Half-yearly Report

Wednesday 5 November 2014 FIRSTGROUP PLC HALF-YEARLY RESULTS FOR SIX MONTHS TO 30 SEPTEMBER 2014 Group overview: * Trading for the first half was in line with management's expectations and our multi-year transformation programme is on track * Encouraging progress with First Student turnaround and good performances in First Transit and UK Rail * Core Greyhound customers and some local UK Bus markets not yet seeing benefit of improving economic trends * Reported revenue decreased by 10.9%, in part reflecting structural changes in Rail revenues which have no material impact on operating profit, prior period revenues from UK Bus operations now sold/closed, and foreign exchange. Excluding these items, revenue increased by 3.9% * Adjusted operating profit increased by 2.4% and adjusted attributable profit more than doubled * Statutory operating profit decreased by 11.5%, with prior period benefitting from gain on UK Bus disposals * Seasonally higher mid-year net debt: EBITDA ratio of 2.5 times (2.2 times as at 31 March 2014). Five year, £800m revolving credit facility signed in the period * On course to achieve our medium term financial targets H1 2013 H1 2014 restated1 Change Revenue £2,941.1m £3,300.7m (10.9)% Adjusted2 - EBITDA3 £253.3m £260.5m (2.8)% - Operating profit £103.6m £101.2m +2.4% - Profit before tax £33.3m £19.6m +69.9% - Attributable profit £21.6m £10.3m +109.7% - EPS4 1.8p 1.1p +63.6% Statutory - Operating profit £80.2m £90.6m (11.5)% - Profit/(loss) before tax £9.9m £(8.0)m n/m5 - Attributable profit/(loss) £3.1m £(1.1)m n/m5 - EPS4 0.3p (0.1)p n/m5 Net debt6 £1,403.2m £1,446.8m (3.0)% 1Prior period financial information throughout this statement has been restateddue to the reclassification of certain items - see note 1 for details. 2Before amortisation chargesand certain other items as set out in note 3. Allreferences to `adjusted' figures throughout this document are defined in thisway. 3 Adjusted operating profit less capital grant amortisation plus depreciation. 4 Change in EPS is less than for profit attributable to ordinary shareholdersdue to the increased weighted average number of shares in issue following therights issue completed in H1 2013- see note 7for details. 5 Period on period percentage change not meaningful. 6 Net debt is stated excluding accrued bond interest. Operating summary: * First Student - above inflation price increases achieved from our contract portfolio pricing strategy during the 2014/15 bid season * First Transit - delivered good financial performance with modest capital requirements * Greyhound - continued revenue growth despite core customers not yet seeing benefits of economic recovery * UK Bus - revenues and margins on track, underpinned by cost efficiencies and our actions to increase volumes * UK Rail - robust passenger revenue growth and strong operating performance continues; positive updates on First Great Western and TransPennine Express franchises Commenting, Chief Executive Tim O'Toole said: "Trading during the first half was in line with our expectations for the Groupand our transformation programmes continue to make progress as planned. We areon track to meet our expectations for the full year. Our annual profits andcash flows are always weighted to the second half because of the overlay of theschool year in North America on our financial year. As previously indicated,that weighting will be even greater than usual this financial year because ofthe lower number of First Student operating days in this first half, togetherwith the timing of annual pricing adjustments to offset inflation and furthercost saving actions in UK Bus, which will take place principally in the secondhalf. "First Student's profitability in the second half will benefit from the priceincreases achieved in the recent bid season on approximately one third of ourbuses. Further progress in future bid seasons, together with continued deliveryof cost savings, will be required to offset the cost inflation experienced onour contracts. First Transit and UK Rail divisions are expected to continue todeliver solid operating performances, with the second half results likely to beprincipally driven by the timing of contracts in both divisions. In Greyhoundwe will remain focused on actively managing our variable costs in response tomacroeconomic trends affecting our core customers. Now that the major networkredesigns and selected fare rebasing actions have taken place in UK Bus, we arein a better position to cover off cost inflation through annual priceincreases, underpinned by continued cost efficiencies. We will continue totarget volume growth through improving our services and investing in fleet andtechnology, reflecting the local needs of our customers and communities. "In the period we welcomed the news that the Department for Transport intendsto negotiate a longer direct award to at least March 2019 for our largest railfranchise First Great Western. We were one of three bidders shortlisted for theTransPennine Express franchise competition from February 2016 and we are alsoin negotiations for a direct award to operate the franchise up until then.Although we were very disappointed not to secure any of the franchisecompetition awards announced in the period, it does not change our medium termobjective for rail franchising which is to achieve earnings on a par with thelast round of franchising, with an acceptable level of risk. "We are confident that the multi-year plans we are executing across the Groupwill deliver sustainable improvements in shareholder value." For further information please contact: FirstGroup plc: Rachael Borthwick, Group Corporate Communications Director Faisal Tabbah, Group Investor Relations Manager Stuart Butchers, Group Head of Media Tel: +44 (0) 20 7725 3354 Brunswick PR: Michael Harrison/Andrew Porter Tel: +44 (0) 20 7404 5959 A presentation to investors and analysts will be held at 9:00AM today Attendance is by invitation A live telephone `listen in' facility is available For joining details please contact +44 (0) 20 7725 3354 A playback facility will be available at www.firstgroupplc.com/investors.aspx Photos for media are available, please call +44 (0) 20 7725 3354 CHAIRMAN'S STATEMENT The overall position of the Group in the first half is broadly in line with mylast report, however we have made progress in several important areas. In thisregard, I would note in particular First Student's contract portfolio pricingimprovements this year, and the continued progress of the UK Bus transformationplan. We have appointed a strong and experienced Board of Directors, haveimproved balance sheet stability, and continue to review opportunities toaccelerate the return of the Group to full health. Overall financial performance was in line with our expectations. While ourresults in the period improved, some of the most important developments haveyet to manifest themselves, but should support improvement going forward.Notwithstanding that revenue was lower as anticipated, adjusted operatingprofit increased by 2.4%, adjusted profit before tax was 69.9% higher, andadjusted profit attributable to ordinary shareholders increased by 109.7%.Although we are encouraged by this performance, the Group earns the majority ofits profit during the second half of the financial year, so maintaining themomentum built up in the year to date is clearly critical. Of particular significance is turning around the operating performance of ourbus operations in the UK and North America. Our plans also include increasedinvestment in both fleet and customer-facing technology throughout the Group,to restore or enhance the competitiveness of our services and support long termgrowth opportunities. Over time, these actions will result in increased cashflow, allowing the Group to reduce leverage and the associated interest burdentowards its optimum long term level. In the period we welcomed the announcement by the Department for Transport(`DfT') that it intends to negotiate a direct award for our largest railfranchise, First Great Western, to 2019 or beyond. We were also one of threebidders recently shortlisted in the competition to operate the new TransPennineExpress franchise from March 2016. We were however disappointed not to securethe renewal of the ScotRail franchise. The Group has run this successfullysince 2004, and delivered improvements across every measurable score in thattime. We were unsuccessful in three other bids, but these were awarded ateconomic levels that were unacceptable to us. Overall we were and remaindisciplined in our approach to bidding for significant contracts. As one of thelargest and most experienced rail operators, we believe we will achieve ourmedium term desired position in the rail industry over time, at an acceptablelevel of risk. All of this said, the Board has reviewed thoroughly the business plans, andwhile comfortable that these are appropriate we continue to keep expense andcapital expenditure plans under review for further opportunities. We have alsoreviewed strategic alternatives, but nothing compelling has become evident. Wewill nevertheless also keep this aspect under review. I remain convinced that the Group has an attractive portfolio of transportbusinesses - each a leader in its market, with good prospects - and that theprocess of turning this into an acceptable returns for shareholders isunderway, but yet to be delivered. It is with regret however that I am required to step down from the chairmanshipof FirstGroup at the AGM in July 2015, so early in my tenure, in order to fullydedicate myself to the significant task of bringing Barclays to full health.The process to appoint a suitable successor is now underway, led by SeniorIndependent Director Drummond Hall. In the meantime, I remain confident thatwith resolute focus on executing and improving the plans currently in place, wewill see the expected improvements in shareholder value. John McFarlane Chairman OPERATING AND FINANCIAL REVIEW Group results Reported Group revenue decreased by 10.9% in the period to £2,941.1m (H1 2013:£3,300.7m), principally reflecting the end of revenue support in First GreatWestern and First Capital Connect, a reduction in First ScotRail subsidy (witha matching reduction in track access charges), non-recurring revenues from UKBus operations sold or closed in the prior period and foreign exchangetranslation. Excluding these items, revenue increased by 3.9%. Adjustedoperating profit increased by 2.4% to £103.6m (H1 2013: £101.2m), principallyreflecting increased profits in UK Rail, offset by lower profits in FirstStudent due to the reduced number of operating days in the period. Groupmargins increased, with improvements principally in UK Bus and UK Raildivisions. Adjusted profit attributable to ordinary shareholders more thandoubled to £21.6m (H1 2013: £10.3m), due to higher adjusted operating profitand lower net finance costs. Adjusted basic EPS increased by a lower percentageto 1.8p (H1 2013: 1.1p), due to the increased weighted average number of sharesin issue following the rights issue completed in the prior period. AdjustedEBITDA decreased 2.8% to £253.3m (H1 2013: £260.5m). All references to`adjusted' figures throughout this document are before amortisation charges andcertain other items as set out in note 3. Statutory operating profit was £80.2m(H1 2013: £90.6m), reflecting the gain on disposal of London operations in UKBus in the prior period. The seasonally higher mid-year net debt: EBITDA ratiowas 2.5 times as at 30 September 2014, compared with 2.2 times as at the lastyear end on 31 March 2014. ROCE was 7.8%, compared with 7.9% for the twelvemonths to 30 September 2013. Restated 6 months to 30 September 6 months to 30 September Year to 31 March 2014 2014 2013 Revenue Operating Operating Revenue Operating Operating Revenue Operating Operating profit1 margin1 profit1 margin1 profit1 margin1 Divisional £m £m % £m £m % £m £m %results First Student 605.7 4.5 0.7 666.4 10.4 1.6 1,467.4 93.5 6.4 First Transit 410.2 29.5 7.2 408.7 31.4 7.7 811.9 60.3 7.4 Greyhound 314.0 29.9 9.5 333.7 32.1 9.6 624.6 46.4 7.4 UK Bus 449.2 16.9 3.8 490.7 15.9 3.2 930.2 44.4 4.8 UK Rail 1,155.6 40.0 3.5 1,395.2 25.8 1.8 2,870.1 55.2 1.9 Group2 6.4 (17.2) 6.0 (14.4) 13.2 (31.8) Total Group 2,941.1 103.6 3.5 3,300.7 101.2 3.1 6,717.4 268.0 4.0 North America $m $m % $m $m % $m $m %in US Dollars First Student 1,013.1 6.0 0.6 1,029.7 17.3 1.7 2,339.3 152.8 6.5 First Transit 687.7 49.3 7.2 630.8 48.6 7.7 1,290.5 95.7 7.4 Greyhound 527.0 50.3 9.5 514.7 49.6 9.6 990.6 73.2 7.4 Total North 2,227.8 105.6 4.7 2,175.2 115.5 5.3 4,620.4 321.7 7.0America 1Adjusted. 2 Tramlink operations, central management and other items. First Student First Student's overall US Dollar revenue was $1,013.1m or £605.7m (H1 2013:$1,029.7m or £666.4m). As previously indicated, the reduction of 1.6% on a USDollar basis is principally due to fewer operating days in the first half thanthe prior period as a result of the timing of the Easter school vacation.Adjusted operating profit was $6.0m or £4.5m (H1 2013: $17.3m or £10.4m),resulting in a US Dollar margin of 0.6% (H1 2013: 1.7%), with the reductionsprincipally reflecting the drop through to operating profit of the lower numberof operating days. First Student's operating results will therefore be evenmore weighted to the second half this year than usual. As a result of oursuccessful bid season, we expect full year revenues to be around the top end ofour planning range, with the benefits of improved contract pricing in the newschool year being primarily a second half effect. Notwithstanding the ongoingheadwind of cost inflation running slightly ahead of price indexation on ourmulti-year contracts, we continue to expect the proportion of low margincontracts in our portfolio to be below 30% for the full year (from 36% beforethis bid season), and for operating margins to be in excess of 7.5% for thecurrent financial year. We remain on track to meet our medium term target ofdouble digit margins for First Student. We continue to make progress with our turnaround plans, including addressingcontract portfolio pricing on new bids and renewals to ensure that we achieveappropriate returns on capital on our contract portfolio. As is typical,approximately one third of our bus portfolio was up for renewal this year, andwe were pleased to achieve average price increases on these contracts ofapproximately 4.5%. We did so whilst maintaining a contract retention rate of90% on those contracts up for bid, which was at the upper end of our range ofexpectations. Together with some organic growth, `share shift' wins fromcompetitors, a modest level of conversions from in-house operations, and asmall tuck-in acquisition in New York, we would expect the overall busportfolio at the end of the current year to be broadly similar to the prioryear. As we continue to work through our contract portfolio in future years,our focus will remain on only winning or retaining business on terms thatdeliver an appropriate return. In addition to the pricing strategy, First Student continues to target afurther $50m per annum of cost reductions by 2017. Good progress on overheadmanagement and enforcing best practice procedures across all cost categoriesdelivered $6m of cost reductions in the period. We expect further opportunitiesin maintenance, procurement and fuel efficiency in the second half to increasecost savings to approximately $20m for the full year. We continue to increase our use of technology to raise customer service levels,promote environmental benefits and differentiate our services. MyFirstPass, asystem that gives parents and schools timely information on student ridershipthrough swipe card technology continues to be deployed in selected locations,and our FOCUS GPS system enables us to manage cost and provide real timelocation information. We continue to offer propane bus solutions whereappropriate, and our DriveSmart systems have continued to increase fuelefficiency and reduce cost. In addition our more systematic approach tosecuring non-school charter work, which is attractive from an asset utilisationperspective, delivered growth of 7.9% in the period. First Student's turnaround programme has taken an important step forward withthe pricing success achieved in this year's bid season, and while we areencouraged by this progress, continuing vigilance on our costs and biddingstrategy will be required to deliver our medium term objectives. First Transit Revenue in our First Transit division was $687.7m or £410.2m (H1 2013: $630.8mor £408.7m), 9.0% higher in US Dollar terms reflecting a number of contractstart-ups in the first half. However the rate of growth is expected to moderatein the second half with fewer start-ups and two of our larger contracts rollingoff. Adjusted operating profit was $49.3m or £29.5m (H1 2013: $48.6m or £31.4m), resulting in a US Dollar margin of 7.2% (H1 2013: 7.7%). As previouslyindicated, for the year as a whole we expect revenue growth of approximately4%, and margins in line with our medium term target of around 7%. Our First Transit division operates approximately 370 contracts coveringseveral transit service and vehicle maintenance sub-segments across NorthAmerica. Although the average contract size is less than $5m, these typicallythree to five year contracts vary in size, with the largest being $50m inannual revenues or more. Through our management and bidding expertise, wetypically achieve high contract retention rates, with additional growth fromnew business wins, outsourcing opportunities and organic growth under existingcontracts. Whilst all of these trends continue, this year two of our largercontracts will come to an end in the second half and few recently awardedcontracts will start up in the second half. We continue to see a range ofcontract opportunities across our markets, and continue to win business. Forexample, we have recently been awarded paratransit contracts in Florida and theSan Francisco Bay area, some of which begin early in the next financial year.In addition, we utilised expertise from our UK-based divisions and FirstTransit's existing client relationships to win business in the North AmericanBus Rapid Transit (BRT) market. Meanwhile, we continue to see furtheropportunities to grow our shuttle business in the years ahead, which is theonly part of the business which requires significant capital investment. Contract commencements in the first half, including two major contracts for theChicago Regional Transportation Authority, have gone to plan. Our nationalservice platform, technology infrastructure and management expertise enable usto continue to deliver meaningful cost savings compared with public provision.We continue to invest in our industry-leading technology including a suite ofinnovative solutions, which include our upgraded management informationdashboard, predictive maintenance analytics, paperless engineering shopsystems, and mobile-enabled apps allowing registered riders to monitor servicedisruptions, timetables and the location of services in real time. Theseinnovations deliver cost efficiencies and better information for our clients,and improved financial performance for First Transit. By remaining at the forefront of the industry in terms of technology, coupledwith our high level of investment in our people and long-standing customer andindustry relationships, First Transit will continue to deliver attractivegrowth and margins in this relatively low capital intensity business. Greyhound During the first half of the year like-for-like US Dollar revenue increased by2.7%, at the lower end of our range of expectations. Although the US economy isnow growing overall, Greyhound's core customers continue to see negligible realwage growth, and despite improvements in headline employment, underemploymentremains a significant factor in this demographic. Revenue was $527.0m or £314.0m (H1 2013: $514.7m or £333.7m). Greyhound Express continued to growprofitably, with like-for-like revenue growth of 5.8% in the first half.Greyhound's operating profit was $50.3m or £29.9m (H1 2013: $49.6m or £32.1m),resulting in a US Dollar margin of 9.5% (H1 2013: 9.6%). In response to demand,we continue to actively manage our variable costs in order to deliver marginimprovement year on year. Meanwhile we are on track with our programme to rollout the real-time pricing, yield management and customer relationshipmanagement capabilities which are key to delivering our medium term target of12% margins. Our traditional Greyhound product today remains a cyclical business. In recentyears we have improved our ability to flex costs in response to changes indemand and we continue to invest in the quality of our services, but we remaindependent on the financial position of our predominantly value-focused corecustomers. Replicating the successful business model we have developed in ournewer point-to-point services will give our traditional Greyhound business thetools it needs to stimulate and manage passenger demand more effectively. As wehave previously indicated, equipping the traditional Greyhound business withreal-time pricing and yield management capabilities, together with the relatedcustomer relationship management tools, is a significant project that will helpto mitigate the impact of the economic cycle. The programme is progressingwell, and is on track to be fully operational across Greyhound's network overthe next 12 months. In the period a redesigned and more smartphone-friendly Greyhound homepage anda BoltBus passenger app were launched. Innovations such as these have increasedthe importance of the web as a sales channel: now over 55% of all ourtransactions. Within web sales, mobile is the fastest growing category - withmobile transactions growing at more than 30% in the first half. Greateradoption of web and mobile sales channels achieves two objectives: it willimprove our ability to communicate yield and price management actions tocustomers, making them more effective; and it highlights the price benefits ofadvance purchases for customers, which in turn enables us to operate moreefficiently as we have increased visibility of demand. Further customerrelationship management enhancements are planned for the next twelve months. Wealso increased traditional marketing efforts in conjunction with Greyhound's100th anniversary, in order to drive additional interest in our improvedoffering. We have begun taking pricing and yield management actions in certain regionsand gathering the resulting data, in order to help refine the requirements ofthe nationwide systems and processes that are being developed. We also launchedan app for BoltBus drivers, which streamlines boarding and allows us to manageinventory better. Both the BoltBus passenger and driver apps are acting as testbeds for similar products to be launched in the next twelve months across themuch larger and more complex traditional Greyhound network. UK Bus The UK Bus transformation programme continues to move forward in line with ourstep by step programme to restore double digit margins over the medium term. Inthe first half, like-for-like passenger volumes increased by 2.1%, as a resultof our efforts to stimulate volume growth in part through selected farerebasing and improved quality of service. Within this, concession volumes werebroadly flat, whilst commercial passenger volumes increased by over 3% for thedivision as a whole. UK Bus has now achieved 17 consecutive months ofcommercial passenger volume growth. Like-for-like passenger revenue alsoincreased by 2.1% in line with volumes, indicating no net yield growth for thedivision overall, as expected at this stage of our transformation programme.Reported revenue was £449.2m (H1 2013: £490.7m, of which £56.0m related torevenues from depots sold or closed, principally in London). As previouslyindicated, we anticipate making greater revenue progress in the second half,which is expected to benefit from continued volume growth, while parts of theportfolio will begin to make annual inflation-based price increases in linewith peers. In the period operating profit increased to £16.9m (H1 2013: £15.9m) and operating margin increased to 3.8% (H1 2013: 3.2%), despite £1.8m ofrestructuring costs taken to adjusted operating profit in the first half whichare not expected to recur. We delivered cost reductions relating toproductivity, fuel efficiency and engineering/maintenance savings ofapproximately £6m in the period, and we expect to achieve double that amountduring the second half. These cost efficiencies and the operating leverage ofthe division to increasing passenger volumes are expected to benefit margins inthe second half. Across our portfolio, we continue to see significant variations in performancedriven by the underlying economic conditions in each of our local markets.Having completed our programme of major network designs and selected farerebasing throughout the business, the locally-based management teams now inplace ensure our commercial propositions are responsive to the particular needsof our local communities. Our investment continues to improve efficiency and raise customer satisfaction.Mobile ticketing has now been rolled out across all of our networks, ahead ofschedule. This important sales channel is seeing encouraging growth andsupports our customer relationship building strategy, while improvingoperational efficiency. Roll out of smartcards across selected networks hasalso continued during the first half of the year. Further roll outs in thesecond half are ongoing, as we determine the appropriate approach on a localmarket-by-market basis. In the half we also took delivery of 170 of our orderof 274 Wrightbus MicroHybrid Streetlites, one of the most fuel efficient buseson the market, with the remaining 104 to be delivered in the second half. Our services supported a number of high profile events in partnership with thecommunities we serve during the period, including the Glasgow 2014 CommonwealthGames, the Ryder Cup, and the IPC European Athletics Championships in Swansea.We continue to explore opportunities to work in closer partnership with localauthorities throughout our markets, as our objective to get more people ontobuses typically aligns very well with their ambition to reduce congestion andstimulate economic activity. In West Yorkshire we are actively supporting apartnership approach, building on the success we have had in this market byincreasing both passenger satisfaction and volumes. We believe the proposalcurrently tabled by all operators would enable the over-arching objective ofthe Combined Authority to be realised, which is to see the bus deliver its fullpotential in supporting the growth of the city region. Going forward, we are asponsor of Bristol European Green Capital 2015 - the first time a UK city hasreceived this honour - with both our bus and rail divisions supporting theMayor of Bristol's ambitions for integrated green transport. While there is still some way to go, we are on course with our programme torestore double digit margins to UK Bus by delivering revenue increases throughsustained passenger volume growth, underpinned by periodic inflation-basedprice increases and operating leverage, whilst delivering further costefficiencies. UK Rail The UK rail industry continues to demonstrate resilient growth across thecountry, with passenger numbers rising to a post-war high of 1.6bn nationwidein 2013/14. We continue to benefit from this robust growth across all of ourfranchises, with like-for-like passenger revenue increasing by 6.5%. On areported basis revenues declined to £1,155.6m (H1 2013: £1,395.2m), principallyreflecting a reduction in First ScotRail subsidy (with a matching reduction intrack access charges, so does not affect operating profit), and the end ofrevenue support arrangements in First Great Western and First Capital Connect.In the period First Great Western returned to normal commercial terms under thecurrent direct award. Overall financial performance was toward the top of ourrange of expectations. Operating profit increased to £40.0m (H1 2013: £25.8m),representing a margin of 3.5% (H1 2013: 1.8%). Underlying passenger volumegrowth increased by 3.5% in the half. Our operating companies have outperformed the industry in delivering customersatisfaction improvements since 2006. In the recent National Passenger Surveyall of our train operating companies saw steady or increased customersatisfaction ratings, with First ScotRail and First Hull Trains recording theirhighest ever scores. In October ScotRail was awarded Rail Operator of the Yearat the National Transport Awards for the third time in six years. Since theperiod end, First TransPennine Express became the first rail company to receivethe British Quality Foundation's UK Excellence Award for their qualitymanagement model. We continue to innovate and improve our service offerings for passengers. Weare in the midst of the largest roll out of free Wi-Fi in the UK rail industryat First ScotRail and First Great Western, connecting more trains and stationsevery month, while our open access operator First Hull Trains recently becamethe first UK transport operator to trial free 4G single-sign-up Wi-Fi providingfaster, more reliable service and a seamless connection between the train andstation Wi-Fi. The service gives access to ITV content on board for mobiledevices regardless of the strength of signal at the train's location. Duringthe period we became the first rail operator to give passengers the opportunityto earn Nectar loyalty points when booking their journeys online across all ofour operating companies. In the period we were one of three bidders that were shortlisted for thecompetition to run the next TransPennine Express franchise, which is due to beawarded in October 2015. We are also negotiating a direct award with the DfT tocontinue operating First TransPennine Express between its current end date on31 March 2015 and the start of the new franchise in February 2016. In June wesubmitted our bid to operate the InterCity East Coast franchise from March2015, the winner of which is due to be announced in November 2014. After theperiod end the DfT released an updated timetable for its rail franchisingprogramme, confirming their intention to negotiate a direct award with theGroup to continue running our largest franchise First Great Western through toMarch 2019, with a further extension of up to one year at the DfT's discretion.This underscores their confidence in our ability to deliver stability, goodvalue and better services for Great Western passengers during a period when asubstantial programme of infrastructure upgrades will take place on the networkand new trains are to be introduced. Naturally we were disappointed not tosecure any of the franchise competition awards announced in the period, thoughit does not change our medium term objective for rail franchising: which is toachieve earnings on a par with the last round of franchising, with anacceptable level of risk. We are one of the largest and most experiencedoperators in the industry, with a strong track record of balancing serviceimprovements for customers, affordability for taxpayers and adequate returnsfor shareholders, and we will continue to bid on a range of future railfranchises in that same disciplined but ambitious way. We worked to ensure thehandover of First Capital Connect was seamless for both passengers andemployees, and we will continue to focus on their needs as we operate the FirstScotRail franchise through to its handover on 1 April 2015.Outlook Trading during the first half was in line with our expectations for the Groupand our transformation programmes continue to make progress as planned. We areon track to meet our expectations for the full year. Our annual profits andcash flows are always weighted to the second half because of the overlay of theschool year in North America on our financial year. As previously indicated,that weighting will be even greater than usual this financial year because ofthe lower number of First Student operating days in this first half, togetherwith the timing of annual pricing adjustments to offset inflation and furthercost saving actions in UK Bus, which will take place principally in the secondhalf. First Student's profitability in the second half will benefit from the priceincreases achieved in the recent bid season on approximately one third of ourbuses. Further progress in future bid seasons, together with continued deliveryof cost savings, will be required to offset the cost inflation experienced onour contracts. First Transit and UK Rail divisions are expected to continue todeliver solid operating performances, with the second half results likely to beprincipally driven by the timing of contracts in both divisions. In Greyhoundwe will remain focused on actively managing our variable costs in response tomacroeconomic trends affecting our core customers. Now that the major networkredesigns and selected fare rebasing actions have taken place in UK Bus, we arein a better position to cover off cost inflation through annual priceincreases, underpinned by continued cost efficiencies. We will continue totarget volume growth through improving our services and investing in fleet andtechnology, reflecting the local needs of our customers and communities. We are confident that the multi-year plans we are executing across the Groupwill deliver sustainable improvements in shareholder value. Finance costs and investment income Net finance costs, before adjustments, were £70.3m (H1 2013: £81.6m) with thedecrease principally reflecting lower debt levels following the rights issuewhich completed part way through last half year, and lower interest rates. Profit before tax Adjusted profit before tax as set out in note 3 was £33.3m (H1 2013: £19.6m)with the increase due principally to higher adjusted operating profit and lowernet finance costs. An overall charge of £23.4m (H1 2013: £27.6m) foradjustments including amortisation charges resulted in statutory profit beforetax of £9.9m (H1 2013: loss of £8.0m). Tax The tax charge, on adjusted profit before tax, for the period was £7.3m (H12013: £4.3m) representing an effective rate of 22.0% (H1 2013: 22.0%). Therewas a tax credit of £4.9m (H1 2013: credit of £12.4m) relating to amortisationcharges and other items. In 2013 there was also a one-off credit adjustment £3.7m to the UK deferred tax liability as a result of the reduction in the UKcorporation tax rate from 23% to 20%, which will apply from April 2015. Thisresulted in a total tax charge of £2.4m (H1 2013: credit of £11.8m). The actualtax paid during the period was £3.1m (H1 2013: £4.2m). EPS The adjusted basic EPS was 1.8p (H1 2013: 1.1p). Basic EPS was 0.3p (H1 2013:(0.1)p), with the improvement primarily due to lower net finance cost. EBITDA EBITDA by division is set out below: Restated 6 months to 30 6 months to 30 Year to 31 March 2014 September 2014 September 2013 EBITDA EBITDA EBITDA Revenue EBITDA1 margin1 Revenue EBITDA1 margin1 Revenue EBITDA1 margin1 Divisional £m £m % £m £m % £m £m %results First 605.7 74.5 12.3 666.4 85.5 12.8 1,467.4 241.1 16.4Student First 410.2 35.5 8.7 408.7 37.3 9.1 811.9 72.0 8.9Transit Greyhound 314.0 45.1 14.4 333.7 46.4 13.9 624.6 74.9 12.0 UK Bus 449.2 48.9 10.9 490.7 46.8 9.5 930.2 105.9 11.4 UK Rail 1,155.6 66.2 5.7 1,395.2 58.6 4.2 2,870.1 117.1 4.1 Group 6.4 (16.9) 6.0 (14.1) 13.2 (31.2) Total Group 2,941.1 253.3 8.6 3,300.7 260.5 7.9 6,717.4 579.8 8.6 North $m $m % $m $m % $m $m %America inUS Dollars First 1,013.1 123.3 12.2 1,029.7 133.1 12.9 2,339.3 387.2 16.6Student First 687.7 59.4 8.6 630.8 57.8 9.2 1,290.5 114.4 8.9Transit Greyhound 527.0 75.8 14.4 514.7 71.5 13.9 990.6 118.4 12.0 Total North 2,227.8 258.5 11.6 2,175.2 262.4 12.1 4,620.4 620.0 13.4America 1Adjustedoperating profit less capital grant amortisation plus depreciation. Reconciliation to non-GAAP measures and performance Note 3 sets out the reconciliations of operating profit and profit before taxto their adjusted equivalents. The principal reconciling items are as follows: Amortisation charges The charge for the period was £25.8m (H1 2013: £25.9m). Gain on disposal of property A gain on disposal of £26.1m (H1 2013: £nil) was realised on the sale of aGreyhound garage in Miami. The proceeds of this disposal of £31.6m werereceived during the period. Legal claims Two separate legal claims that pre-date the Laidlaw acquisition and wereacquired with the former Laidlaw entities had adverse developments during theperiod and we now estimate that it will cost significantly more to settle thesecases. As a result there was a charge of £12.2m (H1 2013: £nil). IT licences A number of Group IT licences have been written off as the projects to whichthey relate will now be achieved in an alternative, less costly and moreappropriate way. The charge for these licences was £8.7m (H1 2013: £nil). Cash Flow The seasonality of our Student business combined with the phasing of certaincash flows typically results in a cash outflow at the half year. The net cashoutflow for the period was £91.0m (H1 2013: outflow £103.0m). The cash outflowcombined with the movements in debt due to foreign exchange contributed to anet debt increase of £99.4m (H1 2013: decrease £532.3m) as detailed below: 6 months to Restated Year to 30 September 6 months to 31 March 2014 30 September 2014 2013 £m £m £m EBITDA 253.3 260.5 579.8 Other non-cash income statement (credits) (24.6) 4.2 7.8/charges Working capital excluding FGW provision 19.1 (60.6) (37.0)movement Working capital - FGW provision movement - (30.8) (35.3)(current liabilities) Movement in other provisions (12.4) (22.8) (36.1) Pension payments in excess of income (15.2) (23.1) (27.7)statement charge Cash generated by operations 220.2 127.4 451.5 Capital expenditure and acquisitions (268.5) (194.7) (334.5) Proceeds from disposal of property, plant 43.9 5.3 14.1and equipment Interest and tax (84.6) (106.9) (157.2) Dividends payable to non-controlling (2.0) (10.4) (21.3)minority shareholders Proceeds from sale of businesses - 76.3 76.3 Other - - (2.0) Net cash (outflow)/inflow (91.0) (103.0) 26.9 Net proceeds from rights issue - 584.4 584.4 Foreign exchange movements (6.0) 53.5 68.2 Other non-cash movements in relation to (2.4) (2.6) (4.2)financial instruments Movement in net debt in period (99.4) 532.3 675.3 There was a lower net cash outflow this half year compared with last half yeardespite the proceeds of the London depot disposals last half year and theplanned higher capital expenditure this half year. These factors were more thanoffset by improved working capital mainly due to UK Rail payments and higherproceeds of disposal of property, plant and equipment principally due to theGreyhound Miami garage disposal. As we have previously indicated, we expect a net cash outflow for the full yearof approximately £100m, of which approximately £70m is associated with the endof the First Capital Connect franchise in the second half. Capital Expenditure We continue to invest in our businesses. During the period cash capitalexpenditure was £257.5m (H1 2013: £194.7m) and comprised First Student £128.5m(H1 2013: £96.5m), First Transit £15.7m (H1 2013: £8.1m), Greyhound £35.8m (H12013: £32.6m), UK Bus £41.1m (H1 2013: £35.6m), UK Rail £35.2m (H1 2013: £21.1m) and Group items £1.2m (H1 2013: £0.8m). Funding and Risk Management Liquidity within the Group has remained strong. At the period end there was £942.7m (H1 2013: £1,003.3m) of committed headroom and free cash, being £765.0m(H1 2013: £803.8m) of committed headroom and £177.7m (H1 2013: £199.5m) of freecash. The Group's average debt maturity was 5.7 years (H1 2013: 6.5 years). TheGroup's main revolving bank facilities do not require renewal until 2019. 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 more than 75% of net debt. Fuel Price Risk The Group uses a progressive forward hedging programme to manage commodityrisk. In the current year in the UK, 93% of the "at risk" crude requirements(2.2m barrels p.a.) are hedged at an average rate of $101 per barrel. We havehedged 90% of our "at risk" UK crude requirements for the year to 31 March 2016at $98 per barrel and 34% of our requirements for the year to 31 March 2017 at$97 per barrel. In North America 78% of current year "at risk" crude oil volumes (1.5m barrelsp.a.) are hedged at an average rate of $90 per barrel. We have hedged 67% ofthe volumes for the year to 31 March 2016 at $87 per barrel and 27% of ourvolumes for the year to 31 March 2017 at $86 per barrel. Foreign Currency Risk Group 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 period toperiod basis is not significant. Net Debt The Group's net debt at 30 September 2014 was £1,403.2m (H1 2013: £1,446.8m)and comprised: 30 30 31 March September September 2014 2014 2013 Analysis of net debt £m £m £m Sterling bond (2018) 297.9 297.5 297.5 Sterling bond (2019) 249.5 249.6 249.5 Sterling bond (2021) 347.8 330.9 347.5 Sterling bond (2022) 319.5 319.1 319.5 Sterling bond (2024) 199.6 199.5 199.5 Sterling bank loans 30.6 - - HP contracts and finance 310.9 366.4 344.6leases Senior unsecured loan notes 92.0 92.6 89.9 Loan notes 9.7 9.7 9.7 Gross debt excluding accrued 1,857.5 1,865.3 1,857.7interest Cash (177.7) (199.5) (192.3) UK Rail ring-fenced cash and (275.9) (218.2) (360.9)deposits Other ring-fenced cash and (0.7) (0.8) (0.7)deposits Net debt excluding accrued 1,403.2 1,446.8 1,303.8interest At 30 September 2014 the net debt: EBITDA ratio was 2.5 times (31 March 2014:2.2 times). The seasonality of our Student business combined with the phasingof certain cash flows typically means net debt at the half year is higher thanat the full year. We continue to target a net debt: EBITDA ratio of 2.0 timesin the medium term. Shares in Issue As at 30 September 2014 there were 1,204.5m shares in issue (H1 2013:1,203.8m), excluding treasury shares and own shares held in trust for employeesof 0.4m (H1 2013: 1.1m). The weighted average number of shares in issue for thepurpose of basic EPS calculations (excluding treasury shares and own sharesheld in trust for employees) was 1,204.4m (H1 2013: 915.7m). Balance Sheet Net assets have increased by £10.3m since the start of the period. Theprincipal reasons for this are favourable translation reserve movements of £50.1m partly offset by unfavourable hedging reserve movements of £13.6m andactuarial losses on defined benefit pension schemes (net of deferred tax) of £31.0m. Foreign Exchange The most significant exchange rates to Sterling for the Group are as follows: 6 months to 30 6 months to 30 Year to 31 March September 2014 September 2013 2014 Closing Effective Closing Effective Closing Effective rate rate rate rate rate rate US Dollar 1.63 1.65 1.61 1.56 1.66 1.61 Canadian Dollar 1.81 1.82 1.66 1.59 1.84 1.69 Pensions The Group has updated its pension assumptions as at 30 September 2014 for thedefined benefit schemes in the UK and North America. The net pension deficit of£261m at the beginning of the period has increased to £291m at the end of theperiod principally due changes in actuarial assumptions, in particularsignificantly lower discount rates partly offset by lower inflation rates andbetter than expected returns on assets. The main factors that influence the balance sheet position for pensions and thesensitivities to their movement at 30 September 2014 are set out below: Movement Impact Discount rate +0.1% Reduce deficit by £31m Inflation +0.1% Increase deficit by £23m 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 stronger in the summermonths. Forward looking statements Certain statements included or incorporated by reference within thisannouncement may constitute "forward looking statements" in respect ofFirstGroup's operations, performance, prospects and/or financial condition.Such statements are based on our current expectations and beliefs concerningfuture events and are subject to a number of known and unknown risks anduncertainties that could cause actual events or results to differ materiallyfrom any expected future events or results referred to in these forward lookingstatements. Such statements are also based on numerous assumptions regardingour present and future strategy and the environment in which we operate, whichmay not transpire. We undertake no obligation to update any forward lookingstatements contained in this announcement or any other forward lookingstatements we may make. Nothing in this announcement should be construed as aprofit forecast. Principal Risks and Uncertainties For The Remaining Six Months Of The FinancialYear There are a number of risks and uncertainties facing the Group in the remainingsix months of the financial year. These are the same as disclosed in the 2014Annual Report. The principal risks and uncertainties, which are set out indetail on pages 36 to 41 of the Annual Report and Accounts 2014, are: * Economic and political conditions * Attraction and retention of key management * Rail refranchising * Contracted businesses * Competitive pressures * Treasury risks * Pensions * Fuel costs * Terrorism * Information technology * Customer service * Legislation and regulation * Litigation and claims * Employee costs and relations * Environmental * Severe weather and natural disasters Other information Unless otherwise stated, all financial figures refer to the six month periodended 30 September 2014 (the `period', `the first half' or `H1 2014'), withgrowth compared to the same period in 2013 (the `prior period', `H1 2013'). Noaccount is taken of foreign exchange translation effects in the description ofdivisional performance and outlook. Responsibility Statement We confirm to the best of our knowledge: * The condensed set of financial statements has been prepared in accordance with IAS34 `Interim Financial Reporting'; * The interim management report includes a fair review of the information required by DTR 4.27R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and * The interim management report includes a fair review of the information required by DTR 4.28R (disclosure of related parties' transaction and changes therein). Tim O'Toole Chris Surch Chief Executive Group Finance Director 5 November 2014 5 November 2014 Condensed consolidated income statement Unaudited Unaudited Year to 6 months to 30 6 months to 31 March September 30 2014 2014 September 2013 Total Total Total Notes £m £m £m Revenue 2, 4 2,941.1 3,300.7 6,717.4 Operating costs (2,860.9) (3,210.1) (6,485.2) Operating profit 80.2 90.6 232.2 Investment income 5 0.8 0.7 1.7 Finance costs 5 (71.1) (99.3) (175.4) Profit/(loss) before tax 9.9 (8.0) 58.5 Tax 6 (2.4) 11.8 5.7 Profit for the period 7.5 3.8 64.2 Attributable to: Equity holders of the 3.1 (1.1) 54.2parent Non-controlling interests 4.4 4.9 10.0 7.5 3.8 64.2 Earnings per share Basic 7 0.3p (0.1)p 5.1p Diluted 0.3p (0.1)p 5.1p Adjusted Results 1 Adjusted operating profit 3 103.6 101.2 268.0 Adjusted profit before tax 3 33.3 19.6 111.9 Adjusted EPS 7 1.8p 1.1p 7.5p 1 Adjusted for certain items as set out in note 3. Condensed consolidated statement of comprehensive income Unaudited Unaudited Year to 6 months 6 months to 31 March to 30 2014 30 September September 2013 2014 £m £m £m Profit for the period 7.5 3.8 64.2 Items that will not be reclassifiedsubsequently to profit or loss Actuarial (losses)/gains on defined benefit (37.4) 16.0 (33.5)pension schemes Deferred tax on actuarial (losses)/gains on 6.4 (8.4) 3.0defined benefit pension schemes (31.0) 7.6 (30.5) Items that may be reclassified subsequently toprofit or loss Derivative hedging instrument movements (19.1) 39.7 44.3 Deferred tax on derivative hedging instrument 5.5 (3.4) (3.9)movements Exchange differences on translation of foreign 50.1 (134.0) (231.1)operations 36.5 (97.7) (190.7) Other comprehensive income/(expense) for the 5.5 (90.1) (221.2)period Total comprehensive income/(expense) for the 13.0 (86.3) (157.0)period Attributable to: Equity holders of the parent 8.6 (91.2) (167.0) Non-controlling interests 4.4 4.9 10.0 13.0 (86.3) (157.0) Condensed consolidated balance sheet Unaudited Unaudited 30 30 31 March September September 2014 2014 2013 Notes £m £m £m Non-current assets Goodwill 8 1,543.4 1,564.2 1,509.5 Other intangible assets 9 212.1 241.5 217.9 Property, plant and equipment 10 1,974.3 1,936.2 1,864.9 Deferred tax assets 48.0 45.2 35.8 Retirement benefit assets 19 25.5 17.1 29.9 Derivative financial instruments 14 30.5 39.4 25.9 Investments 2.9 3.0 2.8 3,836.7 3,846.6 3,686.7 Current assets Inventories 74.4 78.4 71.4 Trade and other receivables 11 671.8 639.2 663.6 Cash and cash equivalents 454.3 418.5 553.9 Assets held for sale 12 2.0 4.3 6.2 Derivative financial instruments 14 15.0 33.8 26.0 1,217.5 1,174.2 1,321.1 Total assets 5,054.2 5,020.8 5,007.8 Current liabilities Trade and other payables 13 1,244.0 1,177.8 1,219.8 Tax liabilities 36.6 28.4 34.2 Financial liabilities 100.2 98.9 127.8 Derivative financial instruments 14 24.5 17.5 17.7 1,405.3 1,322.6 1,399.5 Net current liabilities 187.8 148.4 78.4 Non-current liabilities Financial liabilities 1,832.5 1,865.5 1,823.9 Derivative financial instruments 14 7.4 14.9 9.2 Retirement benefit liabilities 19 316.8 222.3 290.6 Deferred tax liabilities 34.8 53.2 37.0 Provisions 15 224.1 239.9 224.6 2,415.6 2,395.8 2,385.3 Total liabilities 3,820.9 3,718.4 3,784.8 Net assets 1,233.3 1,302.4 1,223.0 Equity Share capital 17 60.2 60.2 60.2 Share premium 676.4 676.4 676.4 Hedging reserve (5.8) 3.7 7.8 Other reserves 4.6 4.6 4.6 Own shares (1.2) (2.0) (1.8) Translation reserve 67.9 114.9 17.8 Retained earnings 406.1 425.4 446.4 Equity attributable to equity holders of 1,208.2 1,283.2 1,211.4the parent Non-controlling interests 25.1 19.2 11.6 Total equity 1,233.3 1,302.4 1,223.0 Condensed consolidated statement of changes in equity Share Share Hedging Other Own Translation Retained Total Non-controlling Total capital premium reserve reserves shares reserve earnings interests equity £m £m £m £m £m £m £m £m £m £m Balance at 1 60.2 676.4 7.8 4.6 (1.8) 17.8 446.4 1,211.4 11.6 1,223.0April 2014 Total - - (13.6) - - 50.1 (27.9) 8.6 4.4 13.0comprehensiveincome for theperiod Acquisition of - - - - - - - - 11.7 11.7non-controllinginterests Purchase of - - - - - - (2.4) (2.4) (0.6) (3.0)non-controllinginterests1 Non-controlling - - - - - - (11.8) (11.8) - (11.8)interests putoption 2 Dividends paid - - - - - - - - (2.0) (2.0) Movement in EBT - - - - 0.6 - (0.8) (0.2) - (0.2)and treasuryshares Share-based - - - - - - 2.7 2.7 - 2.7payments Deferred tax on - - - - - - (0.1) (0.1) - (0.1)share-basedpayments Balance at 30 60.2 676.4 (5.8) 4.6 (1.2) 67.9 406.1 1,208.2 25.1 1,233.3September 2014(unaudited) Balance at 1 24.1 676.4 (32.6) 4.6 (1.1) 248.9 (130.5) 789.8 24.7 814.5April 2013 Rights issue3 36.1 - - - - - 548.3 584.4 - 584.4 Total - - 36.3 - - (134.0) 6.5 (91.2) 4.9 (86.3)comprehensiveincome for theperiod Dividends paid - - - - - - - - (10.4) (10.4) Movement in EBT - - - - (0.9) - (0.8) (1.7) - (1.7)and treasuryshares Share-based - - - - - - 2.1 2.1 - 2.1payments Deferred tax on - - - - - - (0.2) (0.2) - (0.2)share-basedpayments Balance at 30 60.2 676.4 3.7 4.6 (2.0) 114.9 425.4 1,283.2 19.2 1,302.4September 2013(unaudited) Balance at 1 24.1 676.4 (32.6) 4.6 (1.1) 248.9 (130.5) 789.8 24.7 814.5April 2013 Rights issue3 36.1 - - - - - 548.3 584.4 - 584.4 Total - - 40.4 - - (231.1) 23.7 (167.0) 10.0 (157.0)comprehensiveincome for theperiod Dividends paid - - - - - - - - (23.1) (23.1) Movement in EBT - - - - (0.7) - 0.3 (0.4) - (0.4)and treasuryshares Share-based - - - - - - 4.6 4.6 - 4.6payments Balance at 31 60.2 676.4 7.8 4.6 (1.8) 17.8 446.4 1,211.4 11.6 1,223.0March 2014 1 On 14 August 2014, the Group purchased the non-controlling interests share ofHull Trains Limited for a cash consideration of £3.0m. As this was atransaction with minority equity owners of the business without a change ofcontrol, it has been recognised as an equity transaction in the Group'sreserves and not as a business combination or investment. 2 See note 16 for details. 3 The rights issue which completed in June 2013 was effected through a legalstructure that resulted in the excess of the proceeds over the nominal value ofthe share capital being recognised within retained earnings as a distributablereserve. Condensed consolidated cash flow statement Unaudited Unaudited 6 months 6 months Year to to to 31 March 30 30 2014 September September 2014 2013 Note £m £m £m Net cash from operating activities 18 134.8 19.8 292.3 Investing activities Interest received 0.8 0.7 2.0 Proceeds from disposal of property, plant and 43.9 5.3 14.1equipment Purchases of property, plant and equipment (257.5) (156.3) (277.0) Acquisition of businesses/subsidiary (11.0) - - Disposal of businesses/subsidiary - 76.3 76.3 Net cash used in investing activities (223.8) (74.0) (184.6) Financing activities Dividends paid to non-controlling shareholders (2.0) (10.4) (21.3) Shares purchased by Employee Benefit Trust - - (2.0) Proceeds from rights issue - 614.4 614.4 Fees paid on rights issue - (30.0) (30.0) Repayment of bonds - (300.0) (300.0) Drawdowns from bank facilities 35.2 - 20.1 Repayment of bank debt - (416.9) (416.9) Repayments under HP contracts and finance (39.5) (70.9) (101.8)leases Fees for bank facility amendments (4.7) - - Net cash flow from financing activities (11.0) (213.8) (237.5) Net decrease in cash and cash equivalents (100.0) (268.0) (129.8)before foreign exchange movements Cash and cash equivalents at beginning of 553.9 682.1 682.1period Foreign exchange movements 0.4 4.4 1.6 Cash and cash equivalents at end of period per 454.3 418.5 553.9condensed consolidated balance sheet Cash and cash equivalents are included within current assets on the condensedconsolidated balance sheet. Note to the condensed consolidated cash flow statement - reconciliation of netcash flow to movement in net debt 6 months 6 months Year to to to 31 March 30 30 2014 September September 2014 2013 £m £m £m Net decrease in cash and cash equivalents in period (100.0) (268.0) (129.8) Decrease in debt and finance leases 4.3 787.8 798.6 Inception of new HP contracts and finance leases - (38.4) (57.5) Fees capitalised against bank facilities and bond 4.7 - -issues Net cash flow (91.0) 481.4 611.3 Foreign exchange movements (6.0) 53.5 68.2 Other non-cash movements in relation to financial (2.4) (2.6) (4.2)instruments Movement in net debt in period (99.4) 532.3 675.3 Net debt at beginning of period (1,303.8) (1,979.1) (1,979.1) Net debt at end of period (1,403.2) (1,446.8) (1,303.8) Net debt includes the value of derivatives in connection with the bondsmaturing in 2019 and 2021 and excludes all accrued interest. These bonds areincluded 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 2014 have been delivered to the Registrar of Companies.The auditor 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 2014 include the results of theUK Rail division for the period ended 13 September 2014 and the results for theother divisions for the 26 weeks ended 27 September 2014. The comparativefigures for the six months to 30 September 2013 include the results of the UKRail division for the period ended 14 September 2013 and the results of theother divisions for the 26 weeks ended 28 September 2013. The condensed set of financial statements included in this half-yearlyfinancial report has been prepared in accordance with the DTR of the FinancialConduct Authority and International Accounting Standard 34, `Interim FinancialReporting', as adopted by the European Union. The accounting policies used in this half-yearly financial report areconsistent with International Financial Reporting Standards as adopted by theEuropean Union. The accounting policies applied are consistent with thosedescribed in the Group's latest annual audited financial statements, except forthe application of IFRS 10 `Consolidated Financial Statements', IFRS 11 `JointArrangements' and IFRS 12 `Disclosure of Interests in Other Entities' whichbecame effective in the period for the first time. There has been no materialchange as a result of applying these new accounting standards. We have alsoincluded certain non-GAAP measures in order to reflect management's reportedview of financial performance excluding non-recurring items and amortisation. These results are unaudited but have been reviewed by the auditor. Thecomparative figures for the six months to 30 September 2013 are unaudited andare derived from the half-yearly financial report for that period, which wasalso reviewed by the auditor. The Directors have carried out a detailed review of the Group's budget for theyear to 31 March 2015 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 have adequate resources tocontinue in operational existence for the foreseeable future. Accordingly, thefinancial statements have been prepared on a going concern basis in preparingthis half-yearly report. The operating and financial review statement contained in this half-yearlyreport, including the summarised principal risks and uncertainties, has beenprepared by the Directors in good faith based on the information available tothem up to the time of their approval of this report solely for the Company'sshareholders as a body, so as to assist them in assessing the Group'sstrategies and the potential for those strategies to succeed and accordinglyshould not be relied on by any other party or for any other purpose and theCompany hereby disclaims any liability to any such other party or for relianceon such information for any such other purpose. The operating and financial review considers the impact of seasonality on thegroup and also the principal risks and uncertainties facing it in the remainingsix months of the financial year. This half-yearly report has been prepared in respect of the Group as a wholeand accordingly matters identified as being significant or material are soidentified in the context of First Group plc and its subsidiary undertakingstaken as a whole. This half-yearly financial report was approved by the Board on 5 November 2014. Restatement of prior period numbers The tables below show restated prior period comparative figures for thedivisions and for the Group for the six months to 30 September 2013. Therestatement reflects the reclassification of certain items. The directors havedecided to reclassify certain generally recurring costs that were previouslyadjusted in the divisional results. Principally these relate to costs incurredrelating to bidding for rail franchises and the profit/(loss) on disposal ofproperties. 6 months to 30 September 2013 Reported Restatement Restated Adjusted results1: £m £m £m First Student 11.0 (0.6) 10.4 First Transit 31.4 - 31.4 Greyhound 31.8 0.3 32.1 UK Bus 17.3 (1.4) 15.9 UK Rail 32.8 (7.0) 25.8 Group items (14.4) - (14.4) Adjusted operating profit 109.9 (8.7) 101.2 Net finance costs (81.6) - (81.6) Adjusted profit before tax 28.3 (8.7) 19.6 Tax (6.2) 1.9 (4.3) Adjusted profit for the period 22.1 (6.8) 15.3 Attributable to: Equity holders of the parent 17.1 (6.8) 10.3 Non-controlling interests 5.0 - 5.0 22.1 (6.8) 15.3 Weighted average number of shares (million) 915.7 - 915.7 Adjusted EPS (p) 1.9p (0.8)p 1.1p Adjusted profit attributable to equity holders of 17.1 (6.8) 10.3the parent Adjustments: Amortisation charges (25.9) - (25.9) Other adjustments (10.4) 8.7 (1.7) Tax credit thereon 18.0 (1.9) 16.1 Non-controlling interests 0.1 - 0.1 Loss for the period (1.1) - (1.1) Basic EPS (p) (0.1)p - (0.1)p ¹ Adjusted for certain items as set out in note 3. 6 months 6 months Year to to to 31 March 30 30 2014 September September 2014 2013 2 REVENUE £m £m £m Services rendered 2,783.3 2,846.0 5,908.3 UK Rail franchise 157.8 262.0 572.1subsidy receipts UK Rail revenue support - 192.7 237.0 2,941.1 3,300.7 6,717.4 Investment income 0.8 0.7 1.7 Total revenue as 2,941.9 3,301.4 6,719.1defined by IAS 18 3 RECONCILIATION TO NON-GAAP MEASURES AND PERFORMANCE In measuring our adjusted performance, we have used additional financialmeasures derived from our reported results in order to eliminate factors whichdistort year-on-year comparisons. We use adjusted performance to explain yearon year changes when the effect of certain items are significant, includingamortisation, business disposals, aged legal claims and revisions to onerouscontracts, as we consider that this basis more appropriately reflects operatingperformance and a better understanding of the key performance indicators of thebusiness. 6 months 6 months Year to to to 31 March 30 30 2014 September September 2014 2013 Reconcilation of operating profit to adjusted £m £m £moperating profit Operating profit 80.2 90.6 232.2 Adjustments for: Amortisation charges 25.8 25.9 53.4 Gain on disposal of property (26.1) - - Legal claims 12.2 - - IT licences 8.7 - - UK Bus depot sales and closures 2.4 (15.3) (13.0) Other 0.4 - - UK Rail First Great Western contract provision - - (4.6) Adjusted Operating Profit (note 4) 103.6 101.2 268.0 6 months 6 months Year to to to 31 March 30 30 2014 September September 2014 2013 Reconcilation of profit/(loss) BEFORE TAX to £m £m £madjusted profit BEFORE TAX Profit/(loss) before tax 9.9 (8.0) 58.5 Adjustments for: Amortisation charges 25.8 25.9 53.4 Gain on disposal of property (26.1) - - Legal claims 12.2 - - IT licences 8.7 - - UK Bus depot sales and closures 2.4 (15.3) (13.0) Other 0.4 - - UK Rail First Great Western contract provision - - (4.6) Ineffectiveness on financial derivatives - 17.0 17.6 Adjusted Profit before tax 33.3 19.6 111.9 Adjusted tax charge (7.3) (4.3) (22.4) Non-controlling interests (4.4) (5.0) (10.2) Adjusted Earnings 21.6 10.3 79.3 The principal reconciling items are as follows: Amortisation charges The charge for the period was £25.8m (H1 2013: £25.9m). Gain on disposal of property A gain on disposal of £26.1m (H1 2013: £nil) was realised on the sale of aGreyhound garage in Miami. The proceeds of this disposal of £31.6m werereceived during the period. Legal claims Two separate legal claims that pre-date the Laidlaw acquisition and wereacquired with the former Laidlaw entities had adverse developments during theperiod and we now estimate that it will cost significantly more to settle thesecases. As a result there was a charge of £12.2m (H1 2013: £nil). IT licences A number of Group IT licences have been written off as the projects to whichthey relate will now be achieved in an alternative, less costly and moreappropriate way. The charge for these licences was £8.7m (H1 2013: £nil). 4 SEGMENT INFORMATION The segment results for the six months to 30 September 2014 are as follows: First First Greyhound UK Bus UK Rail Group Total Student Transit Items1 £m £m £m £m £m £m £m Revenue 605.7 410.2 314.0 449.2 1,155.6 6.4 2,941.1 EBITDA2 74.5 35.5 45.1 48.9 66.2 (16.9) 253.3 Depreciation (70.0) (6.0) (15.2) (32.0) (39.3) (0.3) (162.8) Capital grant - - - - 13.1 - 13.1amortisation Segment results2 4.5 29.5 29.9 16.9 40.0 (17.2) 103.6 Total Total Net assets/ assets liabilities (liabilities) Balance sheet £m £m £m First Student 2,343.0 (396.8) 1,946.2 First Transit 445.1 (144.2) 300.9 Greyhound 571.2 (269.2) 302.0 UK Bus 732.7 (335.9) 396.8 UK Rail 318.3 (584.5) (266.2) 4,410.3 (1,730.6) 2,679.7 Group items 141.6 (161.4) (19.8) Net debt 454.3 (1,857.5) (1,403.2) Taxation 48.0 (71.4) (23.4) Total 5,054.2 (3,820.9) 1,233.3 The restated segment results for the six months to 30 September 2013 are asfollows: Restated3 First First Greyhound UK Bus UK Rail Group Total Student Transit Items1 £m £m £m £m £m £m £m Revenue 666.4 408.7 333.7 490.7 1,395.2 6.0 3,300.7 EBITDA2 85.5 37.3 46.4 46.8 58.6 (14.1) 260.5 Depreciation (75.1) (5.9) (14.3) (30.9) (49.2) (0.3) (175.7) Capital grant - - - - 16.4 - 16.4amortisation Segment results2 10.4 31.4 32.1 15.9 25.8 (14.4) 101.2 1Group items comprise Tramlink operations, central management and other items. 2Before amortisation charges and certain other items as set out in note 3. 3Restated for the reclassification of certain items as explained in note 1. Total Total Net assets/ assets liabilities (liabilities) Balance sheet £m £m £m First Student 2,363.7 (360.6) 2,003.1 First Transit 412.2 (137.7) 274.5 Greyhound 563.5 (278.6) 284.9 UK Bus 724.0 (255.1) 468.9 UK Rail 335.4 (539.4) (204.0) 4,398.8 (1,571.4) 2,827.4 Group items 158.3 (200.1) (41.8) Net debt 418.5 (1,865.3) (1,446.8) Taxation 45.2 (81.6) (36.4) Total 5,020.8 (3,718.4) 1,302.4 4 SEGMENT INFORMATION continued The segment results for the year to 31 March 2014 are as follows: First First Greyhound UK Bus UK Rail Group Total Student Transit Items1 £m £m £m £m £m £m £m Revenue 1,467.4 811.9 624.6 930.2 2,870.1 13.2 6,717.4 EBITDA2 241.1 72.0 74.9 105.9 117.1 (31.2) 579.8 Depreciation (147.6) (11.7) (28.5) (61.5) (94.3) (0.6) (344.2) Capital grant - - - - 32.4 - 32.4amortisation Segment results2 93.5 60.3 46.4 44.4 55.2 (31.8) 268.0 1Group items comprise Tramlink operations, central management and other items. 2Before amortisation charges and certain other items as set out in note 3. Total Total Net assets/ assets liabilities (liabilities) Balance sheet £m £m £m First Student 2,280.8 (383.0) 1,897.8 First Transit 404.9 (136.4) 268.5 Greyhound 542.6 (269.2) 273.4 UK Bus 720.7 (271.2) 449.5 UK Rail 328.3 (605.0) (276.7) 4,277.3 (1,664.8) 2,612.5 Group items 140.8 (191.1) (50.3) Net debt 553.9 (1,857.7) (1,303.8) Taxation 35.8 (71.2) (35.4) Total 5,007.8 (3,784.8) 1,223.0 6 months 6 months Year to to to 31 March 30 30 2014 September September 2014 2013 5 INVESTMENT INCOME AND FINANCE COSTS £m £m £m Investment income Bank interest receivable (0.8) (0.7) (1.7) Finance costs Bonds 43.0 45.6 88.9 Bank borrowings 7.9 13.3 22.4 Senior unsecured loan notes 2.0 2.0 4.1 Loan notes 0.5 0.5 1.0 Finance charges payable in respect of HP contracts 5.5 7.3 13.0and finance leases Notional interest on long term provisions 7.4 10.0 19.5 Notional interest on pensions 4.8 3.6 8.9 Adjusted finance costs 71.1 82.3 157.8 Hedge ineffectiveness on financial derivatives - 17.0 17.6 71.1 99.3 175.4 Net finance costs 70.3 98.6 173.7 6 months 6 months Year to to to 31 March 30 30 2014 September September 2014 2013 6 TAX ON PROFIT ON ORDINARY £m £m £mACTIVITIES Current tax 2.5 2.0 5.3 Deferred tax (0.1) (13.8) (11.0) Total tax charge/(credit) 2.4 (11.8) (5.7) The tax effect of the adjustments disclosed in note 3 was a credit of £4.9m(2013: credit of £16.1m). 7 EARNINGS PER SHARE (EPS) Basic EPS is calculated by dividing the profit attributable to equityshareholders of £3.1m (2013: loss £1.1m; full year 2014: profit £54.2m) by theweighted average number of ordinary shares in issue (excluding own shares heldin the EBT and treasury shares) of 1,204.4m (2013: 915.7m; full year 2014:1,059.3m). The Adjusted basic EPS is intended to highlight the recurring results of theGroup before amortisation charges and certain other items as set out in note 3.A reconciliation is set out below: 6 months to Restated Year to 30 September 31 March 2014 2014 6 months to 30 September 2013 £m EPS (p) £m EPS (p) £m EPS (p) Basic profit/(loss)/EPS 3.1 0.3 (1.1) (0.1) 54.2 5.1 Amortisation charges1 25.8 2.1 25.8 2.8 53.2 5.0 Ineffectiveness on financial - - 17.0 1.9 17.6 1.7derivatives Other adjustments (note 3) (2.4) (0.2) (15.3) (1.7) (17.6) (1.7) Tax effect of above adjustments (4.9) (0.4) (12.4) (1.4) (24.9) (2.3) Deferred tax credit due to change - - (3.7) (0.4) (3.2) (0.3)in UK corporation tax rate Adjusted profit/EPS 21.6 1.8 10.3 1.1 79.3 7.5 1Amortisation charges of £25.8m (2013: £25.9m; full year 2014: £53.4m) per note9 less £nil (2013: £0.1m; full year 2014: £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 1,208.6m (2013: 917.3m; full year 2014: 1,062.3m).The difference in the number of shares between the basic calculation and thediluted calculation represents the weighted average number of potentiallydilutive ordinary shares from the share option arrangements in place. 8 GOODWILL £m Cost At 1 April 2014 1,513.5 Additions (note 16) 1.7 Foreign exchange movements 32.2 At 30 September 2014 1,547.4 Accumulated impairment losses At 1 April 2014 and 30 September 2014 4.0 Carrying amount At 30 September 2014 1,543.4 At 31 March 2014 1,509.5 At 30 September 2013 1,564.2 Disclosures including goodwill by cash generating unit, details of impairmenttesting and sensitivities thereon are set out on page 116 of the 2014 AnnualReport. The projections for First Student assumed the incremental benefits ofthe existing recovery plan, and the programme to address contract portfoliopricing together with an economic recovery. The sensitivity analysis indicatedthat the First Student margin or growth rates would need to fall in excess of69 or 55 basis points respectively compared to future projections for there tobe an impairment to the carrying value of net assets in this business. Anincrease in the discount rate in excess of 45 basis points would have led tothe value in use of the division being less than its carrying amount. Projections for all businesses are currently being updated and detaileddisclosures as described above will be included in the 2015 Annual Report. Customer Greyhound Rail Total contracts brand and franchise trade agreements name 9 OTHER INTANGIBLE ASSETS £m £m £m £m Cost At 1 April 2014 362.2 58.1 36.1 456.4 Acquisitions 15.8 - - 15.8 Additions 0.2 - - 0.2 Foreign exchange movements 8.1 1.3 - 9.4 At 30 September 2014 386.3 59.4 36.1 481.8 Amortisation At 1 April 2014 194.5 19.2 24.8 238.5 Charge for period 20.5 1.5 3.8 25.8 Foreign exchange movements 5.0 0.4 - 5.4 At 30 September 2014 220.0 21.1 28.6 269.7 Carrying amount At 30 September 2014 166.3 38.3 7.5 212.1 At 31 March 2014 167.7 38.9 11.3 217.9 At 30 September 2013 197.5 42.2 1.8 241.5 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 20 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 10 PROPERTY, PLANT AND EQUIPMENT £m £m £m £m Cost At 1 April 2014 451.9 2,656.3 825.4 3,933.6 Additions 16.9 196.1 42.5 255.5 Acquisitions - 7.8 - 7.8 Disposals (5.4) (55.5) (10.9) (71.8) Reclassified as held for sale - (21.8) - (21.8) Foreign exchange movements 5.3 45.6 5.0 55.9 At 30 September 2014 468.7 2,828.5 862.0 4,159.2 Accumulated depreciation and impairment At 1 April 2014 89.4 1,346.9 632.4 2,068.7 Charge for period 4.5 105.0 53.3 162.8 Disposals (0.8) (51.5) (2.0) (54.3) Reclassified as held for sale - (19.8) - (19.8) Foreign exchange movements 0.9 23.0 3.6 27.5 At 30 September 2014 94.0 1,403.6 687.3 2,184.9 Carrying amount At 30 September 2014 374.7 1,424.9 174.7 1,974.3 At 31 March 2014 362.5 1,309.4 193.0 1,864.9 At 30 September 2013 376.4 1,374.1 185.7 1,936.2 30 30 31 March September September 2014 2014 2013 11 TRADE AND OTHER RECEIVABLES £m £m £m Amounts due within one year Trade receivables 339.8 304.4 361.9 Provision for doubtful receivables (2.6) (3.5) (2.9) Other receivables 54.3 60.5 54.3 Other prepayments 116.1 125.2 117.6 Accrued income 164.2 152.6 132.7 671.8 639.2 663.6 30 30 31 March September September 2014 2014 2013 12 ASSETS HELD FOR SALE £m £m £m Assets held for sale 2.0 4.3 6.2 These comprise First Student yellow school buses which are surplus torequirements and are being actively marketed for sale. Gains or losses arisingon the disposal of such assets are included in arriving at operating profit inthe condensed consolidated income statement. Assets held for sale at 31 March 2014 also included the assets in relation tothe sale of Dagenham land and buildings which were sold during the period to 30September 2014. 30 30 31 March September September 2014 2014 2013 13 TRADE AND OTHER PAYABLES £m £m £m Amounts falling due within one year Trade payables 340.1 364.1 372.3 Other payables 238.7 213.1 212.4 Accruals 526.9 470.6 497.6 Deferred income 66.2 62.4 59.4 Season ticket deferred income 72.1 67.6 78.1 1,244.0 1,177.8 1,219.8 30 30 31 March September September 2014 2014 2013 14 DERIVATIVE FINANCIAL INSTRUMENTS £m £m £m Total derivatives Total non-current assets 30.5 39.4 25.9 Total current assets 15.0 33.8 26.0 Total assets 45.5 73.2 51.9 Total current liabilities 24.5 17.5 17.7 Total non-current liabilities 7.4 14.9 9.2 Total liabilities 31.9 32.4 26.9 Derivatives designated and effective as hedginginstruments carried at fair value Non-current assets Coupon swaps (fair value hedge) 30.3 38.2 24.1 Fuel derivatives (cash flow hedge) 0.2 1.2 1.8 30.5 39.4 25.9 Current assets Cross currency swaps (net investment hedge) - 18.0 - Coupon swaps (fair value hedge) 14.7 11.1 11.1 Fuel derivatives (cash flow hedge) 0.3 4.7 6.4 15.0 33.8 17.5 Current liabilities Fuel derivatives (cash flow hedge) 14.1 4.1 5.1 14.1 4.1 5.1 Non-current liabilities Coupon swaps (fair value hedge) 0.2 - - Fuel derivatives (cash flow hedge) 3.7 1.6 1.3 3.9 1.6 1.3 Derivatives classified as held for trading Current assets Interest rate swaps - - 8.5 Current liabilities Interest rate swaps 10.4 13.4 12.6 Non-current liabilities Interest rate swaps 3.5 13.3 7.9 The fair value measurements of the financial derivatives held by the Group havebeen derived based on observable market inputs (as categorised within Level 2of the fair value hierarchy under IFRS 7 (2009)). 14 DERIVATIVE FINANCIAL INSTRUMENTS continued Fair Value of the Group's financial assets and financial liabilities that aremeasured at fair value on a recurring basis: 30 September 14 Fair Carrying value value Level 1 Level 2 Level 3 Total Total £m £m £m £m £m Financial assets Cash and cash equivalents 454.3 - - 454.3 454.3 Derivative financial - 45.5 - 45.5 45.5instruments Financial Liabilities andDerivatives Financial liabilities 30.6 2,134.0 - 2,164.6 1,932.7 Derivative financial - 31.9 - 31.9 31.9instruments 30 September 2013 Fair Carrying Value value Level 1 Level 2 Level 3 Total Total £m £m £m £m £m Financial assets Cash and cash equivalents 418.5 - - 418.5 418.5 Derivatives financial - 73.2 - 73.2 73.2instruments Financial Liabilities andDerivatives Financial liabilities - 2,160.1 - 2,160.1 1,964.4 Derivative financial - 32.4 - 32.4 32.4instruments 31 March 2014 Fair Carrying value value Level 1 Level 2 Level 3 Total Total £m £m £m £m £m Financial assets Cash and cash equivalents 553.9 - - 553.9 553.9 Derivatives financial - 51.9 - 51.9 51.9instruments Financial Liabilities andDerivatives Financial liabilities - 2,172.4 - 2,172.4 1,951.7 Derivative financial - 26.9 - 26.9 26.9instruments Level 1: Quoted prices in active markets for identical assets and liabilities. Level 2: Inputs other than quoted prices included within Level 1 that areobservable for the asset or liability either directly or indirectly. Level 3: Inputs for the asset or liability that are not based on observablemarket data. There were no transfers between level 1 and level 2 during the current or priorperiod. Fair values at 30 30 31 Fair Valuation technique(s) September September March value 2014 2013 2014 and key inputs hierarchyFinancial Assets £m £m £m/ (Liabilities) DerivativeContracts 1. Cross - 18.0 - Level 2 Discounted cash flow; currency future cash flows are swaps estimated based on forward exchange rates and contract exchange rates and then discounted at a rate that reflects the credit risk of the various counterparties. 2. Interest 30.9 22.6 23.2 Level 2 Discounted cash flow; rate swaps future cash flows are estimated based on forward interest rates and contract interest rates and then discounted at a rate that reflects the credit risk of the various counterparties. 3. Fuel (17.3) 0.2 1.8 Level 2 Discounted cash flow; Derivatives future cash flows are estimated based on forward fuel prices and contract fuel rates and then discounted at a rate that reflects the credit risk of the various counterparties. 30 30 31 March September September 2014 2014 2013 15 PROVISIONS £m £m £m Insurance claims 190.3 202.4 191.6 Legal and other 30.4 33.7 29.6 Pensions 3.4 3.8 3.4 Non-current liabilities 224.1 239.9 224.6 Insurance Legal Pensions claims and FGW Total other contract provision £m £m £m £m £m At 1 April 2014 294.8 39.9 - 3.4 338.1 Provided in the period 52.6 13.4 - - 66.0 Utilised in the period (67.7) (2.8) - - (70.5) Notional interest 7.4 - - - 7.4 Foreign exchange movements 5.6 1.3 - - 6.9 At 30 September 2014 292.7 51.8 - 3.4 347.9 At 30 September 2013 308.7 44.6 9.1 3.8 366.2 Current liabilities 102.4 21.4 - - 123.7 Non-current liabilities 190.3 30.4 - 3.4 224.1 At 30 September 2014 292.7 51.8 - 3.4 347.9 Current liabilities 103.2 10.3 - - 113.5 Non-current liabilities 191.6 29.6 - 3.4 224.6 At 31 March 2014 294.8 39.9 - 3.4 338.1 Current liabilities 106.3 10.9 9.1 - 126.3 Non-current liabilities 202.4 33.7 - 3.8 239.9 At 30 September 2013 308.7 44.6 9.1 3.8 366.2 The current liabilities above are included within accruals in note 13. The insurance claims provision arises from estimated exposures for incidentsoccurring prior to the balance sheet date. It is anticipated that the majorityof such claims will be settled within the next six years. The utilisation of £67.7m (2013: £89.3m) represents payments made largely against the currentliability of the preceding year. Legal and other provisions relate to estimated exposures for cases filed orthought highly likely to be filed for incidents that occurred prior to thebalance sheet date. It is anticipated that most of these items will be settledwithin 10 years. Also included are provisions in respect of costs anticipatedon the exit of surplus properties which are expected to be settled over theremaining terms of the respective leases. The pension's provision relates to unfunded obligations that arose on theacquisition of certain UK Bus companies. It is anticipated that this will beutilised over five to 10 years. 16 ACQUISITION AND Disposal of businesses and 30 30 31 Marchsubsidiary undertakings September September 2014 2014 2013 ACQUISITION of businesses and subsidiary £m £m £mundertakings Fair value of net assets acquired: Property, plant and equipment 7.8 - - Other intangible assets 15.8 - - Deferred tax 0.9 - - Other liabilities (2.3) Non-controlling interests (11.7) - - 10.5 - - Goodwill 1.7 - - Satisfied by cash paid and payable 12.2 - - On 25 August 2014, the Group completed the acquisition of a 51% share in MilesSquare Transportation, Inc, a school bus transportation company based in NewYork. The £12.2m consideration represent £11.0m cash paid in the period and £1.2m of deferred consideration. Included within the purchase agreement is a put option for the Group topurchase the remaining 49% from the non-controlling interest party for a fixedprice of £11.8m. As the put option is a contract to purchase the group's ownequity instruments it gives rise to a financial liability for the fixed priceamount in accordance with paragraph 23 in IAS 32. We have recognised thefinancial liability in the balance sheet and the initial recognition is treatedas reclassified from equity. The acquisition contributed £1.3m to Group revenue and £0.4m to the Group'sprofit for the period between the date of acquisition and the balance sheetdate. If the acquisition had been completed on the first day of the financial year,Group revenue from this acquisition for the period would have been £6.2m andthe Group's profit would have been £0.8m. 30 30 31 March September September 2014 2014 2013 Disposal of businesses and subsidiary £m £m £mundertakings Carrying value of net assets disposed of: Goodwill - 7.7 7.7 Property, plant and equipment - 41.2 41.2 Current assets - 1.9 1.9 Other liabilities - (0.1) (0.1) - 50.7 50.7 Redundancy and other - 9.6 9.6 Professional fees - 2.3 2.3 Gain on disposal - 16.5 16.5 Satisfied by cash received and receivable - 79.1 79.1 On 22 June 2013, the Group completed the disposal of eight London bus depots.The £79.1m consideration represent £76.3m cash received in the period and £2.8mof deferred consideration. 30 30 31 March September September 2014 2014 2013 17 Share capital £m £m £m Allotted, called up and fully paid: 1,204.9m ordinary shares of 5p each 60.2 60.2 60.2 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 1,204.5m(2013: 1,203.8m). At the end of the period 0.4m shares (2013: 1.1m shares) werebeing held as treasury shares and own shares held in trust for employees. 6 months 6 months Year to to to 31 March 30 30 2014 September September 2014 2013 18 Net cash from operating activities £m £m £m Operating profit 80.2 90.6 232.2 Adjustments for: Depreciation charges 162.8 175.7 344.2 Capital grant amortisation (13.1) (16.4) (32.4) Amortisation charges 25.8 25.9 53.4 Gain on disposal of businesses and subsidiary - (16.5) (16.5)undertakings Share-based payments 2.7 2.1 4.6 (Profit)/loss on disposal of property, plant and (27.3) 2.1 3.2equipment Operating cash flows before working capital 231.1 263.5 588.7 (Increase)/decrease in inventories (3.7) (0.5) 4.8 Increase in receivables (0.2) (22.7) (60.0) Increase/(decrease) in payables 20.6 (67.0) (18.2) Decrease in provisions (12.4) (22.8) (36.1) Defined benefit pension payments in excess of (15.2) (23.1) (27.7)income statement charge Cash generated by operations 220.2 127.4 451.5 Tax paid (3.1) (4.2) (8.2) Interest paid (76.8) (96.1) (138.1) Interest element of HP contracts and finance (5.5) (7.3) (12.9)leases Net cash from operating activities 134.8 19.8 292.3 19 RETIREMENT BENEFIT SCHEMES The Group operates or participates in a number of defined benefit pensionschemes which cover the majority of UK employees and certain North Americanemployees. The scheme details are described in page 139 of the Annual Reportand Accounts for the year ended 31 March 2014. 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 2014 for all defined benefitschemes totalled £3,826m (2013: £3,741m; full year 2014: £3,902m). Contributions are paid to all defined benefit pension schemes in accordancewith rates recommended by the schemes' actuaries. The valuations are made usingthe Projected Unit Credit Method. The key assumptions were as follows: UK Bus UK North UK Bus UK North UK Bus UK North Rail America Rail America Rail America 30 30 31 Sept 30 30 Sept Sept 30 30 Sept March 31 31 Sept Sept March March 2014 2014 2013 2013 2014 2014 2013 2014 2014 % % % % % % % % % Key assumptionsused: Discount rate 3.9 3.9 3.85 4.5 4.5 4.65 4.40 4.40 4.00 Expected rate of 1.95/ 3.5 2.5 2.1/ 3.6 2.5 2.10/ 3.65 2.50salary increases 3.0/ 3.1/ 3.15 3.5 3.6 Inflation - RPI 3.0 3.0 2.0 3.1 3.1 2.0 3.15 3.15 2.00 Inflation - CPI 1.95 1.95 - 2.05 2.05 - 2.10 2.10 - Future pension 1.95/ 1.95 - 2.05/ 2.05 - 2.10/ 2.10 -increases¹ 1.95/ 1.95/ 2.10/ 2.9 3.0 3.05 ¹UK Bus refers to LGPS, UK Bus Scheme and Group scheme respectively. Amounts (charged)/credited to the condensed consolidated income statement inrespect of these defined benefit schemes are as follows: North UK Bus UK Rail America Total 6 months to 30 September 2014 £m £m £m £m Current service cost (including employer (12.9) (31.3) (3.5) (47.7)expenses) Net interest cost (1.6) (6.0) (2.8) (10.4) Interest on franchise adjustment - 5.6 - 5.6 (14.5) (31.7) (6.3) (52.5) North UK Bus UK Rail America Total 6 months to 30 September 2013 £m £m £m £m Current service cost (including employer (12.4) (24.5) (3.7) (40.6)expenses) Net interest cost 0.1 (4.8) (3.9) (8.6) Interest on franchise adjustment - 5.0 - 5.0 (12.3) (24.3) (7.6) (44.2) North UK Bus UK Rail America Total Year to 31 March 2014 £m £m £m £m Current service cost (including employer (24.1) (56.9) (6.9) (87.9)expenses) Net interest cost (0.5) (11.7) (7.7) (19.9) Interest on franchise adjustment - 11.0 - 11.0 (24.6) (57.6) (14.6) (96.8) Actuarial gains and losses have been reported in the condensed consolidatedstatement of comprehensive income. 19 RETIREMENT BENEFIT SCHEMES continued 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 2014 £m £m £m £m Fair value of schemes' assets 2,123.4 1,222.6 480.0 3,826.0 Present value of defined benefit (2,195.4) (1,688.6) (634.7) (4,518.7)obligations Deficit before adjustments (72.0) (466.0) (154.7) (692.7) Adjustment for irrecoverable surplus1 (57.2) - - (57.2) UK Rail franchise adjustment (60%) - 272.2 - 272.2 Adjustment for employee share of RPS - 186.4 - 186.4deficits (40%) Liability recognised in the condensed (129.2) (7.4) (154.7) (291.3)consolidated balance sheet This amount is presented in the condensedconsolidated balance sheet as follows: Non-current assets 25.5 - - 25.5 Non-current liabilities (154.7) (7.4) (154.7) (316.8) (129.2) (7.4) (154.7) (291.3) North UK Bus UK Rail America Total At 30 September 2013 £m £m £m £m Fair value of schemes' assets 1,936.1 1,333.7 471.4 3,741.2 Present value of defined benefit (1,948.0) (1,771.6) (623.4) (4,343.0)obligations Deficit before adjustments (11.9) (437.9) (152.0) (601.8) Adjustment for irrecoverable surplus1 (33.4) - - (33.4) UK Rail franchise adjustment (60%) - 254.8 - 254.8 Adjustment for employee share of RPS - 175.2 - 175.2deficits (40%) Liability recognised in the condensed (45.3) (7.9) (152.0) (205.2)consolidated balance sheet This amount is presented in the condensedconsolidated balance sheet as follows: Non-current assets 17.1 - - 17.1 Non-current liabilities (62.4) (7.9) (152.0) (222.3) (45.3) (7.9) (152.0) (205.2) North UK Bus UK Rail America Total At 31 March 2014 £m £m £m £m Fair value of schemes' assets 2,033.3 1,405.4 463.1 3,901.8 Present value of defined benefit (2,062.5) (1,881.2) (615.5) (4,559.2)obligations Deficit before adjustments (29.2) (475.8) (152.4) (657.4) Adjustment for irrecoverable surplus1 (65.0) - - (65.0) UK Rail franchise adjustment (60%) - 271.5 - 271.5 Adjustment for employee share of RPS - 190.2 - 190.2deficits (40%) Liability recognised in the condensed (94.2) (14.1) (152.4) (260.7)consolidated balance sheet This amount is presented in the condensedconsolidated balance sheet as follows: Non-current assets 29.9 - - 29.9 Non-current liabilities (124.1) (14.1) (152.4) (290.6) (94.2) (14.1) (152.4) (260.7) 1 The irrecoverable surplus represents the amount of the surplus that the Groupcould not recover through reducing future company contributions to LocalGovernment Pension Schemes.