9th Nov 2011 07:10
Embargoed until 07:00hrs on Wednesday 9 November 2011
FIRSTGROUP PLC HALF-YEARLY RESULTS FOR THE SIX MONTHS TO 30 SEPTEMBER 2011 · Overall trading for the Group in line with our expectations
· Addressing First Student - executing business recovery plan, achieving good momentum and positive early indicators; operating margin in H2 expected to be in line with same period last year
· Continued growth in First Transit with strong pipeline of opportunities
· Greyhound transformation delivering results - good revenue growth and margin improvement
· UK Bus priority is to manage immediate challenges of softening economy while equipping the business to deliver increased growth
· Further strong growth in UK Rail; FTPE franchise extended for three years to 2015
· Continued focus on cash generation to support capital investment, debt reduction and dividend growth of 7%
· Targeting net cash inflow of £150m for 2011/12 including further selective asset and business disposals
2011 2010 Change Continuing operations4: Revenue £3,168.8m £3,069.9m +3.2% Adjusted EBITDA1 £323.4m £331.3m (2.4)% Operating profit £216.3m £173.5m +24.7% Adjusted operating profit2 £163.0m £170.4m (4.3)% Profit before tax £127.8m £81.8m +56.2% Adjusted profit before tax2 £84.5m £77.5m +9.0% Basic EPS 18.3p 11.4p +60.5% Adjusted basic EPS2 11.2p 10.5p +6.7% Proposed dividend per share 7.62p 7.12p +7.0% Net debt3 £2,058.7m £2,190.8m (6.0)%
1Adjusted operating profit plus depreciation.
2Before amortisation charges, ineffectiveness on financial derivatives,exceptional items, loss on disposal of properties and discontinued operations.All references to "adjusted" figures throughout this document are defined inthis way.
3 Net debt is stated excluding accrued bond interest.
4For all businesses excluding UK Rail this half year includes 27 weeks compared to 26 weeks for the corresponding period last year.
Commenting, FirstGroup's Chief Executive, Tim O'Toole said:
"I am pleased to report that overall Group trading for the first half of thecurrent financial year is in line with our expectations. In First Student weare executing our plan to address performance and strengthen the operatingmodel and I am encouraged by the positive early indicators. At Greyhound ouractions to transform the business are delivering results with good revenuegrowth and margin improvement. First Transit continues to deliver growth andhas a strong pipeline of further opportunities. In our UK Bus operations, whichare focused in high density urban areas, our priorities are to manage theimmediate challenges presented by a softening macroeconomic outlook and reducedfunding to the industry while also taking the necessary forward lookingdecisions to equip the business to deliver increased growth. Strong passengerdemand continues across all of our rail operations and we look forward tobuilding on our market leading position and developing further opportunitiesonce the Department for Transport's new rail franchising programme commences in2012. With market leading positions and operations that are fundamentallystrong, together with our clear focus on creating a stronger business for thefuture, the Group has good prospects to deliver long-term value forshareholders in a sector which is a key enabler of economic growth."
Contacts FirstGroup plc:
Tim O'Toole, Chief Executive
Jeff Carr, Finance Director
Tel: +44 (0) 20 7291 0512
Rachael Borthwick, Corporate Communications Director, Tel: +44 (0) 20 7291 0508 / +44 (0) 7771 945432
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Chairman's statement
I am pleased to report that during the first half of the current financial yearthe Group again demonstrated the inherent strength it derives from a diverseportfolio of operations that are fundamentally strong. While addressing thechallenges of the current weak economic environment in certain markets in whichwe operate, management has a clear focus on creating a stronger business,centred on our core operations, and is taking the necessary forward lookingdecisions to ensure the business is well positioned to deliver sustainablegrowth for the longer term. There is no doubt that public transport is a key enabler of economic growth andan essential component of vibrant and sustainable local and regional economies.The Group, which has grown rapidly and achieved considerable success since itsformation, is going through an important stage in its development. Under TimO'Toole's leadership there is clear focus to drive greater operationalperformance and efficiency across the business and to ensure that the Groupwill benefit from future growth opportunities as the economic environmentimproves. We remain focused on cash generation to support capital investment, debtreduction and dividend growth. The Board remains committed to an investmentgrade credit rating for the Group. Last year we made good progress in reducingleverage to levels closer to our target range and will continue to progress
ourplans in the current year.
Dividend growth is a key element in the investment decision for many shareholders and we are committed to delivering sustained real growth in dividends. The Board has proposed an interim dividend per share of 7.62p representing an increase of 7%, in line with our current commitment, which will be paid on 1 February 2012 to shareholders on the register at 6 January 2012.
In September Jeff Carr, Finance Director, informed the Board of his intentionto leave the Group to take up the role of Chief Financial Officer of RoyalAhold NV based in the Netherlands. Jeff will leave the Group on 11 November2011 and a search for his replacement is underway, enabling the Board toconsider internal and external candidates. I would like to thank Jeff for hiscontribution to the Group and wish him every success in his new role. NickChevis, who has been with the Group since 1997 and held a number of seniorfinance roles, will become Acting Finance Director to ensure the continuationof strong financial leadership and control. Finally on behalf of the Board I would like to extend our sincere thanks andgratitude to our 125,000 employees across the UK and North America. Theirprofessionalism and commitment to serving the 2.5 billion passengers that wetransport each year is key to our success now and for the future.
With leading positions in its core markets and a clear focus on creating a stronger business for the future, the Board is confident that the Group has good prospects to continue to deliver long-term value for shareholders.
Martin GilbertChairman8 November 2011
* Operating profit referred to throughout this document refers to operatingprofit before amortisation charges, ineffectiveness on financial derivatives,exceptional items, loss on disposal of properties and discontinued operations.EBITDA is adjusted operating profit plus depreciation.
**For all businesses excluding UK Rail this half year includes 27 weeks compared to 26 weeks for the corresponding period last year.
Operating and Financial Review
Group results Group revenue increased by 3.2% to £3,168.8m (2010: £3,069.9m) and adjustedoperating profit was £163.0m (2010: £170.4m), reflecting the expected reductionin First Student profits partly offset by higher profits and margin improvementin all the other businesses. Statutory operating profit increased to £216.3m(2010: £173.5m) reflecting a favourable outcome on net exceptional itemscompared to the same period last year. Adjusted basic EPS increased by 6.7% to11.2p (2010: 10.5p). Adjusted EBITDA was £323.4m (2010: £331.3m). 6 months to 30 September 6 months to 30 September Year to 31 March 2011³ 2010 2011 Operating Operating Operating Operating
Operating Operating Revenue profit1 margin1 Revenue profit1 margin1 Revenue profit1 margin1 Divisional £m £m % £m £m % £m £m %results First 683.3 5.5 0.8 711.4 28.0 3.9 1,594.4 128.3 8.0Student First 387.3 27.2 7.0 392.7 26.0 6.6 771.5 57.2 7.4Transit Greyhound 343.6 30.5 8.9 337.6 25.6 7.6 634.6 40.2 6.3 UK Bus 586.9 59.4 10.1 570.5 55.4 9.7 1,137.5 148.8 13.1 UK Rail 1,162.6 55.7 4.8 1,053.1 48.4 4.6 2,269.8 108.7 4.8 Group2 5.1 (15.3) - 4.6 (13.0) - 8.9 (26.5) - Total 3,168.8 163.0 5.1 3,069.9 170.4 5.6 6,416.7 456.7 7.1Group 1Adjusted.
2Tram operations, central management and other items.
³For all businesses excluding UK Rail this half year includes 27 weeks compared to 26 weeks for the corresponding period last year
FIRST STUDENT
As previously indicated, trading during the first six months of the currentfinancial year reflected the carry-over of last year's performance. Revenue was$1,107.6m or £683.3m (2010: $1,074.6m or £711.4m). Adjusting for the extra weekversus the same period last year, US Dollar revenues were 2.4% loweryear-on-year. Operating profit was $9.0m or £5.5m (2010: $40.0m or £28.0m).
We are pleased with the progress we are making in executing our business recovery plan and with good momentum now achieved across the business we are seeing positive early indicators.
As a result of the improved performance during the recent bidding season together with the actions we are taking, we expect operating margin for the second half of the year to be broadly in line with the same period last year.
Despite the challenges presented by ongoing pressure on school board budgets,our strategy to focus on retention delivered an improved performance in therecent bidding round for the 2011/12 school year. We strengthened ourcommercial team and implemented our plan to reduce the amount of contract churnin our portfolio. As a result retention returned to approximately 90% and wewere pleased that our ten largest contracts up for renewal during the last
bidseason were all retained.
Overall conversion activity is high as a result of budgetary pressures on school boards, however the pace of outsourcing industry-wide remains slow. During the recent bid season we won 11 conversion contracts to operate approximately 330 buses in States including Pennsylvania and Michigan. We are focusing our activity in a number of targeted States where there is greater potential for outsourcing.
During the period we completed a significant restructuring of the business tocreate a more agile and sustainable operating model. The new role mandates wehave introduced provide clarity across the organisation enabling our regionaland local management to focus on what is important supported by a revisedperformance management process, incentive structure and key performanceindicators. As we progress our plans to achieve the operational excellence andefficiency that should derive from our scale we are systematically rolling outbest practices across all of our locations. Improving labour productivity is a key area within our business recovery plan.We continue to advance the roll out of FOCUS, our GPS software that linkson-board data with engineering, payroll and back office systems. This enablesus to manage standard driving hours more accurately as well as eliminate excessmiles and reduce idling time. We are also trialling certain elements of FOCUSto give customers direct access to real time information and performancemetrics to enable them to respond quickly and accurately to queries. Positivefeedback from customers supports our view that FOCUS will providedifferentiation within the market in the future.
We are driving efficiency improvements across the business including in the areas of engineering and maintenance where we are implementing lean practices that will deliver productivity and efficiency improvements. We are very encouraged by the efficiencies identified which indicate scope to achieve approximately 10% productivity improvement in maintenance processes as best practices are rolled out across our locations.
Early indications suggest that the charter market is beginning to stabilise. Weare progressing opportunities and implementing plans to increase our charteractivity including rolling out best practices across our operations andlaunching a pilot to create contact centres covering key markets where we seesignificant potential. As a result we have seen encouraging growth particularlyin the non-school charter market. As the market leader First Student is uniquely placed to leverage its scale. Aswe build the Student business for the future we will continue to invest insignificant programmes, including comprehensive training at the local level,creating a unified direction with more efficient and consistent practices. Witha more agile business model and significantly improved operating leverage,First Student will be well positioned to harness its potential and extend itsleadership position to deliver long-term, sustainable growth. FIRST TRANSIT
Revenue increased to $627.3m or £387.3m (2010: $596.5m or £392.7m). Afteradjusting for the extra week US Dollar revenues increased by 1.2% from the sameperiod last year. Operating profit was $44.1m or £27.2m (2010: $39.6m or £26.0m) and operating margin improved to 7.0%.
We continue to focus on our core business segments and delivered a strong performance from our shuttle bus business. During the period we won new business including contracts to operate shuttle bus services at Yale and Kennesaw State universities and also additional services within existing contracts including in Fort McMurray in Alberta, Canada. We have been notified of the award of significant contracts for a non-emergency medical transportation call centre in Colorado and to provide fixed route and paratransit services in Fort Bend, Texas.
First Transit is benefiting from our investment in innovation as we introducenew products to build on our industry leading position. Our Vehicle DiagnosticSystem will enable First Transit and First Vehicle Services to provide moreeffective diagnostic services to our customers, including more efficientworking through an improvement in bus maintenance turnaround times togetherwith fewer mechanical errors. In April, we began operating 31 cutting edgehybrid-electric buses on behalf of Connecticut Transit. Across our core business segments we have a strong pipeline of opportunitiesand continue to make the case for conversion to outsourcing based on ourreputation for delivery and track record of generating efficiencies to reducecosts for customers. This robust operational and financial performance hascontributed several key contract extensions and renewals including theparatransit call centre in New York City; the contract to provide fixed routeand paratransit service in Yuma, Arizona, after we stepped in to operate atshort notice last year and the contract to provide fixed route services in
Pomona, California. GREYHOUND As a result of the actions we have taken to transform the network and increaseoperating leverage Greyhound has delivered encouraging growth. Like-for-likepassenger revenue increased by 3.7% (2010: 1.9%) and revenue was $556.6m or £343.6m (2010: $513.0m or £337.6m). Operating profit was $49.4m or £30.5m (2010:$39.2, or £25.6m) and operating margin improved to 8.9%. We are making Greyhound a more modern and efficient network and deliveringimproved service quality at the same time. During the period we added 42 newvehicles to our fleet, with a further 14 new coaches due to enter service inthe autumn for our operations which serve the Hispanic market domestically andinternationally along and across the southwest border with Mexico. We alsorefurbished a further 100 vehicles, bringing the total to almost 230 to date,and are significantly improving the passenger experience with amenitiesincluding Wi-Fi, at seat power plugs and additional legroom. By the end of thecurrent financial year we expect that over half the fleet will be new orrefurbished to 'like new' standard. Our customer proposition has been transformed with the launch of GreyhoundExpress which, following its launch just 11 months ago, accounts forapproximately 14% of Greyhound's total mileage. Passengers are able to travelnon-stop on new or refurbished coaches on high volume routes between majorcities and take advantage of yield managed fares and reserve guaranteed seatsonline. In addition to the two original Greyhound Express networks serving theMidwest and Northeast, during the period we also expanded services to theSoutheast from a hub in Atlanta, from which we will launch a further twodestinations during November. We are taking opportunities to right-size and relocate Greyhound's propertiesin the US to more appropriate, accessible and convenient sites for passengersacross the network. During the period we completed the sale of our WashingtonDC terminal for $46.7m and will relocate our services to the multimodal hub atthe city's Union Station by early 2013. In November we launched a national initiative with 7-Eleven and PayNearMe whichwill open up online fares and discounts to a new market. From the beginning ofNovember customers without access to credit cards can order their ticketsonline and pay in cash at one of 6,400 7-Eleven stores nationwide. This followsa successful three-month trial in the Dallas area, which saw some 10% of dailyinternet transactions for the area being completed through 7-Eleven. Last yearwe re-launched our web offering through www.greyhound.com and continue to seeencouraging growth in sales from this channel which now represents around 28%of total US ticket purchases. Around 50% of Greyhound's customers use cash
topay for their tickets In Canada we are on track to deliver our profit recovery plan as we continue toright-size our network, reducing uneconomic routes and condensing the fleetsize to a smaller core of refurbished coaches. We are modernising the networkand will launch Greyhound Express in four of the largest cities in Albertaduring November. We continue to develop further opportunities to expand the
service. UK BUS Our UK Bus division performed steadily during the period. Revenue was £586.9m(2010: £570.5m). Adjusting for the extra week overall revenue was down 1.2%compared to the same period last year reflecting mileage reductions in thesecond half of last year and the softening macroeconomic environment. During the period passenger revenues, on a like-for-like basis, increased by1.4%. Operating profit increased by 7.2% to £59.4m (2010: £55.4m) and operatingmargin improved to 10.1%. However, looking ahead as the macroeconomicenvironment has continued to soften, we anticipate trading conditions willremain challenging as a result of lower economic activity in the major urbanareas where we operate and the impact of reduced funding available to theindustry. We made further progress in our programme of selective asset and businessdisposals as part of our strategy to focus on our core operations in the UK andNorth America. In April we sold our local bus operations in King's Lynn and inSeptember we sold our German subsidiary, which operates approximately 130 busesin the Frankfurt and Heidelberg area, to Marwyn European Transport plc for agross consideration of €5.5m. We remain focused on developing the opportunities that exist to transition toincreased growth within our networks, while retaining our strong costdiscipline to manage the immediate challenges presented by the weak economy andreduced funding as a result of the Comprehensive Spending Review. The UK Busteam is committed to delivering consistent, efficient and effective servicesacross all our networks and to establishing the platform to achieve increasedgrowth. During the summer we completed a reorganisation to ensure that ournetworks are locally managed and delivered to enable greater focus on ourcommercial growth plans. To help equip us for future growth we have committed significant investmentover the next two years. We are investing £160m in approximately 1,000 newvehicles, as well as refurbishing our mid-life vehicles, which will create astep change to our fleet profile. As part of this investment, we are takingdelivery of some 40 hybrid buses for services in Leeds, Manchester and Glasgowwhich are partially funded by the Green Bus Funds of the Department forTransport (DfT) and the Scottish Government. This will enable us to gain goodexperience of this technology and better understand the marketing opportunitiesthese vehicles provide.
We are also investing £27m in innovative new ticketing technology for our busfleet in England, outside London. This equipment will be installedprogressively from November and will accommodate ITSO smartcard. However, thetechnology will also allow us, by late 2012, to offer customers "touch in,touch out" contactless payment using their bank cards. This will allow us torevolutionise the fares transaction, reducing cash payments and speeding upboarding times. It will also enable us to offer a wide range of ticket productsand has the capability to accept payment by mobile phone. Across a number of our operating areas we have seen a reduction in LocalAuthority support for tendered services. Where possible we have worked withthose Authorities to mitigate the effects on networks. Additionally, we areworking with a number of Authorities to enable school children to take up sparecapacity on commercial services, saving the Authority the requirement toprovide bespoke contracted school services. In the Bristol area where the levelof tendered work has reduced, we have reinvested the mileage saved by enhancingfrequencies on our key corridors which have growth potential. Additionallyfares promotions have been introduced and, alongside the delivery of highwayinfrastructure improvements by our Local Authority partners as part of theGreater Bristol Bus Network, we have seen encouraging patronage growth to datethis year. Across all our networks we are introducing simpler fares products throughappropriate combinations of flat fares, route and network tickets. A number ofspecific fares promotions have been run to stimulate demand. We are encouragedby the findings from some research we conducted which shows a 35% increase inour customers who now consider our pricing to demonstrate value for moneycompared to twelve months ago. We continue to benefit from developing strong partnerships with LocalAuthorities across our networks. For example our partnership with the City andCounty of Swansea delivered substantial highway infrastructure improvements andreduced journey times last year and our ftrmetro service has seen growth of 10%coupled with strong, positive feedback from customers. In West Yorkshire we strongly support the Association of Bus Operators'proposal to Metro to deliver bus services through a wide-ranging partnershipwhich will focus on all aspects of network delivery and customer experience.Fundamental to this will be a commitment of all the parties; Metro, districtcouncils and the operators, to identify and agree programmes which will reducecongestion on bus routes and consequently achieve journey time reductions forusers.
In Sheffield, in partnership with South Yorkshire PTE and other operators, weintroduced the first of a series of Quality Partnership Corridors in July. Thesecond corridor was introduced at the end of October. These partnerships enablecoordinated frequencies and inter-available ticketing between operators coupledwith service quality commitments and roadside infrastructure investment. We are encouraged by our operational performance in London where we deliverbetter than network average and, on most measures, are near the top ofTransport for London (TfL) league tables. In June we successfully mobilisedover 100 additional buses on three new TfL routes from our Lea Interchangedepot, which opened last year. We are delighted that TfL has awarded us fundingto purchase 22 hybrid buses for route 23, which will enter service from April2012. As previously announced, next year our bus operations will provide spectatortransport during the London 2012 Games. We are providing around 500 buses forshuttle services at Games venues and Park & Ride services from sites around theedge of London to the Olympic Park as well those for the sailing venue inWeymouth and rowing venue in Eton Dorney. We will also be operating a networkof express coach services from across the country to the Olympic Park andWeymouth. The contract includes a reservation and ticketing system; as well assupport staff at all bus and coach locations to manage the fleet. We continue to work closely with the Competition Commission as it completes itsinquiry into the local bus services market outside London. We were pleased thatits provisional decision on remedies, published in October, recognised that nofundamental change to the structure or regulation of the industry was required.We continue to actively engage with the Commission on the detail of itsproposals. UK RAIL
Our rail companies benefited from continued strong demand, with revenue increased to £1,162.6m (2010: £1,053.1m) and operating profit increased to £ 55.7m (2010: £48.4m). Across all of our Train Operating Companies we saw increased demand with like-for-like passenger revenues increased by 9.0%.
During the period we announced that our First TransPennine Express franchisewas extended to April 2015 and First Capital Connect will be refranchised in2012/13, with a replacement franchise to commence from September 2013, in orderto facilitate the ongoing delivery of the Thameslink Programme and inparticular the introduction of new rolling stock funded by the DfT. We are oneof four pre-qualifying bidders for the InterCity West Coast franchise, whichthe Government has announced will be awarded in 2012. We were pleased to announce in September that Vernon Barker was appointed tothe senior management team as Managing Director of the UK Rail division. Vernonhas been the Managing Director of First TransPennine Express since the Groupcommenced operation of the franchise in 2004. During this time passengernumbers have grown from 13 million to 24 million per annum and a number ofsignificant improvements in performance, punctuality and customer satisfactionhave been delivered. His proven track record in railway management and strongfocus on customer service will be invaluable as we develop our existing and
newrail interests.
We have unrivalled expertise operating different types of franchises and delivering major infrastructure improvements in partnership with stakeholders. We look forward to building on our market leadership position in rail and developing further opportunities once the DfT's new franchising programme commences next year.
First Capital ConnectWe continue to focus on improving performance at First Capital Connect (FCC).Our Public Performance Measurement (PPM) of reliability and punctuality standsat 89.1% on a Moving Annual Average (MAA) basis. We have made encouragingprogress on the Thameslink route however, infrastructure performance on theGreat Northern route needs to improve and we are working with Network Rail, asa high priority, to reduce delays for passengers. The December timetable change will see longer 12-carriage trains operating fourof the peak time services on the Thameslink route, whereas four-carriageservices will reduce from 15 to 11 in the morning peak. In the coming monthsrefurbishment and transformation work will be finished at Blackfriars,Farringdon and West Hampstead stations. On the Great Northern route we haveadded around 6,500 peak seats through our 'More Seats for You' initiative.
We are continuing to work on improving customer information provision, with smartphones issued to staff, customer information screen updates and PCs available at ticket barriers. Responding to the changing ways in which passengers like to receive information, we increased our provision of updates through social media including Twitter. We are pleased that complaints regarding customer information have reduced by 40% year-on-year.
The DfT has announced that the end date for the FCC franchise has been broughtforward to September 2013. At FCC we are working closely with the DfT andNetwork Rail to successfully deliver the initial phase of the ongoingThameslink transformation project. This new end date provides the bestopportunity in the programme to allow an effective transition to a potentialnew franchisee, particularly in relation to the introduction of new rollingstock which will be completed after the end date of the current franchise. Thismajor investment is already bringing benefits to passengers and will transforma key part of London's transport network. Our unrivalled knowledge andexperience of managing this key project gives us a strong foundation tocontinue to help deliver this important programme in the future.
First Great Western
Punctuality during the period has been improving with delay minutes down by athird and we continue to challenge Network Rail to reduce infrastructurefailures. Operational performance is below our target with PPM MAA just below90.0%. As announced in May, we took the commercial decision not to take up ouroption to extend the franchise for a further three years from March 2013. Weare committed to delivering further improvements for passengers and intend tobid for the new long-term Greater Western franchise reflecting the changedenvironment and significant Government investment in the region.
The Cotswold Line saw an extra 16 miles of track redoubling completed by Network Rail over the summer, allowing us to run an additional six daily services over the route. From December we will be launching a trial early morning departure from Charlbury station, via Oxford, arriving at London Paddington by 08:30am. This development is welcomed by local stakeholders and customers, as are five car park extensions being put into place, funded by Network Rail and the DfT.
Our £8m programme to improve our Turbo Class 16x fleet, which operates in theLondon and Thames Valley area, is now complete. The upgrade to 151 carriages,which carry more than 36 million passengers a year, has led to significantincreases in our customer satisfaction monitor scores, with an eight pointimprovement in customer views on comfort. We have also reached agreement withthe DfT to introduce six new carriages to the Bristol area, releasing 900additional seats to commuters in time for the winter timetable.
Six of our routes were named by ATOC in the top ten fastest growing rural branch lines and our work with Community Rail Partnerships across our network contributed to our achieving ten awards at the Community Rail Awards in September, as well as overall winner of the "Outstanding Delivery of the Community Rail Strategy" for the second year in a row.
First ScotRail
First ScotRail (FSR) continues to perform well and deliver improvements inpassenger satisfaction. In the Spring 2011 National Passenger Survey 86% ofpassengers said they were satisfied with FSR's service, which is above thenational average, and FSR outperformed the average in 30 out of 33 categories.Significant improvements were seen in categories such as staff helpfulness andattitude, availability of train times and platform information.
Our new 38-strong fleet of Class 380 electric trains from the Scottish Government are now all in service, running between Glasgow Central and Ayrshire; Inverclyde and Renfrewshire, and Edinburgh to North Berwick and Dunbar. We have a £4m project to refurbish the Class 334 fleet starting in November, creating additional jobs in Ayrshire. Across our fleet we continue to invest to improve reliability and comfort.
We have invested in CCTV and help points across the network, reducing crime forthe seventh year in a row, whilst the installation of ticket barriers at fivecentral Glasgow stations will help reduce lost revenue. The implementation ofour winter weather schemes last year reduced train failures by 30% and led to awin at the Railway Innovation Awards. As well as the heated train 'skirts' andpolytunnels introduced last year, this winter we are using a system of hotwater sprinklers to remove snow and ice from undercarriages quickly. FSR and Network Rail are developing a pioneering alliance framework agreementin order to better align overall objectives, deliver value for money andincrease focus on passenger requirements. We are agreeing a joint programme ofprojects with Network Rail and are working more closely than ever before on anumber of issues including timetabling and winter preparation. It is expectedthat the alliance framework will include simplification of station and depotrepair and management and the establishment of joint Scotland control andperformance teams. First TransPennine ExpressWe were delighted that the DfT took the decision to extend First TransPennineExpress (FTPE). We will operate the franchise for a further three years fromFebruary 2012 at an operating margin closer to the industry average. Since westarted operating the franchise in 2004 we have delivered a number ofimprovements including the introduction of a £260m new train fleet andpassenger numbers have grown from 13 million to 24 million per annum. We willwork closely with the DfT and our stakeholders in the region over the remainingtime of the franchise to develop plans for the future of rail in the north ofEngland and to further develop the Anglo-Scottish services. Our PPM MAA is above the national average at 91.1% and we achieved a passengersatisfaction rating of 89% in the National Passenger Survey. This is a recordscore for FTPE and a 15% improvement since the start of the franchise. Passenger growth has been aided by advance purchase fares offering greatervalue-for-money journeys. Over 10 million people in the region will have seenFTPE advertising on television and ticket sales through our websitewww.tpexpress.co.uk, which increased by 85% in the year to March 2011, arecontinuing to grow. FTPE also launched a GPS-enabled mobile website during theperiod, giving customers an additional way of accessing train information. Wewere pleased that 91% of passengers surveyed say that they are pleased with
theway that FTPE communicates. First Hull TrainsFirst Hull Trains topped the National Passenger Survey with an overall customersatisfaction score of 95%. We launched our refreshed Class 180 fleet in May andour trains now offer free on-board Wi-Fi, at seat power sockets, leather seatsin First Class and improved catering and have been well received by passengers. 6 months 6 months Year to to to
Exceptional items and amortisation 30 30 31
September September March charges 2011 2010 2011 £m £m £m UK Bus Pension Scheme changes 73.3 - - UK Rail bid costs (2.1) - (2.7) Competition Commission costs (1.0) - (1.4)
UK Rail First Great Western contract - - (59.9)provision First Student recovery plan - - (39.5) First Transit goodwill impairment and - - (16.6)contract provision UK Rail claim - 22.5 22.5 UK Rail joint venture provision - - (1.8)
UK Bus restructuring costs - - (1.0) Other exceptional items (1.1) (0.2) (0.4) Total exceptional items 69.1 22.3 (100.8) Amortisation charges (15.1) (17.7) (42.9)
Loss on disposal of properties (0.7) (1.5) (4.4) Operating profit credit/(charge) 53.3 3.1 (148.1) Ineffectiveness on financial derivatives (10.0) 1.2 0.3 Profit before tax credit/(charge) 43.3 4.3 (147.8) Tax (charge)/credit (9.2) 0.3 43.0
(Loss)/profit on disposal of discontinued (9.2) 6.7 6.7 operations
Exceptional items for the period 24.9 11.3 (98.1)
UK Bus Pension Scheme changesDuring the period certain changes were agreed in principle with theparticipating members and the Scheme trustees the most significant of which isthat pension increases will be linked to consumer price inflation (CPI) ratherthan retail price inflation (RPI). As a result of these changes future pensionliabilities have decreased and a one-off exceptional gain of £73.3m (2010:
£nil) was realised. UK Rail bid costs
Costs of £2.1m (2010: £nil) were incurred during the year principally on preparatory work on our bid for the Intercity West Coast franchise.
Competition Commission costs
Costs of £1.0m (2010: £nil) were incurred on the ongoing Competition Commission investigation into the UK Bus market.
Other exceptional items
Costs of £1.1m (2010: £0.2m) were incurred principally on effecting the changes to the UK Bus Pension Scheme as described above.
Amortisation charges
The charge for the period was £15.1m (2010: £17.7m) with the reduction principally due to fully writing off the remaining First Great Western intangible in the year to 31 March 2011.
Loss on disposal of properties
A loss on disposal of properties of £0.7m (2010: £1.5m) was recorded during theperiod. A Greyhound property in Washington was sold which generated a smallgain but this was more than offset by losses on disposals in UK Bus and FirstStudent.
Ineffectiveness on financial derivatives
The principal component of the £10.0m non-cash charge (2010: £1.2m credit)relates to fixed interest rate swaps which do not qualify for hedge accountingbut do provide a cash flow hedge against variable rate debt from 2012 to 2015.It is anticipated that the charge in respect of these swaps will reverse overtheir contractual term. Tax
The tax charge as a result of these exceptional items was £9.2m (2010: credit of £0.3m).
FINANCE COSTS AND INVESTMENT INCOME
Net finance costs, before exceptional items, were £78.5m (2010: £92.9m) withthe reduction principally due to lower interest rates on US Dollar denominateddebt. PROFIT BEFORE TAXAdjusted profit before tax was £84.5m (2010: £77.5m) with the increase dueprincipally to lower net finance costs partly offset by lower adjustedoperating profit. An overall credit of £43.3m (2010: £4.3m) for exceptionalitems and amortisation charges resulted in statutory profit before tax of £127.8m (2010: £81.8m). TAXThe tax charge, on adjusted profit before tax, for the period was £18.8m (2010:£19.3m) and is based on the estimated effective rate for the year of 22.3%(2010: 25.0%). The tax charge of £9.2m (2010: credit of £0.3m) relating toamortisation charges and exceptional items resulted in a total tax charge of £28.0m (2010: £19.0m) on continuing operations. The actual tax paid during the period was £4.3m (2010: £9.8m). 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 to
remain low for the near term. DISCONTINUED OPERATIONSA loss on disposal of £9.2m arose on the sale of FirstGroup Deutschland GmbHrepresenting gross consideration of €5.5m less the carrying value of netassets, including goodwill, and transaction costs. This, as well as theoperating loss after tax to the date of disposal of £0.3m (2010: profit of £0.3m), has been classified within discontinued operations in the consolidatedincome statement. DIVIDENDSThe interim dividend per ordinary share of 7.62p (2010: 7.12p) represents anincrease of 7.0%. The interim dividend will be paid on 1 February 2012 toshareholders on the register of members at the close of business on 6 January2012. EPS
The adjusted basic EPS was 11.2p (2010: 10.5p), an increase of 6.7%. Basic EPS was 18.3p (2010: 11.4p), an increase of 60.5%.
EBITDA
EBITDA by division is set out below:
6 months to 30 6 months to 30 Year to 31 September 2011² September 2010 March 2011 Revenue EBITDA1 EBITDA1 Revenue EBITDA1 EBITDA1 Revenue EBITDA1 EBITDA1 £m £m % £m £m % £m £m % First 683.3 79.9 11.7 711.4 105.3 14.8 1,594.4 278.1 17.4Student First 387.3 31.7 8.2 392.7 30.8 7.8 771.5 66.3 8.6Transit Greyhound 343.6 45.4 13.2 337.6 40.3 11.9 634.6 68.7 10.8 UK Bus 586.9 96.5 16.4 570.5 91.5 16.0 1,137.5 220.5 19.4 UK Rail 1,162.6 84.6 7.3 1,053.1 74.9 7.1 2,269.8 166.1 7.3 Group 5.1 (14.7) - 4.6 (11.5) - 8.9 (22.8) - Total 3,168.8 323.4 10.2 3,069.9 331.3 10.8 6,416.7 776.9 12.1Group
1Adjusted operating profit plus depreciation.
²For all businesses excluding UK Rail this half year includes 27 weeks compared to 26 weeks for the corresponding period last year
CASH FLOW
The net cash outflow was £64.2m (2010: £15.7m) for the half year. Thiscontributed to a net debt increase of £109.3m (2010: reduction of £90.7m) asdetailed below: 6 months 6 months Year to to to 30 30 31 September September March 2011 2010 2011 £m £m £m
Operational cash flows before working 394.8 358.6 708.8
capital Working capital (26.5) (16.4) 78.4 Movement in provisions (46.2) (30.2) 0.4
Pension payments in excess of income (117.8) (14.8) (43.5)statement charge Cash generated by operations 204.3 297.2 744.1
Capex and acquisitions (91.8) (147.2) (261.8) Interest and tax (102.5) (117.9) (186.7) Dividends (79.7) (72.1) (113.2)
Proceeds from sale of business 5.5 24.3 24.3
Other - - 3.1 Net cash (outflow)/inflow (64.2) (15.7) 209.8 Foreign exchange movements (42.6) 109.7 129.2
Other non-cash movements in relation to (2.5) (3.3) (6.9)financial instruments Movement in net debt in period (109.3) 90.7 332.1
The reduction in net cash flow was primarily due to:
· Higher pension payments in excess of income
statement
charge of £103.0m principally due to the non-cash exceptional gain in relation to the UK Bus Pension Scheme changes and additional cash contributions in Greyhound.
· Working capital and movements in provisions
outflows
unfavourable by £26.1m principally caused by higher receivables due to the extra week of trading in North America and UK Bus.
· Lower proceeds from sale of business of £18.8m due
to
the sale of GB Railfrieght in the prior period.
· Higher dividend payments of £7.6m.partly offset by:· Lower capital expenditure and acquisitions of £55.4m
principally due to reduced spend in UK Bus, First Student and Greyhound, greater use of operating leases in UK Bus and higher disposal receipts.
· Operating cash flows before working capital being
£36.2m
higher principally due to the exceptional gain in relation to the UK Bus Pension Scheme changes partly offset by the NR settlement in the prior period.
· Lower tax and interest payments of £15.4m
principally
due to lower interest rates on US Dollar denominated debt.
NET DEBTThe Group's net debt at 30 September 2011 was £2,058.7m (2010: £2,190.8m) andcomprised: 30 30 31 September September March 2011 2010 2011 Fixed Variable Total Total Total Analysis of net debt £m £m £m £m £m Sterling bond (2013)1 298.5 - 298.5 298.0 298.0 Sterling bond (2018)2 335.8 - 335.8 330.3 325.9 Sterling bond (2019)2 - 268.9 268.9 277.1 273.4 Sterling bond (2021)3 335.2 - 335.2 332.9 331.1 Sterling bond (2024)1 199.0 - 199.0 199.0 199.0 Sterling bank loans - 25.0 25.0 - - US Dollar bank loans - 398.3 398.3 698.7 506.3 Canadian Dollar bank loans - 119.7 119.7 130.8 113.1 Euro and other bank loans - 17.2 17.2 29.6 29.0 HP contracts and finance 213.1 73.4 286.5 219.4 251.9leases Senior unsecured loan 95.9 - 95.9 - -notes Other loan notes 8.7 1.0 9.7 9.7 9.7 Cash - (81.3) (81.3) (99.5) (89.4) UK Rail ring-fenced cash - (233.6) (233.6) (219.3) (283.8)and deposits Other ring-fenced cash and - (16.1) (16.1) (15.9) (14.8)deposits Interest rate swaps 385.0 (385.0) - - - Total 1,871.2 187.5 2,058.7 2,190.8 1,949.4 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
Average debt maturity at the end of the period was 5.9 years (2010: 5.6 years). Liquidity headroom under the committed $1.25bn syndicated bank revolver at 30 September 2011 was £601m (2010: £934m).
Leverage reduction is a key priority. At 30 September 2011 the net debt to EBITDA ratio was 2.7 times (2010: 2.8 times).
SHARES IN ISSUE
As at 30 September 2011 there were 481.4m shares in issue (2010: 480.4m),excluding treasury shares and own shares held in trust for employees of 0.7m(2010: 1.7m). The weighted average number of shares in issue for the purpose ofbasic EPS calculations (excluding treasury shares and own shares held in trustfor employees) was 481.2m (2010: 480.3m).
BALANCE SHEET
Net assets have decreased by £128.8m since the start of the year. Theprincipal reasons for this are actuarial losses on defined benefit pensionschemes (net of deferred tax) of £92.0m, dividends paid and proposed of £86.4mand unfavourable hedging reserve movements of £67.4m partly offset by theretained profit for the period of £90.3m and favourable translation reservemovements of £24.4m. INVESTMENT IN DSBFIRST
The funding of the joint venture was agreed with DSB during the period and afurther £4.2m was invested by the Group. As a result of this the guaranteesissued by the Group reduced to £7.0m. It is anticipated that the Swedishfranchise will transfer to another operator at the end of the calendar year andthat, based on current financial projections, this investment will be recoveredat the end of the Danish franchise.
FOREIGN EXCHANGE
The most significant exchange rates to Sterling for the Group are as follows: 6 months to 6 months to Year to 30 September 30 September 31 March 2011 2010 2011 Closing Effective Closing Effective Closing Effective rate rate rate rate rate rate US Dollar 1.56 1.62 1.58 1.50 1.60 1.56 Canadian Dollar 1.64 1.59 1.62 1.44 1.57 1.56 PENSIONS
The Group has updated its pension assumptions as at 30 September 2011 for the defined benefit schemes in the UK and North America.
The net pension deficit of £243m at the beginning of the period has increased to £261m at the end of the period principally due to actuarial losses as a result of changes in assumptions and lower than expected returns on assets partly offset by the one-off benefit of the changes to the UK Bus Scheme described above and higher cash payments into the schemes.
The main factors that influence the balance sheet position for pensions and the sensitivities to their movement at 30 September 2011 are set out below:
Movement Impact Discount rate +0.1% Reduce deficit by £24m Inflation +0.1% Increase deficit by £15m FUEL HEDGINGFor the current year 84% of UK "at risk" crude volumes (2.6m barrels) and 59%of North American "at risk" volumes (1.7m barrels) are hedged at $88 and $95respectively.
For 2012/13 "at risk" crude volumes, the UK is 65% hedged at $101 per barrel and North America is 48% hedged at $93 per barrel.
SEASONALITY
The 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.
PRINCIPAL RISKS AND UNCERTAINTIES FOR THE REMAINING SIX MONTHS OF THE FINANCIAL YEAR
There are a number of risks and uncertainties facing the Group in the remainingsix months of the financial year. These are considered to be the same asdisclosed in the 2011 Annual Report. The principal risks and uncertainties,which are set out in detail on pages 40 to 42 of the Annual Report and Accounts2011, are: · Economy in the UK and North America· Pension assets and liabilities valuations· Customer service and associated contract retention· Competitive pressures· Legislation and regulation· Labour costs and employee relations· Unhedged fuel costs· Treasury risks and insurance costs· Terrorism· Rail franchise agreements· Retention of key management· Environmental
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
· the condensed set of financial statements has been
prepared in accordance with IAS 34 "Interim Financial Reporting";
· the interim management report includes a fair review ofthe information required by DTR 4.2.7R (indication of important events duringthe first six months and description of principal risks and uncertainties forthe remaining six months of the year); and· the interim management report includes a fair
review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).
OUTLOOK
We remain focused on cash generation to support capital investment, debt reduction and dividend growth. We continue to target a net cash inflow of £150m for 2011/12 including further selective asset and business disposals.
With market leading positions and operations that are fundamentally strong,together with our clear focus on creating a stronger business for the future,the Group has good prospects to deliver long-term value for shareholders in asector which is a key enabler of economic growth. TimO'Toole Jeff CarrChiefExecutive Finance Director8 November2011 8 November 2011 Condensed consolidated income statement For the 6 months to 30
September based on unaudited
figures 6 months to 30 6 months to 30 September 2010 Year to September 2011³ 31 March 2011 Adjusted Adjusted results1 Adjustments2 Total results1 Adjustments2 Total Total Notes £m £m £m £m £m £m £m Continuing operations Revenue 2,3 3,168.8 - 3,168.8 3,069.9
- 3,069.9 6,416.7
Operating costs (3,005.8) 54.0 (2,951.8) (2,899.5) 4.6 (2,894.9) (6,103.7)before loss on disposal of properties Operating profit 163.0 54.0 217.0 170.4 4.6 175.0 313.0before loss on disposal of properties Amortisation - (15.1) (15.1) - (17.7) (17.7) (42.9)charges Exceptional - 69.1 69.1 - 22.3 22.3 (100.8)items - 54.0 54.0 - 4.6 4.6 (143.7) Loss on - (0.7) (0.7) - (1.5) (1.5) (4.4)disposal of properties Operating 3 163.0 53.3 216.3 170.4 3.1 173.5 308.6profit Investment 4 0.8 - 0.8 0.7 - 0.7 1.9income Finance costs 4 (79.3) (10.0) (89.3) (93.6) 1.2 (92.4) (184.0) Profit before 84.5 43.3 127.8 77.5 4.3 81.8 126.5tax Tax 5 (18.8) (9.2) (28.0) (19.3) 0.3 (19.0) (16.7)
Profit for the 65.7 34.1 99.8 58.2
4.6 62.8 109.8period from continuing operations Discontinued operations (Loss)/profit 6 (0.3) (9.2) (9.5) 0.3 6.7 7.0 7.3for the period from discontinued operations Profit for the 65.4 24.9 90.3 58.5 11.3 69.8 117.1period Attributable to: Equity holders 53.5 25.0 78.5 50.4 11.4 61.8 103.2of the parent Non-controlling 11.9 (0.1) 11.8 8.1 (0.1) 8.0 13.9interests 65.4 24.9 90.3 58.5 11.3 69.8 117.1 Earnings per share Continuing operations Basic 8 11.2p 7.1p 18.3p 10.5p 0.9p 11.4p 20.0p Diluted 11.1p 7.1p 18.2p 10.3p 1.0p 11.3p 19.8p Continuing and discontinued operations Basic 8 11.1p 5.2p 16.3p 10.5p 2.4p 12.9p 21.5p Diluted 11.1p 5.2p 16.3p 10.4p
2.3p 12.7p 21.3p
1Adjusted trading results before items noted in 2 below.
2Amortisation charges, ineffectiveness on financial derivatives, exceptional items, loss on disposal of properties and (loss)/profit on disposal of discontinued operations and tax thereon.
³For all businesses excluding UK Rail this half year includes 27 weeks compared to 26 weeks for the corresponding period last year.
Condensed consolidated statement of comprehensive
income Unaudited Unaudited Audited 6 months 6 months year to to to 31 30 30 March September September 2011 2011 2010 £m £m £m Profit for the period 90.3 69.8 117.1 Other comprehensive income Derivative hedging instrument movements (91.8) 74.7
193.4
Deferred tax on derivative hedging instrument 24.4 (10.1) (44.0)movements Exchange differences on translation of foreign 24.4 (135.8) (143.9)operations Unrealised losses on executive deferred - (0.3) (0.1)compensation plans
Actuarial losses on defined benefit pension schemes (135.8) (116.3) (55.5)
RPI to CPI change in defined benefit pension - 70.2
84.9schemes
Deferred tax on actuarial losses and RPI to CPI 43.8 16.6 (5.9) change on defined benefit pension schemes
Other comprehensive income for the period (135.0) (101.0)
28.9
Total comprehensive income for the period (44.7) (31.2) 146.0 Attributable to: Equity holders of the parent (56.2) (38.6) 132.6 Non-controlling interests 11.5 7.4 13.4 (44.7) (31.2) 146.0
Condensed consolidated balance sheet
Unaudited Unaudited Audited 30 30 31 September September March 2011 2010 2011 Notes £m £m £m Non-current assets Goodwill 9 1,634.7 1,623.8 1,608.0 Other intangible assets 10 338.9 375.7 348.6 Property, plant and equipment 11 2,041.7 2,154.8 2,082.9 Deferred tax assets 53.0 31.6 30.0 Retirement benefit assets 20 32.5 11.6 30.7
Derivative financial instruments 15 65.4 57.1
58.1 Investments 7.4 4.6 3.2 4,173.6 4,259.2 4,161.5 Current assets Inventories 90.0 91.4 91.4 Trade and other receivables 12 620.1 576.2 555.5 Cash and cash equivalents 331.0 334.7 388.0 Assets held for sale 13 7.7 2.4 4.6
Derivative financial instruments 15 30.5 26.9
65.1 1,079.3 1,031.6 1,104.6 Total 5,252.9 5,290.8 5,266.1assets Current liabilities Trade and other payables 14 1,185.5 1,041.7 1,129.9 Tax liabilities 59.4 51.5 49.0 Financial - bank loans 96.3 181.6 93.5liabilities - bonds 35.7 35.6 73.3 - HP contracts and 46.0 38.4 42.8 finance leases
Derivative financial instruments 15 41.4 82.9 38.5 1,464.3 1,431.7 1,427.0 Net current liabilities 385.0 400.1 322.4 Non-current liabilities Financial - bank loans 464.0 677.6 554.9liabilities - bonds 1,439.1 1,430.8 1,417.1 - HP contracts and 240.5 181.0 209.1 finance leases - loan notes 9.7 9.7 9.7 - senior unsecured loan 95.9 - - notes
Derivative financial instruments 15 84.6 59.2
29.7
Retirement benefit liabilities 20 293.7 361.2 273.9 Deferred tax liabilities 69.2 63.6 93.0 Provisions 16 269.8 263.9 300.8 2,966.5 3,047.0 2,888.2 Total liabilities 4,430.8 4,478.7 4,315.2 Net assets 822.1 812.1 950.9 Equity Share capital 18 24.1 24.1 24.1 Share premium 676.4 676.4 676.4 Hedging reserve (32.0) (49.4) 35.4 Other reserves 4.6 4.6 4.6 Own shares (2.2) (6.1) (5.0) Translation reserve 181.2 164.8 156.6 Retained earnings (44.5) (20.5) 41.5 Equity attributable to equity holders of 807.6 793.9 933.6the parent Non-controlling interests 14.5 18.2 17.3 Total 822.1 812.1 950.9equity
Condensed consolidated statement of
changes in equity Non- Share Share Hedging Other Own Translation
Retained controlling Total
capital premium reserve reserves shares reserve earnings
Total interests equity
£m £m £m £m £m £m £m £m £m £m Balance at 1 24.1 676.4 35.4 4.6 (5.0) 156.6 41.5 933.6 17.3 950.9 April 2011 Total - - (67.4) - - 24.6 (13.4) (56.2) 11.5 (44.7) comprehensive income for the period Dividends - - - - - - (72.1) (72.1) (14.3) (86.4) paid Movement in - - - - 2.8 - (3.0) (0.2) - (0.2) EBT and treasury shares Share-based - - - - - - 2.8 2.8 - 2.8 payments Deferred tax - - - - - - (0.3) (0.3) - (0.3) on share-based payments Balance at 30 24.1 676.4 (32.0) 4.6 (2.2) 181.2 (44.5) 807.6 14.5 822.1 September 2011 Balance at 1 24.1 676.4 (114.0) 4.6 (6.5) 300.0 10.2 894.8 15.7 910.5 April 2010 Total - - 64.6 - - (135.2) 32.0 (38.6) 7.4 (31.2) comprehensive income for the period Dividends - - - - - - (67.2) (67.2) (4.9) (72.1) paid Movement in - - - - 0.4 - (0.5) (0.1) - (0.1) EBT and treasury shares Share-based - - - - - - 3.9 3.9 - 3.9 payments Deferred tax - - - - - - 1.1 1.1 - 1.1 on share-based payments Balance at 30 24.1 676.4 (49.4) 4.6 (6.1) 164.8 (20.5) 793.9 18.2 812.1 September 2010 Balance at 1 24.1 676.4 (114.0) 4.6 (6.5) 300.0 10.2 894.8 15.7 910.5 April 2010 Total - - 149.4 - - (143.4) 126.6 132.6 13.4 146.0 comprehensive income for the period Dividends - - - - - - (101.4) (101.4) (11.8) (113.2)paid Movement in - - - - 1.5 - (1.7) (0.2) - (0.2) EBT and treasury shares Share-based - - - - - - 7.7 7.7 - 7.7 payments Deferred tax - - - - - - 0.1 0.1 - 0.1 on share-based payments Balance at 31 24.1 676.4 35.4 4.6 (5.0) 156.6 41.5 933.6 17.3 950.9 March 2011
Condensed consolidated cash flow statement
Unaudited Unaudited Audited 6 months 6 months year to to to 31 30 30 March September September 2011 2011 2010 Note £m £m £m Net cash from operating activities 19 101.1 178.4 555.7 Investing activities Interest received 0.7 0.9 1.7
Proceeds from disposal of property, plant and 29.9 13.4
21.8equipment Purchases of property, plant and equipment (65.8) (142.1) (210.3) Disposal of subsidiary 5.5 24.3 24.3 Acquisition of businesses - - (3.1) Net cash used in investing activities (29.7) (103.5) (165.6) Financing activities
Monies received on exercise of share options - -
3.1 Dividends paid (72.1) (67.2) (101.4)
Dividends paid to non-controlling shareholders (7.6) (4.9) (11.8)
Proceeds from senior unsecured loan notes 90.2 -
-
Proceeds from bank facilities 36.0 105.4 124.1 Repayment of bank debt (146.7) (86.7) (307.7) Repayments under HP contracts and finance (26.7) (19.5) (35.9)leases Repayment of loan notes - (0.8) (0.8) Fees for bank facility amendments and bond (1.5) (0.2) (6.3)issues Net cash flow from financing activities (128.4) (73.9)
(336.7)
Net (decrease)/increase in cash and cash (57.0) 1.0
53.4
equivalents before foreign exchange movements Cash and cash equivalents at beginning of 388.0 335.0 335.0period Foreign exchange movements - (1.3) (0.4)
Cash and cash equivalents at end of period per 331.0 334.7 388.0 condensed consolidated balance sheet
Cash and cash equivalents are included within current assets on the condensed consolidated balance sheet.
Note to the condensed consolidated cash flow
statement -
reconciliation of net cash flow to movement in
net debt 6 months 6 months Year to to to 31 March 30 30 September September 2011 2011 2010 £m £m £m
Net (decrease)/increase in cash and cash (57.0) 1.0
53.4equivalents in period
Decrease in debt and finance leases 47.2 1.6
220.3
Inception of new HP contracts and finance leases (55.9) (18.5) (70.2)
Fees capitalised against bank facilities and 1.5 0.2
6.3bond issues Net cash flow (64.2) (15.7) 209.8
Foreign exchange movements (42.6) 109.7
129.2
Other non-cash movements in relation to (2.5) (3.3)
(6.9)financial instruments
Movement in net debt in period (109.3) 90.7
332.1
Net debt at beginning of period (1,949.4) (2,281.5) (2,281.5) Net debt at end of period (2,058.7) (2,190.8) (1,949.4) Net debt includes the value of derivatives in connection with the bondsmaturing in 2018, 2019 and 2021 and excludes all accrued interest. These bondsare included in non-current liabilities in the condensed consolidated balancesheet.
Notes to the half-yearly financial report
1 BASIS OF PREPARATION
This half-yearly financial report does not constitute statutory accounts asdefined in section 434 of the Companies Act 2006. The statutory accounts forthe year ended 31 March 2011 have been delivered to the Registrar of Companies.The auditors reported on those accounts; their report was unqualified, did notdraw attention to any matters by way of emphasis and did not contain astatement under section 498(2) or (3) of the Companies Act 2006. The figures for the six months to 30 September 2011 include the results of therail division for the period ended 17 September 2011 and the results for theother divisions for the 27 weeks ended 1 October 2011. The comparative figuresfor the six months to 30 September 2010 include the results of the raildivision for the period ended 18 September 2010 and the results of the otherdivisions for the 26 weeks ended 25 September 2010.
The accounting policies used in this half-yearly financial report are consistent with International Financial Reporting Standards. The same accounting policies, presentation and methods of computation are followed in this condensed set of financial statements as applied in the Group's latest annual audited financial statements.
The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
These results are unaudited but have been reviewed by the auditors. Thecomparative figures for the six months to 30 September 2010 are unaudited andare derived from the half-yearly financial report for that period, which wasalso reviewed by the auditors. There continue to be no significant debt repayments due until 2013. Aftertaking this into account and the committed liquidity headroom available underthe $1.25bn committed revolver facility and making enquiries and reviewing theoutlook for 2011/12 and medium term plans, the directors have a reasonableexpectation that the Group has adequate resources to continue in operationalexistence for the foreseeable future. Accordingly they continue to adopt thegoing concern basis in preparing this half-yearly financial report.
This half-yearly financial report will be sent to all shareholders later in November 2011 and will be available to the public at the Registered Office of the Company, 395 King Street, Aberdeen AB24 5RP.
This half-yearly financial report was approved by the Board on 9 November 2011. 6 months 6 months Year to to to 31 30 30 March September September 2011 2011 2010 2 REVENUE £m £m £m Continuing operations Services rendered 2,854.5 2,799.7 5,857.7 UK Rail franchise subsidy receipts 193.9 176.8 390.8 UK Rail revenue support 120.4 93.4 168.2 3,168.8 3,069.9 6,416.7 Finance income 0.8 0.7 1.9 Total revenue from continuing operations as 3,169.6 3,070.6 6,418.6defined by IAS 18 Discontinued operations Services rendered 5.3 15.4 22.0
UK Rail franchise subsidy receipts - 0.4
0.4
Total revenue from discontinued operations as 5.3 15.8 22.4defined by IAS 18 Total revenue as defined by IAS 18 3,174.9 3,086.4 6,441.0 3 SEGMENT INFORMATION
The segment results for the six months to 30 September 2011 are
as follows: First First Group Student Transit Greyhound UK Bus UK Rail items2 Total³ £m £m £m £m £m £m £m Revenue 683.3 387.3 343.6 586.9 1,162.6 10.4 3,174.1 Discontinued - - - - - (5.3) (5.3)operations Revenue continuing 683.3 387.3 343.6 586.9 1,162.6 5.1 3,168.8operations EBITDA1 79.9 31.7 45.4 96.5 84.6 (14.7) 323.4 Depreciation (74.4) (4.5) (14.9) (37.1) (28.9) (0.6) (160.4) Segment results1 5.5 27.2 30.5 59.4 55.7 (15.3) 163.0 Amortisation charges (9.8) (2.2) (1.6) - (1.5) - (15.1) Exceptional items - - - 72.3 (2.1) (1.1) 69.1 (Loss)/profit on (0.3) - 0.9 (1.3) - - (0.7)disposal of properties Operating profit (4.6) 25.0 29.8 130.4 52.1 (16.4) 216.3 Investment income 0.8 Finance costs (79.3) Ineffectiveness on financial (10.0) derivatives Profit before tax 127.8 Tax (28.0) Profit for the period from continuing 99.8 operations Discontinued (9.5) operations Profit for the period 90.3
The segment results for the six months to 30 September 2010 are as follows: First First Group Student Transit Greyhound UK UK items2 Total Bus Rail £m £m £m £m £m £m £m Revenue 711.4 392.7 337.6 570.5 1,063.0 10.5 3,085.7 Discontinued - - - - (9.9) (5.9) (15.8)operations Revenue continuing 711.4 392.7 337.6 570.5 1,053.1 4.6 3,069.9operations EBITDA1 105.3 30.8 40.3 91.5 74.9 (11.5) 331.3 Depreciation (77.3) (4.8) (14.7) (36.1) (26.5) (1.5) (160.9) Segment results1 28.0 26.0 25.6 55.4 48.4 (13.0) 170.4 Amortisation (10.4) (2.5) (1.6) - (3.2) - (17.7)charges Exceptional items - - - - 22.5 (0.2) 22.3 Loss on disposal - - - (1.5) - - (1.5)of properties Operating profit 17.6 23.5 24.0 53.9 67.7 (13.2) 173.5 Investment income 0.7 Finance costs (93.6) Ineffectiveness on 1.2financial derivatives Profit before tax 81.8 Tax (19.0)
Profit for the period from
62.8continuing operations Discontinued 7.0operations Profit for the 69.8period 1Adjusted.
2Group items comprise Tram operations, central management and other items.
³For all businesses excluding UK Rail this half year includes 27 weeks compared to 26 weeks for the corresponding period last year.
3 SEGMENT INFORMATION continued
The segment results for the year to 31 March 2011 are as follows: First First Group Student Transit Greyhound UK Bus UK items2 Total Rail £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) (12.5) (22.4)operations Revenue 1,594.4 771.5 634.6 1,137.5 2,269.8 8.9 6,416.7continuing operations EBITDA1 278.1 66.3 68.7 220.5 166.1 (22.8) 776.9 Depreciation (149.8) (9.1) (28.5) (71.7) (57.4) (3.7) (320.2) Segment results1 128.3 57.2 40.2 148.8 108.7 (26.5) 456.7 Amortisation (20.4) (4.7) (3.1) - (14.7) - (42.9)charges
Exceptional items (39.5) (16.6) - (2.4) (41.9) (0.4) (100.8)
Loss on disposal (0.1) - (1.2) (3.1) - - (4.4)of properties Operating profit 68.3 35.9 35.9 143.3 52.1 (26.9) 308.6 Investment income 1.9 Finance costs (184.3) Ineffectiveness on 0.3financial derivatives Profit before tax 126.5 Tax (16.7) Profit for the year from 109.8continuing operations Discontinued 7.3operations Profit for the 117.1year 1Adjusted.
2Group items comprise Tram operations, central management and other items.
30 September 30 September 31 March 2011 2010 2011 Total assets £m £m £m United Kingdom 4,481.4 4,849.9 5,374.7 United States of America 3,022.3 3,046.5 3,405.4 Canada 501.7 518.7 521.3 Eliminations (2,805.5) (3,155.9) (4,065.3) Unallocated corporate items 53.0 31.6 30.0 5,252.9 5,290.8 5,266.1 6 months 6 months Year to to to 30 30 31 September September March 2011 2010 2011
4 INVESTMENT INCOME AND FINANCE COSTS £m £m
£m Investment income Bank interest receivable (0.8) (0.7) (1.9) Finance costs Bonds 47.0 46.2 91.6 Bank borrowings 17.0 33.8 64.2 Senior unsecured loan notes 1.7 - - Loan notes 0.5 0.5 1.0 Finance charges payable in respect of HP contracts 3.8 3.3 7.8and finance leases
Notional interest on long term provisions 9.3 9.8
19.7
Finance costs before non-recurring items 79.3 93.6
184.3
Hedge ineffectiveness on financial derivatives 10.0 (1.2) (0.3) 89.3 92.4 184.0 Net finance costs 88.5 91.7 182.1 6 months to 6 months to Year to 30 September 30 September 31 March 2011 2010 2011
5 TAX ON PROFIT ON ORDINARY ACTIVITIES £m £m
£m Current tax 8.2 14.7 36.7 Deferred tax 19.8 4.3 (20.0)
Tax on profit from continuing operations 28.0 19.0
16.7
Current tax - discontinued operations - 0.2
0.4 Total tax charge 28.0 19.2 17.1
The tax effect of the adjustments disclosed in the condensed consolidated income statement was a charge of £9.2m (2010: credit of £0.3m).
6 DISCONTINUED OPERATIONS
On 30 September 2011 FirstGroup plc disposed of FirstGroup Deutschland GmbH and as a consequence the results of this business have been classified as discontinued operations, as detailed below.
On 28 May 2010 the Group disposed of its interest in GB Railfreight. The results up to the date of disposal have been classified as discontinued operations in the prior periods in the table below.
6 months 6 months Year to to to 31 30 30 March September September 2011 2011 2010 £m £m £m Revenue 5.3 15.8 22.4 Operating costs (5.6) (15.3) (21.4) (Loss)/profit before tax (0.3) 0.5 1.0 Attributable tax expense - (0.2) (0.4) (Loss)/profit for the period from discontinued (0.3) 0.3 0.6operations
(Loss)/profit on disposal of discontinued (9.2) 6.7
6.7operations Net (loss)/profit attributable to discontinued (9.5) 7.0 7.3operations
There was no attributable tax on the profit on disposal of discontinued operations.
During the period, discontinued operations contributed £0.6m (2010: £2.0m: fullyear 2011: £2.7m) to the Group's net operating cash flows, paid £nil (2010: £0.4m; full year 2011: £0.7m) in respect of investing activities and paid £nil(2010: £nil; full year 2011: £nil) in respect of financing activities.
Details of the loss on disposal of FirstGroup Deutschland GmbH are set out in note 17.
The effect of discontinued operations on segment results is disclosed in note3. 6 months 6 months Year to to to 30 30 31 September September March 2011 2010 2011 7 DIVIDENDS £m £m £m
Final dividend per share paid for the year ended 31 72.1 67.2 67.2 March 2011 of 15.0p (2010: 14.0p)
Interim dividend per share paid for the year ended 31 - - 34.2 March 2011 of 7.12p (2010: 6.65p)
Amounts recognised as distributions to equity holders 72.1 67.2 101.4in the period
Proposed interim dividend per share for the year 36.7 34.2
-
ended 31 March 2012 of 7.62p (2011: 7.12p)
The proposed interim dividend will be paid on 1 February 2012 to shareholders on the register of members at the close of business on 6 January 2012.
8 EARNINGS PER SHARE (EPS)Basic EPS is calculated by dividing the profit attributable to equityshareholders of £78.5m (2010: £61.8m; full year 2011: £103.2m) by the weightedaverage number of ordinary shares in issue (excluding own shares held in theEBT and treasury shares) of 481.2m (2010: 480.3m; full year 2011: 480.4m). The adjusted basic EPS is intended to highlight the recurring results of theGroup before amortisation charges, ineffectiveness on financial derivatives,exceptional items and loss on disposal of properties. A reconciliation is setout below: 6 months to 6 months to Year to 30 September 30 September 31 March 2011 2010 2011 £m EPS (p) £m EPS (p) £m EPS (p) Basic profit/EPS from continuing 88.0 18.3 54.8 11.4 95.9 20.0operations Basic profit/EPS from discontinued (9.5) (2.0) 7.0 1.5 7.3 1.5operations Basic profit/EPS 78.5 16.3 61.8 12.9 103.2 21.5 Amortisation charges1 15.0 3.1 17.6 3.6 42.7 8.9 Ineffectiveness on financial 10.0 2.1 (1.2) (0.3) (0.3) (0.1)derivatives Exceptional items (69.1) (14.4) (22.3) (4.7) 100.8 21.0 Non-controlling interests on - - - - (3.1) (0.6)non-recurring items Loss on disposal of properties 0.7 0.2 1.5 0.3 4.4 0.9 Business disposals 9.2 1.9 (6.7) (1.4) (6.7) (1.4) Tax effect of above adjustments 9.2 1.9 (0.3) 0.1 (43.0) (9.0) Adjusted profit/EPS 53.5 11.1 50.4 10.5 198.0 41.2 Adjusted profit/EPS from 0.3 0.1 (0.3) - (0.6) (0.1)discontinued operations Adjusted profit/EPS from continuing 53.8 11.2 50.1 10.5 197.4 41.1operations 1Amortisation charges of £15.1m (2011: £17.7m; full year 2011: £42.9m) per note10 less £0.1m (2010: £0.1m; full year 2011: £0.2m) attributable to equitynon-controlling interests. Diluted EPS is based on the same earnings and on a weighted average number ofordinary shares in issue of 483.6m (2010: 484.8m; full year 2011: 484.6m). Thedifference in the number of shares between the basic calculation and thediluted calculation represents the weighted average number of potentiallydilutive ordinary shares from the share options. 9 GOODWILL £m Cost At 1 April 2011 1,613.0 Disposals (6.1) Foreign exchange movements 32.9 At 30 September 2011 1,639.8 Accumulated impairment losses At 1 April 2011 5.0 Foreign exchange movements 0.1 At 30 September 2011 5.1 Carrying amount At 30 September 2011 1,634.7 At 31 March 2011 1,608.0 At 30 September 2010 1,623.8 Disclosures including goodwill by cash generating unit, details of impairmenttesting and sensitivities thereon are set out on pages 76 and 77 of the 2011Annual Report. The projections for First Student assume the incrementalbenefits of the recovery plan together with a moderate economic recovery and asa result operating profits and margins are projected to recover to historiclevels by the end of 2013/14. Based on these projections the First Studentmargin would need to fall in excess of 1.5% compared to the projections forthere to be an impairment on the business.
Projections for all businesses are currently being updated and detailed disclosures as described above will be included in the 2012 Annual Report.
Customer Greyhound brand and Rail franchise Total contracts trade name agreements 10 OTHER £m £m £m £mINTANGIBLE ASSETS Cost At 1 April 2011 381.5 61.9 56.3 499.7 Foreign exchange 6.9 0.8 - 7.7movements At 30 September 388.4 62.7 56.3 507.42011 Amortisation At 1 April 2011 90.1 11.2 49.8 151.1 Charge for period 12.1 1.5 1.5 15.1 Foreign exchange 2.1 0.2 - 2.3movements At 30 September 104.3 12.9 51.3 168.52011 Carrying amount At 30 September 284.1 49.8 5.0 338.92011 At 31 March 2011 291.4 50.7 6.5 348.6 At 30 September 305.0 52.8 17.9 375.72010 Intangible assets include customer contracts and the Greyhound brand and tradename which were acquired through the purchases of businesses and subsidiaryundertakings. These are being amortised on a straight-line basis over theiruseful lives which are between nine and twenty years. The rail franchise agreements' intangible asset represents the part of theeconomic benefit that is realised as a result of recognising our share of therail pension deficit on the date of commencement of each respective franchiseand is amortised on a straight-line basis over the initial term of eachrespective franchise. Passenger Other Land and carrying plant and buildings vehicle equipment Total fleet
11 PROPERTY, PLANT AND EQUIPMENT £m £m £m
£m Cost At 1 April 2011 536.5 2,565.2 596.7 3,698.4 Subsidiary undertakings disposed of (2.8) (4.0) (0.6) (7.4) Additions 9.2 99.0 37.5 145.7 Disposals (31.9) (34.5) (12.2) (78.6) Transfers - 6.0 (6.0) - Reclassified as held for sale - (48.0) - (48.0) Foreign exchange movements 2.8 28.7 4.3 35.8 At 30 September 2011 513.8 2,612.4 619.7 3,745.9 Accumulated depreciation and impairment At 1 April 2011 75.0 1,231.6 308.9 1,615.5 Subsidiary undertakings disposed of (0.3) (2.0) (0.4) (2.7) Charge for period 6.4 109.4 44.8 160.6 Disposals (1.8) (34.5) (11.8) (48.1) Transfers - (24.0) 24.0 - Reclassified as held for sale - (39.0) - (39.0) Foreign exchange movements 0.4 14.8 2.7 17.9 At 30 September 2011 79.7 1,256.3 368.2 1,704.2 Carrying amount At 30 September 2011 434.1 1,356.1 251.5 2,041.7 At 31 March 2011 461.5 1,333.6 287.8 2,082.9 At 30 September 2010 474.6 1,403.8 276.4 2,154.8 30 September 30 September 31 March 2011 2010 2011
12 TRADE AND OTHER RECEIVABLES £m £m £m
Amounts due within one year Trade receivables 458.1 431.4 408.7
Provision for doubtful receivables (5.2) (7.1) (7.5)
Other receivables 61.0 53.8 53.4
Other prepayments and accrued income 106.2 98.1 100.9
620.1 576.2 555.5 30 September 30 September 31 March 2011 2010 2011 13 ASSETS HELD FOR SALE £m £m £m Assets held for sale 7.7 2.4 4.6 These comprise First Student yellow school buses which are surplus torequirements and are being actively marketed on the Internet. Gains or lossesarising on the disposal of such assets are included in arriving at operatingprofit in the condensed consolidated income statement. 30 September 30 September 31 March 2011 2010 2011 14 TRADE AND OTHER PAYABLES £m £m £m Amounts falling due within one year Trade payables 332.5 290.1 312.2 Other payables 154.1 98.9 113.9 Accruals and deferred income 639.7 598.0 640.5 Season ticket deferred income 59.2 54.7 63.3 1,185.5 1,041.7 1,129.9 30 30 31 September September March 2011 2010 2011
15 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) 12.7 15.5
22.2
Coupon swaps (fair value hedge) 49.6 39.0
21.0
Fuel derivatives (cash flow hedge) 3.1 2.6
14.9 65.4 57.1 58.1 Current assets
Cross currency swaps (net investment hedge) 3.6 6.5
4.6
Coupon swaps (fair value hedge) 9.6 10.3
6.7
Currency forwards (cash flow hedge) 0.3 -
1.2
Fuel derivatives (cash flow hedge) 17.0 10.1
52.6 30.5 26.9 65.1 Current liabilities
Interest rate derivatives (cash flow hedge) 9.9 30.4
15.0
Cross currency swaps (net investment hedge) 19.2 27.3
23.3
Fuel derivatives (cash flow hedge) 11.0 25.2
0.1 40.1 82.9 38.4 Non-current liabilities
Interest rate derivatives (cash flow hedge) 13.4 6.5
1.5
Cross currency swaps (net investment hedge) 48.9 42.7
28.2
Fuel derivatives (cash flow hedge) 12.4 10.0
- 74.7 59.2 29.7
Derivates classified as held for trading
Current liabilities Interest rate swaps 1.3 - - Non-current liabilities Interest rate swaps 9.9 - 0.1 Total non-current assets 65.4 57.1 58.1 Total current assets 30.5 26.9 65.1 Total assets 95.9 84.0 123.2 Total current liabilities 41.4 82.9 38.5 Total non-current liabilities 84.6 59.2 29.7 Total liabilities 126.0 142.1 68.2 30 30 31 September September March 2011 2010 2011 16 PROVISIONS £m £m £m Insurance claims 216.0 219.0 221.0 Legal and other 22.8 39.9 26.4 FGW contract provision 26.5 - 48.7 Pensions 4.5 5.0 4.7 Non-current liabilities 269.8 263.9 300.8 Insurance Legal FGW contract claims1 and provision Pensions Total other2 £m £m £m £m £m At 1 April 2011 221.0 26.4 48.7 4.7 300.8 Provided in the period 40.2 0.2 - - 40.4 Utilised in the period (59.5) (4.7) - (0.2) (64.4) Reclassified to amounts falling - - (22.2) - (22.2)due within one year Notional interest 9.4 - - - 9.4 Foreign exchange movements 4.9 0.9 - - 5.8 At 30 September 2011 216.0 22.8 26.5 4.5 269.8 At 30 September 2010 219.0 39.9 - 5.0 263.9
1 Insurance claims accruals due within one year at 30 September 2011 amounted to £116.3m (2010: £117.8m; full year 2011: £119.5m) and are included in "accruals and deferred income" within note 14. The amount included within provisions above represents the estimate of amounts due after more than one year.
2Legal and other accruals due within one year at 30 September 2011 amounted to£9.7m (2010: £6.7m; full year 2010: £11.2m) and are included in "accruals anddeferred income" within note 14. The amount included within provisions aboverepresents the estimate of amounts due after more than one year. 30 September 30 September 31 March 17 DISPOSAL OF BUSINESSES 2011 2010 2011 AND SUBSIDIARY UNDERTAKINGS £m £m £m
Fair values of net assets disposed of:
Goodwill 6.1 14.2 14.2 Property, plant and equipment 4.7 3.8 3.8 Current assets 1.2 12.0 12.0 Cash and cash equivalents 1.6 - - Deferred tax - (1.6) (1.6) Other liabilities (0.5) (10.8) (10.8) 13.1 17.6 17.6 Costs of disposal 1.6 - - (Loss)/profit on disposal (9.2) 6.7 6.7
Satisfied by cash received and receivable 5.5 24.3 24.3
Net cash inflow arising on disposal:
Cash consideration 5.5 24.3 24.3 5.5 24.3 24.3
On 30 September 2011, the Group disposed of its interest in FirstGroup Deutschland GmbH. The impact of FirstGroup Deutschland GmbH on the Group's results in the current and prior periods is disclosed in note 6.
On 28 May 2010, the Group disposed of its interest in GB Railfreight. Thedetails of this disposal are included in the prior period figures in the tableabove. 30 September 30 September 31 March 2011 2010 2011 18 SHARE CAPITAL £m £m £m Allotted, called up and fully paid: 482.1m Ordinary shares of 5p each 24.1 24.1 24.1
The number of ordinary shares of 5p each in issue, excluding treasury sharesand shares held in trust for employees, at the end of the period was 481.4m(2010: 480.4m; full year 2011: 480.8m). At the end of the period 0.3m shares(2010: 1.0m shares; full year 2011: 0.3m shares) were being held as treasuryshares and 0.4m shares (2010: 0.7m shares; full year 2011: 1.0m shares) werebeing held in trust to satisfy the exercise of employee share options. 30 30 31 September September March 2011 2010 2011
19 NET CASH FROM OPERATING ACTIVITIES £m £m
£m
Operating profit before loss on disposal of 217.0 175.0 313.0properties Operating (loss)/profit of discontinued operations (0.3) 0.5 1.0 Adjustments for: Depreciation charges 160.6 161.3 321.0 Amortisation charges 15.1 17.7 42.9 Impairment charges - - 19.5 Share-based payments 2.8 3.9 7.7 (Profit)/loss on disposal of property, plant and (0.4) 0.2 3.7equipment Operating cash flows before working capital 394.8 358.6
708.8
Decrease/(increase) in inventories 0.8 (2.0)
(3.2)
(Increase)/decrease in receivables (42.1) (8.9)
25.9
Increase/(decrease) in payables 14.8 (5.5)
55.7
(Decrease)/increase in provisions (46.2) (30.2)
0.4
Defined benefit pension payments in excess of (117.8) (14.8) (43.5)income statement charge Cash generated by operations 204.3 297.2 744.1 Tax paid (4.3) (9.8) (25.0) Interest paid (95.1) (105.4) (155.2)
Interest element of HP contracts and finance leases (3.8) (3.6) (8.2)
Net cash from operating activities 101.1 178.4 555.7 20 RETIREMENT BENEFIT SCHEMES
The Group operates or participates in a number of defined benefit pension schemes which cover the majority of UK employees and certain North American employees. The scheme details are described in page 96 of the Annual Report and Accounts for the year ended 31 March 2011.
First Greater Western Limited, First Capital Connect Limited, First ScotRailLimited, Hull Trains Limited and First/Keolis TransPennine Express Limited havesections in the Railways Pension Scheme (RPS), which is an industry-widearrangement. Under the terms of the RPS, any fund deficit or surplus is sharedby the employer (60%) and the employees (40%). In calculating the Group'spension obligations in respect of the RPS the Group has calculated the totalpension deficits in each of the RPS sections in accordance with IAS 19. Thesedeficits are reduced by a "franchise adjustment" which is that portion of thedeficit which is projected to exist at the end of the franchise and for whichthe Group will not be required to fund. The franchise adjustment, which hasbeen calculated by the Group's actuaries, is offset against the present valueof the RPS liabilities so as to fairly present the financial performance,position and cash flows of the Group's obligations.
The market value of the assets at 30 September 2011 for all defined benefit schemes totalled £3,227m (2010: £3,160m; full year 2011: £3,289m).
Contributions are paid to all defined benefit pension schemes in accordance with rates recommended by the schemes' actuaries. The valuations are made using the Projected Unit Credit Method.
20 RETIREMENT BENEFIT SCHEMES continued
The key assumptions were as follows:
UK UK North UK UK North UK UK North America America America Bus Rail Bus Rail Bus Rail 30 30 30 Sept 30 30 30 Sept 31 31 31 Sept Sept Sept Sept March March March 2011 2011 2011 2010 2010 2010 2011 2011 2011 % % % % % % % % % Key assumptions used: Discount rate 5.10 5.10 4.05 5.05 5.05 4.70 5.50 5.50 5.25 Expected return on 7.40 8.60 6.90 7.90 7.90 7.40 7.90 7.90 6.90scheme assets
Expected rate of 3.75 3.75 3.25 4.00 4.00 3.25 4.20 4.20
-salary increases
Inflation - RPI 2.8 2.8 - 3.0 3.0 2.25 3.2 3.2 2.25
Inflation - CPI 2.0 2.0 - 2.4 2.4 - 2.4 2.4
-
Future pension 1.9 2.0 - 3.0 3.0 - 2.4/ 2.4
-increases 3.1
During the period certain changes to the UK Bus Pension Scheme were agreed inprinciple with the participating members and the Scheme trustees, the mostsignificant of which is that pension increases will be linked to CPI ratherthan RPI. The impact of these changes has been assessed at £73.3m and is shownwithin exceptional items in the condensed consolidated income statement. Amounts (charged)/credited to the condensed consolidated income statementbefore exceptional items in respect of these defined benefit schemes are asfollows: North UK Bus UK Rail America Total 6 months to 30 September 2011 £m £m £m £m Current service cost (14.1) (24.8) (2.2) (41.1) Interest cost (42.5) (20.1) (16.1) (78.7)
Expected return on scheme assets 63.2 27.0 14.9 105.1
Interest on franchise adjustment - 1.9 - 1.9
6.6 (16.0) (3.4) (12.8) North UK Bus UK Rail America Total 6 months to 30 September 2010 £m £m £m £m Current service cost (18.0) (27.9) (2.7) (48.6) Interest cost (47.7) (22.8) (16.8) (87.3)
Expected return on scheme assets 60.9 26.3 15.2 102.4
Interest on franchise adjustment - 4.8 - 4.8
(4.8) (19.6) (4.3) (28.7) North UK Bus UK Rail America Total Year to 31 March 2011 £m £m £m £m Current service cost (31.9) (51.5) (4.4) (87.8) Interest cost (87.8) (42.2) (34.1) (164.1)
Expected return on scheme assets 121.6 52.4 31.1 205.1
Interest on franchise adjustment - 5.7 - 5.7
1.9 (35.6) (7.4) (41.1)
Actuarial gains and losses have been reported in the condensed consolidated statement of comprehensive income.
The amounts included in the condensed consolidated balance sheet arising fromthe Group's obligations in respect of its defined benefit pension schemes areas follows: North UK Bus UK Rail America Total At 30 September 2011 £m £m £m £m Fair value of schemes' assets 1,668.9 1,112.3 445.9 3,227.1 Present value of defined benefit (1,611.1) (1,378.7) (683.7) (3,673.5)obligations (Deficit)/surplus before adjustments 57.8 (266.4) (237.8)
(446.4)
Adjustment for irrecoverable surplus1 (53.3) - - (53.3)
UK Rail franchise adjustment (60%) - 131.9 -
131.9
Adjustment for employee share of RPS - 106.6 - 106.6deficits (40%) (Deficit)/surplus in schemes 4.5 (27.9) (237.8)
(261.2)
Liability recognised in the condensed 4.5 (27.9) (237.8) (261.2)consolidated balance sheet
This amount is presented in the condensed consolidated
balance sheet as follows: Non-current assets 32.5 - - 32.5 Non-current liabilities (28.0) (27.9) (237.8) (293.7) 4.5 (27.9) (237.8) (261.2) North UK Bus UK Rail America Total At 30 September 2010 £m £m £m £m Fair value of schemes' assets 1,643.1 1,049.2 467.4 3,159.7 Present value of defined benefit (1,765.3) (1,360.0) (650.0) (3,775.3)obligations Deficit before adjustments (122.2) (310.8) (182.6) (615.6) UK Rail franchise adjustment (60%) - 141.8 -
141.8
Adjustment for employee share of RPS - 124.2 - 124.2deficits (40%) Deficit in schemes (122.2) (44.8) (182.6) (349.6) Liability recognised in the condensed (122.2) (44.8) (182.6) (349.6)consolidated balance sheet
This amount is presented in the condensed consolidated balance sheet as follows:
Non-current assets 11.6 - - 11.6 Non-current liabilities (133.8) (44.8) (182.6) (361.2) (122.2) (44.8) (182.6) (349.6) North UK Bus UK Rail America Total At 31 March 2011 £m £m £m £m Fair value of schemes' assets 1,701.6 1,114.3 473.0
3,288.9
Present value of defined benefit (1,649.8) (1,333.3) (631.4) (3,614.5)obligations (Deficit)/surplus before adjustments 51.8 (219.0) (158.4)
(325.6)
Adjustment for irrecoverable surplus1 (81.9) - - (81.9)
UK Rail franchise adjustment (60%) - 76.7 -
76.7
Adjustment for employee share of RPS - 87.6 -
87.6deficits (40%) Deficit in schemes (30.1) (54.7) (158.4) (243.2) Liability recognised in the condensed (30.1) (54.7) (158.4) (243.2)consolidated balance sheet
This amount is presented in the condensed consolidated balance sheet as follows:
Non-current assets 30.7 - - 30.7 Non-current liabilities (60.8) (54.7) (158.4) (273.9) (30.1) (54.7) (158.4) (243.2)
1 The irrecoverable surplus represents the amount of the surplus that the Group could not recover through reducing future company contributions to Local Government Pension Schemes.
PINXRelated Shares:
Firstgroup