Interim Management Statement

17 January 2014 FIRSTGROUP PLC THIRD QUARTER INTERIM MANAGEMENT STATEMENT FirstGroup plc ("the Group") reports the following update in respect of tradingsince 1 October 2013. Unless otherwise stated, all financial figures refer tothe three months ended 31 December 2013 ("the period"). Summary • Overall trading in line with management's expectations, with good performancein four divisions offset by slower progress in First Student • First Student - recovery plan helping to mitigate tough market conditions,medium term targets unchanged • Continued strong performance in First Transit • Greyhound - focus on cost management ensures margin performance remains oncourse. Successful expansion of Greyhound Express continues • UK Bus - transformation plan is on track, with positive signs from localmarket growth initiatives • UK Rail - continues to deliver solid passenger revenue and volume growthacross all our franchises First Student We continue to progress our recovery plan for First Student and deliver ongoingcost savings. The market remains challenging overall with limited growthopportunities and pricing power. Against that backdrop we continue to driveadoption of and compliance with more efficient, uniform practices across 550locations; use technology to drive down cost and differentiate our servicecapability; and manage the portfolio closely to focus on winning or retainingonly those contracts that meet our returns criteria. Adverse weather impactedrevenue and operating profit in both core school bus operations and our charterbusiness in the period. Despite this, we continue to expect revenues for thefull year to be broadly in line with the prior year. We remain on track todeliver $100m in annual cost savings in this financial year but current costinflation that marginally exceeds the pricing adjustments provided for in ourmulti-year contracts, and school closures as a result of poor weatherconditions, mean the rate of progress this year toward our medium term marginobjective will be slower than we had targeted. We expect that margins for thefull year will be only slightly ahead of the prior year. As we advance our programme to embed efficiency and improve returns, we remainconfident there is significant opportunity to achieve further savings and thatFirst Student will deliver double-digit margins and sustainable returns overthe medium term. In early January, we announced the appointment of a newPresident of First Student, who will build on the actions already taken anddrive the transformation programme on to the next phase. First Transit First Transit delivered a further period of strong trading. Our market leadingportfolio continues to strengthen with several new business wins, including amajor new paratransit service for the City of Chicago, and contract retentionfor the year to date is 95%. We expect revenue growth for the full year ofover 7%. Greyhound Greyhound's like-for-like revenue grew by 0.3% during the period, with robustThanksgiving and Christmas sales partially offset by poor weather and thecontinued effects of the subdued US economic environment, particularly on thosevalue focused consumers who form a substantial portion of traditionalGreyhound's customer base. Cost containment remains a strong focus and theactions taken to increase the flexibility of the operating model have enabledoperating margins to remain resilient. Greyhound Express continues to growstrongly with like-for-like revenues increasing by 12.6% in the period. Wecontinue to build on this success, rolling out further routes, while alsoensuring that the experiences we gain in our newer point-to-point brandscontinue to support the modernisation of the traditional Greyhound network.The programme to upgrade traditional Greyhound's technology infrastructure tosupport profitable growth through improved yield management, real-time pricingand more consumer friendly ticketing is on track. UK Bus During the period, like-for-like passenger revenue increased by 2.0%underpinned by good passenger volume growth, continuing the encouraging trendsachieved in the first half of the financial year. We continue to see positiveresults from those operations furthest along the transformation programme,despite the challenging economic conditions that prevail in a number of ourlocal markets. We are on track with our plans to return the division todouble-digit margins in the medium term through further cost optimisation frommore disciplined operations; market-by-market improvements to our networkdesigns and fares structures to drive improved volume growth; and furtherinvestment in our bus fleets and technology to improve customer experience. Werecently confirmed a £70m investment in 425 new buses, helping to improvereliability, reduce fuel and maintenance costs as well as significantly enhancethe quality of our service offering to customers. UK Rail UK Rail performed well in the period. Like-for-like passenger revenueincreased by 6.3%, with further strong volume growth across all of our trainoperating companies, with successful delivery on a number of important fleetand infrastructure projects where we worked in partnership with equipmentmanufacturers and Network Rail. During the period we submittedpre-qualification proposals for the Essex Thameside and the Thameslink,Southern and Great Northern franchises. We have been shortlisted for theupcoming ScotRail, Caledonian Sleeper and Luas light rail franchisecompetitions. Outlook Commenting, Tim O'Toole, Chief Executive said: "I am pleased to report that overall trading in the period is in line with ourexpectations, with a good performance in four of our divisions offset by slowerprogress in First Student. While there remain a number of short termchallenges to overcome, the programmes are in place that will enable the Groupto benefit from its market leading positions. The slowing of our marginprogression in First Student during the period was disappointing, however weremain confident in achieving our medium term objectives for the division as werefresh the management team and drive further cost efficiencies and improvereturns across the business. As we work through the current bidding season,which is just commencing, our focus remains on those markets where our superioroffering is valued. The performance of the other divisions in the period wasencouraging. In UK Bus, we are pleased with the tangible results we are seeingfrom our comprehensive transformation plans, and although challenging economicconditions continue in some of our local markets, our confidence continues togrow. "I am confident we are on the right track to increasing the resilience of theGroup and improving returns and growth prospects for the benefit of all ourstakeholders. I am very pleased to welcome John McFarlane to the Board asChairman. He joins at an important time for the Group and his extensiveinternational experience and track record of value creation will be invaluableas we work to deliver sustainable long term value for shareholders." A conference call for analysts and investors will be held at 9:00am today. Please call +44 20 7725 3354 in advance of the call to register and to receive joining details. Contacts at FirstGroup:Rachael Borthwick, Group Corporate Communications DirectorFaisal Tabbah, Group Investor Relations ManagerStuart Butchers, Group Media Relations ManagerTel: +44 20 7291 0507 / 0512 Contacts at Brunswick PR:Michael Harrison/Andrew Porter, Tel: +44 20 7404 5959