11th May 2011 07:00
Embargoed until 07:00hrs on Wednesday 11 May 2011
FIRSTGROUP PLC PRELIMINARY RESULTS FOR THE 12 MONTHS TO 31 MARCH 2011
OVERALL RESULTS IN LINE WITH OUR EXPECTATIONS - ADJUSTED EARNINGS UP 6% AND STRONG CASH GENERATED BY OPERATIONS UP 23% TO £744m
Cash generated by operations increased by £139.4m to £744.1m - supporting 7%dividend growth, net debt reduction of £332.1m, from net cash inflow of £209.8mand forex/other of £122.3m, and disciplined capital investment
Achieved our target ratio of 2.5x net debt:EBITDA at 31 March 2011, targeting further improvement
Robust performance - four out of five of our businesses performed in line withor significantly better than expectations, offset by First Student performingbelow our expectations
Taking one-off charges to address specific issues and strengthen the business:
Intend to bid for new long-term Greater Western franchise reflecting significant Government investment in region. £59.9m contract provision for First Great Western - commercial decision not to take up option to extend franchise for a further 3 years from March 2013
£39.5m charge to address First Student underperformance and strengthen business model - detailed recovery plan in place
£16.6m goodwill impairment and contract provision for First Support Servicescontract in Diego Garcia - reducing exposure to less attractive business withinFirst Transit
Focused on retaining leadership position in UK Rail - discussions with DfT on proposal to extend First TransPennine Express and pre-qualification for InterCity West Coast
Growth strategies for UK Bus, First Transit and Greyhound
Fundamentally strong businesses - clear focus on improving operations and developing opportunities for growth
FINANCIAL SUMMARY 12 MONTHS ENDED 31 MARCH 2011
2011 2010 Change Continuing operations: restated4 Revenue £6,429.2m £6,261.9m +2.7% Adjusted EBITDA1 £778.2m £763.9m +1.9% Operating profit £309.3m £364.2m (15.1)% Adjusted operating profit2 £457.4m £449.6m +1.7% Profit before tax £127.2m £175.3m (27.4)% Adjusted profit before tax2 £275.0m £259.7m +5.9% Basic EPS 21.4p 26.9p (20.4)% Adjusted basic EPS2 41.2p 38.9p +5.9%
Proposed final dividend per share 15.0p 14.0p +7.1%
Net debt3 £1,949.4m £2,281.5m (14.6)%
1Adjusted operating profit plus depreciation.
2Before amortisation charges, ineffectiveness on financial derivatives, non-recurring items, loss on disposal of properties and discontinued operations as shown in the consolidated income statement on p.26. All references to "adjusted" figures throughout this document are defined in this way.
3 Net debt is stated excluding accrued bond interest.
4Restated to exclude discontinued operations as explained in note 1 to the preliminary results.
Commenting, FirstGroup's Chief Executive, Tim O'Toole said:
"During my first six months as Chief Executive I have taken confidence from thebreadth and strength of our diverse portfolio of operations. We are reporting asolid performance from four of our five divisions which, against an economicbackdrop that remains challenging, enabled us to deliver our overall targetswith a strong cash performance. Cash generated by operations increased to £744.1m and net cash inflow increased to £209.8m, ahead of our target,supporting a dividend increase of 7%, a reduction of £332.1m in net debt anddisciplined capital investment. "We are taking action to address specific issues. Firstly, we have made thecommercial decision not to take up the option to extend the First Great Westernfranchise for a further three years beyond the initial franchise term to 2013.The Government has announced franchise reform and major investment in theregion including the redevelopment of Reading station, resignalling andelectrification of the Great Western Main Line, the Intercity Express Programmeand Crossrail. With our unique knowledge of the franchise we believe we arebest placed to manage these projects and capture the benefits through alonger-term franchise. We will continue to operate First Great Western untilMarch 2013 and will meet all of our obligations under the Franchise Agreement. "We are focused on retaining our leadership position in UK Rail and willcontinue to leverage our unrivalled expertise and experience. We were pleasedto pre-qualify for the InterCity West Coast franchise and we are discussing aproposal to extend our First TransPennine Express franchise with the DfT.
"Secondly, we have taken action to address First Student which has significantly underperformed compared with our expectations this year. Our detailed plan will recover performance and create a stronger business model that will deliver a sustainable competitive advantage in the longer-term.
"Thirdly, we have provided for a loss making First Support Services contract in Diego Garcia. We remain focused on increasing our share of the fast growing paratransit and shuttle businesses within First Transit's portfolio.
"Looking ahead the economic outlook remains uncertain. We are encouraged byimproving trends in UK Rail and Greyhound and a continued steady performance inour UK Bus and First Transit operations. We expect that our North AmericanFirst Student business will continue to see pressure on margins during 2011/12.Across the Group we will continue to focus our efforts on improving ouroperations to drive further efficiencies to maintain and develop margins. "Building on our strong cash performance this year, we will continue toprogress the opportunities to increase cash generation within the Group and weare targeting a net cash inflow of £150m in 2011/12. The Board is committed toits key priorities of increased cash generation to support capital investment,debt reduction and dividend growth of at least 7% per annum. "The Group is well placed with market leading positions in a sector that is akey enabler of economic growth. With diverse operations that are fundamentallyrobust and a team with a clear focus on creating a stronger business, the Grouphas good prospects in all of its key markets to continue to deliver long-termvalue for shareholders." Enquiries FirstGroup plc:Tim O'Toole, Chief Executive Jeff Carr, Finance Director Tel: +44 207 291 0512
Rachael Borthwick, Group Corporate Communications Director
Tel: +44 207 291 0508 / +44 7771 945432
A PRESENTATION TO INVESTORS AND ANALYSTS WILL TAKE PLACE AT 9:00AM TODAY
ATTENDANCE IS BY INVITATION ONLY A LIVE TELEPHONE 'LISTEN IN' FACILITY IS AVAILABLE FOR DETAILS PLEASE CONTACT +44 (0) 207 291 0507 A PLAYBACK FACILITY WILL BE AVAILABLE AT WWW.FIRSTGROUP.COM
A WEBCAST INTERVIEW WITH TIM O'TOOLE, CHIEF EXECUTIVE AND JEFF CARR, FINANCE
DIRECTOR WILL BE AVAILABLE FROM 10:00AM TODAY AT WWW.FIRSTGROUP.COM PHOTOS FOR THE MEDIA ARE AVAILABLE. PLEASE CALL +44 (0) 207 291 0512 Chairman's statement The inherent strength of the Group comes from the scope and diversity of itsportfolio of operations which enabled us to achieve our overall targets for theyear with increased net cash supporting dividend growth, a reduction in netdebt and increased capital investment in the business. Against the backdrop of continued economic uncertainty we remained firmlyfocused on our key priorities including the dynamic management of our networks,continued cost control and further efficiencies to develop and improve margins.A strong performance from our UK Rail operations offset a disappointing resultfrom our First Student business which continues to face pressure on operatingmargin as a result of constraints on school board budgets. We are takingdecisive action to address First Student with a detailed plan to recoverperformance and create a stronger business model that will deliver asustainable advantage in the longer-term. I am pleased by the further advances we made in reducing net debt. We deliveredour target ratio of 2.5x net debt:EBITDA at 31 March 2011 demonstrating goodprogress over the year. We also strengthened our financial foundation inDecember 2010 with the signing of $1.4bn of 5-year committed bank facilities toreplace existing revolving bank facilities that were due to mature in February2012. This proactive management supports the maturity of our debt portfolio andprudent levels of liquidity over the medium-term. We are delighted by thecontinued strong support from our relationship banks demonstrating theconfidence in the Group's underlying strength and resilience. The Board has proposed a final dividend per share, subject to approval byshareholders, of 15.0p, an increase of 7% making a full year payment of 22.12p.The final dividend will be paid on 19 August 2011 to shareholders on theregister at 15 July 2011. We recognise that dividend growth is a key componentof the investment decision for many shareholders. We remain committed todelivering sustained real growth in dividends, despite challenges as a resultof the current economic environment. This is a priority for the Group and isadequately supported by continued strong cash flows. This was a year of significant change within the Group. Tim O'Toole becameChief Executive on 1 November 2010, as Sir Moir Lockhead handed over hisexecutive responsibilities ahead of his retirement on 31 March 2011. During hislong and successful career Sir Moir made an outstanding contribution to theGroup and to the transport industry as a whole. On behalf of the Board I wouldlike to recognise the pivotal role he played in transforming the Group into oneof the world's leading transport operators. Tim joins the Group at a significant stage in its development. I am delightedto have attracted a leader of his calibre who has the experience, track recordand vision to lead the Group on to further successful development. Hisextensive knowledge of transport markets in the UK and North America will beinvaluable, not only in steering the immediate course ahead but also inensuring that the Group is well placed to maximise future growth opportunitiesand extend its leadership position. I would like to offer my sincere thanks and gratitude to all of our employeesfor their hard work and continued commitment during the year. In particular Iwould like to acknowledge the extraordinary efforts made by our employees toassist passengers during the widespread disruption caused by the severe winterweather conditions. We recognise that, as the face of our business, theirongoing dedication to providing safe and high quality services to customers isvital to our continued success. With operations that are fundamentally strong and new leadership with a clearfocus on creating a stronger business and developing opportunities for growth,the Board is confident that the Group has good prospects in all of its coremarkets and will continue to deliver long-term value for shareholders. Martin GilbertChairman10 May 2011
* Operating profit referred to throughout this document refers to operating profit before amortisation charges, ineffectiveness on financial derivatives, non-recurring items, loss on disposal of properties and discontinued operations. EBITDA is adjusted operating profit plus depreciation.
Chief Executive's operating review
OVERVIEW
During my first six months as Chief Executive I have taken confidence from thebreadth and strength of our diverse portfolio of operations which, against aneconomic backdrop that remains challenging, has enabled us to achieve ouroverall targets with increased net cash supporting a dividend increase of 7%, areduction of £332.1m in net debt and targeted capital investment. The Group'soperations are fundamentally robust and, during the year, four out of five ofour operating divisions performed in line or significantly better than ourexpectations.
As a result of decisive action to address specific issues and strengthen the business we have taken the following one-off charges:
£59.9m contract provision principally related to accelerated depreciation forFirst Great Western following our commercial decision not to take up option toextend franchise for a further three years. We intend to bid for the newlong-term Greater Western franchise reflecting the changed environmentincluding significant Government investment in the region. £39.5m charge to address First Student's underperformance with a recovery planto strengthen the business model and create a sustainable competitive advantagefor the future.
£16.6m goodwill impairment and contract provision for future losses in relation to a First Support Services contract in Diego Garcia.
In the UK, we have decided not to take up the option to extend First GreatWestern beyond the original franchise term which expires at the end of March2013. The Government has committed significant investment to transform railservices in the region and we believe that through our unrivalled expertise andexperience we are best placed to manage these projects and we intend to bid forthe new Greater Western franchise. We remain focused on retaining our leadership position in rail and are indiscussion with the Department for Transport (DfT) on a proposal to extend theFirst TransPennine Express franchise. We were pleased to pre-qualify for theInterCity West Coast franchise and intend to offer compelling and innovativeproposals to deliver high quality and attractive services for customers andimproved value for taxpayers. Our First Student business in North America performed significantly below ourexpectations during the year as we were not able to flex our costs sufficientlyto offset the pressure on margins driven by the impact of constraints on schoolboard budgets. Our detailed plan will recover performance and create a strongerbusiness model to deliver a sustainable competitive advantage in the longerterm. We have provided for the loss making First Services contract at Diego Garcia.We remain focused on increasing our share of the fast growing paratransit andshuttle businesses within First Transit's portfolio and will reduce ourexposure to less attractive markets.
Looking ahead, I am very clear about our priorities. We will improve the performance of our First Student business, retain our leadership position in UK Rail and develop the growth potential of our UK Bus, First Transit and Greyhound businesses.
Since I joined the Group I've visited locations across the UK and North America and have been privileged to meet many of our employees who are working very hard to deliver a safe, high quality service every day.
I am proud to join a business with safety at the heart of its operations. Thesafety of our customers and staff is our highest priority. We remain resolutelyfocused on eradicating unsafe acts and practices and continue to develop waysto actively engage employees. Injury Prevention, our industry leadingprogramme, promotes increased awareness and encourages open and constructivedialogue about safety. Our ultimate ambition is to achieve zero injuries andduring the year we made further progress with a reduction in Lost Time Injuriesof 11%. Group resultsGroup revenue increased by 2.7% to £6,429.2m (2010: £6,261.9m) and included £98.0m of favourable foreign exchange movements. At constant exchange rates theincrease was 1.1%. Adjusted operating profit increased to £457.4m (2010: £449.6m). Statutory operating profit was £309.3m (2010: £364.2m) reflectinghigher net non-recurring charges in the year including the recovery programmeto create a stronger business model in First Student. Adjusted basic EPS was41.2p (2010: 38.9p) representing an increase of 5.9%. EBITDA increased to £778.2m (2010: £763.9m). NORTH AMERICA First StudentUS Dollar revenue reduced by 2.5% to $2,480.2m or £1,594.5m (2010: $2,544.7m or£1,605.9m).Operating profit was $200.2m or £128.3m (2010: $281.1m or £180.9m)representing a significantly lower operating margin of 8.1% (2010: 11.0%). The environment for our First Student business remained challenging throughoutthe year with a particularly disappointing trading performance during thefourth quarter of our financial year, which was exacerbated by severe weatherconditions across the US in February. As school boards reduced their overalltransportation costs as a result of budgetary constraints, we were not able toflex our costs and achieve sufficient operating efficiencies to offset thepressure on operating margin. Against the backdrop of significant pricing pressure and a particularly highpercentage of contract churn within our business our retention rate fell below90% during the year. We strengthened our commercial development team ahead ofthe current bid season and focused on delivering our contract retentionstrategy in respect of the new school year commencing autumn 2011.
While we anticipate the pressure on margins will continue into 2011/12 we are taking action with the implementation of a business recovery plan that will create a more flexible and robust business.
As part of our clear plan to address First Student we are restructuring thebusiness to create a more agile, sustainable operating model and stabilise theoperating margin. This will create a business model better placed to withstandchanging economic conditions and will also allow for the full potential of thebusiness to be realised. The streamlined organisation structure will reduceoverhead costs and simplify reporting layers to provide greater visibility andaccountability. We are also right sizing our fleet with respect to a number ofvehicles held for sale or as surplus fleet, addressing underperformingcontracts within the portfolio and maximising the contract portfolio value.
We delivered a good operating performance in respect of the start-up of the new school year in September 2010, including commencement of a number of large contracts together with several conversion contracts from the public sector following the decision by their school boards to outsource the provision of school transportation.
During the year FOCUS, our industry leading GPS-based technology system, which provides enhanced operational data by linking on-board with back office information and systems, was rolled out to a further 117 locations. By the start of the 2011/12 school year we expect to have installed FOCUS into the vast majority of our US school bus fleet providing the platform for greater efficiencies through enhanced data and processes.
We were pleased to show improved performance in the results of our annual customer survey. We achieved higher scores across all categories demonstrating that our customers recognise and value the strong commitment to excellent service at every level throughout the business.
First Student is a fundamentally strong business which, as the market leader,is uniquely placed to leverage its scale. We believe that the business is notcurrently harnessing its full potential and therefore are implementing actionsthat will create a more efficient business model with significantly increasedoperational leverage which, as the market stabilises, will enable us to extendour leadership position and ensure that First Student continues to providelong-term, sustainable growth.
First Transit
Our First Transit business has developed in line with our expectations. Duringthe period US Dollar revenue increased by 3.4% to $1,199.0m or £771.5m (2010:$1,160.1m or £727.8m). Operating profit was $89.5m or £57.2m (2010: $84.4m or £53.0m). First Transit delivered an operating margin of 7.5%. We remain encouraged bythe good returns from low or no capital investment and continue to developopportunities for further growth in this fragmented and diverse market. Ourstrategy remains to focus on the faster growing paratransit and shuttle buscontracting segments with new contracts won during the year, including a 5 yearcontract for paratransit services in Reno, Nevada, with annualised revenues
ofmore than $40m. We are reducing our exposure to less attractive markets and have taken a chargeof £16.6m in relation to a First Support Services contract in Diego Garcia,including a goodwill impairment charge of £5.0m and provision for projectedlosses of £11.6m until this contract ends in 2017. Despite the current environment of reduced transit authority budgets andsubsequent increased competition we were pleased that contract retention was90%, a good result, albeit slightly lower than in prior years. We were pleasedto retain a number of significant contracts including paratransit business inHartford, Connecticut, San Bernardino and San Diego, California and a long-termuniversity shuttle contract in Atlanta, Georgia. We also retained fixed routecontracts in Denver, Colorado and Austin, Texas and commenced a majorconversion contract, previously operated in the public sector, on behalf ofNorth County Transit District in San Diego, California. During the year First Vehicle Services won significant new business includingcontracts to start in March and April 2011. Our new contract in Summit County,Colorado is a conversion with fleet maintenance previously performed in house.Our new contracts with transit authorities in Williamsburg, Virginia andBrownsville, Texas are based on our Transit contracting experience and, inparticular, on our experience in maintaining vehicles for the authorities. Asthe market leader, we continue to leverage our reputation and goodrelationships with our customers in one segment of
First Transit's portfolio to win new business for another.
Our customer survey showed improved results, with significant increases in thekey areas of continuous efficiency and cost savings, as we continue to workclosely with our customers to deliver a cost effective and high qualityservice. First Transit's reputation has undoubtedly enhanced our ability toleverage existing business relationships to win new contracts. During the yearwe extended our relationships in Fort McMurray, Alberta, the City of Durham,North Carolina and Jacksonville, Florida to either win new contracts incomplementary services or add significant service under our existing contracts. We are working with our customers across both sides of the Atlantic to deliverinitiatives to reduce carbon emissions from transport. We are building on ourreputation for innovation and leadership in new technologies. Through ourpartnerships with the State of Connecticut and with Transport for London we arebuilding unique experience as an operator at the cutting edge of newtechnologies. We also operate and maintain a fleet of state of the art zeroemission, battery powered vehicles in southern California.
Greyhound
We continue to make good progress in transforming Greyhound. During the yearpassenger revenue, on a like-for-like basis, increased by 0.8% with growthaccelerating in the fourth quarter of our financial year. This was particularlyencouraging against the ongoing difficult trading backdrop, as highunemployment and a slow economic recovery continued to impact consumerconfidence and discretionary spending. US Dollar revenue increased by 2.2% to $985.0m or £634.6m (2010: $963.4m or £603.3m) and operating profit increased to $62.3m or £40.2m (2010: $39.6m or £23.9m), an increase of 57.3% and 68.2% respectively. The margin improvementrepresents the progress made by the team at Greyhound to substantially improvethe operational leverage in the business. We are encouraged by recent trends inpassenger volumes, reflecting increased fuel prices which has led to highercosts for car drivers and airline passengers. Our Greyhound management team remains focused on rigorous management of thenetwork and cost base. Greyhound's highly flexible operating model has enabledtargeted mileage reductions of 2.5% and ensured that revenue per mile is aheadof last year. In addition, we continue to take action to make the fundamentalchanges to the business model necessary to achieve further sustainable growth. As we continue to modernise Greyhound we maintain a measured and highlydisciplined approach to capital investment. During the year we focused ourinvestment on a cost-effective refurbishment programme of our mid life coachesthat will significantly enhance the customer experience, improve operationalperformance and extend the life of the vehicles. We have refurbished over 100coaches this year and plan to refurbish a further 200 next year. Thisprogramme, together with targeted investment in new coaches, is delivering astep change in service quality. By April 2012 over 50% of Greyhound's fleetwill be new or like new. In the first half of the year we re-launched greyhound.com. The redesigned sitehas an expanded Print at Home ticketing capacity and, together with ourdiscounted online fares strategy, is helping to reduce the cost of sales.Internet sales continue to increase with some 25% of all sales now made throughgreyhound.com.
We continue to progress our Network Transformation Project with over 20% ofGreyhound's properties now 'right sized' or 'right located' to more accessibleand convenient sites. We are upgrading the customer experience at the point ofsale at each location, during boarding and onboard. In February we introducednew and enhanced ticket kiosks into the northeast market and we are workingwith 7-Eleven, a major convenience store chain, to establish a ticket sellingjoint venture. We are also installing WiFi and arrival/departure screens inmajor terminals to improve our offering and to provide our customers withbetter, timely information. Operational performance is also a key focus. We are utilising new technology toenable real time monitoring and enhanced tracking by location and by route toimprove On Time Performance. This information has enabled Greyhound tore-evaluate turnaround times at each location and identify the root cause ofdelays so that action plans can be implemented to address specific issues. BoltBuscontinues to grow in the highly competitive markets in the north east ofthe US with strong increases in both passenger volumes and revenue. Passengerloadings per bus continue to improve and during the fourth quarter we created anew hub in New Jersey providing services between Newark and Baltimore,Washington DC, Boston and Philadelphia.
In December we successfully launched Greyhound Express, a new service combining features of BoltBus with the strength of the Greyhound brand, with non-stop services from Chicago to several cities in the Midwest. In April 2011 we expanded Greyhound Express further with the launch of new services between Boston and New York.
In Canada, we continue to work through our ongoing plans to match serviceprovision to customer demand or receive a subsidy to operate certain routes. Wehave reached agreement with the government of Manitoba to continue a subsidyfor rural bus services until 31 March 2012. In Alberta and British Columbia wecontinue to work towards a modernised regulatory framework and expect theresults to be realised in 2011/12.
UK Bus
Our UK Bus division delivered a steady performance this year, despite thechallenging economic environment. Total revenue reduced by 2.8% to £1,137.5m(2010: £1,170.6m) as a result of targeted mileage reductions in response totrading conditions. However, we are encouraged that like-for-like passengerrevenues increased by 1.4%. Operating profit increased by 19.4% to £148.8m (2010: £124.6m) due to lowerhedged fuel costs, operating efficiencies and the actions we took to manage ournetwork where we saw lower levels of customer demand due to higher unemploymentand lower levels of retail activity in many of the towns and cities where weoperate. We have a market leading position with established networks in high density,urban areas which provide opportunities for growth. We are responding to signsof increased economic activity and are focused on achieving the optimumcombination of frequency, price and cost discipline. Giles Fearnley joined the Group as Managing Director UK Bus in February. Histrack record of achievement together with considerable experience in theindustry will bring a strong focus on delivering improved service quality andgrowth.
Developing best in class operational standards
We continue to focus on improving our punctuality and reliability. Wecontinually review our performance and monitor the effects of congestion andother factors and, where necessary, amend our services. This delivers a'punctuality dividend' with customers responding favourably to theimprovements, leading to an increase in passenger numbers and a significantreduction in customer complaints. We are encouraged by our operationalperformance in London and we are better than network average and near the topof the Transport for London league tables on most measures. DriveGreen, our industry leading programme, has given our drivers thetechnology to make adjustments to reduce heavy braking and acceleration in realtime. Ever higher driving standards improve our customers' journey experiencesand, as a consequence, complaints across our operating companies are at an alltime low. DriveGreen has also helped to deliver a like-for-like fuelconsumption improvement of 4.9% across the division. Revenue growth through network developments, simplified fares and marketingWe are focusing on developing our networks through a range of initiatives. Forexample, in Greater Manchester we consolidated two routes into our highfrequency Overground network to increase the number of peak services betweenMiddleton and Manchester with coordinated links now providing a bus every fiveminutes. We believe that on corridors linking the key towns in the region withManchester City Centre, our investment in quality vehicles and focus onoperational performance will deliver passenger growth. In June we launched "Simple Fares" in Leeds. This city wide initiativeconsolidated a complex range of single fares to just four prices to make iteasier for customers and potential customers to understand and to remove anobstacle to using our services. The initiative has been backed by a significantmarketing campaign and we believe fares simplification will be an importantbuilding block for passenger growth, not only in Leeds but across our networksgenerally. In Glasgow we launched a 'Price BUSter' campaign in January to promote reducedprice FirstWeek tickets. In Bristol we reduced the price of our FirstDaytickets in February, which has increased passenger volumes and revenue. At thebeginning of April we reduced the price of five our most popular season ticketsacross Bristol, Somerset and Avon.
We support the concept of multi-operator tickets in urban areas and were pleased to be able to participate in the launch of Fusion, a day ticket offering unlimited travel on buses in the Norwich area, in January.
The university market is an important one and during the year we improved ouroffer to students in the towns and cities where we operate. For example, inNorwich we launched a new, direct service between the city centre and theUniversity of East Anglia and in Bath we launched dedicated services for thetwo universities. We also relaunched the Unilink service between the Universityof Stirling and the city centre with new vehicles to increase capacity. InSheffield we introduced a 50p student ticket which has helped increasepassenger numbers and we continue to promote the successful UniCard forstudents and staff at the University of Essex.
Effective long-term partnerships
We continue to be at the forefront of partnerships with local authorities andPassenger Transport Executives (PTEs). We have been working closely with theWest of England Partnership to deliver the Greater Bristol Bus Network (GBBN).The GBBN programme will improve ten route corridors and benefit some 60 busroutes. We were delighted that the first completed route corridor, betweenWeston-super-Mare and Bristol, was launched in March. A number ofinfrastructure improvements will make bus services more accessible and easierto use. In addition, changes to the road network have reduced off peak journeytimes. We have supported the GBBN programme with an investment of £20m in newbuses, fare promotions and increased marketing. On one of the other routecorridors, Bath to Midsomer Norton, we negotiated a Quality Partnership Schemewhich sets out service standards including maximum fares and minimumfrequencies. We continue to make progress with the three PTEs in Yorkshire and GreaterManchester on partnership and investment proposals which focus on passengergrowth and modal shift. With local authorities facing a range of challenges inthe year ahead we believe that closer partnership working will ensure thesechallenges are met. In West Yorkshire, all operators have formed the WestYorkshire Bus Operators Association to progress partnership plans. A similararrangement already exists in Greater Manchester which has delivered a numberof benefits including a new Code of Conduct launched in October. In Chester we signed a Voluntary Partnership Agreement with Cheshire West andChester Council to cover Blacon area. Our investment in upgraded vehicles hashelped deliver a strong passenger growth. We are also working with Merseytravelon its upcoming Quality Partnership Scheme.
Active assessment and management of our portfolio
In April 2011 we sold our Kings Lynn network to a local bus operator. This enables us to further develop our flagship interurban service operating across the region. We continue to modernise and right size our facilities through investment in new and redeveloped depots in Aberdeen, Braintree, London, Norwich, Southampton and Wigan and the closure of one of our depots in Bristol.
Investing for growthOn 30 March we announced our plans to order £160m of new vehicles over the nexttwo years from UK bus manufacturers. The order for 955 vehicles is one of thelargest the British bus industry has ever seen. Our new bus order includes 40hybrid buses, part funded by the DfT's Green Bus Fund, as we continue to investin low carbon vehicles which will significantly lower emissions. In partnershipwith Bath and North East Somerset Council as part of the EU Civitas project, welaunched a hybrid vehicle on Park & Ride services in Bath during the year. In March we started to introduce hybrid vehicles into Leeds for servicesoperating on the Scott Hall Road guided busway. We worked in partnership withMetro and Leeds City Council a generation ago to pioneer guided buswaysdelivering significant improvements to journey times and reliability on theroute. This delivered substantial passenger growth and we believe there arefurther growth opportunities through strong marketing and investment, supportedby funding from Metro, to upgrade passenger facilities on the route.
In January we started operating hydrogen fuel cell buses on route RV1 in London. The vehicles run from a purpose built facility at Lea Interchange Depot. This project is in partnership with Transport for London. We are the only company in the world operating hydrogen fuel cell buses in both the UK and the US. Our engineering and operations teams are at the forefront of the industry and the institutional expertise we are developing will stand us in good stead for the future.
We are actively examining new technologies to improve our ticketing and fares offerings which will support our plans for growth. We have a wide ranging experience with smartcards, in particular in Scotland and Wales. During the year First Cymru completed the introduction of new smartcard enabled ticket machines, supported with funding from the Welsh Assembly Government. We are also working with Strathclyde Partnership for Transport on a smartcard, multi-operator ticket for the Greater Glasgow bus network.
Contracts
Contracted services continue to complement our passenger revenue business.During the year we were awarded a number of important contracts by LondonBuses, part of Transport for London, including the route between Ilford andOxford Circus requiring a fleet of 65 vehicles. The tender market in London ishowever increasingly competitive, particularly in the east with operatorsseeking to utilise spare capacity at depots in the area. We are increasinglysuccessful in winning contracts from Transport for London for both Undergroundand Overground rail replacement services utilising buses that would otherwisebe idle outside peak operating hours. We are well advanced in our preparationsto deliver our commitments to transport spectators by bus and coach during theLondon 2012 Olympic Games.
We were delighted to retain the high profile Metroshuttle contract in Manchester during the year. Originally introduced in 2002, Metroshuttle now operates three routes, which together provide passengers with a free bus service to all the main city centre areas. The service was successfully relaunched in November with a new fleet of 20 hybrid vehicles funded by Transport for Greater Manchester, again with support from the DfT's Green Bus Fund.
We launched our new 'Glasgow Shuttle' route between Glasgow Airport and the city centre on 1 January 2011. We invested £1.5m in ten new high specification buses with leather seats, on bus screens and WiFi. The route is performing ahead of expectations.
The Comprehensive Spending Review (CSR) and the Competition Commission
The CSR in October announced significant reductions in grant funding for localauthorities and a 20% reduction in Bus Service Operators Grant (BSOG) fromApril 2012. With adequate time to plan and prepare, we expect to manage theimpact of the reduction in BSOG through mitigating actions including increasedefficiencies. Pressure on local authority budgets, together with the impact ofthe DfT's revised guidance on concessionary fares reimbursement, has reducedthe funding available in some areas. We continue to progress negotiations withlocal authorities on reimbursement and have successfully secured agreements forup to three years with some authorities. Funding for tendered services has alsoreduced in a number of areas and authorities are reviewing the criteria forfunding routes and journeys not operated commercially. The provisional findings of the Competition Commission's local bus servicesmarket inquiry were published in May 2011. We are pleased that the CompetitionCommission recognises that the tools exist within the current legislativeframework to improve bus services for passengers and therefore its possibleremedies do not propose any major policy or regulatory changes. We remainactively engaged in the inquiry and will continue to work with the CompetitionCommission ahead of its final report later in the year.
UK Rail
Revenue increased by 6.5% to £2,269.8m (2010: £2,131.0m). Passenger revenue, ona like-for-like basis, increased by 5.3% reflecting strong volume growth acrossall of our Train Operating Companies (TOCs). Operating profit increased by23.1% to £108.7m (2010: £88.3m), despite a reduction in net subsidy/premium,and was supported by management actions to reduce the addressable cost base
andlower hedged fuel costs. We have decided that we will not take up the option to extend First GreatWestern for a further three years beyond the initial franchise term to 2013.The Government has announced a new franchising policy and major investment inthe region including electrification of the Great Western Main Line and theIntercity Express Programme. We intend to bid for the new Greater Westernfranchise reflecting the changed environment. We will continue to operate FirstGreat Western until March 2013 and will meet all of our obligations under theFranchise Agreement. We remain committed to delivering further improvements
forcustomers in the region.
As the UK's largest rail operator we have unrivalled experience of every type of passenger rail operation including intercity long distance, commuter, regional and open access. We also have a strong track record of innovation, investment and of working in partnership to deliver improved services and increased capacity for customers.
We remain focused on retaining our leadership position in UK Rail and willcontinue to leverage our unrivalled expertise and experience. We were pleasedto be shortlisted for the InterCity West Coast franchise and we are indiscussion with the DfT on a proposal to extend our First TransPennine Expressfranchise.
During the first half of the year we completed the sale of GBRf to Eurotunnel for a gross consideration of £31.0m. This disposal is consistent with our strategy to focus on the Group's core businesses in the UK and North America.
First Great WesternThe reliability of infrastructure, particularly in the Thames Valley area, hashad a significant impact on operational performance during the year. As aresult the Public Performance Measure (PPM) on a Moving Annual Average (MAA)basis has reduced to 90.3%. We have been working closely with Network Rail (NR)and the new Route Director to address the infrastructure issues and improveperformance. Whilst we are pleased to report increased punctuality andreliability trends in February and March there remains more to do. We are continuing discussions with the DfT about how to increase capacity onour services to address issues of overcrowding, particularly in the London andThames Valley and Greater Bristol areas. Overall satisfaction remained stableat 82% in the National Passenger Survey Autumn 2010. We continue to see strong growth on branch lines in Devon and Cornwall as aresult of improved services and local marketing campaigns. Our successful 'Club55' promotion, delivered in partnership with other FirstGroup TOCs for thefirst time this year, continues to deliver growth with a 22% increase in salescompared to the previous promotion in autumn/winter 2009. We continue topromote internet sales and are pleased with the continued growth, an increaseof nearly a third year on year.
In December 2010 we successfully launched a new early morning service from London Paddington to Exeter and Torbay. The new train has been welcomed by local business leaders and stakeholders.
Over Christmas and the New Year, NR successfully completed the first stage ofits major improvement programme in and around Reading station. This long-termproject will ultimately include the construction of a new track layout and fournew platforms at the station, allowing more trains to pass through the area,improve punctuality and provide a bigger and more easily accessible station.During the major engineering works, which significantly affected all FirstGreat Western routes, we demonstrated our expertise in operational managementworking in partnership with NR to effectively manage longer journey times andbus and rail interchanges at key stations. We are investing £8m to improve our Turbo Class 16x fleet, which operates inLondon and the Thames Valley and carries more than 36 million passengers everyyear. The improvement programme includes a GPS-linked public address andCustomer Information System to improve the accuracy and clarity of journeyinformation for customers, as well as upgrading toilets and air conditioningsystems. First Capital ConnectWe are focused on improving operational performance at First Capital Connect.Our driver recruitment and training programme is progressing well and wecontinue to work closely with NR to address infrastructure issues on thenetwork, which remain challenging. Despite our efforts, the PPM, on a MAAbasis, has remained at around 89% throughout the year, partly as a result ofsignificant disruption due to a poor autumn and severe winter weather inNovember and December. Performance on our Thameslink route has improvedsignificantly year on year. We invested over £1m in a package of measures to improve information tocustomers and to staff on the front line, principally through an upgrade to ourCustomer Information System, issuing BlackBerry devices to our revenueprotection and station staff teams and the installation of gateline computersfor our station based revenue protection teams. We also redeveloped our websiteto focus on real-time information to customers. In December 2010, we introduced our new 'More Seats for You' timetable on ourGreat Northern route to deliver a significant capacity improvement and createdover 6,500 extra seats on peak time services connecting Moorgate and King'sCross. We continue to work with the DfT, NR and other TOCs to deliver the ThameslinkProgramme. Scheduled to complete in December 2018, the programme will deliver aservice with new, longer trains operating at up to 24 services per hour acrossLondon in the morning and evening peaks. During the year ahead we will see theintroduction of the first 12 car services in December 2011, with an additional2,000 seats on services on the Thameslink route and the completion of majorstation upgrades at Blackfriars, Farringdon and West Hampstead. We continue to invest in our First Capital Connect franchise to deliver a rangeof improvements. In addition to capacity increases on the Great Northern routeand better customer information, we also introduced gateline schemes atFinsbury Park, Harpenden and Leagrave stations, completed refresh andreliability improvements on our Class 319 and made improvements to stations,including cycle facilities, accessibility works and security.
First ScotRail
Despite a record PPM of 95% in August and a strong operational performance overthe summer months, First ScotRail's PPM MAA reduced to 90%, due to theprolonged impact of severe weather affecting transport networks in Scotlandduring November and December, which had a significant impact on our performanceand targets. For the second consecutive year First ScotRail was named UK Rail Operator ofthe Year at the National Transport Awards. This is a great achievement. Howeverwe must continue to improve our service quality. We are taking action toaddress the issues raised, particularly customer information, through theNational Passenger Survey which contributed to our overall satisfaction scoreof 86% in autumn 2010. We are delivering a significant programme of investmentto refresh the interiors of our fleet. Work on the Class 314s is underway andenhancements to our Class 334 and Class 170 trains will begin later in theyear. We are also introducing our new fleet of Class 380 electric trains into servicewith the roll out to continue through 2011. This investment by the ScottishGovernment will offer more seats and improved comfort to passengers includingaccessible toilets, air-conditioning, CCTV, power sockets and enhancedprovision for cycles, luggage and wheelchair users. Our Shields Depot, expandedto accommodate the new trains, opened in February 2011. The Glasgow-Edinburgh via Airdrie and Bathgate line opened in December 2010.Funded by Transport Scotland and built by Network Rail, the £300m link includesthree new stations serving the communities of Armadale, Blackridge andCaldercruix. In addition, Bathgate station was relocated, Drumgelloch stationrebuilt, and Livingston North and Uphall stations upgraded. First ScotRail continues to focus on leisure advertising, sales promotion andimproved digital and online activity. Our 'Summer Leisure' campaign and 'KidsGo Free' ticket both performed very well. Our autumn 'Club 55' promotion andour offer with Sainsbury's again proved successful in attracting new passengersto the railways, with combined revenue increasing by over 13% on the equivalentpromotions last year.
We successfully completed the trial of smartcard ticketing on the Glasgow-Edinburgh route via Falkirk High. The technology has been proven and we now have more than 500 registered users.
First TransPennine Express
We were delighted to win the Passenger Operator of the Year title at theNational Rail Awards in September. Since the start of the franchise in February2004 punctuality and reliability has increased from 85% to over 91%, customersatisfaction has increased from 74% to 87% and passenger numbers have increasedby 85% to some 24 million a year. In addition, First TransPennine Express hasintroduced a £260m fleet of new trains, invested £12m in station improvementsand expanded its network with the transfer of routes from Manchester Airport toScotland. We are in discussions with the DfT to extend the franchise.
First TransPennine Express scored 87% overall satisfaction in the National Passenger Survey Autumn 2010 with improvements in 12 of the 13 station categories. Customers were particularly pleased with both the upkeep and cleanliness of the station environments and the attitude and helpfulness of staff.
There was also a significant improvement in the score for managing delays anddisruption to train services. Investment in information technology andproviding better quality information to staff on trains and stations has helpedthem to provide better information and assistance to customers. FirstTransPennine Express also launched its mobile website allowing customers tocheck real time arrival and departure information from their station as theytravel. In February 2011 we achieved Investors in People accreditation with learningand development marked as a particular strength, including the provision ofNVQs in Customer Service and other professional qualifications. A recent staffsurvey highlighted that more than four out of five employees enjoyed their joband more than three quarters of employees who started with the business in 2004are still with First TransPennine Express. First TransPennine Express continues to promote its 'Great Value Fares'campaign and at the start of the year launched a January sale with 25% off theprice of one million Advance tickets. Last year, we ran a major marketingcampaign using TV, press, radio and online media. During the period the TVadverts were being shown visits to www.tpexpress.co.uk increased by 43%. Thecampaign led to a significant boost in sales of Advance purchase tickets.
First Hull Trains
An increasing number of passengers are choosing to use our services and thisyear we carried over 750,000 passengers, the highest in our ten year history.We were pleased to achieve a score of 93% in the National Passenger SurveyAutumn 2010. We completed the refresh programme of our Class 180 fleet andfeedback from passengers has been encouraging. We are launching a new timetablein May 2011 offering faster journey times and a more regular service pattern. Outlook
Looking ahead the economic outlook remains uncertain. We are encouraged byimproving trends in UK Rail and Greyhound and a continued steady performance inour UK Bus and First Transit operations. We expect that our North AmericanFirst Student business will continue to see pressure on margins during 2011/12.Across the Group we will continue to focus our efforts on improving ouroperations to drive further efficiencies to maintain and develop margins. Building on our strong cash performance this year, we will continue to progressthe opportunities to increase cash generation within the Group and we aretargeting a net cash inflow of £150m in 2011/12. The Board is committed to itskey priorities of increased cash generation to support capital investment, debtreduction and dividend growth of at least 7% per annum. The Group is well placed with market leading positions in a sector that is akey enabler of economic growth. With diverse operations that are fundamentallyrobust and a team with a clear focus on creating a stronger business, the Grouphas good prospects in all of its key markets to continue to deliver long-termvalue for shareholders. Tim O'TooleChief Executive10 May 2011 Finance Director's review OVERVIEWThe Group results were in line with expectations however our business portfoliohad a mixed performance. Margins and adjusted operating profits improved inall of the businesses except for First Student. Strong results in the UK,particularly in the Rail division and steady and improving performance in UKBus, First Transit and Greyhound offset a disappointing performance by FirstStudent which was impacted by unprecedented spending cuts by School Boards
andDistricts.
The results also contain a number of significant non-recurring items whichreflect the decisive actions we have taken to address specific issues and tostrengthen the business. In particular we have implemented a recovery programmein First Student to strengthen and right size the business model, streamlinethe cost base, improve margins and reposition the business for future growthopportunities. In addition we have taken a charge, principally related toaccelerated depreciation, for projected losses on the First Great Westernfranchise following our decision not to exercise our option to extend thefranchise for the 3 years beyond March 2013. We have also taken a charge forgoodwill impairment and future losses relating to the provision of US militarybase services in Diego Garcia in First Transit. The Group continues to improve cash generation and as a result cash generatedfrom operations grew 23% to £744.1m (2010: £604.7m) and the net cash inflow was£209.8m (2010: £136.3m), significantly ahead of target. As expected, the netdebt to EBITDA ratio was 2.5 times (2010: 3.0 times) showing good progress fromlast year. Strong cash generation underpins the Group's commitment to deliversustained real growth in the dividend while also reducing leverage. For 2011/12 we are targeting a net cash inflow of £150m. Further progress was made with debt financing. We implemented a new committed5 year $1.25 billion bank revolver and a $150m term loan bilateral whichreplaced two revolver facilities due to expire in February 2012. The averagedebt duration at 31 March 2011 was 6.1 years, broadly in line with last year.Headroom under committed revolver facilities at 31 March 2011 was £526.7m.
Shortly after the year end, the Group issued private placement notes for $150m, with an average duration of 6 years and a coupon rate of 4.26%. The proceeds were used to reduce bank debt, improve liquidity headroom and further reduce refinancing risk.
RESULTSGroup revenue was £6,429.2m (2010: £6,261.9m), an increase of 2.7% and includes£98.0m of favourable foreign exchange movements, representing an increase of1.1% at constant currencies. Adjusted operating profit was £457.4m (2010: £449.6m). Operating margins are broadly in line with last year reflectingimprovements in all of the businesses with the exception of First Student.Statutory operating profit was £309.3m (2010: £364.2m) with the reductionprincipally due to the higher level of non-recurring items and amortisation
charges. Year to 31 Year to 31 March 2011 March 2010 Operating Operating Operating Operating Revenue profit1 margin1 Revenue profit1 margin1 Divisional £m £m % £m £m %results First 1,594.4 8.0 1,605.9 180.9 11.3Student 128.3 First 7.4 53.0 7.3Transit 771.5 57.2 727.8 Greyhound 6.3 23.9 4.0 634.6 40.2 603.3 UK Bus 1,137.5 13.1 1,170.6 124.6 10.6 148.8 UK Rail 2,269.8 4.8 2,131.0 88.3 4.1 108.7 Group2 21.4 (25.8) - (21.1) - 23.3 Total Group 6,429.2 457.4 7.1 6,261.9 449.6 7.2 1Adjusted.
2Tram operations, German Bus, central management and other items.
First Student revenue was $2,480.2m or £1,594.4m (2010: $2,544.7m or £1,605.9m), a reduction of 2.5% in US Dollars and a reduction of 0.7% inSterling terms. Operating profit was $200.2m or £128.3m (2010: $281.1m or £180.9m). The reduction in revenue and operating profit is largely a result ofthe difficult trading conditions with pressure on School Board budgets. Duringthe year the number of buses in the fleet reduced to approximately 57,000 as aresult of competitive bidding and organic losses as we saw an overallcontraction in the size of the student bus market. The margin decline wasexacerbated by an inability to recover cost inflation through price increases,and flex costs and achieve operating efficiencies in light of the reduction inbusiness. As a result the margin fell to 8.0% from 11.3% last year. Weanticipate that the recovery plan which was initiated towards the end of theyear will address the structural issues and will lead to an improvement inmargin in the medium term. First Transit revenue was $1,199.0m or £771.5m (2010: $1,160.1m or £727.8m), anincrease of 3.4% and 6.0% in US Dollar and Sterling terms respectively. Operating profit was $89.5m or £57.2m (2010: $84.4m or £53.0m). The revenueimprovement was principally in shuttle bus and paratransit operations. Themargin has improved to 7.4% (2010: 7.3%) which represents an excellent returngiven the low levels of capital expenditure required in this business. Greyhound revenue was $985.0m or £634.6m (2010: $963.4m or £603.3m) andoperating profit was $62.3m or £40.2m (2010: $39.6m or £23.9m). Passengerrevenues were up 0.8% on last year at constant exchange rates with encouraginggrowth of 1.6% in the final quarter of the year. The business had an excellentperformance on costs with reduced variable wheel costs, including a reductionin fuel costs, and further management actions and Greyhound Canada is makinggood progress in delivering its profit recovery plan. UK Bus revenue was £1,137.5m (2010: £1,170.6m), a reduction of 2.8%. Operatingprofit was £148.8m (2010: £124.6m), an increase of 19.4% principally due tolower fuel costs and further cost efficiencies partly offset by the impact ofbad weather in the second half of the year (£4.0m). As a result margin improvedto 13.1% from 10.6% last year. Passenger revenues did not recover at the rateswe anticipated but like-for-like passenger revenues still grew by 1.4%. Wehave continued to take advantage of the flexible operating model in UK Buswhich we can adjust to match supply with demand and during the year we reducedmileage year on year by 6.4%. UK Rail revenue was £2,269.8m (2010: £2,131.0m), an increase of 6.5%. Operatingprofit was £108.7m (2010: £88.3m), an increase of 23.1%. Like-for-likepassenger revenue growth across all TOCs was 5.3%. We are still receivingrevenue support at the highest level of 80% for both First Great Western andFirst Capital Connect. The reduction in the net franchise subsidy/premiumposition and the impact of bad weather in the second half of the year (£5.2m)were more than offset by higher performance regime receipts, lower fuel costsand further management cost savings in the addressable cost base. During theyear we disposed of the non-core GB Railfreight business for gross proceeds of£31.0m and settled several disputes with NR for a total receipt of £30.0m, thelargest of which related to the previous Great Western Trains franchise. Wealso recorded a one-off provision for projected future losses on the FirstGreat Western franchise as explained below. Net Group costs were £25.8m (2010: £21.1m) with the increase mainly due to ahigher share-based payment charge as last year's charge was lower due to thetrue-up of certain executive options where the required performance conditionswere not expected to be met. Non-recurring items and 2011 2010amortisation charges £m £m UK Rail First Great Western (59.9) -contract provision First Student recovery plan (39.5) - UK Rail claim 22.5 - First Transit goodwill (16.6) -impairment and contract provision UK Rail bid costs (2.7) - UK Rail joint venture provision (1.8) - Competition Commission costs (1.4) (3.8) UK Bus restructuring costs (1.0) (6.8) North American restructuring - (15.9)costs North American integration - (15.5)costs Fuel hedge ineffectiveness - (4.8) UK Rail restructuring costs - (2.5) Other non-recurring items (0.4) (0.3) Total non-recurring items (100.8) (49.6) Amortisation charges (42.9) (34.7) Loss on disposal of properties (4.4) (1.1) Operating profit charge (148.1) (85.4) Ineffectiveness on financial derivatives 0.3 1.0 Profit before tax charge (147.8) (84.4) Tax credit 26.6 43.0 Profit on disposal of discontinued operations 6.7 - Non-recurring items for the (98.1) (57.8)year
UKRail First Great Western contract provision
During the year a charge of £59.9m (2010: £nil) was made in respect of theFirst Great Western franchise. Previously we had considered that certainchanges to this franchise in relation to the option period could be negotiatedwith the DfT. However as a result of the change in Government and subsequentstatements on franchise contractual terms this now appears unlikely to happen. We have decided that the best commercial strategy is to put ourselves in aposition to rebid for this franchise under new economic conditions includingthe electrification and new rolling stock projects for a start date of 1 April2013. We will therefore not exercise our option to extend this franchise forthe three years to March 2016 and it will now end in March 2013. The provisionreflects our best estimate of the likely losses on the franchise over the twoyears to 31 March 2013 which arise largely due to the accelerated write off ofassets dedicated to this contract due to the earlier than expected end date. We expect that the overall cash flow of First Great Western will be broadlyneutral over the remaining two years of the franchise.
First Student recovery plan
A charge of £39.5m (2010: £nil) has been made in respect of the First Studentbusiness relating to a restructuring and right sizing project which wasinitiated as a result of the disappointing performance during the year. Weanticipate that this will strengthen the business model, streamline the costbase, improve margins in the medium term and maximise the future growthopportunities. These costs include a provision for surplus fleet, a provisionfor loss making contracts, redundancy and associated costs.
UKRail claim
Agreement was reached with Network Rail during the year in settlement ofseveral disputes, the largest of which related to a long running claim from theprevious Great Western Trains franchise. The Group recognised £22.5m net inrelation to this matter as compensation as a result of certain changes to thepreviously agreed rail network.
First Transit goodwill impairment and contract provision
During the year a charge of £16.6m (2010: £nil) was made in relation to a lossmaking contract related to the provision of US military base services in DiegoGarcia. Included within this charge is a goodwill impairment charge of £5.0mand provision for projected losses of £11.6m until this contract ends in 2017. UKRail bid costs
Costs of £2.7m (2010: £nil) were incurred during the year on our bid for the Intercity West Coast franchise.
UKRail joint venture provision
A provision of £1.8m (2010: £nil) has been made for the investment in DSBFirstdue to operational and financial uncertainties with this joint venture whichhave only recently come to light.
Competition Commission costs
Costs of £1.4m (2010: £3.8m) were incurred on the ongoing Competition Commission investigation into the UK Bus market.
UKBus restructuring costs
Restructuring costs of £1.0m (2010: £6.8m) were incurred during the year andprincipally represent redundancy and related costs in respect of closing andconsolidating certain depots. Amortisation chargesThe charge for the year was £42.9m (2010: £34.7m) with the increase mainly dueto the write off of the remaining balance of the First Great Western franchiseintangible asset (£7.6m) as a result of projected losses to the end of thisfranchise in 31 March 2013.
Loss on disposal of properties
A loss on disposal of properties of £4.4m (2010: £1.1m) was recorded during theyear. Principally due to market conditions there were no significant disposalsof properties during the year either in the UK or North America.
Ineffectiveness on financial derivatives
Due to the ineffective element and undesignated fair value movements on financial derivatives there was a £0.3m (2010: £1.0m) credit to the income statement during the year.
Tax
The tax credit as a result of this non-recurring expenditure was £41.3m (2010:£26.6m). In addition there was a one-off deferred tax credit of £1.7m as aresult of the reduction in the UK corporation tax rate from 28% to 26%.
FINANCE COSTS AND INVESTMENT INCOME
Net finance costs, before non-recurring items, were £182.4m (2010: £189.9m) with the reduction principally due to lower interest rates.
PROFIT BEFORE TAX
Adjusted profit before tax was £275.0m (2010: £259.7m) with the increase dueprincipally to higher operating profit and lower net finance costs. An overallcharge of £147.8m (2010: £84.4m) for non-recurring items and amortisationcharges resulted in statutory profit before tax of £127.2m (2010: £175.3m). TAXThe tax charge, on adjusted profit before tax, for the year was £60.0m (2010: £57.8m) and results in an effective rate of 21.8% (2010: 22.4%). There was a taxcredit of £41.3m (2010: £26.6m) relating to amortisation charges andnon-recurring items and a one-off credit adjustment of £1.7m to the UK deferredtax liability as a result of the reduction in the UK Corporation tax rate from28% to 26% which will apply from April 2011. This resulted in a total taxcharge of £17.0m (2010: £31.2m) on continuing operations. The actual tax paid during the year was £25.0m (2010: £1.3m). North Americancash tax remains low due to tax losses brought forward and tax depreciation inexcess of book depreciation. We expect the North American cash tax rate toremain low for the medium term. The UK cash tax for the year was higher thanlast year due to higher UK operating profits, the UK Rail claim receipt and
lower capital allowances. DISCONTINUED OPERATIONSA profit on disposal of £6.7m arose on the sale of GB Railfreight representingthe gross proceeds of £31.0m less the carrying value of net assets, includinggoodwill, and transaction costs. This, as well as the operating profit aftertax to the date of disposal of £0.2m (2010: £3.0m), has been classified withindiscontinued operations in the consolidated income statement.
DIVIDENDS
In line with our stated commitment the Board has proposed a final dividend pershare, subject to approval by shareholders, of 15.0p (2010:14.0p), an increaseof 7%, making a full year payment of 22.12p (2010: 20.65p). It will be paid on19 August 2011 to shareholders on the register at 15 July 2011. The dividend iscovered 1.9 times (2010: 1.9 times) by adjusted basic EPS.
EPS
The adjusted basic EPS was 41.2p (2010: 38.9p), an increase of 5.9%. Basic EPS was 21.4p (2010: 26.9p), a reduction of 20.4%.
EBITDA
EBITDA by division is set out below:
Year to 31 March Year to 31 March 2011 2010 Revenue EBITDA1 EBITDA1 Revenue EBITDA1 EBITDA1 £m £m % £m £m % First 1,594.4 17.4 1,605.9 324.3 20.2Student 278.1 First 8.6 62.1 8.5Transit 771.5 66.3 727.8 Greyhound 10.8 52.6 8.7 634.6 68.7 603.3 UK Bus 1,137.5 19.4 1,170.6 200.2 17.1 220.5 UK Rail 2,269.8 7.3 2,131.0 141.9 6.7 166.1 Group (21.5) - (17.2) - 21.4 23.3 Total 6,429.2 12.1 6,261.9 763.9 12.2Group 778.2
1Adjusted operating profit plus depreciation.
CASH FLOWThe net cash inflow was £209.8m (2010: £136.3m) during the year. Thiscontributed to a net debt reduction of £332.1m (2010: £222.0m) as detailedbelow: Year to Year to 31 March 2011 31 March 2010 £m £m Operational cash flows before working capital 708.8 726.3 Working capital 78.4 (45.4) Movement in provisions 0.4 (34.1) Pension payments in excess of (43.5) (42.1)income statement charge Cash generated by operations 744.1 604.7 Capex and acquisitions (261.8) (202.1) Interest and tax (186.7) (150.8) Dividends (113.2) (112.2) Proceeds from sale of business 24.3 0.4 Other (3.7) 3.1 Net cash inflow 209.8 136.3 Foreign exchange movements 129.2 90.3 Other non-cash movements in (6.9) (4.6)relation to financial instruments Movement in net debt in year 332.1 222.0
The improvement in net cash flow was primarily due to:
· Working capital inflow being £123.8m favourable due to
better
collections of receivables, extended payment terms with suppliers, non-cashexceptional items (excluding the projected FGW losses for the year to 31/03/13which are included in provisions) and the timing of certain UK Rail payments togovernment bodies.· Lower cash settlements of provisions of £34.5m mainly
reflecting the FGW provision which was a non-cash item during the year.
· Net proceeds of the GBRf disposal of £24.3m.
partly offset by:
· Operating cash flows before working capital being £17.5m
lower
principally due to a higher level of non-recurring charges
· Higher capital expenditure and acquisitions of £59.7m due
to
additional investment principally in First Student and UK Bus.
· Higher tax, interest and dividend payments of £36.9m.
CAPITAL EXPENDITURE
Cash capital expenditure was £258.7m (2010: £201.7m) and comprised FirstStudent £107.7m (2010: £89.1m), First Transit £6.8m (2010: £10.7m), Greyhound £33.8m (2010: £30.0m), UK Bus £64.6m (2010: £32.5m), UK Rail £45.1m (2010: £36.3m) and Group items £0.7m (2010: £3.1m).
FUNDING AND RISK MANAGEMENT
At the year end, there was £526.7m of headroom under committed revolving bankfacilities. Largely due to seasonality in the North American school busbusiness, committed headroom typically reduces during the financial year up toOctober and increases thereafter. Treasury policy requires a minimum of £175mof committed headroom at all times.
The Group's average debt maturity was 6.1 years (2010: 6.3 years). The Group's main revolving bank facilities expire in December 2015.
As the Group is a net borrower, cash and bank deposits, which arise principallyin the UK Rail companies are minimised. The Group can only withdraw cash andbank deposits from the UK Rail companies on a permanent basis to the lower ofretained profits or the amount determined by prescribed liquidity ratios.
The Group does not enter into speculative financial transactions and uses only authorised financial instruments for certain risk management purposes only.
Interest rate risk
The Group reduces exposure by using a combination of fixed rate debt andinterest rate derivatives to achieve an overall fixed rate position over themedium term of between 75% and 100% of net debt. At 31 March 2011 87% (2010:100%) of net debt was fixed and in excess of 85% of net debt is fixed for thenext two years. Fuel price risk
In the UK, 90% of crude oil costs were hedged at an average rate of $76 perbarrel during the year. At the end of the year we have hedged 82% of our "atrisk" UK crude requirements for the year to 31 March 2012 (2.6m barrels p.a.)at $88 per barrel and 34% of our requirements for the year to 31 March 2013
at$94 per barrel. In North America 90% of crude oil costs were hedged at an average rate of $89per barrel during the year. At the end of the year we have hedged 59% of the"at risk" volume for the year to 31 March 2012 (1.7m barrels p.a.) at $95 perbarrel. In addition we have hedged 22% of "at risk" volumes for the year to 31March 2013 at $92 per barrel. Foreign currency riskGroup policies on foreign currency risk affecting cash flow, profits and netassets are maintained to minimise exposures to the Group by using a combinationof natural hedge positions and derivative instruments where appropriate.Translation risk relating to US Dollar earnings arising in the US is largelyoffset by US Dollar denominated costs incurred in the UK, principally UK fuelcosts, US Dollar interest and tax costs so that exposure to EPS on a year toyear basis is not significant.
With regard to balance sheet translation risk, the Group hedges part of its exposure to the impact of exchange rate movements on translation of foreign currency net assets by holding currency swaps and net borrowings in foreign currencies. At 31 March 2011 foreign currency net assets were 62% (2010: 63%) hedged.
NET DEBTThe Group's net debt at 31 March 2011 was £1,949.4m (2010: £2,281.5m) andcomprised: 31 March 31 March 2011 2010 Fixed Variable Total Total Analysis of net debt £m £m £m £m Sterling bond (2013)1 298.0 298.0 297.5 - Sterling bond (2018)2 325.9 325.9 350.7 - Sterling bond (2019)2 273.4 273.4 294.2 - Sterling bond (2021)3 331.1 331.1 341.3 - Sterling bond (2024)1 199.0 199.0 198.9 - Sterling bank loans 10.5 - - - US Dollar bank loans 506.3 506.3 699.0 - Canadian Dollar bank 113.1 113.1 156.3loans - Euro and other bank 29.0 29.0 30.2loans - HP contracts and finance 163.6 88.3 251.9 227.4leases Loan notes 8.7 1.0 10.5 9.7 Cash (89.4) (89.4) (76.0) - UK Rail ring-fenced cash (283.8) (283.8) (234.2)and deposits - Other ring-fenced cash (14.8) (14.8) (24.8)and deposits - Interest rate swaps 374.0 (374.0) - - Total 1,700.3 249.1 1,949.4 2,281.5 1 excludes accrued interest
2 stated excluding accrued interest, swapped to US Dollars and adjusted for movements on associated derivatives
3 stated excluding accrued interest, partially swapped to US Dollars and adjusted for movements on associated derivatives
Leverage reduction is a key priority. At 31 March 2011 the net debt to EBITDAratio was 2.5 times (March 2010: 3.0 times) and it is expected that this ratiowill continue to decrease in the year to 31 March 2012.
SHARES IN ISSUE
As at 31 March 2011 there were 480.8m shares in issue (2010: 480.2m), excludingtreasury shares and own shares held in trust for employees of 1.3m (2010:1.9m). The weighted average number of shares in issue for the purpose of basicEPS calculations (excluding treasury shares and own shares held in trust foremployees) was 480.4m (2010: 480.5m).
BALANCE SHEET
Net assets have increased by £40.4m since the start of the year. The principalreasons for this are favourable hedging reserve movements of £149.4m, theretained profit for the year of £117.1m and the RPI to CPI change on certaindefined benefit pension arrangements of £84.9m which were partly offset byunfavourable foreign currency movements of £143.4m, dividend payments of £113.2m and actuarial losses on defined benefit pension schemes of £55.5m.
GOODWILL
The goodwill impairment charge of £5.0m during the year relates to the lossmaking contract in First Transit described above. Goodwill was tested forimpairment in all cash generating units (CGUs) and there is more thansufficient headroom in all of the CGUs. It should be noted that the headroom onFirst Student has reduced to £243m (2010: £630m) reflecting the disappointingresults during the year and the length of time that it will take the recoveryplan to be fully delivered. The projections for this business assume theincremental benefits of the recovery plan together with a moderate economicrecovery. As a result operating profits and margins are projected to recoverto historic levels by the end of 2013/14. The First Student margin would needto fall in excess of 1.5% compared to future projections for there to be agoodwill impairment on this business.
FOREIGN EXCHANGE
The most significant exchange rates to Sterling for the Group are as follows: Year to 31 March Year to 31 March 2011 2010 Closing Effective Closing Effective rate rate rate rate US Dollar 1.56 1.57 1.60 1.49 Canadian 1.56 1.60Dollar 1.57 1.53 PENSIONSThe Group has updated its pension assumptions as at 31 March 2011 for thedefined benefit schemes in the UK and North America. In addition during theyear the Government announced its intention to change the measure that it usesfor cost of living increases to public sector pensions and to change the basisfor the statutory revaluation and indexation of occupational pension schemes inthe private sector. Increases to pensions in payment and deferred pensions inthe Local Government Pension Schemes and the Railways Pension Scheme areexpected to be linked to the rise in the consumer price index (CPI) in futurerather than the rise in the retail price index (RPI), as are revaluations todeferred pensions in the Group Scheme and the UK Bus Occupational Scheme. The net pension deficit of £331m at the beginning of the year has decreased to£243m at the end of the year principally due to the change to CPI instead ofRPI which has had the impact of reducing pension liabilities at 31 March 2011by £85m.
The main factors that influence the balance sheet position for pensions and the sensitivities to their movement at 31 March 2011 are set out below:
Movement Impact Discount rate +0.1% Reduce deficit by £24m Inflation +0.1% Increase deficit by £14m SEASONALITYThe First Student business generates lower revenues and profits in the firsthalf of the year than in the second half of the year as the school summerholidays fall into the first half. Greyhound operating profits are typicallyhigher in the first half of the year due to demand being strongest in thesummer months. 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 an average life of 6.1 yearsat March 2011, and which is largely represented by a medium term unsecuredsyndicated committed bank facility and long term unsecured bond debt. The Grouphas $1,250m of committed revolving banking facilities of which $845m wasundrawn at the year end. This facility expires in December 2015. The Directors have carried out a detailed review of the Group's budget for theyear to 31 March 2012 and medium-term plans, with due regard for the risks anduncertainties to which the Group is exposed, the uncertain economic climate andthe impact that this could have on trading performance. Based on this review, the Directors believe that the Company and the Group haveadequate resources to continue in operational existence for the foreseeablefuture. Accordingly, the financial statements have been prepared on a goingconcern basis. Jeff CarrFinance Director10 May 2011 Consolidated income statement For the year ended 31 March 2011 2010 Adjusted Adjusted Total results1 Adjustments2 Total results1 Adjustments2 restated3 Notes £m £m £m £m £m £m Continuing operations Revenue 6,429.2 - 6,429.2 6,261.9 - 6,261.9 Operating costs before loss on disposal of (5,971.8) (143.7) (6,115.5) (5,812.3) (84.3) (5,896.6)properties Operating profit before loss on 457.4 (143.7) 313.7 449.6 (84.3) 365.3disposal of properties Amortisation (42.9) (42.9) (34.7) (34.7)charges - - Non-recurring (100.8) (100.8) (49.6) (49.6)items - - (143.7) (143.7) (84.3) (84.3) - - Loss on (4.4) (4.4) (1.1) (1.1)disposal of - - properties Operating 457.4 (148.1) 309.3 449.6 (85.4) 364.2profit Investment 1.9 - 1.9 1.8 1.8income - Finance costs (184.3) 0.3 (184.0) (191.7) 1.0 (190.7) Profit before 275.0 (147.8) 127.2 259.7 (84.4) 175.3tax Tax (60.0) 43.0 (17.0) (57.8) 26.6 (31.2) Profit for the period from continuing 215.0 (104.8) 110.2 201.9 (57.8) 144.1operations Discontinued operations Profit for the period from discontinued 3 0.2 6.7 6.9 3.0 - 3.0operations Profit for the 215.2 (98.1) 117.1 204.9 (57.8) 147.1year Attributable to: Equity holders 198.0 (94.8) 103.2 189.7 (57.6) 132.1of the parent Non-controlling 17.2 (3.3) 13.9 15.2 (0.2) 15.0interests 215.2 (98.1) 117.1 204.9 (57.8) 147.1 Earnings per share Continuing operations Basic 4 41.2p (19.8)p 21.4p 38.9p (12.0)p 26.9p Diluted 4 40.8p (19.5)p 21.3p 38.6p (11.9)p 26.7p Continuing and discontinued operations Basic 4 41.2p (19.7)p 21.5p 39.5p (12.0)p 27.5p Diluted 4 40.9p (19.6)p 21.3p 39.3p (12.0)p 27.3p
Dividends of £101.4m (2010: £93.1m) were paid during the year. Dividends of £ 72.1m (2010: £67.2m) are proposed for approval in respect of the year.
1Adjusted trading results before items noted in 2 below.
2Amortisation charges, ineffectiveness on financial derivatives, non-recurringitems, loss on disposal of properties and profit on disposal of discontinuedoperations and tax thereon.
3Restated to exclude discontinued operations as explained in note 1.
Consolidated statement of comprehensive income Year ended 31 March 2010 2011 restated1 £m £m Profit for the year 117.1 147.1 Other comprehensive income Derivative hedging instrument movements 193.4 339.2 Deferred tax on derivative hedging (44.0) (100.4)instrument movements Exchange differences on translation of (143.9) (14.0)foreign operations Unrealised losses on executive deferred (0.1) (0.5)compensation plans Actuarial losses on defined benefit (55.5) (211.9)pension schemes RPI to CPI change in defined benefit 84.9 pension arrangements - Deferred tax on actuarial losses and RPI to CPI change on defined benefit pension schemes (5.9) 56.7 Other comprehensive income for the year 28.9 69.1 Total comprehensive income for the year 146.0 216.2 Attributable to: Equity holders of the parent 132.6 200.9 Non-controlling interests 13.4 15.3 146.0 216.2
1 Restated for foreign exchange movements on foreign currency denominated defined benefit pension schemes as explained in note 1.
Consolidated balance sheet Year ended 31 March 2010 2009 2011 restated1 restated1 Notes £m £m £m Non-current assets Goodwill 5 1,608.0 1,754.9 1,820.0 Other 6 348.6 415.9 456.7intangible assets Property, plant 7 2,082.9 2,284.1 2,398.1and equipment Deferred tax 15 30.0 30.4 50.2assets Retirement 30.7 3.1 111.5benefit assets Derivative 14 58.1 33.0 24.8financial instruments Investments 3.2 4.8 5.1 4,161.5 4,526.2 4,866.4 Current assets Inventories 8 91.4 92.7 110.0 Trade and other 9 555.5 602.5 610.3receivables Cash and cash 388.0 335.0 322.5equivalents Assets held for 4.6 3.9 4.2sale Derivative 14 65.1 32.1 3.1financial instruments 1,104.6 1,066.2 1,050.1 Total assets 5,266.1 5,592.4 5,916.5 Current liabilities Trade and other 10 1,129.9 1,120.0 1,124.7payables Tax liabilities 49.0 36.1 47.2 Financial - bank 11 93.5 210.7liabilities loans - - bonds 11 73.3 73.3 36.0 - obligations under HP contracts and finance 12 42.8 34.6 34.3 leases - loan 13 0.8 notes - - Derivative 14 38.5 85.2 304.5financial instruments 1,427.0 1,350.0 1,757.4 Net current 322.4 283.8 707.3liabilities Non-current liabilities Financial - bank 11 554.9 896.0 1,408.1liabilities loans - bonds 11 1,417.1 1,414.1 870.2 - obligations under HP contracts and finance 12 209.1 192.8 194.6 leases - loan 13 9.7 9.7 10.5 notes Derivative 14 29.7 121.1 243.6financial instruments Retirement 273.9 333.9 280.2benefit liabilities Deferred tax 15 93.0 63.9 20.6liabilities Provisions 16 300.8 300.4 327.0 2,888.2 3,331.9 3,354.8 Total 4,315.2 4,681.9 5,112.2liabilities Net assets 950.9 910.5 804.3 Equity Share capital 17 24.1 24.1 24.1 Share premium 676.4 676.4 676.4 Hedging reserve 35.4 (114.0) (352.8) Other reserves 4.6 4.6 4.6 Own shares (5.0) (6.5) (3.4) Translation 156.6 300.0 314.2reserve Retained 41.5 10.2 121.7earnings Equity attributable to equity holders 933.6 894.8 784.8of the parent Non-controlling 17.3 15.7 19.5interests Total equity 950.9 910.5 804.3
1 Restated for foreign exchange movements on foreign currency denominated defined benefit pension schemes as explained in note 1.
Consolidated statement of changes in equity Non-controlling interests Share Share Hedging Other Own Translation Retained capital premium reserve reserves shares reserve earnings Total Total equity £m £m £m £m £m £m £m £m £m £m Balance at 1 April 2009 as previously 24.1 676.4 (352.8) 4.6 (3.4) 337.4 98.5 784.8 19.5 804.3reported Prior year - - (23.2) 23.2 - adjustment - - - - - Balance at 1 April 2009 as restated 24.1 676.4 (352.8) 4.6 (3.4) 314.2 121.7 784.8 19.5 804.3 Total comprehensive income for - - 238.8 - - (14.2) (23.7) 200.9 15.3 216.2the year Dividends - - - (93.1) (93.1) (19.1) (112.2)paid - - - Movement in EBT and treasury - - - - (3.1) - (0.6) (3.7) - (3.7)shares Share-based - - - - payments - - - 5.5 5.5 5.5 Deferred tax on share-based - - - - - - 0.4 0.4 - 0.4payments Balance at 31 March 2010 as restated 24.1 676.4 (114.0) 4.6 (6.5) 300.0 10.2 894.8 15.7 910.5 Total comprehensive income for - - 149.4 - - (143.4) 126.6 132.6 13.4 146.0the year Dividends - - - (101.4) (101.4) (11.8) (113.2)paid - - - Movement in EBT and treasury - - - - 1.5 - (1.7) (0.2) - (0.2)shares Share-based - - - - payments - - - 7.7 7.7 7.7 Deferred tax on share-based - - - - - - 0.1 0.1 - 0.1payments Balance at 31 March 2011 24.1 676.4 35.4 4.6 (5.0) 156.6 41.5 933.6 17.3 950.9 Consolidated cash flow statement Year ended 31 March 2011 2010 Note £m £m Net cash from 18 555.7 452.3operating activities Investing activities Interest 1.7 1.6received Proceeds from 21.8 35.6disposal of property, plant and equipment Purchases of (210.3) (205.6)property, plant and equipment Disposal of 24.3 0.4subsidiary Acquisition (3.1) (0.1)of businesses Net cash used (165.6) (168.1)in investing activities Financing activities Shares (6.1)purchased by - EBT Monies 3.1 2.4received on exercise of share options Dividends (101.4) (93.1)paid Dividends (11.8) (19.1)paid to minority shareholders Proceeds from 550.0bond issues - Proceeds from 124.1 40.5bank facilities Repayment of (307.7) (707.4)bank debt Repayments (35.9) (30.0)under HP contracts and finance leases Repayment of (0.8) loan notes - Fees for bank (6.3) (5.0)facility amendments and bond issues Net cash flow (336.7) (267.8)from financing activities Net increase in cash and cash 53.4 16.4equivalents before foreign exchange movements Cash and cash 335.0 322.5equivalents at beginning of year Foreign (0.4) (3.9)exchange movements Cash and cash equivalents at end of 388.0 335.0year per consolidated balance sheet
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 Year ended 31 March 2011 2010 £m £m Net increase in cash and 53.4 cash equivalents in year 16.4 Decrease in debt and finance leases 220.3 146.9 Inception of new HP (70.2) (32.0)contracts and finance leases Fees capitalised against bank facilities and bond 6.3 5.0issues Net cash flow 209.8 136.3 Foreign exchange movements 129.2 90.3 Other non-cash movements (6.9) (4.6)in relation to financial instruments Movement in net debt in 332.1 year 222.0 Net debt at beginning of (2,281.5) (2,503.5)year Net debt at end of year (1,949.4) (2,281.5)
Net debt includes the value of derivatives in connection with the bonds maturing in 2018, 2019 and 2021 and excludes all accrued interest. These bonds are included in non-current liabilities in the consolidated balance sheet.
1 GENERAL INFORMATIONThe financial information set out above does not constitute the Company'sStatutory Accounts for the year ended 31 March 2011 or 2010, but is derivedfrom those accounts. Statutory Accounts for 2010 have been delivered to theRegistrar of Companies and those for 2011 will be delivered following theCompany's Annual General Meeting. The auditors have reported on both sets ofaccounts; their reports were unqualified and did not contain statements undersection 498 (2), (3) or (4) of the Companies Act 2006.Whilst the financial information included in this preliminary announcement hasbeen computed in accordance with International Financial Reporting Standards(IFRSs), this announcement does not in itself contain sufficient information tocomply with IFRSs. The financial information has been prepared on the basis ofthe accounting policies as set out in the Statutory Accounts for 2010.
Copies of the Statutory Accounts for the year ended 31 March 2011 will be available to all shareholders in early June and will also be available thereafter at the Registered Office of the Company at 395 King Street, Aberdeen, AB24 5RP.
Restatement of prior years numbers
The income statement and segmental amounts for the year to 31 March 2010 havebeen restated to show the results of GB Railfreight, which was sold during theperiod, within discontinued operations. The results of discontinued operationsare set out in note 3. Amounts presented in the consolidated statement of comprehensive income,consolidated balance sheet and statement of changes in equity for the year to31 March 2010 and the consolidated balance sheet as at 31 March 2009 have beenrestated to correctly reclassify foreign exchange movements on foreign currencydenominated defined benefit pension schemes from retained earnings to thetranslation reserve. The impact was as follows: Consolidated statement of Consolidated comprehensive balance income sheet Year to 31 March 31 March 31 March 2010 2009 2010 £m £m £m Retained earnings/ actuarial losses on defined benefit schemes As previously (8.4) 98.5 (204.3)reported Prior year adjustment 23.2 0.1 - Movement for the (4.6) 23.1 (7.6)financial year As restated 121.7 (211.9) 10.2 Translation reserve/exchange differences on translation of foreign operations As previously 337.4 (18.5)reported 318.6 Prior year (23.2) (0.1) adjustment - Movement for the (23.1) 4.6financial year 4.6 As restated 314.2 (13.9) 300.0 Deferred tax on actuarial losses on defined benefit pension schemes As previously 53.6reported Movement for the 3.1financial year As restated 56.7 2 BUSINESS SEGMENTSDuring the year organisational changes were made in North America, as a resultof which First Student and First Transit now report directly to the ChiefExecutive. To reflect this, the previously reported North America segment hasbeen split into First Student and First Transit. The prior year numbers in thedisclosure below have been restated on this basis for comparison. The Group is therefore now organised into five operating divisions - FirstStudent, First Transit, Greyhound, UK Bus and UK Rail. These divisions aremanaged separately in line with the differing services that they provide andthe geographical markets which they operate in. The principal activities ofthese divisions are set out in the Chief Executive's operating review.
The segment results for the year to 31 March 2011 are as follows:
First First Group Student Transit Greyhound UKBus UKRail items2 Total £m £m £m £m £m £m £m Revenue 1,594.4 771.5 634.6 1,137.5 2,279.7 21.4 6,439.1 Discontinued - - (9.9) - (9.9)operations - - Revenue 771.5 634.6 21.4 continuing operations 1,137.5 2,269.8 6,429.2
1,594.4 EBITDA1 278.1 66.3 68.7 220.5 166.1 (21.5) 778.2 Depreciation (149.8) (9.1) (28.5) (71.7) (57.4) (4.3) (320.8) Segment 128.3 57.2 40.2 148.8 108.7 (25.8) results1 457.4 Amortisation (20.4) (4.7) (3.1) (14.7) - (42.9)charges - Non-recurring (39.5) (16.6) (2.4) (41.9) (0.4) (100.8)items - Loss on - (1.2) (3.1) - (4.4)disposal of (0.1) - properties Operating 68.3 35.9 35.9 143.3 52.1 (26.2) profit 309.3 Investment income 1.9 Finance costs (184.3) Ineffectiveness on financial derivatives 0.3 Profit before tax 127.2 Tax (17.0) Profit for the period from continuing 110.2operations Discontinued operations 6.9 Profit after tax and discontinued 117.1operations
The segment results for the year to 31 March 2010 are as follows:
First First Group Student Transit Greyhound UK Bus UK Rail items2 Total £m £m £m £m £m £m £m Revenue 1,605.9 727.8 603.3 1,170.6 2,188.4 23.3 6,319.3 Discontinued - (57.4) - (57.4)operations - - - Revenue continuing operations 1,605.9 727.8 603.3 1,170.6 2,131.0 23.3 6,261.9 EBITDA1 324.3 62.1 52.6 200.2 141.9 (17.2) 763.9 Depreciation (143.4) (9.1) (28.7) (75.6) (53.6) (3.9) (314.3) Segment 180.9 53.0 23.9 124.6 88.3 (21.1) results1 449.6 Amortisation (19.6) (5.0) (3.0) (7.1) - (34.7)charges - Non-recurring (26.8) (1.3) (8.1) (6.8) (2.5) (4.1) (49.6)items (Loss)/profit on disposal of - 0.2 - - properties - (1.3) (1.1) Operating 134.5 46.7 13.0 116.5 78.7 (25.2) profit 364.2 Investment income 1.8 Finance costs (191.7) Ineffectiveness on financial derivatives 1.0 Profit before tax 175.3 Tax (31.2) Profit for the period from continuing 144.1operations Discontinued operations 3.0 Profit after tax and discontinued 147.1operations 1Adjusted.
2Group items comprise Tram operations, German Bus, central management and other items.
3 DISCONTINUED OPERATIONSOn 28 May 2010 FirstGroup plc disposed of GB Railfreight and as a consequencethe results of this business have been classified as discontinued operations,as detailed below: 2011 2010 £m £m Revenue 9.9 57.4 Operating costs (9.6) (53.1) Profit before tax 0.3 4.3 Attributable tax expense (0.1) (1.3) Profit for the period from discontinued 0.2 3.0operations Profit on disposal of discontinued 6.7 operations - Net profit attributable to discontinued 6.9 3.0operations 4 EARNINGS PER SHARE (EPS)EPS is calculated by dividing the profit attributable to equity shareholders of£103.2m (2010: £132.1m) by the weighted average number of ordinary shares of480.4m (2010: 480.5m). The numbers of ordinary shares used for the basic anddiluted 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.
2011 2010 Number Number m m Weighted average number of shares used in basic 480.4 480.5calculation SAYE share options 0.5 0.2 Executive share options 3.7 2.5 484.6 483.2 The adjusted basic EPS is intended to highlight the recurring results of theGroup before amortisation charges, ineffectiveness on financial derivatives,non-recurring items and loss on disposal of properties. A reconciliation is
setout below: 2011 2010 £m EPS (p) £m EPS (p) Basic profit/EPS 103.0 21.4 129.1 26.9from continuing operations Basic profit/EPS 0.2 0.1 3.0 0.6from discontinued operations Basic profit/EPS 103.2 21.5 132.1 27.5 Amortisation 42.7 8.9 34.5 7.2charges1 Ineffectiveness on (0.3) (0.1) (1.0) (0.2)financial derivatives Non-recurring items 100.8 21.0 49.6 10.4 Non-controlling (3.1) (0.6) interests on - -non-recurring items Loss on disposal of 4.4 0.9 1.1 0.2properties Business disposals (6.7) (1.4) - - Tax effect of above (42.9) (9.0) (26.6) (5.6)adjustments Adjusted profit/EPS 198.1 41.2 189.7 39.5 Adjusted profit/EPS (0.2) (3.0) (0.6)from discontinued - operations Adjusted profit/EPS 197.9 41.2 186.7 38.9from continuing operations
1Amortisation charges of £42.9m per note 6 less £0.2m (2010: £34.7m less £ 0.2m) attributable to equity non-controlling interests.
2011 2010 Diluted EPS pence pence Continuing operations Basic 21.3 26.7 Adjusted 40.8 38.6 Continuing and discontinued operations Basic 21.3 27.3 Adjusted 40.9 39.3 2011 2010 2009 5 GOODWILL £m £m £m Cost At 1 April 1,754.9 1,820.0 1,310.1 Additions 2.3 6.5 - Disposals (14.2) - - Reclassifications (9.1)to other - - intangible assets Foreign exchange (130.0) (65.1) 512.5movements At 31 March 1,613.0 1,754.9 1,820.0 Accumulated impairment losses At 1 April - - - Impairment losses 5.0 for the year - - At 31 March 5.0 - - Carrying amount At 31 March 1,608.0 1,754.9 1,820.0 Greyhound brand and trade name Customer Rail franchise Total contracts agreements 6 OTHER £m £m £m £mINTANGIBLE ASSETS Cost At 1 April 2009 412.1 65.9 56.3 534.3 Foreign (4.5) 0.1 - (4.4)exchange movements At 31 March 407.6 66.0 56.3 529.92010 Foreign (26.1) (4.1) - (30.2)exchange movements At 31 March 381.5 61.9 56.3 499.72011 Amortisation At 1 April 2009 44.6 5.0 28.0 77.6 Charge for year 24.6 3.0 7.1 34.7 Foreign 1.4 0.3 - 1.7exchange movements At 31 March 70.6 8.3 35.1 114.02010 Charge for year 25.1 3.1 14.7 42.9 Foreign (5.6) (0.2) - (5.8)exchange movements At 31 March 90.1 11.2 49.8 151.12011 Carrying amount At 31 March 291.4 50.7 6.5 348.62011 At 31 March 337.0 57.7 21.2 415.92010 At 31 March 367.5 60.9 28.3 456.72009 Passenger Other Land and carrying plant and buildings vehicle equipment Total fleet 7 PROPERTY, PLANT AND £m £m £m £mEQUIPMENT Cost At 1 April 2009 531.5 2,598.1 514.4 3,644.0 Additions in the year 24.7 161.6 65.4 251.7 Disposals (4.7) (86.4) (23.1) (114.2) Transfers 5.0 (1.5) (3.5) - Reclassified as held for - (23.6) - (23.6)sale Foreign exchange (1.3) (3.9) (3.3) (8.5)movements At 31 March 2010 555.2 2,644.3 549.9 3,749.4 Subsidiary undertakings - 1.0 - 1.0acquired Subsidiary undertakings (2.8) (2.3) (4.0) (9.1)disposed of Additions in the year 27.3 145.8 89.5 262.6 Disposals (15.2) (59.5) (30.8) (105.5) Reclassified as held for - (56.1) - (56.1)sale Foreign exchange (19.5) (108.0) (16.4) (143.9)movements At 31 March 2011 545.0 2,565.2 588.2 3,698.4 Accumulated depreciation and impairment At 1 April 2009 51.6 974.7 219.6 1,245.9 Charge for year 13.9 231.5 70.3 315.7 Disposals (1.6) (59.2) (20.5) (81.3) Transfers 4.2 (1.4) (2.8) - Reclassified as held for - (20.1) - (20.1)sale Foreign exchange 0.4 5.4 (0.7) 5.1movements At 31 March 2010 68.5 1,130.9 265.9 1,465.3 Subsidiary undertakings (1.2) (2.3) (1.8) (5.3)disposed of Charge for year 14.1 228.4 78.5 321.0 Impairment - 13.3 - 13.3 Disposals (4.3) (47.7) (27.3) (79.3) Reclassified as held for - (46.4) - (46.4)sale Foreign exchange (2.1) (44.6) (6.4) (53.1)movements At 31 March 2011 75.0 1,231.6 308.9 1,615.5 Carrying amount At 31 March 2011 470.0 1,333.6 279.3 2,082.9 At 31 March 2010 486.7 1,513.4 284.0 2,284.1 At 31 March 2009 479.9 1,623.4 294.8 2,398.1 2011 2010 2009 8 INVENTORIES £m £m £m Spare parts and consumables 91.1 91.5 108.0
Property development work in progress 0.3 1.2 2.0
91.4 92.7 110.0 2011 2010 2009 9 TRADE AND OTHER RECEIVABLES £m £m £m Amounts due within one year Trade receivables 408.7 462.2 461.8
Provision for doubtful receivables (7.5) (6.5) (8.8)
Other receivables 53.4 57.3 67.2
Other prepayments and accrued income 100.9 89.5 90.1
555.5 602.5 610.3 2011 2010 2009 10 TRADE AND OTHER PAYABLES £m £m £m Amounts falling due within one year Trade payables 312.2 288.9 314.5 Other payables 113.9 145.1 129.2 Accruals and deferred income 640.5 627.5 623.0 Season ticket deferred income 63.3 58.5 58.0 1,129.9 1,120.0 1,124.7 2011 2010 2009
11 FINANCIAL LIABILITIES - BORROWINGS £m £m £m
Current financial liabilities Short-term bank loans 93.5 - 210.7 93.5 - 210.7 Bond 6.875% (repayable 2013) - 20.2 20.2 20.2accrued interest Bond 8.125% (repayable 2018) - 12.8 12.8 12.8accrued interest Bond 6.125% (repayable 2019) - 3.0 3.0 3.0accrued interest Bond 8.75% (repayable 2021) - 30.1 30.1 -accrued interest Bond 6.875% (repayable 2024) - 7.2 7.2 -accrued interest 73.3 73.3 36.0 HP contracts and finance leases (note 42.8 34.6 34.312) Loan notes (note 13) - 0.8 -
Total current financial liabilities 209.6 108.7 281.0
Non-current financial liabilities Syndicated and bilateral unsecured 554.9 896.0 1,406.6bank loans Other loans - - 1.5 554.9 896.0 1,408.1 Bond 6.875% (repayable 2013) 298.0 297.4 296.9 Bond 8.125% (repayable 2018) 296.4 296.2 296.0 Bond 6.125% (repayable 2019) 276.7 274.8 277.3 Bond 8.75% (repayable 2021) 347.0 346.8 - Bond 6.875% (repayable 2024) 199.0 198.9 - 1,417.1 1,414.1 870.2 HP contracts and finance leases (note 209.1 192.8 194.612) Loan notes (note 13) 9.7 9.7 10.5 Total non-current financial 2,190.8 2,512.6 2,483.4liabilities Total liabilities 2,400.4 2,621.3 2,764.4 Gross borrowings repayment profile Within one year or on demand 209.6 108.7 281.0 Between one and two years 216.0 607.4 44.9 Between two and five years 796.1 720.4 1,798.6 Over five years 1,178.7 1,184.8 639.9 2,400.4 2,621.3 2,764.4
12 HP CONTRACTS AND FINANCE LEASES
The Group had the following obligations under HP contracts and finance leases as at the balance sheet dates:
2011 2010 2009 2011 Present 2010 Present 2009 Present Minimum value of Minimum value of Minimum value of payments payments payments payments payments payments £m £m £m £m £m £m Due in less than 48.8 42.8 40.2 34.6 39.0 34.3one year Due in more than one year but not more than two 48.3 43.2 42.7 37.8 37.0 33.1years Due in more than two years but not more than five 116.6 106.3 97.2 86.9 103.1 95.0years Due in more than 62.0 59.6 71.6 68.1 69.0 66.5five years 275.7 251.9 251.7 227.4 248.1 228.9 Less future (23.8) - (24.3) - (19.2) -financing charges Total 251.9 251.9 227.4 227.4 228.9 228.9 13 LOAN NOTES The Group had the following loan notes issued as at the balance sheet dates: 2011 2010 2009 £m £m £m Due in less than one year - 0.8 -
Due in more than one year but not more than two years 9.7 9.7 10.5
Total 9.7 10.5 10.5 2011 2010 2009 14 DERIVATIVE FINANCIAL INSTRUMENTS £m £m £m Derivatives designated and effective as hedging instruments carried at fair value Non-current assets Cross currency swaps (net investment hedge) 22.2 13.3 - Coupon swaps (fair value hedge) 21.0 15.7 19.9 Fuel derivatives (cash flow hedge) 14.9 4.0 3.1 58.1 33.0 23.0 Current assets Cross currency swaps (net investment hedge) 4.6 3.6 0.9 Coupon swaps (fair value hedge) 6.7 10.6 2.1 Currency forwards (cash flow hedge) 1.2 - - Fuel derivatives (cash flow hedge) 52.6 15.7 - 65.1 29.9 3.0 Current liabilities Interest rate derivatives (cash flow hedge) 15.0 42.9 50.4 Cross currency swaps (net investment hedge) 23.3 2.9 2.0 Coupon swaps (fair value hedge) - - - Fuel derivatives (cash flow hedge) 0.1 39.4 252.1 38.4 85.2 304.5 Non-current liabilities Interest rate derivatives (cash flow hedge) 1.5 10.7 38.1 Cross currency swaps (net investment hedge) 28.2 91.9 123.6 Fuel derivatives (cash flow hedge) - 18.5 81.9 29.7 121.1 243.6 Derivatives classified as held for trading Non-current assets Cross currency swaps - - 1.8 Current assets Cross currency swaps - 2.2 0.1 Current liabilities Interest rate swaps 0.1 - - Total non-current assets 58.1 33.0 24.8 Total current assets 65.1 32.1 3.1 Total assets 123.2 65.1 27.9 Total current liabilities 38.5 85.2 304.5 Total non-current liabilities 29.7 121.1 243.6 Total liabilities 68.2 206.3 548.1 15 DEFERRED TAXThe major deferred tax liabilities and (assets) recognised by the Group andmovements thereon during the current and prior reporting periods are asfollows: Accelerated Other Tax tax temporary depreciation differences losses Total £m £m £m £m At 1 April 2009 359.7 (118.5) (270.8) (29.6) Charge/(credit) to (39.9) 58.5 8.5 27.1income Charge to equity - 46.4 - 46.4 Foreign exchange (10.0) (2.5) 2.1 (10.4)movements At 31 March 2010 309.8 (16.1) (260.2) 33.5 Charge/(credit) to (30.0) (21.7) 31.7 (20.0)income Charge to equity - 49.8 - 49.8 Disposal of subsidiary - 1.6 - 1.6 Foreign exchange (14.9) (3.9) 16.9 (1.9)movements At 31 March 2011 264.9 9.7 (211.6) 63.0
Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances for financial reporting purposes.
2011 2010 2009 £m £m £m Deferred tax assets (30.0) (30.4) (50.2) Deferred tax liabilities 93.0 63.9 20.6 Non-current liabilities 63.0 33.5 (29.6) 2011 2010 2009 16 £m £m £mPROVISIONS Insurance 221.0 243.9 262.0claims Legal and 26.4 51.4 59.5other FGW 48.7 - -contract provision Pensions 4.7 5.1 5.5 Non-current 300.8 300.4 327.0liabilities Insurance Legal FGW contract claims and other provision Pensions Total £m £m £m £m £m At 1 April 243.9 51.4 - 5.1 300.42010 Provided in 95.4 0.6 48.7 144.7the year - Utilised in (121.2) (22.9) - (0.4) (144.5)the year3 Notional 19.7 - 19.7interest - - Foreign (16.8) (2.7) - (19.5)exchange - movements At 31 March 221.0 26.4 48.7 4.7 300.82011 2011 2010 2009
17 CALLED UP SHARE CAPITAL £m £m £m Authorised: 650m Ordinary shares of 5p each 32.5 32.5 32.5 Allotted, called up and fully paid: 482.1m Ordinary shares of 5p each 24.1 24.1 24.1 Number m £m At 31 March 2009, 31 March 2010 and 31 March 2011 482.1 24.1 2011 2010 18 NET CASH FROM OPERATING ACTIVITIES £m £m
Operating profit before loss on disposal of properties 313.7 365.3
Operating profit of discontinued operations 0.3 4.3 Adjustments for: Depreciation charges 321.0 315.7 Amortisation charges 42.9 34.7 Impairment charges 19.5 - Share-based payments 7.7 5.5 Loss on disposal of property, plant and equipment 3.7 0.8 Operating cash flows before working capital 708.8 726.3 (Increase)/decrease in inventories (3.2) 14.8 Decrease/(increase) in receivables 25.9 (5.4) Increase/(decrease) in payables 55.7 (54.8) Increase/(decrease) in provisions 0.4 (34.1) Defined benefit pension payments in excess of income (43.5) (42.1)statement charge Cash generated by operations 744.1 604.7 Corporation tax paid (25.0) (1.3) Interest paid (155.2) (142.9)
Interest element of HP contracts and finance leases (8.2) (8.2)
Net cash from operating activities 555.7 452.3
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 2011. Certain parts thereof are not included within this announcement.
We confirm to the best of our knowledge:
the Company and Group financial statements, prepared in accordancewith UK GAAP and IFRS respectively, give a true and fair view of the assets,liabilities, financial position and profit of the Company and Group taken as awhole; and the Directors Report contained in the Annual Report includes a fairreview of the development and performance of the business and the position ofthe Company and the Group taken as a whole, together with a description of theprincipal risks and uncertainties they face.
This responsibility statement was approved by the Board of Directors on 10 May 2011 and was signed on its behalf by:
Tim O'Toole Jeff CarrChief Executive Finance Director
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