
Outlook
In the year ahead we are expecting the rate of passenger revenue growth in our rail operations to moderate in line with recent industrywide trends. We expect our divisional margin (after bid costs) will rebase toward industry norms following the start of the new TPE franchise terms and the investments being made for the benefit of customers.
We will continue to be active in UK rail franchise bidding, where our approach has been and will continue to be disciplined, aiming to deliver ambitious improvements for passengers and appropriate returns for shareholders, at an acceptable level of risk.
Finance costs and investment income
Net finance costs before adjustments were £132.4m (2015: £139.7m) with the decrease principally reflecting lower interest rates.
Profit before tax
Adjusted profit before tax as set out in note 4 to the financial statements was £168.3m (2015: £163.9m), with the increase due principally to lower net finance costs. An overall charge of £54.8m (2015: £58.1m) for adjustments including other intangible asset amortisation charges of £51.9m (2015: £54.3m) resulted in statutory profit before tax of £113.5m (2015: £105.8m).
Tax
The tax charge, on adjusted profit before tax, for the year was £38.7m (2015: £36.1m) representing an effective rate of 23.0% (2015: 22.0%). There was a tax credit of £21.6m (2015: credit of £15.8m) relating to other intangible asset amortisation charges and other adjustments. The total tax charge was £17.1m (2015: charge of £20.3m). The actual tax paid during the year was £7.0m (2015: £4.5m).
EPS
Adjusted EPS increased by 5.1% to 10.3p (2015: 9.8p). Basic EPS increased 21.0% to 7.5p (2015: 6.2p), with both improvements primarily due to lower net finance costs.
Shares in issue
As at 31 March 2016 there were 1,204.3m shares in issue (2015: 1,203.7m), excluding treasury shares and own shares held in trust for employees of 0.6m (2015: 1.2m). The weighted average number of shares in issue for the purpose of basic EPS calculations (excluding treasury shares and own shares held in trust for employees) was 1,204.0m (2015: 1,204.0m).
EBITDA
EBITDA by division is set out below:
| Year to 31 March 2016 | Year to 31 March 2015 | |||||
Revenue £m |
EBITDA1 £m |
EBITDA margin1 |
Revenue £m |
EBITDA1 £m |
EBITDA margin1 £m |
|
| First Student | 1,553.5 | 266.4 | 17.1% | 1,478.8 | 260.9 | 17.6% |
| First Transit | 864.8 | 74.7 | 8.6% | 844.8 | 72.1 | 8.5% |
| Greyhound | 605.1 | 69.7 | 11.5% | 609.6 | 73.1 | 12.0% |
| First Bus | 870.9 | 113.4 | 13.0% | 896.1 | 118.5 | 13.2% |
| First Rail | 1,308.4 | 122.4 | 9.4% | 2,207.1 | 137.8 | 6.2% |
| Group2 | 15.4 | (30.7) | 14.3 | (38.0) | ||
| Total Group | 5,218.1 | 615.9 | 11.8% | 6,050.7 | 624.4 | 10.3% |
| North America in US Dollars | $m |
$m |
% |
$m |
$m |
|
| First Student | 2,332.7 | 396.8 | 17.0% | 2,368.6 | 412.5 | 17.4% |
| First Transit | 1,303.4 | 112.6 | 8.6% | 1,362.1 | 116.1 | 8.5% |
| Greyhound | 914.0 | 105.9 | 11.6% | 986.0 | 119.1 | 12.1% |
| Total North America | 4,550.1 | 615.3 | 13.5% | 4,716.7 | 647.7 | 13.7% |
1 Adjusted operating profit less capital grant amortisation plus depreciation.
Change in the basis of estimate for accounting for First Rail pensions
The Group has re-estimated the calculation of the First Rail franchise pension adjustment under IAS19 (revised) to better reflect the commercial terms of the GWR and TPE franchises. This change in accounting estimate has been triggered by the new Direct Awards operated by GWR and First TransPennine Express in the year and has been applied prospectively from 1 April 2015. As a result of this change in accounting estimate the operating profit charge for First Rail pension schemes for the full year is £18.6m lower at £27.4m than it would otherwise have been. The change in the basis of estimate has no effect on the cash contributions made to the First Rail pension schemes in the year.
Reconciliation to non-GAAP measures and performance
Note 4 to the financial statements sets out the reconciliations of operating profit and profit before tax to their adjusted equivalents. The principal adjusting items are as follows:
Other intangible asset amortisation charges
The charge for the year was £51.9m (2015: £54.3m). The reduction primarily reflects a lower charge in First Rail as the GWR franchise intangible was fully expensed at the end of its first Direct Award period, partly offset by a higher charge in First Student due to the full year effect of the Mile Square acquisition.
Pensions past service gain
During the year we agreed with the FirstGroup Pension Scheme Trustee to change the basis for revaluing pensions in payment from RPI to CPI. This change has led to a reduction in the liabilities and as a result a £10.8m past service gain has been recognised.
North America insurance reserves
There have been significant adverse developments on a small number of old and unusual insurance claims in North America during the year. The impact of these adverse developments was a charge of £10.5m.
First Bus depot sales and closures
There was a charge of £1.8m (2015: £7.5m) in the year relating to operating losses on a legacy depot closure.
Legal claims
A legal claim that pre-dates the Laidlaw acquisition and was acquired with the former Laidlaw entities had further adverse developments during the year and has been settled for £1.0m more than was originally provided for within adjusted items.
Ineffectiveness on financial derivatives
There was a £0.4m (2015: £0.3m) non-cash charge during the year due to ineffectiveness on financial derivatives.
Cash flow
The net cash inflow for the year before First Rail end of franchise cash flows was £36.0m (2015: £39.4m). This cash inflow combined with the end of franchise outflows of £20.8m (2015: £107.9m) and movements in debt due to foreign exchange contributed to a net debt increase of £2.9m (2015: £103.5m) as detailed below:
| Year to 31 March 2016 £m |
Year to 31 March 2015 £m |
|
| EBITDA | 615.9 | 624.4 |
| Other non-cash income statement charges/(credits) | 6.4 | (14.0) |
| Working capital excluding First Rail end of franchise cash flows | (16.0) | (11.6) |
| Movement in other provisions | (18.6) | (27.2) |
| Pension payments in excess of income statement charge | (33.6) | (12.3) |
| Cash generated by operations excluding First Rail end of franchise cash flows | 554.1 | 559.3 |
| Capital expenditure | (405.2) | (428.9) |
| Acquisitions | - | (11.0) |
| Proceeds from disposal of property, plant and equipment | 19.5 | 47.5 |
| Interest and tax | (122.4) | (124.4) |
| Dividends payable to non-controlling minority shareholders | (10.0) | (2.0) |
| Other | - | (1.1) |
| Net cash inflow before First Rail end of franchise cash flows | 36.0 | 39.4 |
| First Rail end of franchise cash flows | (20.8) | (107.9) |
| Foreign exchange movements | (15.3) | (31.7) |
| Other non-cash movements in relation to financial instruments | (2.8) | (3.3) |
| Movement in net debt in the year | (2.9) | (103.5) |
The net cash inflow before First Rail end of franchise cash flows was slightly lower than the prior year, principally reflecting the reduction in cash generated by operations, lower proceeds from disposals of property, plant and equipment partly offset by the planned lower capital expenditure.
Capital expenditure
As planned we continue to invest in our businesses. Cash capital expenditure was £405.2m (2015: £428.9m) and comprised First Student £245.7m (2015: £174.9m), First Transit £20.5m (2015: £21.6m), Greyhound £21.1m (2015: £49.8m), First Bus £57.6m (2015: £104.1m), First Rail £58.1m (2015: £75.0m) and Group items £2.2m (2015: £3.5m). First Rail capital expenditure is typically matched by franchise receipts or other funding.
In addition during the year we entered into operating leases for passenger carrying vehicles with capital values in First Transit of £1.3m (2015: £9.2m).
Gross capital investment was £413.3m (2015: £425.1m) and comprised First Student £209.2m (2015: £170.4m), First Transit £20.4m (2015: £30.3m), Greyhound £24.8m (2015: £50.9m), First Bus £91.3m (2015: £93.9m), First Rail £65.4m (2015: £76.1m) and Group items £2.2m (2015: £3.5m).
Net debt
The Group’s net debt at 31 March 2016 was £1,410.2m (2015: £1,407.3m) and comprised:
| 31 March 2016 |
31 March 2015 |
|||
Analysis of net debt |
Fixed £m |
Variable £m |
Total £m |
Total £m |
| Sterling bond (2018) | 298.3 | - | 298.3 | 297.8 |
| Sterling bond (2019) | - | 249.8 | 249.8 | 249.8 |
| Sterling bond (2021) | - | 348.2 | 348.2 | 348.2 |
| Sterling bond (2022) | 320.5 | - | 320.5 | 320.0 |
| Sterling bond (2024) | 199.6 | - | 199.6 | 199.5 |
| HP contracts and finance leases | 219.9 | 18.4 | 238.3 | 302.2 |
| Senior unsecured loan notes | 105.9 | - | 105.9 | 100.6 |
| Loan notes | 8.7 | 1.0 | 9.7 | 9.7 |
| Gross debt excluding accrued interest | 1,152.9 | 617.4 | 1,770.3 | 1,827.8 |
| Cash | (140.2) | (223.8) | ||
| First Rail ring-fenced cash and deposits | (217.5) | (196.0) | ||
| Other ring-fenced cash and deposits | (2.4) | (0.7) | ||
| Net debt excluding accrued interest | 1,410.2 | 1,407.3 |
Under the terms of the First Rail franchise agreements, cash can only be distributed by the TOCs either up to the lower amount of their retained profits or the amount determined by prescribed liquidity ratios. The ring-fenced cash represents that which is not available for distribution or the amount required to satisfy the liquidity ratio at the balance sheet date.
Funding and risk management
Liquidity within the Group has remained strong. At 31 March 2016 there was £940.2m (2015: £1,023.8m) of committed headroom and free cash, being £800.0m (2015: £800.0m) of committed headroom and £140.2m (2015: £223.8m) of free cash. Largely due to the seasonality of First Student, committed headroom typically reduces during the financial year up to October and increases thereafter. Treasury policy requires a minimum of £150m of committed headroom at all times. Our average debt maturity was 4.4 years (2015: 5.2 years). The Group’s main revolving bank facilities require renewal in June 2019.
The Group does not enter into speculative financial transactions and uses only authorised financial instruments for certain risk management purposes.
Interest rate risk
We seek to reduce our exposure by using a combination of fixed rate debt and interest rate derivatives to achieve an overall fixed rate position over the medium term of at least 50% of net debt.
Foreign currency risk
‘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 Group 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.
Fuel price risk
We use a progressive forward hedging programme to manage commodity risk. In 2015/16 in the UK, 94% of our ‘at risk’ crude requirements (1.9m barrels p.a.) were hedged at an average rate of $88 per barrel. At year end we had hedged 89% of our ‘at risk’ UK crude requirements for the year to 31 March 2017 at $70 per barrel and 83% of our requirements for the year to 31 March 2018 at $62 per barrel.
In North America 77% of 2015/16 ‘at risk’ crude oil volumes (1.5m barrels p.a.) were hedged at an average rate of $86 per barrel. At year end we had hedged 68% of the volumes for the year to 31 March 2017 at $72 per barrel and 34% of our volumes for the year to 31 March 2018 at $61 per barrel.
Balance sheet
Net assets have increased by £147.0m since the start of the year. The principal reasons for this are the retained profit for the year of £96.4m, favourable translation reserve movements of £110.5m partly offset by actuarial losses on defined benefit pension schemes (net of deferred tax) of £43.1m and unfavourable after tax hedging reserve movements of £13.1m.
Goodwill
The carrying value (net assets including goodwill but excluding intercompany balances) of each cash generating unit (CGU) was tested for impairment during the year and there continues to be sufficient headroom in all of the CGUs.
Foreign exchange
The most significant exchange rates to Sterling for the Group are as follows:
| Year to 31 March 2016 | Year to 31 March 2015 | |||
| Closing rate |
Effective rate |
Closing rate |
Effective rate |
|
| US Dollar | 1.41 | 1.49 | 1.49 | 1.58 |
| Canadian Dollar | 1.87 | 1.93 | 1.88 | 1.83 |
Pensions
We have updated our pension assumptions as at 31 March 2016 for the defined benefit schemes in the UK and North America. The net pension deficit of £239.4m at the beginning of the year has increased to £270.9m at the end of the year principally due to poor asset returns partly offset by higher real discount rates. The main factors that influence the balance sheet position for pensions and the sensitivities to their movement at 31 March 2016 are set out below:
| Movement | Impact | |
| Discount rate | +0.1% | Reduce deficit by £32m |
| Inflation | +0.1% | Increase deficit by £26m |
Seasonality
First Student generates lower revenues and profits in the first half of the financial year than in the second half of the year as the school summer holidays fall into the first half. Greyhound operating profits are typically higher in the first half of the year due to demand being stronger in the summer months.
Forward-looking statements
Certain statements included or incorporated by reference within this document may constitute ‘forward-looking statements’ with respect to the business, strategy and plans of the Group and our current goals, assumptions and expectations relating to our future financial condition, performance and results.
By their nature, forward-looking statements involve known and unknown risks, assumptions, uncertainties and other factors which cause actual results, performance or achievements of the Group to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.
Shareholders are cautioned not to place undue reliance on the forward-looking statements. Except as required by the UK Listing Rules and applicable law, the Group does not undertake any obligation to update or change any forward-looking statements to reflect events occurring after the date of this document.
Other information
Unless otherwise stated, all financial figures for the year to 31 March 2016 (the ‘year’ or ‘2015/16’) include the results of the rail business for the year to 31 March 2016 and the results of all the other businesses for the 52 weeks ended 26 March 2016. The figures for the year to 31 March 2015 (the ‘prior year’ or ‘2014/15’) include the results of the rail business for the year to 31 March 2015 and the results of all the other businesses for the 52 weeks ended 28 March 2015. No account is taken of foreign exchange translation effects in the description of divisional performances and outlook.
All references to '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.
All references to ‘underlying’ revenue throughout this document is in constant currency and adjusted for changes in First Rail franchise portfolio.
‘ROCE’ or Return on Capital Employed is calculated by dividing adjusted operating profit after tax by all year end assets and liabilities excluding debt items.
References to ‘like-for-like’ revenue adjust for changes in the composition of the divisional portfolio, holiday timing, severe weather and other factors that distort the year-on-year trends in our passenger revenue businesses.
Going concern
The Group has established a strong balanced portfolio of businesses with approximately 50% of Group revenues secured under medium term contracts with government agencies and other large organisations in the UK and North America. The Group has a diversified funding structure with average debt duration at 31 March 2016 of 4.4 years (2015: 5.2 years) and which is largely represented by medium term unsecured bank facilities and long term unsecured bond debt. The Group has an £800m committed revolving banking facility of which £800m (2015: £800m) was undrawn at the year end. This facility has a maturity of June 2019.
The Directors have carried out a detailed review of the Group’s budget for the year to 31 March 2017 and medium term plans, with due regard for the risks and uncertainties to which the Group is exposed, the uncertain economic climate and the impact that this could have on trading performance. Based on this review, the Directors believe that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, the financial statements have been prepared on a going concern basis.
Tim O’Toole Matthew Gregory
Chief Executive Chief Financial Officer
14 June 2016 14 June 2016
Consolidated income statement
For the year ended 31 March
| Notes | 2016 £m |
2015 £m |
|
| Revenue | 2 | 5,218.1 | 6,050.7 |
| Operating costs | (4,971.8) | (5,804.9) | |
| Operating profit | 246.3 | 245.8 | |
| Investment income | 5 | 1.4 | 1.8 |
| Finance costs | 5 | (134.2) | (141.8) |
| Profit before tax | 113.5 | 105.8 | |
| Tax | 6 | (17.1) | (20.3) |
| Profit for the year | 96.4 | 85.5 | |
| Attributable to: | |||
| Equity holders of the parent | 90.3 | 75.2 | |
| Non-controlling interests | 6.1 | 10.3 | |
| 96.4 | 85.5 | ||
| Earnings per share | |||
| Basic | 7 | 7.5p | 6.2p |
| Diluted | 7 | 7.5p | 6.2p |
| Adjusted results1 | |||
| Adjusted operating profit | 4 | 300.7 | 303.6 |
| Adjusted profit before tax | 4 | 168.3 | 163.9 |
| Adjusted EPS | 7 | 10.3p | 9.8p |
1 Adjusted for certain items as set out in note 4.
Consolidated statement of comprehensive income
Year ended 31 March
| 2016 £m |
2015 £m |
|
| Profit for the year | 96.4 | 85.5 |
| Items that will not be reclassified subsequently to profit or loss | ||
| Actuarial (losses)/gains on defined benefit pension schemes | (59.2) | 33.9 |
| Deferred tax on actuarial (losses)/gains on defined benefit pension schemes | 16.1 | (6.7) |
| (43.1) | 27.2 | |
| Items that may be reclassified subsequently to profit or loss | ||
| Derivative hedging instrument movements | (13.7) | (89.9) |
| Deferred tax on derivative hedging instrument movements | 0.6 | 26.6 |
| Exchange differences on translation of foreign operations | 110.5 | 223.9 |
| 97.4 | 160.6 | |
| Other comprehensive income for the year | 54.3 | 187.8 |
| Total comprehensive income for the year | 150.7 | 273.3 |
| Attributable to: | ||
| Equity holders of the parent | 144.6 | 263.0 |
| Non-controlling interests | 6.1 | 10.3 |
| 150.7 | 273.3 |
Consolidated balance sheet
As at 31 March
| Note | 2016 £m |
2015 £m |
|
| Non-current assets | |||
| Goodwill | 8 | 1,736.3 | 1,659.2 |
| Other intangible assets | 9 | 162.2 | 197.0 |
| Property, plant and equipment | 10 | 2,142.2 | 2,027.1 |
| Deferred tax assets | 18 | 62.7 | 60.5 |
| Retirement benefit assets | 31.0 | 32.9 | |
| Derivative financial instruments | 17 | 41.5 | 45.3 |
| Investments | 25.4 | 3.1 | |
| 4,201.3 | 4,025.1 | ||
| Current assets | |||
| Inventories | 11 | 61.4 | 69.9 |
| Trade and other receivables | 12 | 694.4 | 716.6 |
| Cash and cash equivalents | 360.1 | 420.5 | |
| Assets held for sale | 3.5 | 1.4 | |
| Derivative financial instruments | 17 | 16.7 | 15.5 |
| 1,136.1 | 1,223.9 | ||
| Total assets | 5,337.4 | 5,249.0 | |
| Current liabilities | |||
| Trade and other payables | 13 | 1,101.9 | 1,139.0 |
| Tax liabilities | 37.0 | 35.3 | |
| Financial liabilities | 14 | 168.4 | 136.0 |
| Derivative financial instruments | 17 | 68.1 | 74.5 |
| 1,375.4 | 1,384.8 | ||
| Net current liabilities | 239.3 | 160.9 | |
| Non-current liabilities | |||
| Financial liabilities | 14 | 1,712.1 | 1,805.7 |
| Derivative financial instruments | 17 | 35.5 | 22.6 |
| Retirement benefit liabilities | 301.9 | 272.3 | |
| Deferred tax liabilities | 18 | 17.0 | 40.7 |
| Provisions | 19 | 262.3 | 236.7 |
| 2,328.8 | 2,378.0 | ||
| Total liabilities | 3,704.2 | 3,762.8 | |
| Net assets | 1,633.2 | 1,486.2 | |
| Equity | |||
| Share capital | 20 | 60.2 | 60.2 |
| Share premium | 676.4 | 676.4 | |
| Hedging reserve | (68.6) | (55.5) | |
| Other reserves | 4.6 | 4.6 | |
| Own shares | (1.4) | (1.9) | |
| Translation reserve | 352.2 | 241.7 | |
| Retained earnings | 585.4 | 533.1 | |
| Equity attributable to equity holders of the parent | 1,608.8 | 1,458.6 | |
| Non-controlling interests | 24.4 | 27.6 | |
| Total equity | 1,633.2 | 1,486.2 |
Consolidated statement of changes in equity
Year ended 31 March
| Share capital £m |
Share premium £m |
Hedging reserve £m |
Other reserves £m |
Own shares £m |
Translation reserve £m |
Retained earnings £m |
Total £m |
Non- controlling interests £m |
Total equity £m |
|
| Balance at 1 April 2014 | 60.2 | 676.4 | 7.8 | 4.6 | (1.8) | 17.8 | 446.4 | 1,211.4 | 11.6 | 1,223.0 |
| Total comprehensive income for the year | – | – | (63.3) | – | – | 223.9 | 102.4 | 263.0 | 10.3 | 273.3 |
| Purchase of non-controlling interests1 | – | – | – | – | – | – | (7.0) | (7.0) | (4.0) | (11.0) |
| Acquisition of non-controlling interests | – | – | – | – | – | – | – | – | 11.7 | 11.7 |
| Non-controlling interests put option2 | – | – | – | – | – | – | (12.8) | (12.8) | – | (12.8) |
| Dividends paid | – | – | – | – | – | – | – | – | (2.0) | (2.0) |
| Movement in EBT and treasury shares | – | – | – | – | (0.1) | – | (1.0) | (1.1) | – | (1.1) |
| Share-based payments | – | – | – | – | – | – | 5.2 | 5.2 | – | 5.2 |
| Deferred tax on share-based payments | – | – | – | – | – | – | (0.1) | (0.1) | – | (0.1) |
| Balance at 31 March 2015 | 60.2 | 676.4 | (55.5) | 4.6 | (1.9) | 241.7 | 533.1 | 1,458.6 | 27.6 | 1,486.2 |
| Total comprehensive income for the year | – | – | (13.1) | – | – | 110.5 | 47.2 | 144.6 | 6.1 | 150.7 |
| Dividends paid | – | – | – | – | – | – | – | – | (10.0) | (10.0) |
| Movement in EBT and treasury shares | – | – | – | – | 0.5 | – | (1.3) | (0.8) | – | (0.8) |
| Share-based payments | – | – | – | – | – | – | 6.4 | 6.4 | – | 6.4 |
| Other | – | – | – | – | – | – | – | – | 0.7 | 0.7 |
| Balance at 31 March 2016 | 60.2 | 676.4 | (68.6) | 4.6 | (1.4) | 352.2 | 585.4 | 1,608.8 | 24.4 | 1,633.2 |
1 On 14 August 2014, the Group purchased the non-controlling interests share of Hull Trains Limited for a consideration of £3.0m and on 24 March 2015, the Group purchased the non-controlling interests share of Cardinal Coach Lines UCL for a consideration of CAD$17.0m. As both of these represent a transaction with minority equity owners of the business without a change of control, they have been recognised as an equity transaction in the Group’s reserves and not as a business combination or investment.
2 On 25 August 2014, the Group completed the acquisition of a 51% share in Mile Square Transportation, Inc, a school bus transportation company based in New York. Included within the purchase agreement is a put option for the Group to purchase the remaining 49% from the non-controlling interest party for a fixed price of US$19.1m. As the put option is a contract to purchase the Group’s own equity instruments it gives rise to a financial liability for the fixed price amount in accordance with paragraph 23 in IAS 32. The financial liability has been recognised in the balance sheet and the initial recognition is treated as a reclassification from equity.
Consolidated cash flow statement
Year ended 31 March
| Note | 2016 £m |
2015 £m |
|
| Net cash from operating activities | 21 | 409.5 | 325.2 |
| Investing activities | |||
| Interest received | 1.4 | 1.8 | |
| Proceeds from disposal of property, plant and equipment | 19.5 | 47.5 | |
| Purchases of property, plant, equipment and software | (405.2) | (428.9) | |
| Acquisition of subsidiary/business | – | (11.0) | |
| Net cash used in investing activities | (384.3) | (390.6) | |
| Financing activities | |||
| Dividends paid to non-controlling shareholders | (10.0) | (2.0) | |
| Shares purchased by Employee Benefit Trust | – | (1.1) | |
| Repayments under HP contracts and finance leases | (80.3) | (67.9) | |
| Fees for bank facility amendments and bond issues | – | (4.7) | |
| Net cash flow from financing activities | (90.3) | (75.7) | |
| Net decrease in cash and cash equivalents before foreign exchange movements | (65.1) | (141.1) | |
| Cash and cash equivalents at beginning of year | 420.5 | 553.9 | |
| Foreign exchange movements | 4.7 | 7.7 | |
| Cash and cash equivalents at end of year per consolidated balance sheet | 360.1 | 420.5 |
Cash and cash equivalents are included within current assets on the consolidated balance sheet.
Note to the consolidated cash flow statement –
reconciliation of net cash flow to movement in net debt
| 2016 £m |
2015 £m |
|
| Net decrease in cash and cash equivalents in year | (65.1) | (141.1) |
| Decrease in debt and finance leases | 80.3 | 67.9 |
| Fees capitalised against bank facilities and bond issues | – | 4.7 |
| Net cash flow | 15.2 | (68.5) |
| Foreign exchange movements | (15.3) | (31.7) |
| Other non-cash movements in relation to financial instruments | (2.8) | (3.3) |
| Movement in net debt in year | (2.9) | (103.5) |
| Net debt at beginning of year | (1,407.3) | (1,303.8) |
| Net debt at end of year | (1,410.2) | (1,407.3) |
Net debt excludes all accrued interest.
Notes to the consolidated financial statements
1 General information
The financial information set out above does not constitute the Company’s Statutory Accounts for the year ended 31 March 2016 or 2015, but is derived from those accounts. Statutory Accounts for 2015 have been delivered to the Registrar of Companies and those for 2016 will be delivered following the Company’s Annual General Meeting. The auditors have reported on both sets of account; their reports were unqualified and did not contain statements under section 498 (2) or (3) of the Companies Act 2006.
Whilst the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRSs), this announcement does not in itself contain sufficient information to comply with IFRSs. The Company expects to publish full financial statements that comply with IFRSs in June 2016.
Copies of the Statutory Accounts for the year ended 31 March 2016 will be available to all shareholders in June and will also be available thereafter at the Registered Office of the Company at 395 King Street, Aberdeen, AB24 5RP.
2 Revenue
| 2016 £m |
2015 £m |
|
| Services rendered | 5,197.7 | 5,717.4 |
| Rail franchise subsidy receipts | 20.4 | 333.3 |
| 5,218.1 | 6,050.7 | |
| Finance income | 1.4 | 1.8 |
| Total revenue as defined by IAS 18 | 5,219.5 | 6,052.5 |
3 Business segments and geographical information
For management purposes, the Group is organised into five operating divisions – First Student, First Transit, Greyhound, First Bus and First Rail. These divisions are managed separately in line with the differing services that they provide and the geographical markets which they operate in.
The segment results for the year to 31 March 2016 are as follows:
| First Student £m |
First Transit £m |
Greyhound £m |
First Bus £m |
First Rail £m |
Group items1 £m |
Total £m |
|
| Revenue | 1,553.5 | 864.8 | 605.1 | 870.9 | 1,308.4 | 15.4 | 5,218.1 |
| EBITDA2 | 266.4 | 74.7 | 69.7 | 113.4 | 122.4 | (30.7) | 615.9 |
| Depreciation | (153.8) | (14.6) | (34.2) | (61.4) | (60.0) | (1.7) | (325.7) |
| Capital grant amortisation | – | – | – | – | 10.5 | – | 10.5 |
| Segment results2 | 112.6 | 60.1 | 35.5 | 52.0 | 72.9 | (32.4) | 300.7 |
| Other intangible asset amortisation charges | (42.1) | (3.4) | (3.1) | – | (3.3) | – | (51.9) |
| Other adjustments (note 4) | (2.8) | (7.2) | (1.5) | (1.8) | - | 10.8 | (2.5) |
| Operating profit3 | 67.7 | 49.5 | 30.9 | 50.2 | 69.6 | (21.6) | 246.3 |
| Investment income | 1.4 | ||||||
| Finance costs | (134.2) | ||||||
| Profit before tax | 113.5 | ||||||
| Tax | (17.1) | ||||||
| Profit after tax | 96.4 |
The segment results for the year to 31 March 2015 are as follows:
| First Student £m |
First Transit £m |
Greyhound £m |
First Bus £m |
First Rail £m |
Group items1 £m |
Total £m |
|
| Revenue | 1,478.8 | 844.8 | 609.6 | 896.1 | 2,207.1 | 14.3 | 6,050.7 |
| EBITDA2 | 260.9 | 72.1 | 73.1 | 118.5 | 137.8 | (38.0) | 624.4 |
| Depreciation | (146.0) | (12.4) | (31.4) | (66.7) | (96.2) | (0.6) | (353.3) |
| Capital grant amortisation | – | – | – | – | 32.5 | – | 32.5 |
| Segment results2 | 114.9 | 59.7 | 41.7 | 51.8 | 74.1 | (38.6) | 303.6 |
| Other intangible asset amortisation charges | (39.8) | (3.4) | (2.9) | – | (8.2) | – | (54.3) |
| Other adjustments (note 4) | (12.2) | – | 25.3 | (7.9) | – | (8.7) | (3.5) |
| Operating profit3 | 62.9 | 56.3 | 64.1 | 43.9 | 65.9 | (47.3) | 245.8 |
| Investment income | 1.8 | ||||||
| Finance costs | (141.8) | ||||||
| Profit before tax | 105.8 | ||||||
| Tax | (20.3) | ||||||
| Profit after tax | 85.5 |
1 Group items comprise Tram operations, central management and other items.
2 EBITDA is adjusted operating profit less capital grant amortisation plus depreciation.
3 Although the segment results are used by management to measure performance, statutory operating profit by operating division is also disclosed for completeness.
4 Reconciliation to non-gaap measures and performance
In measuring the Group adjusted performance, additional financial measures derived from the reported results have been used in order to eliminate factors which distort year on year comparisons. The Group’s adjusted performance is used to explain year on year changes when the effect of certain items are significant, including other intangible asset amortisation, business disposals, aged legal and self-insurance claims, revisions to onerous contracts and pension past settlement gains or losses, as management consider that this basis more appropriately reflects operating performance and a better understanding of the key performance indicators of the business.
| Reconciliation of operating profit to adjusted operating profit | Year to 31 March 2016 £m |
Year to 31 March 2015 £m |
| Operating profit | 246.3 | 245.8 |
| Adjustments for: | ||
| Other intangible asset amortisation charges | 51.9 | 54.3 |
| Gain on disposal of property | – | (25.3) |
| Legal claims | 1.0 | 12.2 |
| IT licences | – | 8.7 |
| First Bus depot sales and closures | 1.8 | 7.5 |
| Pensions past service gain | (10.8) | – |
| North America insurance reserves | 10.5 | – |
| Other | – | 0.4 |
| Total operating profit adjustments | 54.4 | 57.8 |
| Adjusted operating profit (note 3) | 300.7 | 303.6 |
| Reconciliation of profit before tax to adjusted profit before tax | Year to 31 March 2016 £m |
Year to 31 March 2015 £m |
| Profit before tax | 113.5 | 105.8 |
| Operating profit adjustments (see table above) | 54.4 | 57.8 |
| Ineffectiveness on financial derivatives | 0.4 | 0.3 |
| Adjusted profit before tax | 168.3 | 163.9 |
| Adjusted tax charge | (38.7) | (36.1) |
| Non-controlling interests | (6.1) | (10.3) |
| Adjusted earnings | 123.5 | 117.5 |
The principal adjusting items are as follows:
Other intangible asset amortisation charges
The charge for the year was £51.9m (2015: £54.3m). The reduction primarily reflects a lower charge in First Rail as the GWR franchise intangible was fully expensed at the end of Direct Award 1, partly offset by a higher charge for First Student due to the full year effect if the Mile Square acquisition.
Legal claims
A legal claim that pre-dates the Laidlaw acquisition and was acquired with the former Laidlaw entities had further adverse developments during the year and has been settled for £1.0m more than was originally provided for within adjusted items.
First Bus depot sales and closures
There was a charge of £1.8m (2015: £7.5m) in the year relating to operating losses on a legacy depot closure.
Pensions past service gain
During the year we agreed with the FirstGroup Pension Scheme Trustee to change the basis for revaluing pensions in payment from RPI to CPI. This change has led to a reduction in the liabilities and as a result £10.8m past service gain has been recognised.
North America Insurance reserves
There have been significant adverse developments on a small number of old and unusual insurance claims in North America during the year. The impact of these adverse developments was a charge of £10.5m.
Ineffectiveness on financial derivatives
There was a £0.4m (2015: £0.3m) non-cash charge during the year due to ineffectiveness on financial derivatives.
Year to 31 March 2015 underlying
In addition, Management have presented underlying revenue for the year to 31 March 2015 which is in constant currency and adjusted for changes in the First Rail franchise portfolio.
A reconciliation is set out below:
| Revenue £m |
|
| Year to 31 March 2015 as reported | 6,050.7 |
| Changes in First Rail franchise portfolio | (952.4) |
| Foreign exchange movements | 134.0 |
| Year to 31 March 2015 underlying | 5,232.3 |
5 Investment income and finance costs
| 2016 £m |
2015 £m |
|
| Investment income | ||
| Bank interest receivable | (1.4) | (1.8) |
| Finance costs | ||
| Bonds | 84.2 | 84.9 |
| Bank borrowings | 13.0 | 16.8 |
| Senior unsecured loan notes | 4.3 | 4.1 |
| Loan notes | 1.0 | 1.0 |
| Finance charges payable in respect of HP contracts and finance leases | 8.9 | 9.4 |
| Notional interest on long term provisions | 14.8 | 15.2 |
| Notional interest on pensions | 7.6 | 10.1 |
| Finance costs before adjustments | 133.8 | 141.5 |
| Hedge ineffectiveness on financial derivatives | 0.4 | 0.3 |
| Total finance costs | 134.2 | 141.8 |
| Finance costs before adjustments | 133.8 | 141.5 |
| Investment income | (1.4) | (1.8) |
| Net finance cost before adjustments | 132.4 | 139.7 |
6 Tax on profit on ordinary activities
| 2016 £m |
2015 £m |
|
| Current tax | 7.0 | 11.2 |
| Adjustments with respect to prior years | 14.1 | 6.5 |
| Total current tax charge | 21.1 | 17.7 |
| Origination and reversal and temporary differences | 22.4 | 15.9 |
| Adjustments with respect to prior years | (26.4) | (13.3) |
| Total deferred tax (credit)/charge | (4.0) | 2.6 |
| Total tax charge | 17.1 | 20.3 |
7 Earnings per share (EPS)
EPS is calculated by dividing the profit attributable to equity shareholders of £90.3m (2015: £75.2m) by the weighted average number of ordinary shares of 1,204.0m (2015: 1,204.0m). The number of ordinary shares used for the basic and diluted calculations are shown in the table below.
The difference in the number of shares between the basic calculation and the diluted calculation represents the weighted average number of potentially dilutive ordinary share options.
| 2016 Number |
2015 Number |
|
| Weighted average number of shares used in basic calculation | 1,204.0 | 1,204.0 |
| Executive share options | 8.0 | 3.6 |
| Weighted average number of shares used in the diluted calculation | 1,212.0 | 1,207.6 |
The adjusted EPS is intended to highlight the recurring results of the Group before amortisation charges, ineffectiveness on financial derivatives and certain other adjustments as set out in note 4. A reconciliation is set out below:
| 2016 | 2015 | |||
| £m | EPS (p) | £m | EPS (p) | |
| Basic profit/EPS | 90.3 | 7.5 | 75.2 | 6.2 |
| Other intangible asset amortisation charges (note 9) | 51.9 | 4.4 | 54.3 | 4.5 |
| Ineffectiveness on financial derivatives | 0.4 | – | 0.3 | – |
| Other adjustments (note 4) | 2.5 | 0.2 | 3.5 | 0.3 |
| Tax effect of above adjustments | (21.6) | (1.8) | (15.8) | (1.2) |
| Adjusted profit/EPS | 123.5 | 10.3 | 117.5 | 9.8 |
| Diluted EPS | 2016 pence |
2015 pence |
| Diluted EPS | 7.5 | 6.2 |
| Adjusted Diluted EPS | 10.2 | 9.7 |
8 Goodwill
| 2016 £m |
2015 £m |
|
| Cost | ||
| At 1 April | 1,663.2 | 1,513.5 |
| Additions | – | 1.7 |
| Foreign exchange movements | 77.1 | 148.0 |
| At 31 March | 1,740.3 | 1,663.2 |
| Accumulated impairment losses | ||
| At 1 April and 31 March | 4.0 | 4.0 |
| Carrying amount | ||
| At 31 March | 1,736.3 | 1,659.2 |
The calculation of value in use for each CGU is most sensitive to the principal assumptions of discount rate, growth rates and margins achievable. Sensitivity analysis has been performed on the calculations and confirms that no reasonably possible changes in the assumptions would cause the carrying amount of the CGUs to exceed their recoverable amount in respect of the First Transit, Greyhound, First Bus and First Rail divisions.
The value in use of the First Student division exceeds its carrying amount by £232.3m (2015: £300.9m). The sensitivity analysis indicates that the First Student margin would need to fall in excess of 87 basis points compared to medium term expectations or long term growth rates would need to fall in excess of 66 basis points for there to be an impairment to the carrying value of net assets in this business. An increase in the discount rate in excess of 59 basis points would lead to the value in use of the division being less than its carrying amount.
9 Other intangible assets
| Customer contracts £m |
Greyhound brand and trade name £m |
Rail franchise agreements £m |
Software £m |
Total £m |
|
| Cost | |||||
| At 1 April 2014 | 362.2 | 58.1 | 36.1 | – | 456.4 |
| Acquisitions | 15.8 | – | – | – | 15.8 |
| Additions | 0.3 | – | – | – | 0.3 |
| Foreign exchange movements | 36.5 | 5.2 | – | – | 41.7 |
| At 31 March 2015 | 414.8 | 63.3 | 36.1 | – | 514.2 |
| Additions | – | – | – | 11.6 | 11.6 |
| Cessation of franchise | – | – | (30.6) | – | (30.6) |
| Foreign exchange movements | 19.0 | 2.7 | – | – | 21.7 |
| At 31 March 2016 | 433.8 | 66.0 | 5.5 | 11.6 | 516.9 |
| Amortisation | |||||
| At 1 April 2014 | 194.5 | 19.2 | 24.8 | – | 238.5 |
| Charge for year | 43.3 | 2.9 | 8.1 | – | 54.3 |
| Foreign exchange movements | 22.5 | 1.9 | – | – | 24.4 |
| At 31 March 2015 | 260.3 | 24.0 | 32.9 | – | 317.2 |
| Charge for year | 45.6 | 3.1 | 3.2 | – | 51.9 |
| Cessation of franchise | – | – | (30.6) | – | (30.6) |
| Foreign exchange movements | 15.0 | 1.2 | – | – | 16.2 |
| At 31 March 2016 | 320.9 | 28.3 | 5.5 | – | 354.7 |
| Carrying amount | |||||
| At 31 March 2016 | 112.9 | 37.7 | – | 11.6 | 162.2 |
| At 31 March 2015 | 154.5 | 39.3 | 3.2 | – | 197.0 |
10 Property, plant and equipment
| Land and buildings £m |
Passenger carrying vehicle fleet £m | Other plant and equipment £m | Total £m |
|
| Cost | ||||
| At 1 April 2014 | 451.9 | 2,656.3 | 825.4 | 3,933.6 |
| Additions in the year | 32.0 | 281.8 | 102.1 | 415.9 |
| Acquisitions | – | 7.8 | – | 7.8 |
| Disposals | (7.4) | (99.3) | (100.2) | (206.9) |
| Impairment | – | – | (8.7) | (8.7) |
| Reclassified as held for sale | – | (64.4) | – | (64.4) |
| Foreign exchange movements | 20.6 | 196.0 | 23.8 | 240.4 |
| At 31 March 2015 | 497.1 | 2,978.2 | 842.4 | 4,317.7 |
| Additions in the year | 16.7 | 285.3 | 98.4 | 400.4 |
| Disposals | (41.3) | (96.5) | (281.2) | (419.0) |
| Reclassified as held for sale | (1.8) | (100.4) | – | (102.2) |
| Foreign exchange movements | 12.3 | 117.3 | 14.6 | 144.2 |
| At 31 March 2016 | 483.0 | 3,183.9 | 674.2 | 4,341.1 |
| Accumulated depreciation and impairment | ||||
| At 1 April 2014 | 89.4 | 1,346.9 | 632.4 | 2,068.7 |
| Charge for year | 12.2 | 216.1 | 125.0 | 353.3 |
| Disposals | (1.1) | (88.0) | (98.6) | (187.7) |
| Reclassified as held for sale | – | (63.0) | – | (63.0) |
| Foreign exchange movements | 3.7 | 98.7 | 16.9 | 119.3 |
| At 31 March 2015 | 104.2 | 1,510.7 | 675.7 | 2,290.6 |
| Charge for year | 9.3 | 225.8 | 90.6 | 325.7 |
| Disposals | (33.7) | (87.2) | (274.9) | (395.8) |
| Reclassified as held for sale | (0.2) | (98.5) | – | (98.7) |
| Foreign exchange movements | 2.6 | 64.0 | 10.5 | 77.1 |
| At 31 March 2016 | 82.2 | 1,614.8 | 501.9 | 2,198.9 |
| Carrying amount | ||||
| At 31 March 2016 | 400.8 | 1,569.1 | 172.3 | 2,142.2 |
| At 31 March 2015 | 392.9 | 1,467.5 | 166.7 | 2,027.1 |
11 Inventories
| 2016 £m |
2015 £m |
|
| Spare parts and consumables | 61.4 | 69.8 |
| Property development work in progress | – | 0.1 |
| 61.4 | 69.9 |
12 Trade and other receivables
| Amounts due within one year | 2016 £m |
2015 £m |
| Trade receivables | 381.2 | 355.3 |
| Provision for doubtful receivables | (4.3) | (2.3) |
| Other receivables | 72.7 | 66.3 |
| Other prepayments | 88.2 | 126.1 |
| Accrued income | 156.6 | 171.2 |
| 694.4 | 716.6 |
13 Trade and other payables
| Amounts falling due within one year | 2016 £m |
2015 £m |
| Trade payables | 242.6 | 248.3 |
| Other payables | 239.6 | 225.9 |
| Accruals | 554.3 | 572.1 |
| Deferred income | 39.4 | 59.3 |
| Season ticket deferred income | 26.0 | 33.4 |
| 1,101.9 | 1,139.0 |
14 Financial liabilities – borrowings
| 2016 £m |
2015 £m |
|
| On demand or within 1 year | ||
| Finance leases (note 15) | 73.9 | 77.0 |
| Senior unsecured loan notes | 35.4 | – |
| Bond 8.125% (repayable 2018)1 | 12.9 | 12.9 |
| Bond 6.125% (repayable 2019)1 | 3.0 | 3.0 |
| Bond 8.75% (repayable 2021)1 | 30.2 | 30.1 |
| Bond 5.25% (repayable 2022)1 | 5.8 | 5.8 |
| Bond 6.875% (repayable 2024)1 | 7.2 | 7.2 |
| Total current liabilities | 168.4 | 136.0 |
| Within 1 – 2 years | ||
| Finance leases (note 15) | 58.3 | 69.4 |
| Loan notes (note 16) | 9.7 | 9.7 |
| Senior unsecured loan notes | 70.5 | 33.5 |
| 138.5 | 112.6 | |
| Within 2 – 5 years | ||
| Finance leases (note 15) | 106.1 | 140.3 |
| Bond 8.125% (repayable 2018) | 298.3 | 297.8 |
| Bond 6.125% (repayable 2019) | 279.0 | 286.3 |
| Senior unsecured loan notes | – | 67.1 |
| 683.4 | 791.5 | |
| Over 5 years | ||
| Finance leases (note 15) | – | 15.5 |
| Bond 8.75% (repayable 2021) | 370.1 | 366.6 |
| Bond 5.25% (repayable 2022) | 320.5 | 320.0 |
| Bond 6.875% (repayable 2024) | 199.6 | 199.5 |
| 890.2 | 901.6 | |
| Total non-current liabilities at amortised cost | 1,712.1 | 1,805.7 |
1 Relates to accrued interest.
15 HP contracts and finance leases
The Group had the following obligations under HP contracts and finance leases as at the balance sheet dates:
| 2016 Minimum payments £m |
2016 Present value of payments £m |
2015 Minimum payments £m |
2015 Present value of payments £m |
|
| Due in less than one year | 75.9 | 73.9 | 79.2 | 77.0 |
| Due in more than one year but not more than two years | 61.5 | 58.3 | 73.3 | 69.4 |
| Due in more than two years but not more than five years | 116.8 | 106.1 | 157.1 | 140.3 |
| Due in more than five years | – | – | 18.7 | 15.5 |
| 254.2 | 238.3 | 328.3 | 302.2 | |
| Less future financing charges | (15.9) | – | (26.1) | – |
| 238.3 | 238.3 | 302.2 | 302.2 |
16 Loan notes
The Group had the following loan notes issued as at the balance sheet dates:
| 2016 £m |
2015 £m |
|
| Due in more than one year but not more than two years | 9.7 | 9.7 |
17 Derivative financial instruments
| 2016 £m |
2015 £m |
|
| Total derivatives | ||
| Total non-current assets | 41.5 | 45.3 |
| Total current assets | 16.7 | 15.5 |
| Total assets | 58.2 | 60.8 |
| Total current liabilities | 68.1 | 74.5 |
| Total non-current liabilities | 35.5 | 22.6 |
| Total liabilities | 103.6 | 97.1 |
| Derivatives designated and effective as hedging instruments carried at fair value | ||
| Non-current assets | ||
| Coupon swaps (fair value hedge) | 41.3 | 45.3 |
| Fuel derivatives (cash flow hedge) | 0.2 | – |
| 41.5 | 45.3 | |
| Current assets | ||
| Coupon swaps (fair value hedge) | 16.4 | 15.5 |
| Fuel derivatives (cash flow hedge) | 0.3 | – |
| 16.7 | 15.5 | |
| Current liabilities | ||
| Fuel derivatives (cash flow hedge) | 66.9 | 66.9 |
| 66.9 | 66.9 | |
| Non-current liabilities | ||
| Fuel derivatives (cash flow hedge) | 35.5 | 21.4 |
| 35.5 | 21.4 | |
| Derivatives classified as held for trading | ||
| Current assets | ||
| Current liabilities | ||
| Interest rate swaps | 1.2 | 7.6 |
| Non-current liabilities | ||
| Interest rate swaps | – | 1.2 |
18 Deferred tax
The major deferred tax liabilities/(assets) recognised by the Group and movements thereon during the current and prior reporting periods are as follows:
| Accelerated tax depreciation £m | Retirement benefit schemes £m |
Other temporary differences £m | Tax losses £m |
Total £m |
|
| At 1 April 2014 | 136.4 | (72.2) | 115.8 | (178.8) | 1.2 |
| (Credit)/charge to income | 13.9 | 3.5 | (18.9) | 4.1 | 2.6 |
| Charge/(credit) to other comprehensive income | – | 6.7 | (26.6) | – | (19.9) |
| Charge direct to equity | – | – | 0.1 | – | 0.1 |
| Acquisition of business/subsidiary | – | – | (0.9) | – | (0.9) |
| Foreign exchange movements | 12.4 | (5.4) | 11.1 | (21.0) | (2.9) |
| At 31 March 2015 | 162.7 | (67.4) | 80.6 | (195.7) | (19.8) |
| (Credit)/charge to income | 4.7 | 8.1 | (10.7) | (6.1) | (4.0) |
| Credit to other comprehensive income | – | (16.1) | (0.6) | – | (16.7) |
| Foreign exchange and other movements | 6.8 | (2.9) | 1.4 | (10.5) | (5.2) |
| At 31 March 2016 | 174.2 | (78.3) | 70.7 | (212.3) | (45.7) |
Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances for financial reporting purposes:
| 2016 £m |
2015 £m |
|
| Deferred tax assets | (62.7) | (60.5) |
| Deferred tax liabilities | 17.0 | 40.7 |
| (45.7) | (19.8) |
19 Provisions
| 2016 £m |
2015 £m |
|
| Insurance claims | 219.9 | 205.5 |
| Legal and other | 39.6 | 28.1 |
| Pensions | 2.8 | 3.1 |
| Non-current liabilities | 262.3 | 236.7 |
| Insurance claims £m |
Legal and other £m |
Pensions £m |
Total £m |
|
| At 1 April 2015 | 316.2 | 49.4 | 3.1 | 368.7 |
| Charged to the income statement | 172.9 | 11.7 | – | 184.6 |
| Transfer from accruals | – | 8.3 | – | 8.3 |
| Utilised in the year | (153.6) | (30.6) | (0.3) | (184.5) |
| Notional interest | 14.7 | – | – | 14.7 |
| Foreign exchange movements | 13.6 | 5.2 | – | 18.8 |
| At 31 March 2016 | 363.8 | 44.0 | 2.8 | 410.6 |
| Current liabilities | 143.9 | 4.4 | – | 148.3 |
| Non-current liabilities | 219.9 | 39.6 | 2.8 | 262.3 |
| At 31 March 2016 | 363.8 | 44.0 | 2.8 | 410.6 |
| Current liabilities | 110.7 | 21.3 | – | 132.0 |
| Non-current liabilities | 205.5 | 28.1 | 3.1 | 236.7 |
| At 31 March 2015 | 316.2 | 49.4 | 3.1 | 368.7 |
The current liabilities above are included within accruals in note 13.
20 Called up share capital
| 2016 £m |
2015 £m |
|
| Allotted, called up and fully paid | ||
| 1,204.9m ordinary shares of 5p each | 60.2 | 60.2 |
The Company has one class of ordinary shares which carries no right to fixed income.
21 Net cash from operating activities
| 2016 £m |
2015 £m |
|
| Operating profit | 246.3 | 245.8 |
| Adjustments for: | ||
| Depreciation charges | 325.7 | 353.3 |
| Capital grant amortisation | (10.5) | (32.5) |
| Amortisation charges | 51.9 | 54.3 |
| Impairment charges | – | 8.7 |
| Share-based payments | 6.4 | 5.2 |
| Profit on disposal of property, plant and equipment | – | (27.9) |
| Operating cash flows before working capital and pensions | 619.8 | 606.9 |
| Decrease in inventories | 10.0 | 4.5 |
| Decrease/(increase) in receivables | 29.3 | (7.5) |
| Decrease in payables | (73.6) | (113.0) |
| Decrease in provisions | (18.6) | (27.2) |
| Defined benefit pension payments in excess of income statement charge | (33.6) | (12.3) |
| Cash generated by operations | 533.3 | 451.4 |
| Tax paid | (7.0) | (4.5) |
| Interest paid | (107.9) | (112.2) |
| Interest element of HP contracts and finance leases | (8.9) | (9.5) |
| Net cash from operating activities | 409.5 | 325.2 |
Responsibility Statement of the Directors on the Annual Report
The responsibility statement below has been prepared in connection with the Group’s full annual report for the year ending 31 March 2016. Certain parts thereof are not included within the announcement.
We confirm to the best of our knowledge:
-
the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole
-
the Management Report, which is incorporated into the Directors’ Report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
The Directors consider that the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide information necessary for the shareholders to assess the Company’s and the Group’s position and performance, business model and strategy.
This responsibility statement was approved by the Board of Directors and is signed on its behalf by:
Tim O’Toole Matthew Gregory
Chief Executive Chief Financial Officer
14 June 2016 14 June 2016
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