THIRD QUARTER 2015/16 TRADING UPDATE
FirstGroup plc (the 'Group'), the leading transport operator in the UK and North America, today reports the following update on trading since the 2015 half-yearly results.
- Group revenues in the third quarter decreased by 9.5% on a constant currency basis, principally reflecting:
- changes to the rail franchise portfolio, and
- the number of First Student operating days this year due to the timing of school calendar.
- Excluding these previously announced effects, Group revenues increased by 0.9% in constant currency in the period
- Continued progress of the transformation plans in the third quarter was mitigated by a challenging trading environment:
- First Bus revenues affected by lower than forecast high street retail footfall with exceptionally wet weather and flooding in some markets, and
- First Student experienced higher costs related to acute driver shortages in certain locations as a result of the tightening US employment market.
- Management's outlook for operating profit in the current financial year is slightly lowered by trading in the period
- Confident that the transformation plans continue to improve underlying performance and will drive sustainable cash generation over the medium term as planned
- Awarded TransPennine Express rail franchise in December, increasing duration of First Rail portfolio to at least 2023
Divisional performance in the third quarter
For First Student, operating performance in the period has benefited from the second year of improved pricing achieved in the bid season completed earlier in the financial year. We continue to make progress with our cost efficiency programme, but this has been partially offset by higher than budgeted costs incurred in response to acute driver shortages in certain of our markets. As previously indicated, First Student's results this financial year will be impacted by fewer school days operated due to the timing of the school calendar. Schools will make these days up at the end of the academic year, which will fall into our 2016/17 financial year. Overall our turnaround of First Student continues to make progress toward our double digit margin target.
As expected, First Transit continues to be affected by the substantial reduction in the oil price in the third quarter of the prior financial year, which has resulted in lower demand for our shuttle services in the Canadian oil sands region. These revenue declines have however been offset by organic growth and new contracts in other segments, as First Transit continues to win business from our pipeline of predominantly capital-light opportunities in both our core and adjacent geographic and service markets. For example, we were awarded shuttle contracts at Sacramento Airport and Northwestern University, and work commenced under our Houston paratransit and Panama transit management contracts in the period.
Greyhound's like-for-like revenues in the third quarter decreased by 5.2%, continuing to reflect the reduced passenger demand experienced across the coach industry since fuel prices fell sharply in the prior year. Our point-to-point revenues remain more resilient than the wider division, with like-for-like Greyhound Express revenues in the third quarter decreasing by 1.2%. We continue to mitigate the impact of this demand contraction on our margins by flexing our cost base. Our roll out of yield management, real-time pricing and customer relationship systems across the Greyhound network continued to plan in the period.
First Bus revenues in the period were adversely affected by lower than expected high street retail footfall in the run up to Christmas, with exceptionally wet weather and flooding impairing services in some of our markets. Like-for-like revenues in the period were flat, with commercial passenger revenue growth of 0.9% and ongoing weakness in concessionary revenues as seen across the industry. Our cost efficiency programme continues to move forward as planned, and we remain on course to improve trading margins for the financial year by one percentage point before the impact of the previously indicated depot closures. In November we welcomed confirmation following the Comprehensive Spending Review that Government funding of the Bus Services Operators' Grant (BSOG) will be maintained through to 2020/21.
Our First Rail business experienced some slowing in passenger demand growth in the weeks following the Paris terror attacks in November and in areas affected by recent flooding, with like-for-like passenger revenue growth in the third quarter of 5.6%, though these are not expected to affect full year results for the division. In the period we were pleased to be awarded the TransPennine Express franchise for at least another seven years from 1 April 2016, and submitted our bid for the East Anglia franchise competition, for which the winner will be announced in June ahead of the franchise start in October 2016.
There is no material change in the Group's financial position since that reported at the half-yearly results in November 2015. We continue to expect underlying net cash flow for the current year to be broadly flat.
Commenting on today's announcement, FirstGroup Chief Executive Tim O'Toole said:
"Our transformation plans continue to make headway despite a challenging third quarter trading period in our markets, with disappointing retail footfall and the terrible weather affecting First Bus, and our largest division First Student experiencing acute driver recruitment and retention challenges in certain locations. While these issues have slightly moderated our trading performance in the period they are not of a magnitude to materially affect our multi-year transformation plans, which we expect to deliver significantly improved cash generation in our next financial year as planned. Our ability to create sustainable value in the medium term continues to strengthen through our improvements to First Student's contract pricing and cost efficiency, the transformation of Greyhound's business model through improved systems and the restoration of profitable commercial passenger revenue growth to First Bus, while our disciplined but ambitious approach to rail franchising has resulted in the award of the TransPennine Express franchise to at least 2023."
A conference call for investors and analysts will be held at 9:00am today. Please call +44 (0) 20 7725 3354 in advance of the call to register and receive joining details. A playback facility will be available together with a pdf copy of this announcement at www.firstgroupplc.com/investors.
The Group is scheduled to announce its results for the year to 31 March 2016 on Tuesday 14 June 2016.
Contacts at FirstGroup:
Faisal Tabbah, Head of Investor Relations
Stuart Butchers, Group Head of Media
Tel: +44 (0) 20 7725 3354
Contacts at Brunswick PR:
Michael Harrison / Andrew Porter, Tel: +44 (0) 20 7404 5959
Financial figures for the 'period' or the 'third quarter' include the results of the rail business for the twelve weeks to 12 December 2015 and the results of all the other businesses for three months to 26 December 2015. No account is taken of foreign exchange translation effects in the descriptions of divisional performance.
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; the 'Group') 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.
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