Announcement re: Rights Issue

FIRSTGROUP PLC - Announcement re: Rights Issue

PR Newswire

London, May 20

NOT FOR PUBLICATION, DISTRIBUTION OR RELEASE, DIRECTLY OR INDIRECTLY, IN ORINTO THE UNITED STATES, CANADA, JAPAN OR ANY OTHER JURISDICTION IN WHICH THEPUBLICATION, DISTRIBUTION OR RELEASE WOULD BE UNLAWFUL. OTHER RESTRICTIONS AREAPPLICABLE. PLEASE SEE THE IMPORTANT NOTICE AT THE END OF THE PRESS RELEASE.

The Board of FirstGroup plc ("FirstGroup" or "the Group") today announces afully underwritten Rights Issue to raise gross proceeds of approximately £615m.FirstGroup's full year results for the financial year ended 31 March 2013 havealso been released today in an accompanying announcement.

Summary

Martin Gilbert, Chairman of FirstGroup, said:

"I am pleased to announce the fund-raising today, which will not onlystrengthen the Group and support its continued growth but also underpin theability to remain a dividend paying stock as well as supporting our investmentgrade rating. When this project is complete, I intend to step down as Chairmanonce a successor has been identified. I have led the business for 27 years,from start-up to its current position as one of the world's great transportgroups, and I am extremely proud of what we have achieved at FirstGroup in thattime. I shall be sorry to leave, but I'm pleased that this fund-raising willopen the way to the next stage of FirstGroup's development."

Tim O'Toole, Chief Executive Officer of FirstGroup, said:

"FirstGroup is already a market leader in a sector that is critical to economicgrowth, with unrivalled scale and breadth across a diverse portfolio oftransport businesses, principally in the UK and North America. Our investmentplans are beginning to strengthen these businesses and enhance our ability tocapture the sustainable returns that our platform of assets is capable ofachieving. The proceeds of the equity raising will give us the flexibility andcapital confidence to focus on the work that needs to be done to createlong-term value for our shareholders and our other stakeholders.

"Martin Gilbert has today announced his intention to stand down as Chairman,once a successor has been appointed. On behalf of the Board and our 120,000employees, I would like to pay tribute to Martin and thank him for hisoutstanding contribution to the company. As Chairman and founder his vision anddrive have led the transformation of the Group and under his stewardship thebusiness has grown to become one of the world's leading transport operators."

It is expected that a prospectus will be published on 22 May 2013 containingfull details of the Rights Issue (the "Prospectus"). Once published, theProspectus will be made available on the Company's website(www.FirstGroup.com), and will be made available for inspection at itsregistered office: 395 King Street, Aberdeen, AB24 5RP, and will be submittedto the National Storage Mechanism and be available for inspection atwww.morningstar.co.uk/uk/nsm.

A PRESENTATION TO INVESTORS AND ANALYSTS WILL TAKE PLACE AT 9:00AM TODAY

PHOTOS FOR THE MEDIA CAN BE OBTAINED BY CALLING +44 (0) 20 7725 3354

CONTACTS

FirstGroup plc

Tim O'Toole, Chief Executive +44 (0) 20 7725 3354

Chris Surch, Group Finance Director

Rachael Borthwick, Group Corporate Communications Director

Goldman Sachs International

Joint Sponsor, Joint Global Coordinator, Joint Bookrunner, Joint CorporateBroker

Anthony Gutman +44 (0) 20 7774 1000

Joint Sponsor, Joint Global Coordinator, Joint Bookrunner, Joint CorporateBroker

Malcolm Moir +44 (0) 20 7742 4000

Rupert Hume-Kendall +44 (0) 20 7628 1000

Oliver Holbourn

Daniel Burton-Morgan

IMPORTANT NOTICE

The defined terms set out in the Appendix apply in this announcement.

This announcement has been issued by and is the sole responsibility ofFirstGroup plc (the "Company"). A copy of the Prospectus when published will beavailable from the registered office of the Company and on the Company'swebsite at www.FirstGroup.com provided that the Prospectus will not, subject tocertain exceptions, be available (whether through the website or otherwise) toShareholders in the Excluded Territories. Neither the content of the Company'swebsite nor any website accessible by hyperlinks on the Company's website isincorporated in, or forms part of, this announcement. The Prospectus will givefurther details of the New Ordinary Shares, the Nil Paid Rights and the FullyPaid Rights being offered pursuant to the Rights Issue.

This announcement is not a Prospectus but an advertisement and investors shouldnot acquire any Nil Paid Rights, Fully Paid Rights or New Ordinary Sharesreferred to in this announcement except on the basis of the informationcontained in the Prospectus. The information contained in this announcement isfor background purposes only and does not purport to be full or complete. Noreliance may be placed for any purpose on the information contained in thisannouncement or its accuracy or completeness. The information in thisannouncement is subject to change.

Goldman Sachs International, HSBC Bank plc, J.P. Morgan Securities plc andMerrill Lynch International (the "Managers" are acting for the Company and forno-one else in connection with the Rights Issue and will not be responsible toanyone (whether or not a recipient of this announcement) other than the Companyfor providing the protections afforded to their respective clients nor forproviding advice in connection with the Rights Issue or any other matterreferred to herein.

Apart from the responsibilities and liabilities, if any, which may be imposedon Goldman Sachs International and J.P. Morgan Securities plc by FSMA or theregulatory regime established thereunder, none of the Managers accepts anyresponsibility or liability whatsoever or makes any representation or warranty,express or implied, for or in respect of the contents of this announcement,including its accuracy, completeness or verification (or whether anyinformation has been omitted from the announcement) or for any otherinformation or statement made or given or purported to be made by any of them,or on behalf of them, in connection with the Company, the Nil Paid Rights, theFully Paid Rights, the New Ordinary Shares or the Rights Issue, whetherwritten, oral or in a visual or electronic form, and howsoever transmitted ormade available or for any loss howsoever arising from any use of thisannouncement or its contents or otherwise arising in connection therewith, andnothing in this announcement is, or shall be relied upon as, a promise orrepresentation in this respect, whether as to the past or future. Each of theManagers accordingly disclaims all and any liability whatsoever, whetherarising in tort, contract or otherwise (save as referred to above), which anyof them might otherwise have in respect of this announcement.

This announcement is for information purposes only and is not intended to anddoes not constitute or form part of any offer or invitation to purchase orsubscribe for, or any solicitation to purchase or subscribe for, Nil PaidRights, Fully Paid Rights or New Ordinary Shares or to take up any entitlementsto Nil Paid Rights in any jurisdiction in which such an offer or solicitationis unlawful. This announcement cannot be relied upon for any investmentcontract or decision.

The information contained in this announcement is not for release, publicationor distribution to persons in the United States, Australia, Canada or Japan andshould not be distributed, forwarded to or transmitted in or into anyjurisdiction where to do so might constitute a violation of local securitieslaws or regulations.

This announcement does not constitute or form part of an offer or solicitationto purchase or subscribe for securities of the Company in the United States,Australia, Canada or Japan. None of the Nil Paid Rights, the Fully Paid Rightsor the New Ordinary Shares have been or will be registered under the USSecurities Act of 1933 (the "Securities Act") or under the applicablesecurities laws of any state or other jurisdiction of the United States or thesecurities legislation of any province or territory of Australia, Canada orJapan. Accordingly, the Nil Paid Rights, the Fully Paid Rights or the NewOrdinary Shares may not be offered, sold, resold, delivered or distributed,directly or indirectly, in or into the United States absent registration, or anexemption from, or in a transaction not subject to, the registrationrequirements of the Securities Act and in compliance with state securitieslaws, or in or into Australia, Canada or Japan except in accordance withapplicable law. There will be no public offer of Nil Paid Rights, Fully PaidRights or New Ordinary Shares in the United States, Canada or Japan.

The New Ordinary Shares will be issued without disclosure in Australia underChapter 6D of the Corporations Act 2001 (Cth) (Corporations Act). The offer ofthese New Ordinary Shares for resale in Australia within 12 months of theiracquisition may, under section 707 of the Corporations Act, require disclosureto investors. Accordingly the New Ordinary Shares should not, within 12 monthsof their acquisition, be offered, transferred, assigned or otherwise alienatedto investors in Australia except in circumstances where disclosure to investorsis not required. New Ordinary Shares transferred on-market on the London StockExchange are not subject to the Australian disclosure regime.

The distribution of this announcement and/or the Prospectus and/or theProvisional Allotment Letter and/or the transfer of Nil Paid Rights, Fully PaidRights and/or New Ordinary Shares into jurisdictions other than the UnitedKingdom may be restricted by law, and, therefore, persons into whose possessionthis announcement and/or the Prospectus and/or the Provisional Allotment Lettercomes should inform themselves about and observe any such restrictions. Anyfailure to comply with any such restrictions may constitute a violation of thesecurities laws of such jurisdiction. In particular, subject to certainexceptions, the Prospectus and the Provisional Allotment Letter should not bedistributed, forwarded to or transmitted in or into the United States, Canadaor Japan.

This announcement does not constitute a recommendation concerning the RightsIssue. The price and value of securities can go down as well as up. Pastperformance is not a guide to future performance. The contents of thisannouncement are not to be construed as legal, business, financial or taxadvice. Each Shareholder or prospective investor should consult his, her or itsown legal adviser, business adviser, financial adviser or tax adviser forlegal, financial, business or tax advice.

This announcement contains or incorporates by reference "forward-lookingstatements". These forward-looking statements may be identified by the use offorward-looking terminology, including the terms "believes", "estimates","anticipates", "projects", "expects", "intends", "aims", "plans", "predicts","may", "will", "seeks", "could", "would", "shall" or "should" or, in each case,their negative or other variations or comparable terminology, or by discussionsof strategy, plans, objectives, goals, future events or intentions. Theseforward-looking statements include all matters that are not historical factsand include statements regarding the intentions, beliefs or currentexpectations of the Board concerning, among other things, the Company's resultsof operations, financial condition, prospects, growth, strategies and theindustries in which the Group operates.

By their nature, forward-looking statements involve risks and uncertaintiesbecause they relate to events and depend on circumstances that may or may notoccur in the future or are beyond the Group's control. Forward-lookingstatements are not guarantees of future performance and are based on one ormore assumptions. The Group's actual results of operations and financialcondition and the development of the industries in which the Group operates maydiffer materially from those suggested by the forward-looking statementscontained in this announcement. In addition, even if the Company's actualresults of operations, financial condition and the development of theindustries in which the Group operates are consistent with the forward-lookingstatements contained in this announcement, those results or developments maynot be indicative of results or developments in subsequent periods.

The following are important factors that could cause the Group's actual resultsto differ materially from those projected in the forward-looking statementsmade in this announcement:

The list above is not exhaustive and there are other factors that may cause theGroup's actual results to differ materially from the forward-looking statementscontained in this announcement.

The forward-looking statements contained in this announcement speak only as ofthe date of this announcement. The Company and the Directors expressly disclaimany obligations or undertaking to update or revise publicly any forward-lookingstatements, whether as a result of new information, future events or otherwise,unless required to do so by applicable law, the Prospectus Rules, the ListingRules, the London Stock Exchange Rules or the Disclosure and TransparencyRules.

In connection with the Rights Issue, the Managers and any of their respectiveaffiliates, acting as investors for their own accounts, may subscribe for orpurchase Nil Paid Rights, Fully Paid Rights or New Ordinary Shares and in thatcapacity may retain, purchase, sell, offer to sell or otherwise deal for theirown accounts in such Nil Paid Rights, Fully Paid Rights or New Ordinary Sharesand other securities of the Company or related investments in connection withthe Rights Issue or otherwise. Accordingly, references in the Prospectus, oncepublished, to the Nil Paid Rights, Fully Paid Rights or New Ordinary Sharesbeing issued, offered, subscribed, acquired, placed or otherwise dealt inshould be read as including any issue or offer to, or subscription,acquisition, placing or dealing by, the Managers and any of their respectiveaffiliates acting as investors for their own accounts. The Managers do notintend to disclose the extent of any such investment or transactions otherwisethan in accordance with any legal or regulatory obligations to do so.

Each of the Company and the Managers and their respective affiliates expresslydisclaims any obligation or undertaking to update, review or revise any forwardlooking statement contained in this announcement whether as a result of newinformation, future developments or otherwise.

20 May 2013

3 FOR 2 RIGHTS ISSUE OF UP TO 722,859,586 NEW SHARES AT 85 PENCE

Introduction

The Company is proposing to raise gross proceeds of approximately £615 million(approximately £585 million net of expenses) by way of a 3 for 2 Rights Issueof New Ordinary Shares at a price of 85 pence per New Ordinary Share.

The Rights Issue Price of 85 pence per New Ordinary Share represents a discountof approximately 62.0 per cent. to the Closing Price for an Existing OrdinaryShare of 223.8 pence on 17 May 2013 (being the latest practicable date prior tothe publication of this announcement) and a 39.5 per cent. discount to thetheoretical ex-rights price based on that Closing Price.

Following a comprehensive review of the options available to the Company, theBoard believes that raising £615 million (gross) through the Rights Issue willenable the Group to continue investing at the appropriate level to deliverfuture returns from the Group's strategy, while reducing leverage to moresustainable levels. The proceeds of the Rights Issue will be used to remove theconstraints of the Group's current balance sheet and provide a sustainablecapital structure going forward, reinforce the Group's objective to remaininvestment grade, increase flexibility to continue the business transformationplans already underway in the Group's divisions, and underpin the Group'sinvestment plans to create long term value for its Shareholders and otherstakeholders.

Background to and reasons for the Rights Issue

Background on FirstGroup

FirstGroup is the parent company of an international surface-based passengertransport group. The Group operates principally in the UK and North America,together with some minor activities in other European countries, includingDenmark. The Group has grown significantly over the past two decades, from alocal bus service provider in Aberdeen, to become the largest surface-basedpassenger transport group in the UK and North America (based on revenue), with£6,900.9 million in gross revenue in the year to 31 March 2013. The Groupcurrently operates through the following five divisions, which are diversifiedby geography, customer base and mix of contract-backed and passenger revenue:

Across its business, on average during FY 2013, the Group employedapproximately 120,000 employees and managed a fleet of approximately 60,000vehicles. During FY 2013, the Group transported more than 2.5 billionpassengers.

The Board believes that FirstGroup is well positioned in a sector that is a keyenabler of economic growth, and essential to strong, vibrant and sustainablelocal economies. The Board believes that the Group is increasingly wellpositioned to respond to two important developments that continue to drivetransport provision in its markets: growing urbanisation leading to increasedcongestion with more complex transport demands, and the growing demand forprivate sector operators with global expertise to deliver more efficient andinnovative passenger transport solutions. The Board believes that the servicesand solutions offered by the Group can form an integral part of the response oflocal communities to these developments. By harnessing knowledge, experienceand expertise from across the full breadth of the Group to deliver servicesmanaged at a local level in partnership with its customers and stakeholders,the Board believes that it can deliver sustainable competitive advantage in itsmarkets.

Key strengths

The Board believes that FirstGroup's business has a number of key strengthswhich will assist FirstGroup in its objective to create long term value forShareholders and other stakeholders. These include:

FirstGroup's capital structure

FirstGroup entered the global economic downturn following a period of expansionthrough a number of key acquisitions and significant capital expenditures inits markets. In particular, the Group was less than a year into the integrationof the Laidlaw acquisition, FirstGroup's largest-ever acquisition (totalconsideration of approximately US$3.5 billion), when the global credit crisisbegan in earnest in September 2008 after investment bank Lehman BrothersHoldings filed for bankruptcy protection. Laidlaw was the largest provider ofstudent transportation in the US, the only national provider of scheduledinter-city bus services in North America (through the Greyhound brand) and amajor supplier of public transit contracting services in North America at thetime. A substantial proportion of the Laidlaw acquisition was debt-financed(resulting in an increase in the Group's level of net debt from approximately £650 million in September 2007 to approximately £2,161 million at 31 March2008), which the Board considered appropriate given its expectation thatfollowing the transaction the strong cash flow from the Group's operationswould enable FirstGroup to reduce its level of indebtedness over time. However,the subsequent and sustained deterioration of global economic conditions andgovernment spending cuts, coupled with the more recent uncertainty around UKrail franchising, has put pressure on the Group's earnings (particularly inFirst Student and UK Bus, the Group's two core cash-generating businesses) andconsequently negatively impacted its ability to reduce its level ofindebtedness to the extent and within the timeframe expected at the time of theLaidlaw acquisition. The Group's level of net debt has been reduced fromapproximately £2,161 million at 31 March 2008 to £1,979 million at 31 March2013, but it remains above a level which the Board considers to be appropriatein light of its strategy going forward.

Trading environment and impact of adverse economic conditions

The passenger transportation industry has been impacted by the global economicdownturn and the Group has had to operate against a backdrop of continuedeconomic uncertainty and weaker economic conditions in its markets,particularly the US and UK. The conditions have led to higher unemploymentlevels, increased business operating costs, reduced consumer confidence anddecreases in disposable incomes in the countries and markets in whichFirstGroup operates, all of which have generally led to a reduction in travelby both leisure and business travellers which has had an impact across theGroup. In the US, the effects of this reduction in travel in the early stagesof the downturn can be seen in Greyhound's results, where revenue fell by 22per cent. from the first half of the financial year ending 31 March 2008 to thefirst half of the financial year ending 31 March 2009. In the UK, the impact ofthe recession has been felt particularly severely in the large urbanconurbations of the North (where a large number of UK Bus' operations arebased), negatively affecting the profits generated by that division.

Economic conditions have also led national and local governments to adopt costcutting measures, including reduced spending on public passenger transit. Inparticular, UK Bus has been affected by a reduction in grants to localauthorities from the UK government which has impacted public transport spend(including for concessionary fares), as well as by reforms to the Bus ServiceOperators Grant system (which have lowered the grants made directly to busoperators, to defray some of their fuel costs, by 20 per cent. per annum sinceApril 2012). In the US, the economic downturn has heavily affected thefinancial position of school boards, which are principally funded through localand state taxes. In consequence, school boards have been under pressure toreduce their budgets, including by reducing their spending on bus services androutes, which has affected First Student's performance.

The continued economic uncertainty that has persisted since 2008 has also madeit more difficult to offset increases in operating costs through changes infares or other charges. Interest rates have also been kept at lower levels fora longer period than expected in the UK, adversely affecting pension deficitcalculations.

In summary, these conditions have resulted in reduced earnings (with theGroup's underlying EBITDA decreasing from £762 million in the financial yearending 31 March 2009 to £667 million in FY 2013) and reduced cash generation bythe Group. As mentioned above, First Student and UK Bus were most affected byadverse economic conditions (with underlying EBITDA in these divisionsdecreasing by 21 per cent. and 22 per cent. respectively from the financialyear ended 31 March 2009 to FY 2013). The Board expected that rail franchisewins would provide the time for First Student and UK Bus to recover and deliverimproved returns. However, as described below, these did not materialise due todisruptions and delays in the Government's rail franchising programme, whichhas put further pressure on the Group's profits.

Disruption to UK rail franchising programme

The Group's UK Rail business has also been affected by the decision in October2012 by the DfT to cancel the competition for the InterCity West Coastfranchise, which FirstGroup had been awarded only two months earlier, andsuspension of the other three franchise competitions (Great Western, TSGN andEssex Thameside) for which FirstGroup was shortlisted, due to the discovery offlaws in the way the DfT conducted the bidding process for InterCity WestCoast. While the DfT publicly emphasised that FirstGroup was in no way atfault, the decision to cancel the InterCity West Coast contract award has ledto lower anticipated revenue in UK Rail in the short term and a period ofconsiderable uncertainty around future rail franchising more generally.

On 26 March 2013, following an independent review of the rail franchisingprogramme, the DfT announced a new timetable for all rail franchise awards forwhich the DfT is the responsible franchising authority over the next eightyears, exercised its option to extend the Group's First Capital Connectfranchise for a further six months to March 2014 and noted that negotiationswere underway with FirstGroup to extend the First Capital Connect franchise toSeptember 2014, the TransPennine franchise to February 2016 and the First GreatWestern franchise to July 2016.

Although the timetable for future rail franchise awards is now clearer, thereremains considerable uncertainty as to the tender processes for future railfranchises and the detailed commercial terms of both future franchises and theproposed extensions to existing franchises.

Management actions undertaken

Against this challenging backdrop, FirstGroup's management has taken andcontinues to take decisive action, leveraging its international expertise toseek to create a stronger business and continuing to invest to drive growth ata local level, while seeking to tightly manage the level of working capital(including through extended payment terms in UK Bus and First Student) andcontrol capital expenditure in the financial years ending 31 March 2010 and 31March 2011, and focusing on improving operating performance in all the Group'sbusinesses. The Group has also carried out selected business and assetdisposals to reduce indebtedness, raising proceeds of approximately £269million since 2009 from the disposals of GB Railfreight, First SupportServices, Inc., German bus operations and selected UK regional bus operationsand, more recently, has agreed, subject to regulatory approvals, to dispose ofsubstantially all of UK Bus' regulated London bus businesses. The Group hasalso completed certain cost-reduction programmes. For example, it has achievedapproximately US$150 million per annum of cost synergies following itsacquisition of Laidlaw (completed in 2008) and £220 million per annum in costsavings from a Group-wide cost reduction programme (completed in 2010), and itis currently on track to deliver US$100 million per annum in savings from theFirst Student recovery programme (in each case excluding the one-off costsrequired to achieve them).

While the Group has plans to enhance value creation across the Group, thespecific actions underway or to be implemented within each of the fivedivisions are at different stages of progression, with First Transit and UKRail well advanced, followed by Greyhound, then by First Student, and UK Bus.These actions have included:

Although the operating environment has been challenging, the management actionsoutlined above have assisted the Group in reducing its net debt to underlyingEBITDA ratio from 3.3 times at 31 March 2009 to 3.0 times at 31 March 2013.

Credit rating

The Board maintains a close review of FirstGroup's rating position and aregular dialogue with the credit rating agencies. The Group's senior bondscurrently continue to be considered "investment grade" by credit ratingagencies Standard & Poor's (BBB-/A-3) and Fitch (BBB-/F-3), although in August2012, Standard & Poor's changed its outlook from "stable" to "negative".

The rating agencies' views include an assessment of the Group's cash andearnings trajectory. One of Standard & Poor's key credit metrics whenevaluating transport groups such as FirstGroup is the ratio of adjusted fundsfrom operations to adjusted net debt ("FFO-to-Debt"), for which it sets atarget of, or a trajectory toward, 25 per cent. or above for investment gradestatus. Since the last formal reviews by the credit rating agencies in 2012, anumber of factors have changed, including a more pessimistic view now taken byStandard & Poor's in respect of the pace of economic recovery compared withlast year, and the delay to the Government's rail franchising programme, whichhas pushed back FirstGroup's expected earnings and cash flow, and changed theforecast trajectory of the Group's performance on key credit metrics, includingFFO-to-Debt. Based on the methodology for treating UK rail businesses asamended in October 2012, the Group's FFO-to-Debt ratio has been below 25 percent. for a sustained period of time, and is estimated to be approximately 16per cent. as at 31 March 2013. Following recent dialogue with the ratingsagencies it has become clear that the Group's senior bonds will be downgradedto sub-investment grade if no action is taken to improve the Group's creditprofile.

The Group continues to enjoy substantial liquidity (£1,215.5 million as at 31March 2013), there remains sufficient covenant headroom under its financingfacilities (£126 million EBITDA headroom as at 31 March 2013) and its currentleverage is at 3.0 times underlying EBITDA at 31 March 2013. However, as theBoard has previously stated, maintaining the Group's investment grade rating isimportant for FirstGroup's ability to create long-term value for Shareholdersin a number of ways and, given the Group's largely long-term businessportfolio, the Board believes that access to long-term debt markets, which isfacilitated by its investment grade status, reduces the Group's overall cost ofdebt financing.

If, and for as long as, the Group's credit rating were to fall below investmentgrade, an interest step-up would be triggered under the majority of the Group'sexisting senior bonds (being the 2018 Bonds, the 2021 Bonds, the 2022 Bonds andthe 2024 Bonds), leading to an annualised incremental cost in interest paymentsof £14.7 million per year to 2018 (when the 2018 Bond matures). ShouldFirstGroup want to raise funds in the debt capital markets, it would have to doso in the more expensive high yield market. In addition, although there wouldbe no immediate incremental interest cost on its current term and revolvingcredit facilities, any refinancing or new bank debt (expected to be required inthe ordinary course of business before December 2015) would likely be obtainedonly at more expensive pricing and on terms which would impose greateroperational restrictions on the Group. As a result, the Group's ratio of bankdebt to bonds would likely be lowered, making it more dependent on the bondmarket. There would also potentially be additional operational costs, includingin connection with the Group's bus and other vehicle leases, operating leases,finance leases, existing and future rail bonds and the requirement to postgreater collateral for insurance and other contingent liabilities. The Boardbelieves that the overall additional finance cost to the Group of its seniorbonds being re-rated as sub-investment grade would be around £50 million perannum by the year ending 31 March 2016 (for reference, Group net finance costswere £168 million in FY 2013). In addition, if the credit rating of the Group'ssenior bonds were to fall below investment grade, the trustees of the Grouppension schemes might require additional contributions to fund the deficits insuch schemes and could accelerate the repayment programme already in place, andthere could be an unquantifiable but detrimental impact on the Group'sperceived qualities as a counterparty across all its contracting businesses,particularly when bidding for contract or franchise renewals or winning newbusiness. Given the impact of seasonality on some of the Group's businesses,the result of all of the foregoing would be a meaningful reduction in headroom,particularly at the end of the first half of each financial year, in theabsence of any reduction in discretionary cash outlays.

As a result, part of the resources which the Board would otherwise allocate forinvestment in the Group's businesses to deliver its value creation strategywould, as part of prudent risk management, be applied to re-build covenantheadroom, thereby delaying the Group's generation of future returns and valuefor Shareholders.

Other measures considered

The Board has resolved to effect the Rights Issue after careful considerationof other possible options to improve its credit metrics, including:

Accordingly, after careful consideration of the above options, and followingfeedback from certain of the Group's major Shareholders, the Board concludedthat the Rights Issue is the most appropriate strategy to seek to remove therisk of a credit rating downgrade, and enable the continued investments tosupport growth and returns for Shareholders.

Further investment in the Group's businesses

Over the next four years, the Board intends to invest approximately £1.6billion in its divisions to continue funding the operational transformationplans already underway, which will be financed from the Group's existing cashresources, future cash generated from operations, and a portion of the proceedsof the Rights Issue (as set out below). The key priorities for delivering itsbusiness plan and generating Shareholder value over the medium term are asfollows:

In aggregate, the Board believes these investment plans will allow the Group totarget the following objectives over the next four years:

Summary

The Board believes that FirstGroup remains a strong, profitable and wellinvested business with market leading positions, which has managed to deliveroperational performance against a backdrop of difficult market conditions thathave been felt for longer than was generally anticipated. As discussed above,the Board has already taken a series of actions to address the effects of theeconomic downturn, and these actions have contributed to the Group's ability tocontinue to deliver a relatively resilient performance.

Going forward, the Board believes that the strengths of the existing platformof businesses, together with the above investments in the Group, will enableFirstGroup to generate attractive returns for Shareholders in the medium term,whilst continuing to deliver on its promises to its customers and otherstakeholders. Nevertheless, the economic outlook remains challenging, and this,coupled with other factors such as the disruption of the UK rail franchisingprogramme, continues to put pressure on the Group's profits, cash flowgeneration, balance sheet position and investment grade profile in the nearterm. As described above, the Board has considered a broad range ofalternatives to generate further capital and has concluded that these would notbe in the best interests of Shareholders.

In line with FirstGroup's stated strategy to create long term value forShareholders and other stakeholders, the Board therefore believes thatFirstGroup needs to raise additional capital through the Rights Issue in orderto remove the constraints of the Group's current balance sheet and provide asustainable capital structure going forward, increase flexibility to continuethe business transformation plans already underway in the Group's divisions,and underpin the Group's investment plans to create long term value, while atthe same time seeking to maintain its investment grade credit rating and avoidthe additional interest and other expected financing costs of becomingsub-investment grade.

Accordingly, the Board believes the Rights Issue to be in the best interests ofthe Group and of Shareholders as a whole.

Use of proceeds

The proceeds of the Rights Issue will be used to reduce the Group's netindebtedness by paying down borrowings under the Group's bank facilities andfor continued investment in the Group's business as described above. Of the netproceeds from the Rights Issue of approximately £585 million:

Financial impact of the Rights Issue

Had the Rights Issue taken place as at the last balance sheet date, being 31March 2013, the effect on the balance sheet would have been an increase in cashand cash equivalents and an increase in share capital. The Group's net debt tounderlying EBITDA ratio as at 31 March 2013 would reduce from 3.0x as reported,to 2.1x on a pro forma basis, following the Rights Issue. The foregoing doesnot reflect the impact of the use of the proceeds of the Rights Issue.

Current Trading and Prospects

In the announcement of FirstGroup's preliminary results for FY2013, releasedtoday, the Company stated the following:

"With a fundamentally attractive portfolio of businesses and leading positionsin each of our markets, we are focused on delivering outstanding services toour customers and communities, and harnessing the significant opportunities wehave to create long term sustainable value. We have delivered a resilienttrading performance in line with our expectations and have also achieved mostof the other goals we had set ourselves during the year, including our £100m UKBus disposal programme and divesting other non-core assets including FirstSupport Services.

"The real long term opportunity for us, however, arises from our businessrecovery programmes, particularly in First Student and UK Bus. We have clearplans in place for all of our divisions and, while there remains significantwork to be done, our confidence continues to grow as a result of the progressto date.

"The proposed c.£615 million capital raising transaction will remove theconstraints from our balance sheet and enhance our ability to invest in ourbusinesses going forward. We plan to invest around £1.6 billion across our fivedivisions over the next four years to underpin growth and return our businessesto our target levels of profitability. Through these actions, combined with ourscale and expertise, we are positioning the business for improved growthreturning it to a profile of consistent returns and cash generation."

Dividends

The Board recognises that dividends are seen as an important component ofequity returns by many of the Shareholders. In the medium term, as the businessperformance improves, the Board intends to re-establish a progressive andsustainable dividend policy to target dividend cover of 2.0-2.5 times.

In the short term, the Board intends that:

The following table sets out the dividend for Ordinary Shares paid in respectof each of FY 2011, FY 2012 and FY 2013:

Summary of the principal terms of the Rights Issue

Subject to, among other things, the Resolution being passed and the conditionsdescribed in Terms of the Rights Issue in the Prospectus, the Directors proposeto offer the New Ordinary Shares by way of rights to all QualifyingShareholders (other than, subject to certain exceptions, QualifyingShareholders with a registered address in the Excluded Territories) on thefollowing basis:

3 New Ordinary Shares at 85 pence each for every 2 Ordinary Shares

held and registered in their name at the close of business on the Record Date.The Issue Price of 85 pence per New Ordinary Share represents a 62.0 per cent.discount to the Closing Price of an Existing Ordinary Share of 223.8 pence on17 May 2013 (being the latest practicable date prior to the publication of thisannouncement) and a 39.5 per cent. discount to the theoretical ex-rights pricebased on that Closing Price. If a Qualifying Shareholder does not take up theoffer of New Ordinary Shares, his/her proportionate shareholding will bediluted by up to approximately 60 per cent.. The New Ordinary Shares will rankfor all dividends declared, made or paid after the date of allotment and issueof the New Ordinary Shares and otherwise pari passu with the Existing OrdinaryShares.

Holdings of Ordinary Shares in certificated and uncertificated form will betreated as separate holdings for the purpose of calculating entitlements underthe Rights Issue. Entitlements to New Ordinary Shares will be rounded down tothe nearest whole number. Fractions of New Ordinary Shares will not be allottedto any Qualifying Shareholders but will be aggregated and sold in the marketultimately for the benefit of the Company. Qualifying Shareholders with fewerthan 2 Ordinary Shares at the close of business on the Record Date are notentitled to any New Ordinary Shares.

FirstGroup has arranged for the Rights Issue to be underwritten by theUnderwriters to provide certainty as to the amount of capital to be raised. TheUnderwriting Agreement is not subject to any right of termination afterAdmission (including in respect of any statutory withdrawal rights). The termsof the Underwriting Agreement will be summarised in the Prospectus.

Qualifying Shareholders who take up their pro rata entitlements to New OrdinaryShares in full will suffer no dilution to their shareholdings in the Company asa result of the Rights Issue. Qualifying Shareholders who do not take up theirentitlements to New Ordinary Shares will suffer an immediate dilution of up toapproximately 60 per cent. in their interests in the Company as a consequenceof the Rights Issue.

General Meeting

The Rights Issue is subject to a number of conditions, including Shareholders'approval of the Resolution proposed at the General Meeting. Notice conveningthe General Meeting to be held at 11 a.m. on 10 June 2013 at Holborn Bars, 138- 142 Holborn, London EC1 2NQ, is set out at the end of this document.Shareholders are being asked to vote on the Resolution in order to provide theDirectors with the necessary authority and power under the Companies Act toproceed with the Rights Issue. The Rights Issue is conditional on the passingof the Resolution; if the Resolution is not approved at the General Meeting,FirstGroup will be unable to complete the Rights Issue.

The Resolution authorises the Directors to allot up to 725,000,000 OrdinaryShares, representing approximately 150 per cent. of FirstGroup's current issuedshare capital (excluding treasury shares) as at 17 May 2013, being the latestpracticable date before the publication of this announcement. This will enableFirstGroup to allot sufficient Ordinary Shares to satisfy its obligations inconnection with the Rights Issue. This authority will expire at the conclusionof the next annual general meeting of FirstGroup in 2013. The authority grantedunder the Resolution is in addition to the authority to allot Ordinary Shareswhich was granted to the Directors at FirstGroup's annual general meeting in2012, which the Directors have no present intention of exercising and whichwill expire at FirstGroup's annual general meeting in 2013.

The Resolution grants the Directors the authority to allot up to 725,000,000Ordinary Shares so that if any holders of options over Ordinary Shares underthe Employee Share Schemes were to exercise those options between the date ofthis document and the Record Date and if the Company were to satisfy thoseoptions by the issue of new Ordinary Shares or the transfer of Ordinary Sharesout of treasury (thereby increasing the number of total voting rights inFirstGroup), the Directors will have authority to allot sufficient OrdinaryShares to satisfy its obligations in connection with the Rights Issue.

As at the date of this document, FirstGroup holds 160,779 Ordinary Shares intreasury, representing approximately 0.033 per cent. of the current issuedshare capital of FirstGroup and approximately 0.013 per cent. of the EnlargedShare Capital.

Overseas shareholders

The attention of Qualifying Shareholders who have registered addresses outsidethe United Kingdom, or who are citizens or residents of countries other thanthe United Kingdom, or who are holding Ordinary Shares for the benefit of suchpersons (including, without limitation, custodians, nominees, trustees andagents) or who have a contractual or other legal obligation to forward thisdocument, a Provisional Allotment Letter and any other document in relation tothe Rights Issue to such persons, is drawn to the information which will appearin Terms of the Rights Issue in the Prospectus. In particular, subject tocertain exceptions, the Rights Issue is not being made to shareholders in theUnited States or into any of the other Excluded Territories.

In particular, persons who have registered addresses in or who are resident in,or who are citizens of, countries other than the United Kingdom should consulttheir professional advisers whether they require any governmental or otherconsents or need to observe any other formalities to enable them to take uptheir entitlements to the Rights Issue.

Action to be taken in respect of the Rights Issue

The latest time for acceptance by Shareholders under the Rights Issue is 11.00a.m. (London Time) on 25 June 2013. The procedure for acceptance and paymentwill be set out in Terms of the Rights Issue of the Prospectus. Further detailsalso appear in the Provisional Allotment Letter which will be sent to allQualifying Non-CREST Shareholders (other than, subject to certain exceptions,those Qualifying Non-CREST Shareholders with a registered address in theExcluded Territories).

If you are in any doubt as to the action you should take, you are recommendedto seek your own personal financial advice immediately from your stockbroker,bank manager, solicitor, accountant, fund manager or other independentfinancial adviser authorised under FSMA if you are in the United Kingdom or, ifyou are not, from another appropriately authorised independent financialadviser.

Recommendation

The Board believes that the Rights Issue and the Resolution are in the bestinterests of the Company and its Shareholders as a whole. Accordingly, theBoard unanimously recommends that Shareholders vote in favour of theResolution, as the Directors intend to in respect of their own beneficialholdings.

Expected timetable of principle events

Each of the times and dates in the table below is indicative only and may besubject to change. Please read the notes for this timetable set out below.

Record Date for entitlements under the Rights COB on 7 JuneIssue

Latest time and date for receipt of Forms of 11.00 a.m. on 8 JuneProxy

Dealings in New Ordinary Shares, nil paid, 8.00 a.m. on 11 Junecommence on the London Stock Exchange

Ordinary Shares marked "ex-rights" by the 8.00 a.m. on 11 JuneLondon Stock Exchange

Nil Paid Rights credited to stock accounts in as soon as 11 JuneCREST (Qualifying CREST Shareholders only) practicable

Nil Paid Rights and Fully Paid Rights enabled as soon as 11 Junein CREST

Latest time and date for depositing renounced 3.00 p.m. on 20 JuneProvisional Allotment Letters, nil paid or

Latest time and date for acceptance, payment 11.00 a.m. on 25 Junein full and registration of renounced

Result of Rights Issue to be announced by 8.00 a.m. on 26 June

Dealings in New Ordinary Shares, fully paid, 8.00 a.m. on 26 Junecommence on the London Stock Exchange and New

Expected date of despatch of definitive share by not later 8 Julycertificates for New Ordinary Shares in

"Existing Ordinary Shares" the Ordinary Shares existing at the date of

"Joint Global Coordinators" J.P. Morgan Securities plc and Goldman Sachs

"London Stock Exchange" London Stock Exchange plc or its successor

"Overseas Shareholders" means Shareholders who are resident in,

"pence", "Pounds", "£", the lawful currency of the United Kingdom;"Pounds Sterling",

"Qualifying Shareholders" holders of Ordinary Shares on the register of

"Underwriting Agreement" the underwriting agreement dated 20 May 2013

The defined terms set out in the Appendix apply in this announcement.

This announcement has been issued by and is the sole responsibility ofFirstGroup plc (the "Company"). A copy of the Prospectus when published will beavailable from the registered office of the Company and on the Company'swebsite at www.FirstGroup.com provided that the Prospectus will not, subject tocertain exceptions, be available (whether through the website or otherwise) toShareholders in the Excluded Territories. Neither the content of the Company'swebsite nor any website accessible by hyperlinks on the Company's website isincorporated in, or forms part of, this announcement. The Prospectus will givefurther details of the New Ordinary Shares, the Nil Paid Rights and the FullyPaid Rights being offered pursuant to the Rights Issue.

This announcement is not a Prospectus but an advertisement and investors shouldnot acquire any Nil Paid Rights, Fully Paid Rights or New Ordinary Sharesreferred to in this announcement except on the basis of the informationcontained in the Prospectus. The information contained in this announcement isfor background purposes only and does not purport to be full or complete. Noreliance may be placed for any purpose on the information contained in thisannouncement or its accuracy or completeness. The information in thisannouncement is subject to change.

Goldman Sachs International, HSBC Bank plc, J.P. Morgan Securities plc andMerrill Lynch International (the "Managers" are acting for the Company and forno-one else in connection with the Rights Issue and will not be responsible toanyone (whether or not a recipient of this announcement) other than the Companyfor providing the protections afforded to their respective clients nor forproviding advice in connection with the Rights Issue or any other matterreferred to herein.

Apart from the responsibilities and liabilities, if any, which may be imposedon Goldman Sachs International and J.P. Morgan Securities plc by FSMA or theregulatory regime established thereunder, none of the Managers accepts anyresponsibility or liability whatsoever or makes any representation or warranty,express or implied, for or in respect of the contents of this announcement,including its accuracy, completeness or verification (or whether anyinformation has been omitted from the announcement) or for any otherinformation or statement made or given or purported to be made by any of them,or on behalf of them, in connection with the Company, the Nil Paid Rights, theFully Paid Rights, the New Ordinary Shares or the Rights Issue, whetherwritten, oral or in a visual or electronic form, and howsoever transmitted ormade available or for any loss howsoever arising from any use of thisannouncement or its contents or otherwise arising in connection therewith, andnothing in this announcement is, or shall be relied upon as, a promise orrepresentation in this respect, whether as to the past or future. Each of theManagers accordingly disclaims all and any liability whatsoever, whetherarising in tort, contract or otherwise (save as referred to above), which anyof them might otherwise have in respect of this announcement.

This announcement is for information purposes only and is not intended to anddoes not constitute or form part of any offer or invitation to purchase orsubscribe for, or any solicitation to purchase or subscribe for, Nil PaidRights, Fully Paid Rights or New Ordinary Shares or to take up any entitlementsto Nil Paid Rights in any jurisdiction in which such an offer or solicitationis unlawful. This announcement cannot be relied upon for any investmentcontract or decision.

The information contained in this announcement is not for release, publicationor distribution to persons in the United States, Australia, Canada or Japan andshould not be distributed, forwarded to or transmitted in or into anyjurisdiction where to do so might constitute a violation of local securitieslaws or regulations.

This announcement does not constitute or form part of an offer or solicitationto purchase or subscribe for securities of the Company in the United States,Australia, Canada or Japan. None of the Nil Paid Rights, the Fully Paid Rightsor the New Ordinary Shares have been or will be registered under the USSecurities Act of 1933 (the "Securities Act") or under the applicablesecurities laws of any state or other jurisdiction of the United States or thesecurities legislation of any province or territory of Australia, Canada orJapan. Accordingly, the Nil Paid Rights, the Fully Paid Rights or the NewOrdinary Shares may not be offered, sold, resold, delivered or distributed,directly or indirectly, in or into the United States absent registration, or anexemption from, or in a transaction not subject to, the registrationrequirements of the Securities Act and in compliance with state securitieslaws, or in or into Australia, Canada or Japan except in accordance withapplicable law. There will be no public offer of Nil Paid Rights, Fully PaidRights or New Ordinary Shares in the United States, Canada or Japan.

The New Ordinary Shares will be issued without disclosure in Australia underChapter 6D of the Corporations Act 2001 (Cth) (Corporations Act). The offer ofthese New Ordinary Shares for resale in Australia within 12 months of theiracquisition may, under section 707 of the Corporations Act, require disclosureto investors. Accordingly the New Ordinary Shares should not, within 12 monthsof their acquisition, be offered, transferred, assigned or otherwise alienatedto investors in Australia except in circumstances where disclosure to investorsis not required. New Ordinary Shares transferred on-market on the London StockExchange are not subject to the Australian disclosure regime.

The distribution of this announcement and/or the Prospectus and/or theProvisional Allotment Letter and/or the transfer of Nil Paid Rights, Fully PaidRights and/or New Ordinary Shares into jurisdictions other than the UnitedKingdom may be restricted by law, and, therefore, persons into whose possessionthis announcement and/or the Prospectus and/or the Provisional Allotment Lettercomes should inform themselves about and observe any such restrictions. Anyfailure to comply with any such restrictions may constitute a violation of thesecurities laws of such jurisdiction. In particular, subject to certainexceptions, the Prospectus and the Provisional Allotment Letter should not bedistributed, forwarded to or transmitted in or into the United States, Canadaor Japan.

This announcement does not constitute a recommendation concerning the RightsIssue. The price and value of securities can go down as well as up. Pastperformance is not a guide to future performance. The contents of thisannouncement are not to be construed as legal, business, financial or taxadvice. Each Shareholder or prospective investor should consult his, her or itsown legal adviser, business adviser, financial adviser or tax adviser forlegal, financial, business or tax advice.

This announcement contains or incorporates by reference "forward-lookingstatements". These forward-looking statements may be identified by the use offorward-looking terminology, including the terms "believes", "estimates","anticipates", "projects", "expects", "intends", "aims", "plans", "predicts","may", "will", "seeks", "could", "would", "shall" or "should" or, in each case,their negative or other variations or comparable terminology, or by discussionsof strategy, plans, objectives, goals, future events or intentions. Theseforward-looking statements include all matters that are not historical factsand include statements regarding the intentions, beliefs or currentexpectations of the Board concerning, among other things, the Company's resultsof operations, financial condition, prospects, growth, strategies and theindustries in which the Group operates.

By their nature, forward-looking statements involve risks and uncertaintiesbecause they relate to events and depend on circumstances that may or may notoccur in the future or are beyond the Group's control. Forward-lookingstatements are not guarantees of future performance and are based on one ormore assumptions. The Group's actual results of operations and financialcondition and the development of the industries in which the Group operates maydiffer materially from those suggested by the forward-looking statementscontained in this announcement. In addition, even if the Company's actualresults of operations, financial condition and the development of theindustries in which the Group operates are consistent with the forward-lookingstatements contained in this announcement, those results or developments maynot be indicative of results or developments in subsequent periods.

The following are important factors that could cause the Group's actual resultsto differ materially from those projected in the forward-looking statementsmade in this announcement:

The list above is not exhaustive and there are other factors that may cause theGroup's actual results to differ materially from the forward-looking statementscontained in this announcement.

The forward-looking statements contained in this announcement speak only as ofthe date of this announcement. The Company and the Directors expressly disclaimany obligations or undertaking to update or revise publicly any forward-lookingstatements, whether as a result of new information, future events or otherwise,unless required to do so by applicable law, the Prospectus Rules, the ListingRules, the London Stock Exchange Rules or the Disclosure and TransparencyRules.

In connection with the Rights Issue, the Managers and any of their respectiveaffiliates, acting as investors for their own accounts, may subscribe for orpurchase Nil Paid Rights, Fully Paid Rights or New Ordinary Shares and in thatcapacity may retain, purchase, sell, offer to sell or otherwise deal for theirown accounts in such Nil Paid Rights, Fully Paid Rights or New Ordinary Sharesand other securities of the Company or related investments in connection withthe Rights Issue or otherwise. Accordingly, references in the Prospectus, oncepublished, to the Nil Paid Rights, Fully Paid Rights or New Ordinary Sharesbeing issued, offered, subscribed, acquired, placed or otherwise dealt inshould be read as including any issue or offer to, or subscription,acquisition, placing or dealing by, the Managers and any of their respectiveaffiliates acting as investors for their own accounts. The Managers do notintend to disclose the extent of any such investment or transactions otherwisethan in accordance with any legal or regulatory obligations to do so.

Each of the Company and the Managers and their respective affiliates expresslydisclaims any obligation or undertaking to update, review or revise any forwardlooking statement contained in this announcement whether as a result of newinformation, future developments or otherwise.