7th Nov 2007 07:00
Embargoed until 07:00hrs on Wednesday 7 November 2007
FIRSTGROUP PLC HALF-YEARLY RESULTS FOR THE SIX MONTHS TO 30 SEPTEMBER 2007
* STRONG START TO YEAR - DELIVERING ON CLEAR STRATEGY OF PROFITABLE GROWTH IN
CORE MARKETS + Market leadership positions established in UK and North America + Revenue up by 3.1% and adjusted operating profit up 11.8% + Group operating margin1 increased + Strong EBITDA2 growth - ‚£170.9m up 10.6% + Adjusted basic EPS - 11.1p up 9.9% + Continued commitment to 10% dividend growth
* UK BUS - REVENUE GROWTH INITIATIVES AND RIGOROUS CONTROL DELIVERING MARGIN
IMPROVEMENT + Margin increased by over 1% + Good passenger revenue and volume growth + Focused investment in people and vehicles delivering results
+ Strong focus on operational performance - lowest lost mileage recorded
* NORTH AMERICA - EXCITING GROWTH OPPORTUNITIES IN LARGE, FRAGMENTED MARKET
+ First Student - margin stability, focus on service quality, costs and productivity * First Transit - margin increase and successful contract bidding season * First Services - new fleet business won, focus on margin improvement * UK RAIL - INVESTMENT IN SERVICE AND PERFORMANCE DELIVERING GROWTH + Investment delivering improved performance and passenger growth + Strong revenue growth across all of our Train Operating Companies + Further growth opportunity through investment in fleet and capacity and revenue protection + Continued growth opportunities - new Anglo Scottish routes for FTPE * ACQUISITION OF LAIDLAW - SIGNIFICANT VALUE ENHANCING OPPORTUNITIES FROM TRANSFORMATIONAL DEAL + Completed Laidlaw acquisition on 1 October 2007
+ Established strong, experienced management team for combined business
+ Implementing integration plans + Confident of synergy opportunities
FINANCIAL SUMMARY
* Revenue ‚£1,768.9m (2006: ‚£1,715.7m) * Adjusted operating profit1 ‚£103.1m (2006: ‚£92.2m) * Operating profit ‚£99.9m (2006: ‚£72.0m) * Adjusted profit before taxation1 ‚£74.5m (2006: ‚£59.9m) * Profit before taxation ‚£71.3m (2006: ‚£39.7m) * Adjusted basic earnings per share 11.1p (2006: 10.1p) * Basic earnings per share 12.9p (2006: 6.3p) * Adjusted EBITDA2 ‚£170.9m (2006: ‚£154.5m) * Adjusted EBITDA:interest cover3 6.0x (2006: 4.8x) * Interim dividend per share up 10% to 5.5p (2006: 5.0p)
1Before intangible asset amortisation, non-recurring bid costs, other non-recurring items and profit on disposal of properties, as shown in the consolidated income statement on page 18.
2Adjusted operating profit as defined plus depreciation.
3Calculated as adjusted EBITDA divided by net finance costs.
Commenting, FirstGroup's Chief Executive, Moir Lockhead said:
"This is a very exciting time for the Group. We have now established leadershippositions in the UK and North America. The completion of our Laidlawacquisition on 1 October 2007 provides a step-change in the shape of ourbusiness and gives us the scale and opportunities to generate increased valueand returns and a robust platform for future growth in the large North Americanmarket."Across our UK businesses we are seeing the results of our investment inquality and operational performance. In UK Rail our programme of investment incapacity, service quality and performance, together with the national appetitefor rail travel, continues to drive growth. In UK Bus our programme ofinvestment in people and vehicles, coupled with rigorous control of costs andoperating performance delivered revenue growth and an increase of over 1.0% inthe operating margin. In North America our focus is to continue to deliver ahigh quality of service together with measures to control costs and increaseproductivity. Looking ahead, the scale and resources of our enlarged businesswill enable us to make a compelling service and product offering to new andexisting customers."These excellent results demonstrate the strength of the Group. We aredelivering on our clear strategy to achieve profitable growth in our coremarkets and increase value for shareholders. The Board's confidence in theGroup's future prospects and ability to continue to generate strong operatingcash flows is reflected in the ongoing commitment to at least 10% annualdividend growth for at least the next three years. Trading in the second halfof the year has started well and is in line with our expectations."
Enquiries FirstGroup plc :
Moir Lockhead, Chief Executive Tel: 020 7291 0512
Nick Chevis, Acting Finance Director Tel: 020 7291 0512
Rachael Borthwick, Corporate Communications Director Tel: 020 7291 0508
PHOTOGRAPHS FOR THE MEDIA ARE AVAILABLE AT WWW.NEWSCAST.CO.UK
NOTES TO EDITORS:
FirstGroup plc is now the world's leading transport company with revenues of over ‚£5 billion a year. We employ over 135,000 staff throughout the UK and North America and transport more than 2.5 billion passengers a year.
* The Group is Britain's largest bus operator running more than one in five
of all local bus services. A fleet of nearly 9,000 buses carries 3 million
passengers a day in more than 40 major towns and cities.
* The Group is the UK's largest rail operator with four passenger franchises
- First Capital Connect, First Great Western, First ScotRail and First TransPennine Express - and one open access operator, Hull Trains. * The Group operates one quarter of the UK passenger rail network, with a
balanced portfolio of intercity, commuter and regional services, carrying
almost 270m passengers per annum. * The Group operates rail freight services through FirstGBRf.
* The Group operates the Croydon Tramlink network on behalf of Transport for
London carrying almost 25 million passengers a year. * On 1 October 2007 the Group completed the acquisition of Laidlaw International, Inc. the leading operator of school and intercity bus
transportation, a supplier of public transit services and Greyhound, the
only national provider of intercity bus operations in North America.
* In North America the Group has four operating divisions: Yellow School
Buses (First Student), Transit Contracting and Management Services (First
Transit), Vehicle Fleet Maintenance and Support Services (First Services)
and intercity bus services (Greyhound). Headquartered in Cincinnati,
FirstGroup America Inc. operates across the US and Canada.
* First Student is the largest provider of student transportation in North
America with a fleet of approximately 62,000 yellow school buses, carrying
nearly 3 million students every day across the US and Canada.
* First Transit is one of the largest private sector providers of transit
management and contracting, managing public transport systems on behalf of
transit authorities in cities such as Los Angeles, Houston and Denver. It
is one of the largest providers of airport shuttle bus services in the US
and also manages call centres, paratransit operations and other light transit activities. * First Services is the largest private sector provider of vehicle maintenance and ancillary support services in the US. It provides fleet maintenance for public sector customers such as the Federal Government,
cities and fire and police departments. It also provides a range of support
services including vehicle maintenance, logistics support and facilities
management to public and private sector clients including the US Navy and
US Air Force.
* Greyhound is the only national provider of scheduled intercity bus
transportation services in the US and Canada. Based in Dallas, Greyhound
provides scheduled passenger services to approximately 3,100 destinations
throughout the US and Canada carrying approximately 24 million passengers
annually. Chairman's statementI am delighted to report an excellent start to this financial year in which theGroup strengthened its position in the UK and became the leading provider oftransportation in North America. We are successfully delivering on our clearstrategy to profitably grow in our core markets and create further value forshareholders. Our focus remains to provide safe, high quality and reliableservices and the safety and security of our passengers and employees is ourhighest priority. We continue to lead the industry in this area and strive toachieve the highest possible standards throughout the Group.Across the Group trading has been strong and produced an excellent set offinancial results for the first half of this year. Adjusted basic earnings pershare increased by 9.9% to 11.1p (2006: 10.1p). The Board has proposed aninterim dividend of 5.5p (2006: 5.0p) an increase of 10%. It will be paid on 6February 2008 to shareholders on the register on 11 January 2008.On 1 October 2007 we announced the completion of the acquisition of LaidlawInternational, Inc. This transformational and significantly value enhancingacquisition gives us the leading position in the large, fragmented NorthAmerican transportation market. Our focus is to integrate the businesses asquickly and efficiently as possible. We will continue to deliver safe, highquality services to our customers, leverage value through scale and improve ourproduct offering to existing and new customers and drive out the substantialsynergies that we expect to achieve through combining the two operations.Looking ahead more than half of the Group's revenue and adjusted operatingprofit will be generated from our North American business. The combinedbusiness provides a solid platform for further profitable growth in the largeNorth American market and presents significant opportunities for the Group andits employees.Our employees are our greatest asset and we recognise and appreciate the vitalrole they play in the success of our business. On behalf of the Board I wouldlike to take this opportunity to thank all of our staff for their continuedhard work and commitment in delivering another set of strong results for theGroup. I would also like to extend a warm welcome to those new employees whohave joined our businesses in North America and in the UK.This has been an extremely busy and exciting period for the Group. I amdelighted with the progress we have made in establishing leading positions inour primary markets. We are delivering on our clear strategy to createshareholder value by sustainable, profitable growth in our core businesses.While we have expanded our operations in North America we have also continuedto invest in our UK businesses to ensure that we deliver the highest level ofservice to our customers. As a result we continue to see improved operatingperformance and revenue growth in our UK businesses. The Board's commitment togrow dividends by at least 10% per annum, for at least three years, reflectsour confidence in the Group's strong cash flows and prospects for furtherprofitable growth.Martin GilbertChairman6 November 2007
*Operating profit, margin and EBITDA referred to throughout this document are stated before intangible asset amortisation, non-recurring bid costs, other non-recurring items and profit on disposal of properties.
Chief Executive's operating review
OVERVIEW
Safety
We are focused on providing safe and secure services for our passengers andstaff. We constantly seek to advance a culture of safety throughout ourbusiness and relentlessly apply a `zero tolerance' approach to unsafe acts andpractices. Although we have made great strides in improving working practicesand procedures and in monitoring our performance in this area, we are nevercomplacent. Our aim is to deliver the highest possible standards of safety forour passengers and staff. We continue to lead in this area for example, ourInjury Prevention Programme (IPP) is not only innovative but unprecedented inour industry. IPP is designed to engage all of our staff to encourage goodsafety practices and to embed a safety culture in all of our operations.Through our acquisition of Laidlaw we will seek to harness best practice fromboth businesses and further enhance our safety procedures throughout theenlarged Group. I am pleased to report that IPP is being rolled out across allof our newly acquired North American operations as an early priority.
Results
I am pleased with the performance of the Group which has delivered a strongstart to the year. Group revenue increased by 3.1% to ‚£1,768.9m (2006: ‚£1,715.7m). Operating profit was ‚£103.1m (2006: ‚£92.2m) an increase of 11.8% andthe Group operating margin increased to 5.8% (2006: 5.4%). Strong cashgeneration is a feature of this business and I am pleased to report strongEBITDA growth that rose by 10.6% to ‚£170.9m (2006: ‚£154.5m), enabling us tocontinue to invest in the business as well as increase the interim dividend
by10%.UK BUS
The Group is the largest bus operator in the UK with a market share of approximately 23%. Our fleet of almost 9,000 buses carries 3 million passengers every day.
ResultsOur UK Bus division has delivered a strong performance during the period. Totalrevenue rose by 3.5% to ‚£540.1m (2006: ‚£521.9m) as a result of volume growth,including concessions, and pricing. Passenger revenue increased by over 5% andwe saw continued passenger volume growth. Operating profit increased by 20.5%to ‚£47.6m (2006: ‚£39.5m). EBITDA growth was strong and increased by 11.9% to ‚£83.5m (2006: ‚£74.6m).We are pleased that our continued focus on improving service quality and ourinvestment in people and vehicles is attracting new customers onto our buses.This increase in passenger volumes, our revenue growth initiatives and thesuccessful implementation of our turnaround strategy in rural areas, togetherwith our close management of controllable costs across the division, is drivingimproved profitability and our operating margin has increased by over 1.0%.Revenue growth continues to be strongest in high density areas and town andcity centre locations, especially where we are working closely in partnershipwith local authorities to deliver higher quality public transport and bettertraffic management. Buses are the quickest, cheapest and most effective way ofdelivering the Government's objectives for improving local public transport andtackling the twin challenges of traffic congestion in our towns and cities andclimate change.We therefore welcome the Government's proposals in the draft Local TransportBill to strengthen voluntary partnership agreements between operators and localauthorities. We also welcome moves to improve the way competition is managedand approve of the development of a new performance framework for localauthorities and operators towards better punctuality. However we remainconcerned that the proposals for Quality Contract schemes are an unnecessarydistraction and are not in the best interests of passengers.In recent years we have made significant investment to improve our engineeringand maintenance processes and we have implemented initiatives to raise ourservice quality and operational performance, including Punctuality ImprovementPartnerships and publishing performance data. In the period we operated over99% of registered mileage, despite torrential rain and severe floodingaffecting operations in Yorkshire and Worcestershire during the summer. Driverturnover remains low and we continue to recruit drivers from Eastern Europe tosupplement recruitment and retention initiatives such as our partnership withJobCentre Plus. We are committed to the development of our staff and haverolled out a training programme using the Smith System of Advanced DriverTraining which has proved very successful in our North American business.Our operations outside London, which represent almost 80% of UK Bus turnover,continue to see revenue and volume growth with concessions, vehicle investment,improving service delivery and strong promotion of marketing and faresinitiatives all contributing to the increase. We continue to focus our effortson working in partnership with local authorities in the Metropolitan areas andmajor towns and cities to tackle congestion hotspots and deliver prioritymeasures. As traffic congestion worsens there is a real opportunity to attractpeople out of their cars and onto buses. Ensuring bus services are punctual andreliable will give people confidence to leave their cars at home and encouragenew customers to our services.In partnership with Local Authorities and Passenger Transport Executives wecontinue to develop plans for improved bus services for customers. In June welaunched a groundbreaking Route Development Plan to improve bus services acrossthe Greater Glasgow network. The plan examines bus network changes in thecontext of wider developments such as major new housing schemes, work, leisureand shopping facilities. The plan fully complements the award-winning ‚£30mStreamline Partnership, which is delivering Real Time Passenger Information andbetter bus priorities along eight quality bus corridors into Glasgow, and ourgrowth and stability pact with the City Council and Strathclyde Partnership forTransport.As a key member of the Greater Manchester Bus Operators' Association (GMBOA) wewere pleased to present plans to support the area's Transport Innovation Fundbid and move towards a road pricing scheme. The GMBOA proposals would deliverminimum frequencies on key corridors, improved punctuality and reliability,better ticketing, particularly for multi-modal journeys and a simpler faresstructure. Under the GMBOA proposals Greater Manchester Passenger TransportExecutive and the Metropolitan Borough Councils would deliver more extensivebus priority measures and enforcement of bus lanes and parking restrictions.In London, we are committed to improving our performance and are pleased thatour operations in East London are currently top of the league tables issued byTransport for London. We are improving driver standards and continue toimplement new initiatives such as the trial of DriveCam, which recordsexceptional events such as hard braking for investigation and driver trainingpurposes.Capital expenditure has been focused on areas where there is the potential forhigh passenger growth. During the period, ‚£28m was spent on low floor, easyaccess buses for towns and cities including Bradford, Leeds, Glasgow andManchester. Our investment included 20 new vehicles for the relaunch of the X78service between Sheffield, Rotherham and Doncaster which is demonstrating a 9%increase in passenger journeys. In July we announced a further investment of ‚£35m in 210 new buses as part of our commitment to deliver a better bus serviceto the people of Greater Manchester. This brings our total investment in newbuses in Manchester over the last three years to almost ‚£80m. We are alsointroducing 42 new vehicles for the second Showcase route in Bristol. Theaverage age of our UK Bus fleet is under 8 years which is ahead of industrytargets.We continue to look at new opportunities for growth in our UK Bus division andin July launched the 747 Air Link to Glasgow International Airport. Thisinitiative follows the success of our new dedicated airport links such as YorkAirCoach and more established services such as the Bristol Flyer and RailAirbetween Reading station and Heathrow Airport. In August we officially launchedthe ftr service in Leeds with a formal agreement with Leeds City Council andMetro which includes local authority investment in highway infrastructureimprovements. We are encouraged by a 10% increase in passenger journeys on ourftr service in Leeds since the full service went live in June and we continueto receive very positive customer feedback for the original ftr service inYork.
NORTH AMERICA
The Group is now the leading provider of transportation services in NorthAmerica. First Student is the largest provider of student transportation withapproximately 62,000 yellow school buses operating every day across the US andCanada. We operate a transit contracting and management business in NorthAmerica, a vehicle fleet maintenance and support services division andGreyhound, the only national provider of intercity bus services in the US andCanada.Results
The acquisition of Laidlaw International, Inc. has been a key focus for thebusiness during the period. We received the necessary Antitrust approvals andannounced the completion of the acquisition on 1 October 2007, and therefore,Laidlaw operations do not contribute to these results. This transformationalacquisition underpins our future profitable growth in the large, fragmentedNorth American transport market.Revenue from our three businesses of Student, Transit and Services, grew by 4%in US Dollar terms to $717.2m or ‚£358.5m (2006: $689.3m or ‚£372.0m). Operatingprofit was $34.1m or ‚£17.2m (2006: $33.2m or ‚£17.9m) representing an increaseof 2.7% at constant exchange rates.
First Student
US Dollar revenue increased by 3.5% and operating profit by 3.3%. Within ourschool bus business we continue to focus on delivering safe, high qualityservices and implement initiatives to tightly control the cost base andincrease productivity. I am pleased to report that during the period wecontinued to see the positive impact of these initiatives that enabled us tomaintain the operating margin despite some fuel cost pressure. We made goodprogress with our programme to install GPS equipment to our existing school busfleet that will delivery safety improvements and increased efficiencies, with`Zonar' equipment fitted to 50% of our First Student school bus fleet. InMassachusetts we were pleased to be selected to take part in a pilot studyconducted with Massachusetts Institute of Technology to fit a number of ouryellow school buses with equipment to reduce diesel particulates.
As part of our focus on delivering high quality services to customers we continue to invest in new vehicles and technology. During the period we invested ‚£52.3m ($106.1m) in approximately 1,600 new yellow school buses to increase quality and support future growth.
We were pleased to retain a number of contracts in states including California,Connecticut, Rhode Island and Illinois. In addition we won new contracts in DelPaso and San Francisco, California. As we anticipated, we experienced somecontract attrition due to the acquisition of Laidlaw. The current aggregatedimpact of both the contract attrition and the forced divestment, as a result ofthe Antitrust review process in the US, represents 3% of the school bus fleetof the combined business. The overall financial impact is significantly lessonerous than the original assumptions made by us at the time of the acquisitionannouncement in February 2007.
First Transit
First Transit had another successful period with US Dollar revenue increased by9.2% and operating profit by 28.1%. We have successfully implemented asignificant cost control and efficiencies programme throughout the division,which has delivered good results and further margin increase during the period.We continued to grow our share of the market with the award of new businessincluding paratransit contracts in Florida and Colorado and a call centremanagement contract in Oregon. We were also awarded new transit management andcontracting business through contracts won in Arizona, California, Maryland,New York and Wisconsin. We were delighted to renew a number of importantcontracts including Houston in Texas and Jackson in Tennessee and the contractto provide shuttle bus services to Miami International Airport.We have successfully integrated the Cognisa acquisition with our operationswhich has strengthened our position in the growing, higher margin, shuttle busmarket. Through this acquisition our expertise in the market has grown and wehave successfully bid and won a number of new contracts making us the marketleader in private shuttle bus services at airports and at colleges anduniversities.We are integrating Laidlaw Transit Services into our existing First Transitoperation. The combination of these two businesses will further strengthen ourmarket position, particularly in the faster growing light transit marketincluding paratransit, shuttle bus services and call centre management in whichwe have successfully grown our presence.
First Services
Earlier this year First Services, which provides a range of outsourced vehiclemaintenance, operations and support services in the private and public sectors,renewed a significant contract within the large, federal market. US Dollarrevenue and profitability was reduced as a result of the new contract, withrevenues of over $450m over the ten-year term, being re-bid at lower margins.Since the contract was renewed we have won further add-on work to providelogistic support services at the customer's facility. Our vehicle fleetmaintenance business continues to grow with new business won in Georgia and acontract to provide and install specialist mobile communications equipment inVirginia and for Kansas Highway Patrol.
Acquisition of Laidlaw
We are delighted to have received the necessary Antitrust approvals to enableus to complete the acquisition of Laidlaw. This acquisition transforms ourbusiness and provides considerable prospects for value creation. Thecombination of businesses gives us a leading position in the North Americantransportation market enabling us to provide a compelling service propositionto new and existing customers and generate increased value and returns forshareholders.In bringing together FirstGroup America and Laidlaw we will create a stronger,more robust business in a highly fragmented market. We aim to leverage valuethrough scale and grow earnings through improved operating efficiencies andextraction of substantial synergies. This acquisition will provide a strongplatform for us to improve our offering to customers bringing furtheroperational and cost efficiencies, economies of scale and a greater range ofservices. We have established a strong, experienced management team for theenlarged business harnessing the best talent from within both companies. We aremaking good progress with the implementation of the integration plans and areconfident of the substantial synergy opportunities against the backdrop of fuelcost pressure and any further contract attrition. We have committed to carryingout a strategic review of Greyhound and now that we have closed the acquisitionwe have full access to the business to enable that review to be completed.
UK RAIL
The UK Rail division operates passenger and freight services. Passenger railfranchises consist of First Great Western, First Capital Connect, FirstTransPennine Express and First ScotRail. We also operate Hull Trains, anon-franchised open access intercity passenger train operator, and we providerail freight services through FirstGBRf. We are the UK's largest rail operatorcarrying nearly 270 million passengers per annum.
Results
I am pleased by the continued success demonstrated by our UK Rail division inthe first six months of the year. Revenue increased by 5.6% to ‚£863.6m (2006: ‚£817.6m) reflecting strong growth across all of our franchises, particularly inthe second quarter. Operating profit increased by 9.8% to ‚£48.2m (2006: ‚£43.9m). Our established rail franchises, First ScotRail and First TransPennineExpress, continue to deliver improved performance and sustained growth. Ourprogramme of investment and initiatives at our newer franchises has led toimproved performance and passenger growth at First Capital Connect andstabilised performance at First Great Western. Across our portfolio, our focuson improved performance and service quality, revenue protection measures andpassengers' strong appetite for rail travel continue to drive growth.
First TransPennine Express
Our First TransPennine Express franchise goes from strength to strength withgood passenger and revenue growth in the period. Improving operatingperformance and customer service continue to drive strong demand for railservices across the region. We were very pleased with the results of theNational Passenger Survey published in June showed that 89% of passengersexpressed satisfaction with the service, an increase for the fourth yearrunning, with particularly high scores for the new Pennine Class 185 fleet oftrains and station improvements. We are delighted that First TransPennineExpress won the Chartered Institute of Logistics and Transport's Award forExcellence in the Passenger Transport category.In the first six months of the year the company's Public Performance Measure(PPM) was consistently over 93% but heavy flooding in June affected performanceand disrupted services for customers. I would like to thank the many FirstTransPennine Express staff who went above and beyond the call of duty to assistpassengers in particularly difficult circumstances. In July the FirstTransPennine Express control team moved into a new integrated control centre inManchester and working with Network Rail we continue to focus on raisingperformance across the region. We are delighted that new services fromManchester Airport to Glasgow and Edinburgh will commence in December creatingnew journey opportunities for our customers. The new services will contributearound ‚£10m in additional revenues per annum.
First ScotRail
In October First ScotRail celebrated the third anniversary of our franchisewhich provides 95% of Scotland's train services. In July and August performancereached a record high with a PPM of over 93%, the best in eight years. Delayscaused by First ScotRail have reduced by some 43%, compared with our franchisecommitment of 2% per annum. We continue to invest in improving rail travel inScotland. Our ‚£1m investment in refurbishing the Caledonian Sleeper isprogressing well and will provide new seating in the lounge cars and newfacilities in the berths and carriages.Working with Transport Scotland and the Highlands and Islands TransportPartnership, a major refurbishment of Fort William station has been completed.Transport Scotland also supported our refurbishment of trains operating onroutes in the north of Scotland, on the West Highland line and on south westroutes. We continue to support Scotland's bid for the 2014 Commonwealth Gamesto be held in Glasgow and delivered excellent services for some major events inScotland this summer with the UEFA Cup Final at Hampden Park in May, the Openat Carnoustie in July and as the official public transport provider for theEdinburgh Festival.
First Great Western
First Great Western's operational performance stabilised during the first sixmonths of the year however, deep-rooted performance issues continue to impactthe business and regrettably affect our customers. Some services were badlyaffected by major floods in the region in July and I would like to thank themany First Great Western employees who assisted customers in very difficultcircumstances. We are working with Network Rail to improve operationalperformance and deliver higher levels of punctuality and reliability to ourcustomers. Network Rail is investing some ‚£750m in the infrastructure of theregion and, coupled with our ‚£200m investment in fleet, stations and customerservice, we expect operational performance and the customer experience toimprove from current levels.We are making good progress in our programme to refurbish the entire FirstGreat Western High Speed Train (HST) fleet with new, more reliable andenvironmentally friendly engines and a complete overhaul of the interior of thecarriages to provide more seats, improved comfort and a better travellingenvironment. To date 84 of the new engines and 33 of the refreshed HST carriagesets are in service. We are on course to complete the refurbishment programmeby the end of this financial year. We are making technical improvements toincrease the reliability of our London and Thames Valley Turbo fleet and arefresh programme for our West fleet is also underway with a major engineeringoverhaul and new interiors and livery to improve performance and reliability aswell as providing an enhanced environment for both passengers and staff.Following extensive consultation with stakeholders and considerable feedbackfrom customers, we will introduce a new timetable in December to createsignificant new capacity in the London and Thames Valley and Greater Bristolareas and new journey opportunities for many customers. In addition, extendingthe use of refreshed HSTs across key services around the Thames Valley, theCotswolds and on routes to Newbury and Westbury will increase the capacity oncrucial peak commuter trains and provide 30% more seats.
First Capital Connect
First Capital Connect's operational performance continues to improve and inAugust and September the company recorded its best ever PPM score of over 93%.Overcrowding continues to be one of the biggest issues for First CapitalConnect. In December we will introduce four additional trains which will enablemany four carriage services to be increased to eight carriages and help reduceovercrowding. Our services are moving from Kings Cross Thameslink station tothe new St Pancras International Station in December. On the Great Northernroute we will introduce a new timetable in September 2008 to deliver muchneeded additional capacity onto the network. However, the longer-term solutionto overcrowding will be provided by the Government's decision to fund the ‚£5.5billion Thameslink Programme, the largest capacity enhancement projectannounced in the High Level Output Specification. The programme will deliverlonger trains and a higher frequency during the morning and evening peaks,longer platforms, improved station facilities and more destinations by 2015.First Capital Connect continues to target ticketless travel and installed sevenadditional gatelines at stations across the network and recruited 56 additionalrevenue protection staff in the first six months of the year. The recruitmentof 29 additional British Transport Police Officers and Police Community SupportOfficers across the network and our innovative "keeping you safe with us"campaign is having a positive effect on crime reduction, passenger and staffsecurity.Hull TrainsHull Trains, our non-franchised, open access intercity train operating companybetween London Kings Cross has continued to deliver good growth during theperiod. In September the new Paragon Interchange opened in Hull, an ‚£18mredevelopment that will allow travellers to benefit from easy access to trains,buses and coaches all under one roof.
FirstGBRf
FirstGBRf had another successful period with new contracts won to provide railfreight services around the UK. FirstGBRf has successfully moved mail by railfor Royal Mail since 2004 and in June we were delighted to sign a contract tocontinue operations until 2010. In June FirstGBRf's new depot at Wellingboroughopened allowing rail and sleeper delivery trains to be stabled and loaded withraw materials stockpiled at the depot. In July we commenced our new contractwith EDF energy. We continue to plan for the future development of the railfreight industry with an order for coal wagons to meet the expected growth indemand for the movement of coal during the next financial year.
Europe
While North America remains our primary market for growth and internationalexpansion, consistent with our strategy to explore opportunities in new marketswe continue to invest in European bidding activity. During the period we werepleased to be awarded, with our partner DSB, the ƒËœresund rail franchise whichincludes coastal and Copenhagen Airport links in Denmark and links to Malmƒ¶,Gothenburg, Kalmar and Karlskrona in Sweden. The new services are planned tocommence in 2009 and run until 2017.
Group outlook
This is a very exciting time for the Group. We have now established leadershippositions in the UK and North America. The completion of our Laidlawacquisition on 1 October 2007 provides a step-change in the shape of ourbusiness and gives us the scale and opportunities to generate increased valueand returns and a robust platform for future growth in the large North Americanmarket.Across our UK businesses we are seeing the results of our investment in qualityand operational performance. In UK Rail our programme of investment incapacity, service quality and performance, together with the national appetitefor rail travel, continues to drive growth. In UK Bus our programme ofinvestment in people and vehicles, coupled with rigorous control of costs andoperating performance delivered revenue growth and an increase of over 1.0% inthe operating margin. In North America our focus is to continue to deliver ahigh quality of service together with measures to control costs and increaseproductivity. Looking ahead, the scale and resources of our enlarged businesswill enable us to make a compelling service and product offering to new andexisting customers.These excellent results demonstrate the strength of the Group. We aredelivering on our clear strategy to achieve profitable growth in our coremarkets and increase value for shareholders. The Board's confidence in theGroup's future prospects and ability to continue to generate strong operatingcash flows is reflected in the ongoing commitment to at least 10% annualdividend growth for at least the next three years. Trading in the second halfof the year has started well and is in line with our expectationsMoir LockheadChief Executive6 November 2007Finance Director's reviewOverview
Our results for the first half of financial year 2007/08 show double digit growth in most of our key Group performance measures reflecting the strong underlying profitability and cash generation of the existing FirstGroup businesses.
The results of the actions we have taken on revenue and costs in UK Bus havestarted to come through. This is reflected by an increase in the operatingmargin of 1.2% to 8.8%. Within UK Rail we have experienced strong passengerrevenue growth driven by factors that continue to remain in place. Thecompletion of the Laidlaw acquisition will transform the North Americandivision which will represent over half of Group revenue and adjusted operatingprofit going forward.We have now established leading positions in both the UK and North America. TheBoard is confident of the prospects for the Group in the second half of theyear in all of the markets in which it operates and its continued strong cashflows.ResultsRevenue increased from ‚£1,715.7m to ‚£1,768.9m and profit before tax increasedfrom ‚£39.7m to ‚£71.3m due to higher adjusted operating profit, lowernon-recurring items and a lower net finance charge. Overall Group operatingmargin increased by 0.4% to 5.8%. Adjusted operating profit was up by 11.8%,EBITDA up by 10.6% and adjusted EPS up by 9.9%.Throughout the rest of this review we refer to adjusted operating profit asthis is the measure that we use to assess the performance of our businesses.Adjusted operating profit is stated before intangible asset amortisation,non-recurring bid costs, other non-recurring items and profit on disposal ofproperties. 6 months to 6 months to Year to 30 September 2007 30 September 2006 31 March 2007 Divisional Revenue Operating Operating Revenue Operating Operating Revenue Operating Operatingresults ‚£m profit * margin * ‚£m profit * margin * ‚£m profit * margin * ‚£m % ‚£m % ‚£m % UK Bus 540.1 47.6 8.8 521.9 39.5 7.6 1,073.7 103.0 9.6 UK Rail 863.6 48.2 5.6 817.6 43.9 5.4 1,824.1 108.8 6.0 North America 358.5 17.2 4.8 372.0 17.9 4.8 802.9 68.2 8.5 Other ** 6.7 (9.9) - 4.2 (9.1) - 8.1 (20.8) -
Total Group 1,768.9 103.1 5.8 1,715.7 92.2 5.4 3,708.8 259.2 7.0
* Before intangible asset amortisation, non-recurring bid costs, other non-recurring items and profit on disposal of properties.
** Tram operations, German Bus, central management and other items.
Throughout the Finance Director's review, operating profit and operating margin are based on the above definition.
UK Bus revenue was ‚£540.1m (six months to 30 September 2006: ‚£521.9m), anincrease of 3.5%. Operating profit was ‚£47.6m (six months to 30 September 2006:‚£39.5m), an increase of 20.5%. The UK Bus management team is delivering thebenefits of our investment in people and vehicles. Encouragingly passengerrevenue growth was in excess of 5% and passenger volumes were 1.2% higher.Passenger revenue growth continues to be strongest in city centre locations andhigh density areas and especially where we work closely with local authoritiesto invest in public transport and traffic management systems. Our portfolioincludes regional and rural businesses where passenger revenue growth is slowerand this reduces the overall passenger revenue growth number. In the regions wehave successfully implemented our turnaround strategy which has improvedprofitability. The combination of growth and operational focus has resulted inan increase in the margin of 1.2% to 8.8%.North America revenue was ‚£358.5m (six months to 30 September 2006: ‚£372.0m),an increase of 4.0% at constant exchange rates. Operating profit was ‚£17.2m(six months to 30 September 2006: ‚£17.9m), an increase of 2.7% at constantexchange rates. First Student maintained its margin of 4.3%. Within FirstStudent there remains a strong focus on controlling costs and improvingproductivity. First Transit continues to show margin improvement and hassuccessfully renewed a number of contracts during the period. First Servicesrevenues and profits were lower than last half year due to the planned renewalof the Diego Garcia contract.Overall trading at Laidlaw for the year to 31 August 2007 was towards the topend of their management expectations. Education Services continues to delivergood revenue growth and improved margin. Volumes at Greyhound are now beginningto recover as a result of passenger growth initiatives and in addition theirmanagement have implemented some cost reduction measures that have contributedto results.UK Rail revenue was ‚£863.6m (six months to 30 September 2006: ‚£817.6m), anincrease of 5.6%. Operating profit was ‚£48.2m (six months to 30 September 2006:‚£43.9m), an increase of 9.8%. Within UK Rail we have experienced strongpassenger revenue and passenger growth across all of our Train OperatingCompanies with like for like passenger revenue up 9% and passenger volumes upby approximately 6%. The main growth drivers in UK Rail are improvedperformance and quality, revenue protection and the overall national appetitefor rail travel which shows no signs of abating. Revenue protection is stillbeing rolled out across First Capital Connect and First Great Western withPaddington suburban gates being installed later this year. Investment inrolling stock and station improvements has continued and the ‚£200m High SpeedTrain refurbishment programme at First Great Western is on course forcompletion in early 2008. Following this over the next 18 months rail capitalexpenditure will fall to more normal maintenance levels further enhancing theGroup's cash position. Overall prospects for revenue growth continue to bestrong.
Property
Net property gains on disposal of ‚£6.9m (six months to 30 September 2006: ‚£1.4m) were realised during the period. The most significant disposal during theperiod was the sale of the Acton Depot in London as part of a depot relocation.
Non-recurring bid costs and other non-recurring items
Bid costs of ‚£5.2m (six months to 30 September 2006: ‚£7.3m) were incurredduring the period principally on our unsuccessful bid for the East Coast railfranchise. We expect that there will be no rail bid costs in the second half ofthe year. There will be some European activity but our focus will remain onNorth America and the Laidlaw integration.There were no restructuring costs during the period (six months to 30 September2006: ‚£8.5m). The 2006/07 restructuring spend reflected the one-off transitioncosts of taking on the First Great Western and First Capital Connectfranchises. There were no non-recurring costs (six months to 30 September 2006:‚£1.1m) charged in North America.
We anticipate significant non-recurring costs in the second half of the year as a direct result of the Laidlaw integration.
Intangible asset amortisation
The intangible asset amortisation charge for the period was ‚£4.9m (six months to 30 September 2006: ‚£4.7m).
Finance costs and investment income
Net finance costs (net of investment income) were ‚£28.6m (six months to 30 September 2006: ‚£32.3m) with the decrease due to higher cash balances in particular the proceeds of the February 2007 equity issue. The net finance cost is covered 6.0 times (six months to 30 September 2006: 4.8 times) by EBITDA.
Taxation
The taxation charge for the period was ‚£9.4m (six months to 30 September 2006:‚£9.9m). The taxation charge for the half-year has been based on the estimatedeffective rate for the full year of 27.2% (six months to September 2006: 25.5%)on profit before intangible asset amortisation, non-recurring bid costs andother non-recurring items. This estimated tax rate is based on existingbusiness and does not take account of the Laidlaw acquisition. The tax chargeis stated after a one-off ‚£8.9m adjustment to the UK deferred tax liabilityarising on the reduction in the corporation tax rate from 30% to 28% which willapply from April 2008 onwards. The actual tax paid during the period was ‚£4.4m.The cash cost of taxation will be impacted by the acquisition of LaidlawInternational, Inc. but it is anticipated to remain low.The abolition of Industrial Buildings Allowances, which has been announced, butis expected to be substantially enacted in the year ending 31 March 2009, willhave the effect of increasing the Group's deferred tax liability and hence isexpected to give rise to a non-recurring tax charge in that year.
Dividends
The interim dividend of 5.5p (six months to 30 September 2006: 5.0p) perordinary share represents an increase of 10%. The interim dividend will be paidon 6 February 2008 to shareholders on the register of members at the close ofbusiness on 11 January 2008. This interim dividend has not been provided in theaccounts as at 30 September 2007.
EPS
The adjusted basic EPS, before intangible asset amortisation, non-recurring bidcosts, other non-recurring items and profit on disposal of properties, was11.1p (six months to 30 September 2006: 10.1p), an increase of 9.9%. Basic EPSwas 12.9p (six months to 30 September 2006: 6.3p).
EBITDA
The Group's businesses continue to generate strong operating profits which areconverted into cash. EBITDA for the period was ‚£170.9m (six months to 30September 2006: ‚£154.5m and year to 31 March 2007: ‚£398.9m), an increase of10.6%. EBITDA by division is set out below: 6 months to 6 months to Year to 30 September 2007 30 September 2006 31 March 2007 Revenue EBITDA EBITDA Revenue EBITDA* EBITDA* Revenue EBITDA EBITDA * * * * ‚£m ‚£m ‚£m % ‚£m ‚£m % ‚£m % UK Bus 540.1 83.5 15.5 521.9 74.6 14.3 1,073.7 173.6 16.2 UK Rail 863.6 59.4 6.9 817.6 47.2 5.8 1,824.1 122.4 6.7 North 358.5 36.0 10.0 372.0 39.4 10.6 802.9 119.2 14.8America Other 6.7 (8.0) - 4.2 (6.7) - 8.1 (16.3) -
Total Group 1,768.9 170.9 9.7 1,715.7 154.5 9.0 3,708.8 398.9 10.8
* Operating profit before intangible asset amortisation, non-recurring bid costs, other non-recurring items and profit on disposal of properties plus depreciation.
Cash flow
During the period there was an outflow of ‚£25.5m equating to the amount bywhich defined benefit pension payments were in excess of the income statementcharge and a further outflow of ‚£40.2m principally due to the timing of certainUK Rail payments and receipts. It is anticipated that the majority of this ‚£40.2m outflow will reverse in the second half of the year. In both the sixmonths to 30 September 2006 and the year to 31 March 2007 there were unusuallyhigh working capital inflows due to the commencement of the First Great Westernand First Capital Connect franchises.
Capital expenditure and acquisitions
Capital expenditure, as set out in note 9 to the half-year financialinformation, was ‚£160.2m (six months to 30 September 2006: ‚£199.0m including ‚£84.0m of lease restructuring in UK Bus). Capital expenditure was principally inNorth American operations of ‚£60.5m (six months to 30 September 2006: ‚£35.7m),UK Bus operations of ‚£29.0m (six months to 30 September 2006: ‚£124.4m) and UKRail operations of ‚£70.6m (six months to 30 September 2006: ‚£38.2m). The UKRail increase reflects the franchise commitments for First Capital Connect andFirst Great Western and the North American increase reflects the fact that thefirst half of last year had an unusually low spend.
During the period the Group made four small acquisitions for a total consideration of ‚£7.2m. Provisional goodwill arising on these acquisitions amounted to ‚£5.9m.
Net debt
The Group's net debt at 30 September 2007 was ‚£650.0m and was comprised asfollows:Analysis of net debt Fixed Variable Total ‚£m ‚£m ‚£m Cash - 44.6 44.6 Share placement proceeds deposited - 190.1 190.1 Ring-fenced cash and deposits - 144.9 144.9 Sterling bond (2013) * (296.7) - (296.7) Sterling bond (2019) ** (213.2) - (213.2) Sterling bank loans and overdrafts - (261.2)
(261.2)
US Dollar bank loans and overdrafts - (107.8)
(107.8)
Canadian Dollar bank loans and overdrafts (2.1) (39.2)
(41.3)
Euro bank loans and overdrafts - (15.7) (15.7) HP and finance leases (3.2) (74.9) (78.1) Loan notes (8.7) (6.9) (15.6) Total (523.9) (126.1) (650.0)* excludes accrued interest
** stated excluding accrued interest, swapped to US Dollars less gains on associated derivatives
Balance sheet and net assets
Net assets decreased by ‚£2.8m over the period mainly due to the offset of retained earnings of ‚£56.1m, favourable hedging reserve movements of ‚£8.6m with dividend payments of ‚£45.9m and adverse foreign exchange movements of ‚£26.0m.
Shares in issue
As at 30 September 2007 there were 434.5m (30 September 2006: 392.9m and 31March 2007: 434.0m) shares in issue, excluding treasury shares and shares heldin trust for employees. The weighted average number of shares in issue for thepurpose of EPS calculations (excluding own shares held in trust for employeesand treasury shares) was 434.3m (six months to 30 September 2006: 392.5m andyear to 31 March 2007: 397.9m).The proposed Rights Issue announced in February 2007 will not now go ahead asthe overall debt position has improved compared to our initial projections ofthe impact of the Laidlaw acquisition.
Foreign exchange
The results of the North American businesses have been translated at an averagerate of ‚£1:$2.00 (six months to 30 September 2006: ‚£1:$1.85 and year to 31March 2007: ‚£1:$1.89). The period end rate was ‚£1:$2.03 (30 September 2006: ‚£1:$1.87 and 31 March 2007: ‚£1:$1.96).
Fuel hedging
In the UK 100% of the Group's 2007/08 exposure to crude oil prices (2.7mbarrels p.a.) is hedged at $67 per barrel. In North America 35% of second half(1.3m barrels) is hedged at $71.5 per barrel. The Group's exposure relates onlyto those requirements not covered by pass through or escalation clauses incontracts.Looking ahead to 2008/09, 62% of the Group's UK exposure (2.7m barrels p.a.) ishedged at approximately $68 per barrel and 40% of North American exposure (2.4mbarrels p.a.) is hedged at approximately $79 per barrel.
Pensions
The net pension surplus has increased by ‚£25.5m over the period to ‚£49.3m dueto additional cash payments into the pension schemes in particular the UK BusOccupational Scheme. The pension scheme assets and liabilities are onlyre-valued on an annual basis at year-end.
Principal risks and uncertainties for the remaining six months of the financial year
The Laidlaw acquisition closed on 1 October 2007. The level of synergy benefitsand costs of achieving these synergies may differ from our originalexpectations and could therefore impact either positively or negatively on thesecond half.The level of economic activity affects the number of bus and train journeystaken by our passengers in the UK. Any changes in economic activity may impacton passenger numbers and hence our UK operations. The potential impact of thisis reduced on certain rail franchises due to the existence of revenue sharearrangements. In addition, in most UK Bus operating companies, we have theability to modify services by giving 56 days' notice of such modifications.
Terrorist acts and public concerns about potential attacks could adversely affect the demand for our services. The Group has a Head of Security who is responsible for improved security awareness, implementation of good practice and development of a passenger and employee security culture.
To the extent that fuel prices differ from our expectations on the unhedged element of our Group requirement and, where appropriate cannot be mitigated through management actions, this will impact on the results of our business.
Responsibility statement
The condensed set of financial statements, which has been prepared in accordance with the applicable set of accounting standards, gives a true and fair view of the assets, liabilities, financial position and profit of the group as required by DTR 4.2.4R. The half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting". The half-yearly financial report also includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R.
Nick ChevisActing Finance Director6 November 2007Consolidated income statement Notes Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Audited Before Before Amortisation Total amortisation Amortisation Total Total amortisation charges, charges, 6 months charges, charges, 6 months year to non-recurring non-recurring to non-recurring non-recurring to bid bid bid costs and bid 31 March 30 30 costs and costs and September other costs and September 2007 other other 2006 2007 non-recurring other ‚£m non-recurring non-recurring ‚£m items items ‚£m items non-recurring 6 months to 6 months to 6 months to items 30 September 30 September 30 September 6 months to 2007 2007 2006 30 September ‚£m ‚£m ‚£m 2006 ‚£m Revenue Continuing operations 2 1,768.9 - 1,768.9 1,715.7 - 1,715.7 3,708.8 Operating costs before profit/(loss) on disposal of properties Continuing operations (1,665.8) (10.1) (1,675.9)
(1,623.5) (21.6) (1,645.1) (3,501.5)
Operating profit before profit/(loss) on disposal of properties Continuing operations 103.1 (10.1) 93.0 92.2 (21.6) 70.6 207.3 Operating profit before 103.1 - 103.1 92.2 - 92.2 259.2amortisation charges, non-recurring bid costs and other non-recurring items Amortisation charges - (4.9) (4.9) - (4.7) (4.7) (10.3) Non-recurring bid costs - (5.2) (5.2) - (7.3) (7.3) (19.3)
Other non-recurring items - - -
- (9.6) (9.6) (22.3) Operating profit before 103.1 (10.1) 93.0 92.2 (21.6) 70.6 207.3
profit/(loss) on disposal of properties Profit/(loss) on disposal - 6.9 6.9
- 1.4 1.4 (3.7)of properties Operating profit 103.1 (3.2) 99.9 92.2 (20.2) 72.0 203.6 Finance income 3 8.8 - 8.8 4.0 - 4.0 9.4 Finance costs 3 (37.4) - (37.4) (36.3) - (36.3) (72.8) Profit before tax 74.5 (3.2) 71.3 59.9 (20.2) 39.7 140.2 Tax 4 (20.3) 10.9 (9.4) (15.3) 5.4 (9.9) (38.1) Profit for the period 54.2 7.7 61.9 44.6 (14.8) 29.8 102.1from continuing operations Attributable to: Equity holders of the 48.3 7.8 56.1 39.6 (14.7) 24.9 91.7parent Minority interest 5.9 (0.1) 5.8 5.0 (0.1) 4.9 10.4 54.2 7.7 61.9 44.6 (14.8) 29.8 102.1
Basic earnings per share 6 12.9p
6.3p 23.1p Diluted earnings per 6 12.8p 6.3p 22.8pshare Dividends of ‚£45.9m were paid during the six months to 30 September 2007 (30September 2006: ‚£37.5m). Dividends of ‚£23.9m were proposed for approval duringthe period (30 September 2006: ‚£19.6m and 31 March 2007: ‚£45.6m). Consolidatedbalance sheet Notes Unaudited Unaudited Audited 30 30 31 March September September 2007 2007 2006 ‚£m ‚£m ‚£m Non-current assets Goodwill 7 464.7 482.6 468.8 Other intangible assets 8 55.5 59.4 60.8 Property, plant and equipment 9 1,135.7 1,036.6
1,059.7
Financial assets - derivative financial 13 38.2 28.7 27.7instruments 1,694.1 1,607.3 1,617.0
Non-current assets classified as held 11 8.3 6.2
7.5for sale
Retirement benefit surplus 81.0 -
57.1 Current assets Inventories 77.4 62.4 64.6 Trade and other receivables 10 414.8 368.1
377.3
Financial assets - cash and cash 379.6 181.3 411.2equivalents - derivative financial instruments 13 26.2 7.5 8.3 898.0 619.3 861.4 Total assets 2,681.4 2,232.8 2,543.0 Current liabilities Trade and other payables 12 707.6 586.3 695.1 Tax liabilities 60.8 51.7 49.7
Financial liabilities - obligations 13.1 14.9
11.5under finance leases - bank overdrafts and loans 18.9 27.8 1.8 - loan notes 5.1 0.2 5.2
- derivative financial instruments 13 5.9 9.0
5.0 - bonds 20.1 20.1 23.1 831.5 710.0 791.4
Net current assets/(liabilities) 66.5 (90.7)
70.0 Non-current liabilities
Financial liabilities - obligations 65.0 76.7
70.4under finance leases - bank loans 407.1 334.5 310.5 - loan notes 10.5 15.6 10.6 - derivative financial instruments 13 17.3 0.2 4.3 - bonds 537.2 549.2 539.3
Retirement benefit obligation 31.7 140.8
33.3 Deferred tax liabilities 143.3 86.2 142.7 Long-term provisions 14 33.3 39.1 33.2 1,245.4 1,242.3 1,144.3 Total liabilities 2,076.9 1,952.3 1,935.7 Net assets 604.5 280.5 607.3 Equity Share capital 16 21.9 19.9 21.9 Share premium account 17 447.8 238.8 447.8 Hedging reserve 17 35.3 12.0 26.7 Other reserves 17 4.6 4.6 4.6 Own shares 17 (15.2) (23.0) (17.4) Translation reserves 18 (83.8) (23.7) (57.8) Retained earnings 17 180.7 40.2 170.4 Equity attributable to equity holders of 591.3 268.8 596.2the parent Minority interests 13.2 11.7 11.1 Total equity 604.5 280.5 607.3
Consolidated cash flow statement
Note Unaudited Unaudited Audited 6 months to 6 months Year to to 30 31 March September 30 2007 September 2007 ‚£m 2006 ‚£m ‚£m Net cash from operating activities 19 55.3 113.5 295.5 Investing activities Interest received 8.9 4.1 9.4
Proceeds of disposal of property, plant 12.5 7.4
18.3and equipment Purchases of property, plant and (149.0) (125.7) (251.2)equipment Grants received - - 29.1 Acquisition of businesses (7.2) (6.9) (17.9) Net cash used in investing activities (134.8) (121.1) (212.3) Financing activities Dividends paid (45.9) (37.5) (57.1) Dividends paid to minority shareholders (3.7) (5.7) (11.3) Proceeds of bank borrowings 110.1 - - Repayment of obligations under finance (3.8) (4.8) (14.4)leases Repayment of loan notes (0.1) (4.7) (4.8)
Payment of new bank facility issue costs (0.7) -
-
Proceeds on issue of shares - - 216.9 New bank loans raised - 67.3 22.4
Monies received on exercise of options 0.2 0.4
2.8
Net cash from financing activities 56.1 15.0
154.5
Net (decrease)/increase in cash and cash (23.4) 7.4
237.7
equivalents before foreign exchange
movements Cash and cash equivalents at beginning 410.3 169.9 169.9of period
Effect of foreign exchange rate changes (8.1) 2.3
2.7
Cash and cash equivalents at end of 378.8 179.6
410.3
period Cash and cash equivalents for cash flow 30 30 31
March
statement purposes comprise: September September
2007 2007 2006 ‚£m ‚£m ‚£m Cash and cash equivalents per balance sheet 379.6 181.3 411.2 Overdrafts (0.8) (1.7) (0.9) 378.8 179.6 410.3
Cash and cash equivalents for the purposes of the cash flow statement comprise cash at bank and in hand, overdrafts and other short-term highly liquid investments with a maturity of three months or less.
Consolidated statement of recognised income and expense
Unaudited Unaudited Audited 6 months 6 months Year to to to 31 March 30 30 September September 2007 2007 2006 ‚£m ‚£m ‚£m
Derivative hedging instrument movements 8.7 6.7
22.8
Deferred tax on derivative hedging instrument (0.1) 3.4 2.0movements Exchange differences on translation of foreign (26.0) (51.4) (85.5)operations Actuarial gains on defined benefit pension - - 116.9schemes Deferred tax on actuarial gains - -
(35.0)
Net income recognised directly in equity (17.4) (41.3)
21.2 Profit for the period 61.9 29.8 102.1 Total recognised income and expense for the 44.5 (11.5) 123.3period Attributable to: Equity holders of the parent 38.7 (16.4) 112.9 Minority interests 5.8 4.9 10.4 44.5 (11.5) 123.3
Notes to the half-yearly financial statements
1 Basis of preparation
This half-yearly financial report does not constitute statutory accounts withinthe meaning of section 240 of the Companies Act 1985. The statutory accountsfor the year ended 31 March 2007 have been delivered to the Registrar ofCompanies. The report of the auditors did not contain a statement under section237 (2) or (3) of the Companies Act 1985.The figures for the six months to 30 September 2007 include the results of therail businesses for the period ended 22 September 2007 and the results for theother businesses for the 26 weeks ended 29 September 2007.The accounting policies used in the half-yearly financial statements areconsistent with International Financial Reporting Standards and those followedin the preparation of the Group's annual financial statements for the yearended 31 March 2007. The condensed set of financial statements included in thishalf-yearly financial report have been prepared in accordance withInternational Accounting Standard 34, "Interim Financial Reporting", as adoptedby the European Union.These results are unaudited but have been reviewed by the auditors. Thecomparative figures for the six months to 30 September 2006 are unaudited andare derived from the half-yearly financial report for the six months ended 30September 2006, which was also reviewed by the auditors.
This half-yearly financial report will be sent to all shareholders in November 2007 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 6 November 2007.
2 Segment information
For management purposes, the Group is currently organised into three operatingdivisions - UK Bus, UK Rail and North America. These divisions are the basis onwhich the Group reports its primary segment information. The principalactivities of these divisions are set out in the Chief Executive's operatingreview.The segment results for the six months to 30 September 2007 are as follows:
UK Bus UK Rail North Group Total America items ‚£m ‚£m ‚£m ‚£m ‚£m Revenue 540.1 863.6 358.5 6.7 1,768.9 Adjusted operating profit * 47.6 48.2 17.2 (9.9) 103.1 Amortisation of intangible - (3.8) (1.1) - (4.9)assets Non-recurring bid costs - (3.5) - (1.7) (5.2) Profit on disposal of 6.9 - - - 6.9properties Operating profit 54.5 40.9 16.1 (11.6) 99.9 Finance income 8.8 Finance costs (37.4) Profit before tax 71.3 Tax (9.4) Profit for the period 61.9
The segment results for the six months to 30 September 2006 are as follows:
UK Bus UK Rail North Group Total America items ‚£m ‚£m ‚£m ‚£m ‚£m Revenue 521.9 817.6 372.0 4.2 1,715.7 Adjusted operating profit * 39.5 43.9 17.9 (9.1) 92.2 Amortisation of intangible - (3.8) (0.9) - (4.7)assets Non-recurring bid costs - (5.0) - (2.3) (7.3) Other non-recurring items - (8.5) (1.1) - (9.6) Profit on disposal of 1.4 - - - 1.4properties Operating profit 40.9 26.6 15.9 (11.4) 72.0 Finance income 4.0 Finance costs (36.3) Profit before tax 39.7 Tax (9.9) Profit for the period 29.8
* operating profit before amortisation of intangible assets, non-recurring bid costs, other non-recurring items and profit on disposal of properties.
Profits in the North American division are traditionally lower in the first half of the year because the summer school holidays fall within this reporting period impacting on First Student's results.
2 Segment information (continued)
The segment results for the year to 31 March 2007 are as follows:
UK Bus UK Rail North Group Total America items ‚£m ‚£m ‚£m ‚£m ‚£m Revenue 1,073.7 1,824.1 802.9 8.1 3,708.8 Adjusted operating profit * 103.0 108.8 68.2 (20.8) 259.2 Amortisation of intangible - (8.2) (2.1) - (10.3)assets Non-recurring bid costs - (14.5) - (4.8) (19.3) Other non-recurring items - (21.3) (1.0) - (22.3) Loss on disposal of (3.7) - - - (3.7)properties Operating profit 99.3 64.8 65.1 (25.6) 203.6 Finance income 9.4 Finance costs (72.8) Profit before tax 140.2 Tax (38.1) Profit for the period 102.1
* operating profit before amortisation of intangible assets, non-recurring bid costs, other non-recurring items and loss on disposal of properties.
3 Net finance costs 6 months to 6 months to Year to 30 September 30 31 March 2007 September 2006 2007 ‚£m ‚£m ‚£m Finance income 8.8 4.0 9.4 Bond and bank facilities (30.8) (29.6) (59.8) Loan notes (0.7) (0.7) (1.4) Finance charges payable in respect of (2.4) (2.5) (4.7)finance leases Notional interest on long-term provisions (3.5) (3.5) (6.9) Finance costs (37.4) (36.3) (72.8) Net finance costs (28.6) (32.3) (63.4)4 Tax 6 months to 6 months to Year to 30 30 31 March September September 2007 2007 2006 ‚£m ‚£m ‚£m Corporation tax 6.2 0.4 5.5 Deferred tax 12.1 9.5 32.6
Non-recurring deferred tax credit arising (8.9) -
-
on future reduction in corporation tax rate Tax on profit on ordinary activities 9.4 9.9
38.15 Dividends paid and proposed 6 months 6 months Year to to to 31 30 30 March September September 2007 2007 2006 ‚£m ‚£m ‚£m
Final dividend paid for the year ended 31 March 45.6 37.5 37.5 2007 of 10.5p (2006: 9.55p) per share
Interim dividend paid for the year ended 31 March - - 19.6 2007 of 5.0p (2006: 4.55p) per share
Amounts recognised as distributions to equity 45.6 37.5
57.1holders in the period
Proposed interim dividend for the year ended 31 23.9 19.6
-
March 2008 of 5.5p (2007: 5.0p) per share
The proposed interim dividend will be paid on 6 February 2008 to shareholders on the register of members at the close of business on 11 January 2008. The proposed interim dividend has not been included as a liability as at 30 September 2007.
6 Earnings per share (EPS)
Basic EPS is based on earnings of ‚£56.1m (six months to 30 September 2006: ‚£24.9m and year to 31 March 2007: ‚£91.7m) and on a weighted average number ofordinary shares (excluding own shares held in trust for employees and treasuryshares) of 434.3m (six months to 30 September 2006: 392.5m and year to 31 March2007: 397.9m) in issue.Diluted EPS is based on the same earnings and on the weighted average number ofordinary shares of 439.0m (six months to 30 September 2006: 396.0m and year to31 March 2007: 402.0m). The difference in the number of shares between thebasic calculation and the diluted calculation represents the weighted averagenumber of potentially dilutive ordinary shares.
The adjusted basic EPS and adjusted cash EPS are intended to demonstrate recurring elements of the results of the Group and as such are calculated before amortisation of intangible assets, non-recurring bid costs, other non-recurring items and profit/loss on disposal of properties. A reconciliation of the earnings used in the bases is set out below:
6 months to 30 September 2007 ‚£m Earnings per share (p) Profit for EPS calculation 56.1 12.9 Amortisation of intangible assets* 4.8 1.1 Non-recurring bid costs 5.2 1.2 Profit on disposal of properties (6.9) (1.6) Taxation effect of above adjustments (2.0) (0.5) Non-recurring deferred tax credit on change (8.9) (2.0)in UK corporation tax rate Profit for adjusted EPS calculation 48.3 11.1 Depreciation ** 67.4 15.5 Profit for adjusted cash EPS calculation 115.7 26.6
* Amortisation of ‚£4.9m per note 8 less ‚£0.1m attributable to equity minority interests.
** Depreciation charge of ‚£67.8m per note 9 less ‚£0.4m of depreciation attributable to equity minority interests.
6 Earnings per share (EPS) (continued)
6 months to 30 September 2006 ‚£m Earnings per share (p) Profit for EPS calculation 24.9 6.3 Amortisation of intangible assets * 4.6 1.2 Non-recurring bid costs 7.3 1.9 Other non-recurring items 9.6 2.4 Profit on disposal of properties (1.4) (0.3) Taxation effect of above adjustments (5.4) (1.4) Profit for adjusted EPS calculation 39.6 10.1 Depreciation ** 61.9 15.8 Profit for adjusted cash EPS calculation 101.5 25.9
* Amortisation of ‚£4.7m per note 2 less ‚£0.1m attributable to equity minority interests.
** Depreciation charge of ‚£62.3m less ‚£0.4m ofdepreciation attributable to equity minority interests. Year to 31 March 2007 ‚£m Earnings per share (p) Profit for EPS calculation 91.7 23.1 Amortisation of intangible assets * 10.1 2.5 Non-recurring bid costs 19.3 4.9 Other non-recurring items 22.3 5.6 Loss on disposal of properties 3.7 0.9 Taxation effect of above adjustments (13.0) (3.3) Profit for adjusted EPS calculation 134.1 33.7 Depreciation ** 138.8 34.9 Profit for adjusted cash EPS calculation 272.9 68.6
* Amortisation charge of ‚£10.3m per note 2 less ‚£0.2m attributable to equity minority interests.
** Depreciation charge of ‚£139.7m less ‚£0.9m ofdepreciation attributable to equity minority interests.7 Goodwill ‚£m Cost At 1 April 2007 468.8 Additions 5.9 Exchange rate differences (10.0) At 30 September 2007 464.7 Accumulated impairment losses At 1 April 2007 and 30 September 2007 - Carrying amount At 30 September 2007 464.7 At 31 March 2007 468.8 At 30 September 2006 482.68 Other intangible assets Contracts Franchise Total acquired agreements ‚£m ‚£m ‚£m Cost At 1 April 2007 21.2 56.3 77.5 Additions 0.2 - 0.2 Exchange rate differences (0.7) - (0.7) At 30 September 2007 20.7 56.3 77.0 Amortisation At 1 April 2007 4.0 12.7 16.7 Charge for period 1.1 3.8 4.9 Exchange rate differences (0.1) - (0.1) At 30 September 2007 5.0 16.5 21.5 Carrying amount At 30 September 2007 15.7 39.8 55.5 At 31 March 2007 17.2 43.6 60.8 At 30 September 2006 11.7 47.7 59.4
Contracts acquired through the purchases of businesses and subsidiary undertakings, are amortised on a straight-line basis over their useful lives, which is on average, nine years.
The rail franchise agreements intangible asset represents the part of theeconomic benefit derived from the rail franchise agreements that is realised asa result of recognising our share of the rail pension deficit and is amortisedon a straight-line basis over the term of the franchise, which is on average,seven years.9 Property, plant and Land and Passenger Other Totalequipment buildings carrying plant and ‚£m ‚£m vehicle equipment fleet ‚£m ‚£m Cost At 1 April 2007 181.7 1,389.9 286.0 1,857.6 Subsidiary undertakings and 2.0 2.8 0.2 5.0businesses acquired Additions 4.0 81.4 74.8 160.2 Disposals (2.4) (36.4) (4.2) (43.0) Reclassified as held for - (27.0) - (27.0)sale Exchange rate differences (0.2) (9.1) (1.2) (10.5) At 30 September 2007 185.1 1,401.6 355.6 1,942.3 Depreciation At 1 April 2007 25.6 645.5 126.8 797.9 Subsidiary undertakings and - - - -businesses acquired Charge for period 2.7 47.5 17.6 67.8 Disposals (0.1) (31.1) (1.9) (33.1) Reclassified as held for - (19.6) - (19.6)sale Exchange rate differences (0.2) (5.3) (0.9) (6.4) At 30 September 2007 28.0 637.0 141.6 806.6 Carrying amount At 30 September 2007 157.1 764.6 214.0 1,135.7 At 31 March 2007 156.1 744.4 159.2 1,059.7 At 30 September 2006 132.9 794.6 109.1 1,036.610 Trade and other receivables 30 September 30 September 31 March 2007 2006 2007 ‚£m ‚£m ‚£m Amounts due within one year Trade debtors 272.8 265.2 262.7 Other debtors 69.9 38.2 61.8 Prepayments and accrued income 72.1 64.7 52.8 414.8 368.1 377.3
11 Non-current assets classified as held for sale
Non-current assets held for resale comprise of North American yellow schoolbuses which are surplus to requirement and are being actively marketed on theInternet. Gains or losses arising on the disposal of such assets are includedin arriving at operating profit in the income statement.12 Trade and other payables 30 September 30 September 31 March 2007 2006 2007 ‚£m ‚£m ‚£m
Amounts falling due within one year
Trade creditors 194.1 180.2 194.5 Other creditors 115.3 35.1 104.7 Accruals and deferred income 348.7 326.0
346.4
Season ticket deferred income 49.5 45.0 49.5 707.6 586.3 695.113 Derivative financial instruments 30 September 30 September 31 March 2007 2006 2007 ‚£m ‚£m ‚£m Non-current assets
Interest rate and foreign exchange 31.3 28.6
24.9derivatives Fuel derivatives 6.9 0.1 2.8 38.2 28.7 27.7 Current assets
Interest rate and foreign exchange 13.0 3.8
4.1derivatives Fuel derivatives 13.2 3.7 4.2 26.2 7.5 8.3 Total assets 64.4 36.2 36.0 Current liabilities
Interest rate and foreign exchange 5.9 0.7
3.6derivatives Fuel derivatives - 8.3 1.4 5.9 9.0 5.0 Non-current liabilities
Interest rate and foreign exchange 17.3 -
4.3derivatives Fuel derivatives - 0.2 - 17.3 0.2 4.3 Total liabilities 23.2 9.2 9.314 Long-term provisions Insurance Pensions Total claims * ‚£m ‚£m ‚£m At 1 April 2007 26.9 6.3 33.2 Provided in the period 21.2 - 21.2 Utilised in the period (23.2) (0.2) (23.4)
Notional interest on long-term provisions 3.5 -
3.5 Exchange rate differences (1.2) - (1.2) At 30 September 2007 27.2 6.1 33.3 At 30 September 2006 32.5 6.6 39.1
* Insurance claims accruals due within one year at 30 September 2007 amounted to ‚£42.1m (30 September 2006: ‚£42.7m and 31 March 2007: ‚£44.0m) and are included in "accruals and deferred income" in note 12.
15 Business combinations 30 September 30 31 March 2007 September 2006 2007 ‚£m ‚£m ‚£m
Provisional fair values of net assets
acquired: Tangible assets 5.0 2.6 5.0 Intangible assets - - 7.1 Other current assets 2.3 - 0.1 Cash at bank and in hand 0.2 - - Bank loans and overdrafts (1.6) - - Other creditors (4.6) (2.1) (3.4) 1.3 0.5 8.8 Goodwill (note 7) 5.9 6.4 9.1 7.2 6.9 17.9
Satisfied by cash paid and payable 7.2 6.9
17.9
There was no material difference between the book value and the provisional fair values of the net assets acquired and there were no adjustments required in respect of accounting policy alignments.
The businesses acquired during the period and dates of acquisition were:
Business acquired Country Segment Date % Voting acquired equity instruments acquired Quatrone Transportation, USA North 29 June 100%Inc America 2007 Arthur Merl GmbH & Co KG Germany Group 1 May 2007 100% Chester City Transport United Kingdom UK Bus 2 July 100%Limited 2007 Hutchison's Coaches United Kingdom UK Bus 28 June 100%(Overtown) Limited 2007 16 Share capital 30 September 30 31 March September 2007 2007 2006 ‚£m ‚£m ‚£m Authorised: Ordinary shares of 5p each 230.0 30.0 30.0
Allotted, called up and fully paid
Ordinary shares of 5p each 21.9 19.9 21.9The 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 434.5m (30September 2006: 392.9m and 31 March 2007: 434.0m). At the end of the period3.3m shares (30 September 2006: 5.6m shares and 31 March 2007: 3.3m shares)were being held as treasury shares and 0.5m (30 September 2006: 0.3m and 31March 2007: 1.0m) were being held in trust to satisfy the exercise of employeeshare options.17 Statement of changes in equity Hedging Share Own Retained reserve shares earnings premium ‚£m ‚£m ‚£m account ‚£m At 1 April 2007 26.7 447.8 (17.4) 170.4 Retained profit for the financial - - - 56.1period Dividends paid - - - (45.9) Movement in EBT, QUEST and treasury - - 2.2 (2.0)shares during the period Derivative hedging instrument 8.7 - - -movements
Deferred taxation on derivative (0.1) - -
-hedging instrument movements Share-based payments - - - 2.1
Deferred tax on share-based payments - - -
2.4
Current tax on share-based payments - - -
0.4
Change in equity for change in - - - (2.8)corporation tax rate At 30 September 2007 35.3 447.8 (15.2) 180.7 At 30 September 2006 12.0 238.8 (23.0) 40.2 Capital Capital Total other redemption reserve reserves reserve ‚£m ‚£m ‚£m
At 1 April 2007 and 30 September 2007 1.9 2.7
4.6 At 30 September 2006 1.9 2.7 4.618 Translation reserves ‚£m At 1 April 2007 (57.8) Movement for the financial period (26.0) At 30 September 2007 (83.8) At 30 September 2006 (23.7)The translation reserve represents the retranslation of net assets denominatedin foreign currencies. The movement for the financial period reflects the factthat the US Dollar exchange rate moved from $1.96:‚£1 at 1 April 2007 to $2.03:‚£1 at 30 September 2007.19 Notes to the consolidated cash flow 6 months to 6 months to Year tostatement 30 September 30 31 March 2007 September 2007 ‚£m 2006 ‚£m ‚£m Operating profit before profit/(loss) on 93.0 70.6 207.3disposal of properties Adjustments for: Depreciation charges 67.8 62.3 139.7
Amortisation of intangible assets 4.9 4.7
10.3 Share-based payments 2.1 1.6 3.2
Loss on disposal of property, plant and 0.5 0.7
1.9equipment Operating cash flows before working capital 168.3 139.9 362.4 Increase in inventories (4.6) (4.5) (8.8) Increase in receivables (34.8) (6.0) (25.8) (Decrease)/increase in payables (0.8) 54.2
114.1
Defined benefit pension payments in excess (25.5) (26.2) (74.0)of income statement charge Cash generated by operations 102.6 157.4 367.9 Corporation tax paid (4.4) (3.1) (5.5) Interest paid (41.2) (39.7) (62.3)
Interest element of finance lease payments (1.7) (1.1) (4.6)
Net cash from operating activities 55.3 113.5
295.5
20 Reconciliation of net cash flows 6 months to 6 months Year toto movement in net debt to 30 September 31 March 2007 30 September 2007 ‚£m 2006 ‚£m ‚£m (Decrease)/increase in cash and (23.4) 7.4 237.7cash equivalents in period Increase in debt and finance lease (105.5) (57.8) (3.2)financing
Debt acquired on acquisition of (1.0) -
-businesses Inception of new finance leases - (84.0) (84.0) Foreign exchange differences (3.4) 22.5 38.5 Other non-cash movements in (0.5) (0.3) (0.8)
relation to financial instruments Movement in net debt in period (133.8) (112.2)
188.2
Net debt at beginning of period (516.2) (704.4) (704.4) Net debt at end of period (650.0) (816.6) (516.2)
Net debt includes the value of derivatives in connection to the ‚£250m bond and excludes all accrued interest. The ‚£250m bond is included in non-current liabilities in the consolidated balance sheet.
21 Acquisition of Laidlaw International, Inc
On 1 October 2007 the Group acquired 100% of the issued share capital ofLaidlaw International, Inc. for $3.4bn (inclusive of acquired debt of $0.6bn).Due to the timescale between completing the acquisition and the production ofthis half-yearly financial report it has been impracticable to properlydetermine the provisional fair values on acquisition for all assets andliabilities. It is anticipated that the net tangible assets will be valued atapproximately $1.3bn and therefore, after transaction costs of approximately$0.2bn, goodwill and other intangible assets will amount to approximately$1.7bn.
FIRSTGROUP PLCRelated Shares:
Firstgroup