Friday 2 October 2015
FIRST HALF 2015/16 PRE-CLOSE TRADING UPDATE
FirstGroup plc (the 'Group'), the leading transport operator in the UK and North America, reports the following update on trading for the six months to 30 September 2015 (the 'first half' or the 'period'), ahead of our half-yearly results due to be announced on Thursday 12 November 2015.
Overall trading for the Group is in line with management's expectations. Our multi-year transformation plans continue to progress, despite a more challenging trading environment in some of our markets:
- First Student: second year of enhanced contract pricing strategy delivered as planned; cost efficiency plans on track
- First Transit: further contract awards in rest of business offset by reduced Canadian oil sands activity
- Greyhound: yield management project on track; flexing cost base to help mitigate reduced demand from cheaper fuel
- UK Bus: commercial revenue growth and cost efficiencies from transformation partially offset by lower concession revenues
- UK Rail: strong passenger revenue growth and financial performance
Commenting, Chief Executive Tim O'Toole said:
"Overall trading for the Group during the first half was in line with our expectations. We continue to progress our transformation plans which will drive sustainable improvements in the financial performance and cash generation of the Group, despite a more challenging trading environment in some of our markets in the period. In First Student we concluded this year's bid season with higher average price increases than in the previous year and a solid contract retention rate, which will continue to enhance the margins and returns in our largest business. Our ongoing transformation of UK Bus continues to deliver growth in fare-paying passenger revenues and cost efficiencies, despite the recent weakness in concessionary revenues seen across the market. Our yield management project in Greyhound is on track and First Transit continues to win additional business, though as anticipated, recent trading in both divisions has been affected by the substantial reduction in the oil price. On a like-for-like basis, our UK Rail division is outperforming our expectations, with strong passenger demand growth. For the full year, we expect the progress of our non-rail businesses to largely offset the reduced size of our UK Rail franchise portfolio compared with the prior year, and remain confident that our multi-year transformation plans will achieve our medium term goal of sustainable cash generation from improved margins."
We have recently completed the second year of our contract portfolio pricing strategy, achieving a higher average price increase than in the first year at approximately 5.3%, while our contract retention rate was modestly ahead of our expectations at over 85%. The contract pricing progress we have made will principally benefit results for our largest business in the second half and beyond. Our operating results are usually significantly weighted to the second half because of the overlay of our financial year on the North American school calendar. As previously indicated, this year operating days worth an estimated $17m in profit move from the current financial year into our 2016/17 year due to the timing of non-operating days around Easter and Labor Day, and as a result US Dollar revenues for the first half are expected to decrease by approximately 3%. We continue to experience driver shortages in some areas. Our cost efficiency plans continue to progress, alongside our pricing activity. We expect to deliver margins above 8% for the full year.
As previously indicated, lower oil prices in the first half led to significantly reduced activity in the Canadian oil sands region and hence demand for First Transit’s shuttle services there. As a result, First Transit's US Dollar revenues are expected to be approximately 5% lower in the first half. Further contract awards and organic growth in the rest of the division will substantially mitigate these impacts over the course of our financial year, though as previously indicated we do not expect to deliver overall growth in the current year.
In Greyhound we continue to actively manage our timetables and variable costs to mitigate the adverse impact on passenger demand experienced across the intercity coach industry since fuel prices fell sharply in October/November 2014. We anticipate passenger demand will remain muted if current oil prices are sustained throughout the year. Like-for-like revenues are expected to decrease by 6.2% in the first half, with the most substantial reductions in demand on our longer haul journeys. Greyhound Express remains more resilient, with like-for-like revenues expected to decrease by 3.1% in the first half. Our real-time pricing and yield management project is on track to be operational as planned this autumn, with the full benefit of the systems building over time.
Our transformation plan continued to deliver growth in commercial passenger revenues of more than 2% in the first half. However this was partially offset by the ongoing weakness in concessionary revenues being seen across the industry. Overall like-for-like revenue growth for the division is expected to be 1.3% in the first half. We remain focused on the cost efficiency elements of our turnaround, including improved driver productivity, greater fuel efficiency and reductions in maintenance expense. Since the start of the financial year, we have also taken a number of actions to optimise our depot portfolio. These actions will result in one-time costs for the full year of approximately £7m, with the majority incurred in the first half, but will accelerate the delivery of our medium term targets. In the year trading margins are expected to improve by one percentage point and by slightly less when the one-time depot costs are included.
In UK Rail we delivered further strong passenger volume growth in the first half, underpinning expected like-for-like passenger revenue growth of approximately 7%. Overall financial performance was toward the top of our range of expectations. In the period we launched the rebranding of First Great Western as Great Western Railway ('GWR'), reviving a brand with 180 years of heritage going back to Brunel, as part of an ongoing process across the Group to increase the use of branding with resonance to our local communities where appropriate. In the first half we were shortlisted and received the Invitation to Tender for the East Anglia franchise competition, for which the winner will be announced next June ahead of the franchise start in October 2016. The winner of the TransPennine Express competition (for which we are also shortlisted) is expected to be announced in December 2015, with the franchise starting in April 2016.
Credit rating agency Fitch affirmed its 'BBB-' corporate credit ratings and 'stable' outlook on FirstGroup at the end of July. Standard & Poor’s upgraded its outlook to 'stable' from 'negative' and affirmed its 'BBB-/A-3' corporate credit ratings on the Group earlier in the period.
As in previous years, the Group’s results are weighted to the second half principally due to the timing impact of school summer holidays on First Student's business compared with our financial year. This weighting effect is exaggerated in the current year as a result of the Capital Connect and ScotRail franchises coming to an end.
We continue to expect underlying net cash flow for the current year to be broadly flat, and for the sustainable cash generation of the Group to increase over the medium term as our multi-year plans drive improvements in our financial performance.
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:
Faisal Tabbah, Head of Investor Relations
Stuart Butchers, Group Head of Media
Tel: +44 20 7725 3354
Contacts at Brunswick PR:
Michael Harrison / Andrew Porter, Tel: +44 20 7404 5959
Unless otherwise stated, all financial figures refer to the six month period ended 30 September 2015 (the 'first half'), with growth compared to the same period in the prior year. No account is taken of foreign exchange translation effects in the description of divisional performance and outlook.
Figures presented in this announcement are not audited. Certain statements included or incorporated by reference within this announcement may constitute 'forward-looking statements' with respect to the business, strategy and plans of the Group and our current goals, assumptions and expectations relating to our future financial condition, performance and results. By their nature, forward- looking statements involve known and unknown risks, assumptions, uncertainties and other factors which may cause actual results, performance or achievements of the Group to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Shareholders are cautioned not to place undue reliance on the forward-looking statements. Except as required by the UK Listing Rules and applicable law, the Group does not undertake any obligation to update or change any forward-looking statements to reflect events occurring after the date of this announcement. Nothing in this announcement should be construed as a profit forecast. Past performance cannot be relied upon as a guide to future performance and persons needing advice should consult an independent financial adviser.
FirstGroup plc (LSE: FGP.L) is the leading transport operator in the UK and North America. With approximately £6 billion in revenues and around 110,000 employees, we transported around 2.4 billion passengers last year. Each of our five divisions is a leader in its field: In North America, First Student is the largest provider of student transportation with a fleet of around 49,000 yellow school buses, First Transit is one of the largest providers of outsourced transit management and contracting services, while Greyhound is the only nationwide operator of scheduled intercity coach services. In the UK, FirstGroup is one of Britain's largest bus operators running a fleet of some 6,300 buses, and we are one of the country's most experienced passenger rail operators, carrying around 280 million passengers last year.
Our vision is to provide solutions for an increasingly congested world... keeping people moving and communities prospering.
Visit our website at www.firstgroupplc.com