FirstGroup plc
2014/15 Pre-Close
Trading Update
FirstGroup plc (the
"Group") has issued the following update in respect of trading for the
financial year ended 31st March 2015 (the "year"), ahead of
preliminary results due to be announced on 10 June 2015.
Summary
Overall trading for the Group in
the fourth quarter was in line with management's expectations, and transformation plans continue to progress:
* First Student:
second year of contract pricing strategy achieving improved
terms to date;
fourth quarter trading modestly affected by adverse weather
in the North Eastern US
* First Transit:
solid fourth quarter completes another year of growth and
margin performance
* Greyhound:
actively managing cost base to mitigate contraction in passenger
demand from
cheaper fuel; yield management implementation on track
* UK Bus:
delivering volume growth and achieving positive yield, with
progress on cost
efficiencies
* UK Rail:
passenger demand continues to drive revenue and earnings
outperformance;
First Great Western and First TransPennine Express
franchise
agreements signed
Commenting, Chief Executive Tim O'Toole said:
"Overall trading for the year is in line with our
expectations and we continue to make progress with the multi-year
transformation plans, which will improve the Group's financial performance and
ensure we deliver sustainable value creation in the medium term.
"The pricing improvements we made in the 2014 bid
season together with further cost savings mean we expect to make solid margin
progress in First Student for the year, and we are also encouraged by the results
achieved at this stage in the 2015 bid season. In UK Bus we continue to deliver
passenger volume growth, positive yield and further cost efficiencies.
Greyhound has flexed mileage, timetables and pricing in response to the rapid
reduction in passenger demand from lower fuel prices and is on track with the
yield management programme, while our First Transit and UK Rail businesses have
maintained the good growth momentum and margins achieved throughout the year.
In recent weeks we were delighted to secure a contract to operate the Great
Western franchise for up to four and a half years, and will continue to work
closely with the Department for Transport and Network Rail to deliver the
£7.5bn Great Western Mainline modernisation programme. We have also signed an
agreement to run the TransPennine Express franchise through to 1st April 2016,
and look forward to submitting our bid for the new franchise later in the
spring.
"In early March we were pleased to announce that
Wolfhart Hauser will join the Board of FirstGroup in May, and will become
Chairman following our AGM in July.
Wolfhart has an exemplary track record of sustained value
creation and his experience and counsel will be invaluable as we drive forward
the transformation of the Group. I would also like to thank John McFarlane for
the important contribution he has made during his tenure and wish him every
success as Chairman of Barclays."
First Student
US Dollar revenue in First Student is expected to be 1.3%
higher for the year, principally benefitting from our successful pricing
strategy during the 2014 bid season and modest organic growth. As anticipated,
our overall bus portfolio at the end of the year is broadly similar to the
prior year. The 2015 bid season is the second year of our strategy to improve
contract returns, with approximately one third of our bus portfolio up for
renewal. We continue to focus on only winning or retaining contracts at prices
that deliver an appropriate return on capital employed, and are encouraged by
the results we are achieving at this stage of the bid season. In the year we
have taken action to deliver approximately $20m of our $50m per annum cost
savings target as
planned. The full benefits of our pricing strategy and cost
savings will be partially offset this year by the adverse weather conditions in
the North Eastern US in the fourth quarter, but despite this headwind we expect
to deliver margins of approximately 7.5% for the year, and are confident of delivering
our double digit margin target in the medium term.
First Transit
As previously indicated, First Transit has achieved organic
growth on existing contracts in the second half that was towards the top of our
planning range. As a result US Dollar revenue growth for the year is expected
to be 5.5%. We continue to expect margins of around 7% for the year and into
the medium term in this low capital intensity business.
Greyhound
In the fourth quarter, Greyhound's like-for-like US Dollar
revenues are expected to decrease by 5.5%, reflecting the adverse effect on
customer demand from sharply lower fuel prices, which improves the
affordability of other forms of transport for some trips compared with
Greyhound. As a result US dollar revenue for the year is expected to be flat.
Greyhound is actively managing mileage, timetables and pricing in response to
changed market conditions. Given recent levels of activity we expect margins
for the year will be modestly below the prior year level. Greyhound Express revenues
have been more resilient, with like-for-like US dollar revenues expected to
increase by 3.0% for the year. Our project to roll out real-time pricing and
yield management capabilities across our nationwide network continues to
progress as planned and we remain confident of achieving our 12% margin target,
recognising that long term oil price trends may impact the timing.
UK
Bus
.jpg)
Our UK Bus transformation programme continues to deliver
like-for-like passenger volume growth, expected to increase by 1.1% for the
year, despite the mixed economic conditions across the division. Our plans are
particularly focused on driving commercial passenger volume growth, which is
expected to increase by 2.6% on a like-for-like basis for the year. Now that
many parts of our business have reached the anniversary of our fare rebasing
actions, revenue growth is also expected to benefit from positive yield from
periodic price increases in line with the market. As a result, overall
like-for-like revenue growth is expected to be 2.3% for the year. This growth,
coupled with our cost efficiency programmes, is expected to result in margin
progress of approximately 1% for the year, as we continue to work toward our
medium term
target of double digit margins.
We believe that our strategy, which is based on delivering a
competitive customer proposition coupled with improved operating discipline and
strong partnerships with local authorities, is the most responsive, efficient
and cost-effective way to deliver the outcomes that bus passengers and
taxpayers want. Our confidence is reinforced by the validation of our efforts
to improve our customer proposition as measured in the recent Passenger Focus
survey of bus users across the UK - particularly on value for money, where our
score has improved by 17% over two years and is now above the national average.
UK
Rail
.jpg)
Strong demand continues to drive passenger volume and
revenue growth in our rail business, with like-for-like passenger revenue
expected to increase by 6.6% for the year, at the top end of our expectations.
We recently signed an agreement with the Department for Transport ('DfT') to
run the First Great Western franchise to at least 1st April 2019. The franchise
will see new or refurbished trains on every part of the network, resulting in
more frequent and faster journeys and an increase in the number of seats over
the period to the end of the decade. We also recently signed an agreement with
the DfT to run First TransPennine Express for an additional year to the start
of the next competitive franchise, expected on 1 April 2016. We continue to
progress our bid proposal for that competition, which will be submitted towards
the end of May. We have been, and will continue to be, disciplined in our
approach to bidding for UK
rail franchises which aims to balance appropriate returns at an acceptable level of risk.
Financial position
We expect a total cash outflow for the current financial
year of up to £100m, which is principally due to the cash outflow of
approximately £70m associated with the end of the First Capital Connect
franchise in September 2014. As previously indicated, we expect net cash flow
for our next financial year to be broadly flat excluding an outflow of
approximately £60m associated with the end of the ScotRail franchise. As our
plans continue to drive improvements in our returns, we expect the sustainable
cash generation of the Group to increase over the medium term, which in turn
will allow us to continue to strengthen the Group's financial position. We are
part way through a multi-year programme of investing at an increased rate in
our businesses to support the turnaround in financial performance, and over
time we expect our financing costs to continue to reduce, as cash generation
increases and our relatively high coupon bonds mature.
