Interim Management Statement

Thursday 10 July 2014 FIRSTGROUP PLC FIRST QUARTER 2014/15 INTERIM MANAGEMENT STATEMENT FirstGroup plc ("the Group"), the leading transport operator in the UK andNorth America, reports the following update on trading since the start of our2014/15 financial year ("the full year") on 1 April 2014. Summary Trading in line with management's expectations and our transformationprogrammes, as set out at our investor day in January 2014, are progressingwell: * First Student: encouraged by progress of contract portfolio pricing programme * First Transit: continued strong financial performance with modest capital requirement * Greyhound: improved revenue trends helped by more stable economy * UK Bus: revenue growth underpinned by increased passenger volumes * UK Rail: robust passenger revenue growth maintained Commenting, Tim O'Toole, Chief Executive, said: "Trading during the first quarter was in line with our expectations and ourtransformation programmes are on track. In First Student we are encouraged bythe progress we have made to address pricing in our contract portfolio and byour overall retention rate which, to date, is at the upper end of our planningassumptions. In UK Bus and Greyhound the actions we are taking are achievinggood growth. Across the Group we are confident that we have the rightprogrammes underway to build on our market-leading positions and improveperformance to create sustainable value over the medium term and beyond." First Student Delivering the turnaround at First Student is a key priority. We haveaccelerated our programme to address contract portfolio pricing, ensuring anappropriate level of return on contracts won or retained. Our results to datein this year's bidding season, which we are currently two thirds of the waythrough, are at the upper end of our planning range. We have achieved averageprice increases of 4%, with many instances of significantly greater rises. Weexpect the proportion of low margin contracts in our portfolio to be below 30%in 2014/15 (from 36% in 2013/14), and as additional multi-year contracts comeup for renewal we will continue to reduce this further. We are encouraged byour contract retention rate during our re-pricing programme which, to date,stands at 88% and is at the upper end of our planning assumptions. During thisbid season we also secured additional business through newly outsourcedcontracts as well as contracts won from competitors. The underlying market hasbeen largely supportive with school districts bolstered by economic recoveryand we have continued to see modest organic growth within existing contracts. Further cost savings continue to be achieved through the rigorous applicationof uniform practices in areas such as driver labour, maintenance, fuel use andprocurement procedures, together with further optimisation of overheadstructures. We are targeting a further $50m of annual cost savings over themedium term, of which $11m have been delivered since the start of the 2014/15financial year. As previously indicated, the full benefit of these cost savingsis currently supressed by cost inflation which is running slightly ahead ofprice indexation in our multi-year contracts which have yet to come up forrenewal. We remain on track to deliver our targets in respect of the full year. Due tothe timing of the school summer holidays, First Student's results aresignificantly weighted to the second half of our financial year, typically withless than 10% of annual operating profit generated during the first half of theyear, and is therefore prone to greater volatility. In the first half of 2014/15 there will be fewer operating days than in the same period of the prior yearreflecting the fact that all of the Easter vacation days occur in the period,and these are not fully offset by the operating days reinstated after theweather-related school closures in the prior year. As a consequence of thereduced number of days compared with the prior year, we expect First Student'soperating profit for the first half of 2014/15 to be lower than in the sameperiod last year. Although there remains a significant number of contractsstill to be finalised in the current bid season, we are encouraged by thepricing and retention rates achieved to date. We are confident that full yearrevenues will be towards the upper end of our planning assumptions, withoperating margin in excess of 7.5% for the full year. First Transit First Transit delivered another solid performance in the first quarter with newbusiness wins in our paratransit, fixed route and vehicle maintenance segments.For the year we expect to deliver good margins with relatively modest capitalinvestment. Going forward we will continue to leverage our unrivalledmanagement expertise and reputation to develop opportunities in existing andnew markets. Greyhound During the first quarter like-for-like revenue increased by 3.4% compared tothe same period last year, continuing the improving trends seen over the courseof the prior year (excluding the impact of severe weather in Q4). There wasstrong demand for our long distance operations and Greyhound Express, whichbenefits from passenger feed from our unique national network, achievedlike-for-like revenue growth of 6.9% in the period, while maintaining itsprofitable expansion with new services in the south west. Our programme to enhance Greyhound's commercial proposition is on schedule, andincludes the necessary IT development, recruitment and training work to bringairline-style yield management to the traditional network. During the period wecontinued to expand our sales channels, driving increased online transactionsthrough dedicated mobile apps and the recent launch of a mobile version of ourwebsite. We expect to see Greyhound's performance continue to improvethroughout the year as we work towards our medium term target of a 12% margin. UK Bus During the period like-for-like passenger revenue increased by 2.7%. We areseeing the results from our transformation programme to improve our commercialproposition, drive volume growth and regain pricing competitiveness in linewith the market. As we rebase our local fares and networks we are stimulatingpassenger growth with like-for-like volumes increasing by 2.7% in the firstquarter. To date, we have completed 12 major redesigns together with numerousother upgrades and initiatives. The programme of significant network changes isnow nearing completion, though our management structure is now locally focusedto ensure that commercial opportunities continue to be developed. Operating discipline, cost optimisation and focused investment in our fleetsand our people are improving our service delivery and increasing customersatisfaction. Mobile ticketing has been introduced on our networks in Aberdeen,Worcester and Manchester and we are on track to complete the roll out of mobileticketing systems nationwide by December 2014. While there is still some way to go, we are delivering our plan as forecastedto restore double digit margins to UK Bus by 2017. We expect improvements inunderlying revenue and margin in both the first and second half of 2014/15compared with the prior year, with progress particularly weighted to the secondhalf of the year as we reach the anniversaries of a number of fares changes. UK Rail Our UK Rail division delivered a robust performance with like-for-likepassenger revenue increasing by 6.6% in the period. In the recent NationalPassenger Survey all of our train operating companies saw steady or increasedcustomer satisfaction ratings, with First ScotRail and First Hull Trainsrecording their highest ever scores. Although we did not secure one of the first three franchise competitions thatcame to market, we remain confident of delivering on our medium term targetsthrough disciplined bidding to generate an economic return for shareholders.Going forward, we will participate in a range of competitions with theobjective of achieving earnings on a par with the last round of franchising, atan acceptable level of risk. We are shortlisted for two further competitionsduring 2014/15 as part of the pipeline of 14 major UK rail franchiseopportunities. We are also progressing negotiations with the Department forTransport (`DfT') to operate our First TransPennine Express franchise untilFebruary 2016, and remain in discussion with DfT in respect of a potentiallonger direct award for First Great Western, during the period when asubstantial programme of works will take place on the network. Glasgow 2014 Commonwealth Games In the period, First UK Bus and First ScotRail have stepped up preparation fortheir key role as official supporters of the Glasgow 2014 Commonwealth Games,providing passenger rail and bus services. First ScotRail is planning the mostextensive train timetable that Scotland has ever seen in support of the Games,while our UK Bus division was awarded the contracts to transport athletes,technical officials, media and sponsors during the Games, and provideadditional shuttle services to transport the large numbers of spectatorsexpected. Financial position We remain focused on strengthening the financial position of the Groupincluding reducing leverage by improving the performance of our businesses, andgenerating strong sustainable cash flows in the medium term. We have previouslyoutlined our programme to invest approximately £400m per annum across the Groupover the next three years, to support growth and deliver our target ROCElevels. As previously indicated there will be a c.£70m cash outflow associated with theend of the First Capital Connect contract. Although there is a clear mediumterm benefit to the progress made in the First Student bidding season, contractretention at the upper end of our planning assumptions will lower the shortterm cash flow benefits of cascading buses in the current year. Taking this andthe other cash flow movements into account we currently expect the total cashoutflow for the full year to be approximately £100m. Our recent bank facility refinancing combined with slightly lower rates onfloating rate debt, have contributed to lower than previously expected interestcosts. The current US dollar exchange rate movements may have an impact on thedivisional operating profit mix but the net impact on EPS will be minimal dueto our natural hedge, whereby our exposure on US dollar earnings in NorthAmerica is largely offset by US dollar denominated interest costs and fuelpurchases for our UK businesses. Contacts at FirstGroup:Rachael Borthwick, Group Corporate Communications DirectorFaisal Tabbah, Group Investor Relations ManagerStuart Butchers, Group Media Relations ManagerTel: +44 20 7725 3354 Contacts at Brunswick PR:Michael Harrison/Ben Fry, Tel: +44 20 7404 5959 NotesUnless otherwise stated, all financial figures refer to the three month periodended 30 June 2014 (the `period' or `the first quarter'), with growth comparedto the same period in 2013. All operating figures refer to the latest availableperiod, with growth compared to the same period in 2013. No account is taken offoreign exchange translation effects in the description of divisionalperformance and outlook. Figures presented in this interim management statement are not audited. Certainstatements included or incorporated by reference within this announcement mayconstitute "forward looking statements" in respect of FirstGroup plc'soperations, performance, prospects and/or financial condition. Such statementsare based on FirstGroup plc's 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 regardingFirstGroup plc's present and future strategy and the environment in which itoperates, which may not be accurate. FirstGroup plc undertakes no obligation toupdate any forward looking statements contained in this announcement or anyother forward looking statements it may make. Nothing in this announcementshould be construed as a profit forecast. Past performance cannot be reliedupon as a guide to future performance and persons needing advice should consultan independent financial adviser. FirstGroup plc (LSE: FGP.L) is the leading transport operator in the UK andNorth America. With revenues of more than £6.7 billion and around 117,000employees, we transport around 2.5 billion passengers every year. Each of ourfive divisions is a leader in its field: First Student is the largest providerof student transportation in North America with a fleet of around 49,000 yellowschool buses, First Transit is one of the largest providers of outsourcedtransit management and contracting services in the US, while Greyhound is theonly national operator of scheduled intercity coach services across NorthAmerica. In the UK, FirstGroup is one of Britain's largest bus operatorsrunning a fleet of some 6,400 buses, and we operate approximately a quarter ofthe UK passenger rail network, carrying more than 330 million passengers ayear. Our vision is to provide solutions for an increasingly congested world… keepingpeople moving and communities prospering.

Visit our website at: www.firstgroupplc.com