Trading Statement

21 January 2015 FirstGroup plc THIRD QUARTER 2014/15 TRADING UPDATE FirstGroup plc (the "Group"), the leading transport operator in the UK andNorth America, reports the following update in respect of trading since 1October 2014. Summary Overall trading for the Group is in line with management's expectations, andour transformation plans continue to make progress: * First Student: recovery plan on track, with improved pricing achieved in recent bid season and cost efficiencies * First Transit: revenue expectations benefitting from organic growth on existing contracts * Greyhound: demand adversely affected by sharply lower fuel prices over the key holiday period * UK Bus: continued volume growth and progress with cost savings, with increases in yield starting to contribute * UK Rail: robust volume and revenue growth, with financial performance towards the top end of our expectations Commenting, Chief Executive Tim O'Toole said: "Overall trading for the Group is in line with our expectations. Our FirstStudent and UK Bus transformation plans are on track and both divisions aredelivering the expected improvements in financial performance. Demand forGreyhound services over the important holiday period was adversely affected bythe significant and rapid reduction in fuel prices, which makes car travel moreaffordable and competitive with our services. This was offset by goodperformances in First Transit and our UK Rail operations, which are bothachieving growth towards the top of our expectations with robust margins.Overall we are on course to meet our full year expectations for the Group, andwe are confident that our multi-year plans will deliver improved cashgeneration and create sustainable value over the medium term." First Student First Student's operating performance in the period has benefitted from theimportant step forward made earlier in the year, with the improved pricingachieved on contracts awarded in the 2014 bid season making an impact for thefirst time. Market conditions are improving modestly with organic growth stilllimited, and we continue to expect our bus portfolio at the end of the currentfinancial year to be broadly similar in size to the prior year. We aredelivering against our target of $50m per annum in cost efficiencies and remainconfident of achieving approximately $20m in the current financial year, withmargins in excess of 7.5%. As previously indicated, with cost inflation runningahead of price indexation on some of our multi-year contracts, we will continueto focus only on retaining or winning contracts in future bid seasons at pricesthat deliver an appropriate return on capital employed. We are on track to meetour medium term target of double-digit margins for First Student through ourcontract pricing and cost efficiency programmes. First Transit In the period First Transit's organic growth on existing contracts has been atthe higher end of our planning range, and we now expect revenue growth ofapproximately 6%, with margins around our medium term target of 7% for thecurrent financial year. As expected, the second half of the financial year hasso far seen a number of larger contracts coming to an end with fewer start-ups,though we continued to win additional new business in the period that willcommence in the next financial year. Our focus on disciplined bidding,operational excellence, and investing in innovative technology for the benefitof our customers ensured that First Transit continues to deliver good growthand margins with relatively low capital intensity. Greyhound Demand for Greyhound's traditional services has lagged the US economicrecovery, with the disposable incomes of our core customers not significantlyincreasing with the improvement in the overall macroeconomic environment formuch of the financial year. In the period, this demand challenge has beenexacerbated by the significant and rapid fall in consumer fuel prices, whichimproves the affordability of using private cars for some trips compared withGreyhound. As a consequence, Greyhound's like-for-like US dollar revenues inthe period decreased by 1.1%. In order to mitigate the impact of lower demandon our profitability, we are actively managing our mileage and timetables, andare flexing ticket prices in order to remain competitive. Nevertheless weexpect margins for the full year to be modestly below the prior year level.Although our point-to-point brands were also somewhat affected by the sharplylower fuel prices, Greyhound Express continued to grow profitably, withlike-for-like revenue growth of 2.1% in the period. As previously indicated, our programme to roll out real-time pricing and yieldmanagement capabilities across the network will give traditional Greyhound moretools to stimulate and manage passenger demand. At the end of October, forexample, Greyhound launched its passenger-facing smartphone app, and ourcommercial team continued to be augmented with additional hires in the period.This programme, which replicates the commercial model of our newerpoint-to-point brands across the whole of Greyhound's unique national network,is expected to be fully operational over the next year. We remain confident ofachieving our target of 12% margins for the division in the medium term. UK Bus Our UK Bus transformation programme is on track, with overall like-for-likepassenger volume growth of 1.4% in the period, despite mixed local economicconditions across our portfolio. Our volumes continue to be driven principallyby growth in commercial passenger volumes (up 2.8% on a like-for-like basis inthe period), responding to the work we have done to improve our commercialproposition through selected fare rebasing, network redesigns and additionalinvestment in fleet and ticketing. As anticipated, we began to achieve positiveyield in the period with overall like-for-like passenger revenue increasing by2.7%, with some of our local operations beginning to put throughinflation-based price increases, having reached the anniversary of our farechanges in their area. The other key elements of our plans to restoredouble-digit margins in UK Bus over the medium term - including moredisciplined operations, further fleet investment and mobile and smart ticketinginitiatives - have continued to progress. We are on track to deliver the costefficiencies targeted for the second half, and this, coupled with continuedpassenger volume and price momentum, will result in margin progress for thefinancial year as a whole. We remain committed to maintaining strong partnerships with local authoritiesthroughout our markets, as experience of our existing partnerships demonstratesthat this model is the most responsive, efficient and cost-effective way toachieve our shared aims of higher bus passenger volumes, investment in busfleets and increased use of smart and mobile ticketing, with competitive farelevels. We and the industry continue to present the strong evidence for thesuccess of such partnerships when engaging with stakeholders on emerging policyproposals which could impact the current structure of bus service provision. UK Rail Our rail businesses achieved like-for-like passenger revenue growth of 7.3% inthe period, underpinned by robust passenger volume growth. Overall financialperformance for the year to date is toward the top of our range ofexpectations. We continue to work to minimise the disruption for our passengersand keep them informed while supporting Network Rail and other industrypartners with the significant infrastructure and fleet upgrade programmestaking place throughout our networks. We are negotiating with the Department for Transport ("DfT") for a longerdirect award to at least March 2019 for First Great Western, our largest railfranchise. We are shortlisted to bid for the next TransPennine Expressfranchise, and are negotiating with the DfT to extend our current operation ofthat route to February 2016. As previously announced, the DfT informed us thatwe were not awarded the contract to operate the InterCity East Coast franchisein the period. We continue to examine and assess the feedback from this andprevious rail bids to help shape our proposals in future competitions. We havebeen, and will continue to be, disciplined in our approach to bidding for thesesignificant contracts. We remain focused on reaching our desired position inthe rail industry over time, which is to achieve earnings on a par with theprevious franchising cycle at an acceptable level of risk and return. Financial position As previously indicated, we expect a total cash outflow for the full year ofapproximately £100m, which is principally due to the cash outflow ofapproximately £70m associated with the end of the First Capital Connectfranchise. 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 receive joining details. Contacts at FirstGroup: Group Corporate Communications, Tel: +44 20 7725 3354 Contacts at Brunswick PR: Michael Harrison / Andrew Porter, Tel: +44 20 7404 5959 Notes Unless otherwise stated, all financial figures refer to the three months ended31 December 2014 (the "period"), with growth compared to the same period in2013. In the descriptions of the performance and outlook of the US-baseddivisions, no account is taken of the translation of the division's resultsinto sterling. Figures presented in this announcement are not audited. Certain statementsincluded or incorporated by reference within this announcement may constitute"forward looking statements" in respect of FirstGroup's operations,performance, prospects and/or financial condition. Such statements are based onFirstGroup's current expectations and beliefs concerning future events and aresubject to a number of known and unknown risks and uncertainties that couldcause actual events or results to differ materially from any expected futureevents or results referred to in these forward looking statements. Suchstatements are also based on numerous assumptions regarding FirstGroup'spresent and future strategy and the environment in which it operates, which maynot be accurate. FirstGroup undertakes no obligation to update any forwardlooking statements contained in this announcement or any other forward lookingstatements it may make. Nothing in this announcement should be construed as aprofit forecast. Past performance cannot be relied upon as a guide to futureperformance and persons needing advice should consult an independent financialadviser. 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 in 2013/14, we transported around 2.5 billion passengers last year.Each of our five divisions is a leader in its field: First Student is thelargest provider of student transportation in North America with a fleet ofaround 49,000 yellow school buses, First Transit is one of the largestproviders of outsourced transit management and contracting services in the US,while Greyhound is the only national operator of scheduled intercity coachservices across North America. In the UK, FirstGroup is one of Britain'slargest bus operators running a fleet of some 6,400 buses, and we are one ofthe largest operators of passenger rail services in the UK, carrying more than330 million passengers last year, with experience of running all types of railnetwork. Our vision is to provide solutions for an increasingly congested world...keeping people moving and communities prospering.

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