Annual Report 2014 and Notice of AGM

FIRSTGROUP PLC (THE COMPANY) PUBLICATION ANNOUNCEMENT: ANNUAL REPORT 2014 AND NOTICE OF ANNUAL GENERAL MEETING 16 June 2014 In compliance with Listing Rule 9.6.1, the Company has today submitted a copyof the following documents to the UK Listing Authority, which will shortly beavailable for inspection via the National Storage Mechanism which can be viewedat morningstar.co.uk/uk/NSM: * Annual Report and Financial Statements 2014; and * The Notice of Annual General Meeting of the Company which will be held at The Marcliffe Hotel, North Deeside Road, Pitfodels, Aberdeen AB15 9YA at 11.00 am on Wednesday 16 July 2014. In accordance with DTR 6.3.5(3) the Annual Report and Financial Statements 2014and the Notice of Meeting will be available to view on the Company website:www.firstgroupplc.com. A condensed set of FirstGroup plc financial statements and information onimportant events that have occurred during the year and their impact on thefinancial statements were included in the Company's preliminary announcement on21 May 2014. That information together with the information set out below whichis extracted from the Annual Report and Financial Statements 2014 constitutethe requirements of DTR 6.3.5 which is to be communicated via an RIS inunedited full text. This announcement is not a substitute for reading the fullAnnual Report and Financial Statements 2014. Page and note references in thetext below refer to page numbers in the Annual Report and Financial Statements2014. To view the preliminary announcement, visit the Company website:firstgroupplc.com. Principal risks and uncertainties The Group's principal risks are set out below. These risks have been assessedtaking into account their potential impact, the likelihood of occurrence andany change to this compared to the prior year and the residual risk after theimplementation of controls. A description of each principal risk, its potentialimpact on the Group, any movement in the risk during the year and riskmitigation measures are provided. Each risk is linked to the relevant strategicobjectives, which are detailed on page 10. The risks listed do not comprise all those highlighted by our risk managementprocesses or those that may otherwise affect the Group or any particulardivision, nor are those that are listed set out in any order of priority.Additional risks and uncertainties not presently known to us, or that wecurrently believe to be less material, may also impact our business. Anymovement shown does not necessarily indicate a change in the overall net riskassociated with the particular issue during the current or future years aftermitigating factors and actions have been taken into account. Further information on our risk management processes is contained in theDirectors' and corporate governance report on pages 59 and 60. Risk Potential impact Movement during Mitigation the year Economic and political conditions Economic Reduced demand Unchanged Some areas of the Group'sconditions, for public business offer a degreepolitical transportation. Economic of protection againstdevelopments and recovery in the economic conditions inchanges in Reduced funding UK and North specific geographicgovernment policy for and spending America is markets.affecting the by local and variable bymarkets in which national state and Certain current railthe Group operates, governments and region. franchises have revenuewhether at a other customers support and profitglobal, regional or on public or sharing arrangements innational level, student place. Some (but not all)could have a transport. of the new franchisesnegative impact on currently being let alsothe Group's Changes to market contain a degree ofbusinesses and its structure or protection fromability to grow dynamics macro-economic factors.existing businesses resulting in lostand retain or win business or loss To an extent, our UK Busnew contracts. The of future operating companies aresame factors could opportunity. able to modify servicesalso affect our key in reaction to economicsuppliers. Inability to pass and political impacts. on fully to customers the Our Greyhound operations impact of have flexibility to increased costs. modify services in response to reduced Supplier failure, demand, particularly in or the United States. non-performance, resulting in The Group monitors the supply chain financial health of key disruption. suppliers and identifies alternatives to ensure Group supply chain resilience. We regularly engage with senior policy makers in the UK and North America to discuss the emerging policy landscape in respect of our core business activities. We do this directly and indirectly through industry organisations and trade associations. Attraction and retention of key management Attracting and Inability to Unchanged The Group-wide successionretaining key execute Group planning process andmembers of senior strategy Whilst performance developmentmanagement is vital resulting in attraction and approach is designed toin ensuring that reduced retention of identify talentedthe Group continues profitability and key management individuals, setto have the growth. may become more development goals fornecessary expertise challenging as progression to otherand continuity to the economy roles and to assess theexecute its recovers, our depth of talent and anystrategy. defined gaps throughout the business plans, leadership of FirstGroup. including The Group also offers development market-based compensation of more packages consisting of an attractive appropriate mix of long commercial and short term propositions, incentives. have enabled us to attract and retain high-quality management. Rail refranchising As discussed on Lower UK Rail Unchanged The Group has anpage 29, we are division experienced and dedicatedinvolved in a contribution and All of the rail bid team which willnumber of rail profitability. Group's UK Rail continue to compete forfranchise franchises will franchises as they arecompetitions. Incorrect bid expire between re-let.Competition for new assumptions 2014 and 2016.rail franchises is leading to Direct awards The Group also has aexpected to be greater than have been made comprehensive reviewintense. We bid anticipated costs in the year to process for bids as theyagainst operators or losses. extend the are developed andof current UK rail First Capital finalised involving afranchises and rail Connect and number of divisional andoperators from First Great Group functions as wellother countries, Western rail as formal Board sign off.principally from franchises.within the EuropeanUnion. Contracted businesses The Group is Potential Unchanged Compliance with railrequired to comply termination of franchise conditions iswith certain the relevant rail Whilst First closely managed andconditions as part franchise Transit's monitored on a monthlyof its UK Rail agreement and contract basis by seniorfranchise possibly others retention rate management and proceduresagreements. if cross-default remained stable are in place to minimise is invoked, during the the risk ofThe Group's First resulting in loss year, First non-compliance.Student and First of revenue and Student'sTransit businesses cash flow as well retention rate The relevant divisionsare contracted as some or all of was slightly have experienced andbusinesses the amounts set reduced dedicated bid teams whodependent on the aside as security reflecting our undertake carefulability to renew for performance focus on economic modelling ofand secure new bonds and season improving contract bids and, wherecontract wins on ticket bonds. contract possible, seek toprofitable terms. portfolio negotiate risk sharing Loss of business, returns. arrangements with the or failure to relevant customer or renew, leading to contracting authority. reduced revenue and In First Student, as profitability. described on pages 14 and 15, we have accelerated Incorrect bid the contract portfolio assumptions pricing programme to leading to focus capital on higher greater than returning opportunities. anticipated costs or losses. Competitive pressures All of the Group's Reduced passenger Unchanged The Group continues tobusinesses compete numbers and focus on service qualityin the areas of revenues. No material and performance aspricing and service change during priorities in making ourand face the year. services attractive tocompetition from a passengers and othernumber of sources. customers. Our main In our contractcompetitors include businesses, contractthe private car and compliance, a competitiveexisting and new bidding strategy and apublic and student strong bidding team aretransport operators key.across all ourmarkets. In addition, wherever possible, the Group worksAs mentioned on with local and nationalpage 29, bodies to promotecompetition for UK measures aimed atRail franchises increasing demand forremains intense public transport and theincluding from a other services that wenumber of other offer.large public andstate-ownedentities active inthe market. Treasury risks As set out in Foreign currency Unchanged The Group's treasuryfurther detail in and interest rate policy and delegatednote 24 to the movements impact The rights authorities are reviewedfinancial profit, balance issue announced periodically to ensurestatements on pages sheet and cash in May 2013 compliance with best125 to 130, flows of the decreased the practice and to controltreasury risks Group. Group's and monitor these risksinclude liquidity liquidity risk appropriately.risks and risks Ineffective but its creditarising from hedging rating remains The Group is continuouslychanges to foreign arrangements may subject to the focused on improvingexchange rates and not fully methodology and operating and financialinterest rates. mitigate losses metrics adopted efficiency as part of our or may increase by the credit strategic objectives asThe Group is credit them. ratings outlined on page 10.rated by Standard & agencies.Poor's and Fitch. A downgrade in the Group's credit ratings to below investment grade may lead to increased financing costs and other consequences and affect the Group's ability to invest in its operations. Pensions The Group sponsors Material changes Unchanged Through diversificationor participates in in the accounting of investments, hedginga number of cost and cash No material of liabilities, amendmentsignificant defined contributions change during of the defined benefitbenefit pension required. the year. promises and theschemes. introduction of defined contribution for newFuture cash starts in UK Bus andcontribution Group, the Group hasrequirements may reduced these risks.increase ordecrease based upon Under the UK Railfinancial markets, franchise arrangements,notably investment the Group's trainreturns/valuations, operating companies arethe rates used to not responsible for anyvalue the residual deficit at theliabilities and end of a franchise sothrough changes to there is only short termlife expectancy. cash flow risk within a particular franchise. Fuel costs Fuel is a High prices, Unchanged The Group regularlysignificant increased enters into forwardcomponent of the volatility of No material hedging contractsGroup's operating fuel prices or change during providing fixed fuelcosts. Fuel prices supply the year. prices. In addition, theand supply levels restrictions, Group may limit thecan be influenced shortages or impact of unexpected fuelsignificantly by interruptions price rises throughinternational, could adversely efficiency and pricingpolitical and impact the measures.economic Group'scircumstances. operations, cash flow and profitability. The Group may be unable to pass increased costs on fully to customers. Ineffective hedging arrangements may not fully mitigate losses or may increase them. Terrorism The threat from Reduced public Unchanged We continue to developterrorism is confidence in and apply good practice,enduring and public No material and train our employeescontinues to exist transportation, change during so that they can identifyin the countries in and/or the year. and respond effectivelywhich we operate. specifically in to any potential threatPublic transport the Group's or incident.has previously been security andsubject to attack safety record.and it remainsimportant that we Reduced profitstake all reasonable resulting fromsteps to help guard reduced demandagainst such for our services,activity on any of increased coststhe services we or securityoperate. requirements and/ or business disruption. Information technology The Group relies on Loss of revenue Up As a result of theinformation and increased continuing threat oftechnology in all operating costs Web and mobile cyber-attacks the Groupaspects of its due to increased sales channels has increased itsbusiness. Any capital, are of dedicated IT securitysignificant security, fines, increasing resource which, indisruption or penalties or importance conjunction with policiesfailure, caused by insurance across many of and procedures andexternal factors, requirements. our businesses. extensive securitydenial of service, controls, is designed tocomputer viruses Prolonged failure enhance the resilienceor human error of our sales and security of thecould result in a websites could Group's informationservice adversely affect technology systems andinterruption, revenues. the data they contain.accident ormisappropriation of Failure to manage The Group hasconfidential properly strengthened its ITinformation implementation of project management(including credit new IT systems capability during thecard and personal may result in year.data). Process increased costsfailure, security and/or lostbreach or other revenue.operationaldifficulties mayalso lead torevenue loss. Successful deliveryand implementationof the Greyhound ITtransformation planis required toimprove yieldmanagement anddrive futuregrowth. Customer service The Group's Contracts not Unchanged Customer service is onerevenues are at renewed, revenue of our five core valuesrisk if it does not levels reduced or No overall (see page 6). Thecontinue to provide negative impact material change relevant employeesthe level of on brand image. in the year undertake intensiveservice expected by although, as training programmes tocustomers. noted on page ensure that they are 27, UK Bus aware of, and abide by, achieved an the levels of service improvement in that are required by our the annual customers in each independent business. Passenger Focus survey. Ongoing engagement with customers and community stakeholders takes place across the Group, including through `meet the manager' events, customer panels, consultations and local partnerships. The Board also monitors customer service KPIs to ensure that strict targets are being met. Legislation and regulation Our businesses are Increased costs Unchanged The Group has embeddedsubject to numerous of compliance operating policies andlaws and with existing or Our businesses procedures in all ourregulations changes in continue to businesses to ensurecovering a wide regulation or experience compliance with existingrange of matters legislation. changes in the legislation andincluding health legislative and regulation.and safety, Reduction in regulatoryequipment, operational environment. We have dedicated legalemployment flexibility or teams in the UK and North(including working efficiency. America who oversee thetime, wage and hour Group's compliance andand legislation Financial and training programmes andcovering mandatory reputational advise on emergingbreaks), impact of failure issues.competition and to comply.anti-trust, The Group closelyenvironmental, Negative impact monitors the impact ofinsurance coverage on ability to bid changes in the regulatoryand other operating for future and legal environment andissues. These laws business. actively engages withand regulations are Government and transportconstantly subject bodies to help ensureto change. that we are properly positioned to respond to any proposed changes. Litigation and claims The Group has three Increased costs, Up The Group has a verymain insurable reduced strong focus on safetyrisks: third party availability of The claims and, as described on pageinjury and other insurance cover, environment, 6, it is one of our fiveclaims arising from or reputational particularly in core values. The Groupvehicle and general impact. our North self-insures third partyoperations, American and employee injuryemployee injuries A large single businesses claims up to a certainand property claim or a large remains a level commensurate withdamage. number of smaller challenge the historical risk claims may despite our profile. It purchasesThe Group is also negatively affect continued focus insurance above thesesubject to other profitability and on safety. limits from reputablelitigation, cash flow. global insurance firms.particularly in Claims are managed byNorth America, experienced claimswhich is not handlers.insured, includingcontractual claims Non-insured claims areand those relating managed by the Group'sto employee wage dedicated in-house legaland hour matters. team with external assistance as appropriate. Employee costs and relations Employee costs High employee Unchanged The Group seeks torepresent the turnover leading mitigate these risks bylargest component to higher than No material its recruitment andof the Group's expected change during retention policies,operating costs. increases in the the year. training schemes andLabour shortages or cost of working practices.decreasing recruitment,unemployment rates training and our Our working practicescould hinder the employee costs. include buildingGroup's ability to communication andrecruit and retain Operational engagement with tradequalified disruption and unions and the wideremployees. reduced cash flow workforce. Examples of and profitability this engagement includeOur employees are from industrial regular leadershipkey to service action. conferences, employeedelivery and surveys and the presencetherefore it is of Employee Directorsimportant that good (Directors voted for byemployee relations the employees toare maintained. represent them) on many of the Group's UK divisional boards and the Board. Environmental The Group's Environmental, Unchanged To mitigate these risks,operations store reputational or the Group's storageand manage large financial loss No material facilities are subject toquantities of fuel resulting from change overall regular inspection andat our maintenance remediation of during the we have detailed fuelsites, which incidents, year. handling procedures whichpresents a prosecutions and/ are regularly audited.potential or penalties.regulatory and Robust environmentalfinancial risk in Increased costs policies, strategies andthe event of of compliance due management systems aresignificant loss or to regulatory maintained across thespillage and are requirements. Group.subject to ongoingchanges in The Group continues toenvironmental target reductions in itsregulations. emissions, including through behaviour changeAlong with all initiatives andbusinesses we face investment in newthe challenge of technology.addressing climatechange, boththrough managingits impact andreducing emissions. Severe weather and natural disasters Many of our Reduced profits Up The geographic spread ofoperations are resulting from the Group's businessesexperiencing lower demand for This year, our offers some protection.greater and more our services, North American In addition, some of ourfrequent adverse increased costs, businesses contract based businessesweather disruption business experienced have force majeureleading to reduced disruption and unprecedented clauses in place. We haveor cancelled increased severe weather, severe weather actionservices and accidents. affecting plans and procedures toreduced customer operational and manage the impact on ourdemand. financial operations. performance. Further information, FirstGroup plc: Rachael Borthwick, Group Corporate Communications DirectorStuart Butchers, Group Media Relations ManagerFaisal Tabbah, Investor Relations ManagerTel: +44 (0) 20 7725 3354