FirstGroup plc Half-yearly results For the six months to 30 September 2016 Tuesday 15 November 2016 15 November 2016 FirstGroup half-yearly results for the six months to 30 September 2016
Tim O'Toole Chief Executive 15 November 2016 FirstGroup half-yearly results for the six months to 30 September 2016 2
Overview ▪ Providing assistance to those affected by the Tramlink incident on 9 November, and full support to the ongoing investigation ▪ Overall trading as outlined at the start of the year continued during the first half ▪ Encouraging performances by our North American business were partially offset by more challenging trading conditions in the UK − Net currency benefit expected in H2 from the two-thirds of annual profits generated in North America, if recent currency trends continue ▪ Continue to expect the Group to make good progress with our strategic objectives for the year, recognising likely currency tailwinds but uncertain UK macroeconomic conditions ▪ H1 cash performance affirms our confidence in generating significantly improved free cash generation for the full year 15 November 2016 FirstGroup half-yearly results for the six months to 30 September 2016 3
Matthew Gregory Chief Financial Officer Financial review 15 November 2016 FirstGroup half-yearly results for the six months to 30 September 2016 4
Financial overview ▪ Adjusted operating profit £89.0m (H1 2015: £88.4m) reflects several factors: − Significant improvement in First Student performance − Rebased First Rail margin under new contracts − Significant currency effects in H1 with favourable translation of North American profits offset by higher costs for fuel in UK; H2-weighted First Student earnings will result in positive FY impact if recent rates are sustained ▪ Adjusted EPS +16.7% ▪ Seasonal net cash outflow improved by £103.8m compared with prior period ▪ Capital expenditure to depreciation (excluding First Rail) at 1.0x in the period ▪ Net debt to EBITDA reduced to 2.4x (H1 2015: 2.6x) ▪ ROCE increased by 100bps to 7.1% at constant exchange rates 15 November 2016 FirstGroup half-yearly results for the six months to 30 September 2016 5
Currency exposure ▪ More than two thirds of FY16 profits from North American divisions UK ▪ Due to First Student seasonality, favourable currency 42% translation offset by higher UK fuel costs in H1 FY16 ▪ revenue Expect FY17 net benefit given H2-weighted profile of North First Student, if recent rates are sustained America 58% 6m to 12m to £m impact of H1 currency rates Mar 2016 2 Sep 2016 Adjusted 1 Operating profit translation effects +2.1 +30.1 UK 31% UK fuel transaction effect (7.5) (19.3) Net operating profit impact (5.4) +10.8 FY16 profit 1 USD interest (2.2) (4.7) USD tax +1.8 (1.4) North Net attributable profit impact (5.8) +4.7 America 69% Net EPS impact p (0.5)p +0.4p 1 Before amortisation charges and certain other items. 2 Assumes re-translation of last financial year (12 months to March 2016) at rates prevailing in the 6 months to September 2016 and an H2 rate of $1:25:£1. 15 November 2016 FirstGroup half-yearly results for the six months to 30 September 2016 6
Financial summary Change in Sep 2015 Change £m Sep 2016 constant currency 1 Revenue 2,564.7 2,440.9 +5.1% (1.0)% Adjusted 2 - EBITDA 251.7 242.4 +3.8% - Operating profit 89.0 88.4 +0.7% (1.7)% - Margin % 3.5% 3.6% (10)bps Flat - Net finance costs (67.1) (66.0) +1.7% - Profit before tax 21.9 22.4 (2.2)% - Effective tax rate % 25.1% 24.1% +100bps - Attributable profit 16.3 14.9 +9.4% - EPS p 1.4p 1.2p +16.7% Net debt 3 1,491.5 1,588.0 (6.1)% (9.3)% 1 Change in constant currency throughout this document is based on retranslating H1 2015 foreign currency amounts at H1 2016 rates 2 Before amortisation charges and certain other items 3 Net debt is stated excluding accrued bond interest 15 November 2016 FirstGroup half-yearly results for the six months to 30 September 2016 7
Revenue performance Change ▪ Sep 2016 Growth in First Student, First Transit and First Rail (like- £m revenue (constant fx) for-like) First Student 719.5 +0.2% First Transit 482.5 +3.2% ▪ Decreases in Greyhound and First Bus Greyhound 333.4 (4.6)% First Bus 426.1 (2.9)% ▪ First Rail reported revenue affected by TPE remapping First Rail 595.8 (2.2)% and reduced subsidy Group items 7.4 Total 2,564.7 (1.0)% ▪ Significant reported benefit from currency translation Reported total +5.1% 15.0 2,590.0 1.2 149.1 2,564.7 0.4 (16.1) (12.7) (13.1) 2,440.9 H1 2015 Currency H1 2015 constant currency Student Transit Greyhound First Bus First Rail Group H1 2016 revenue revenue items First First 15 November 2016 FirstGroup half-yearly results for the six months to 30 September 2016 8
Operating performance H1 2016 Margin change ▪ Sep 2016 Significant improvement in First Student margin; £m operating profit 1 margin 1 (constant fx) Rail margin rebased under new contracts First Student 14.0 1.9% +250bps First Transit 30.0 6.2% (90)bps ▪ Group margin flat in constant currency Greyhound 25.8 7.7% (90)bps First Bus 13.5 3.2% (40)bps ▪ Favourable currency translation offset by higher First Rail 22.1 3.7% (170)bps UK fuel costs in H1 Group items (16.4) Total 89.0 3.5% Flat Reported total (10)bps 18.2 (3.4) (4.4) (2.5) 90.5 2.1 88.4 1.4 89.0 Figures include fx impact on UK fuel costs of: (10.8) - First Bus £(4.4)m - First Rail £(3.1)m operating Currency H1 2015 constant currency Student First Transit Greyhound Group operating H1 2015 items H1 2016 First Bus First Rail First profit profit 1 Before amortisation charges and certain other items 15 November 2016 FirstGroup half-yearly results for the six months to 30 September 2016 9
Capital expenditure ▪ Disciplined reinvestment in passenger £m Sep 2016 carrying fleet and IT upgrade Passenger carrying vehicles (PCV) 119.7 programmes continued during the period IT including transformation 11.3 Equipment 4.1 ▪ Expect cash capital investment at Facilities and depot development 3.4 c.£320m (excl. First Rail) for FY2016/17 Capital investment excl. First Rail 138.5 First Rail 22.8 − Capital allocation decisions focused increasingly on maintenance of Total capital investment 161.3 existing asset portfolio and selected Net creditor movement 53.2 growth opportunities with good Funded by operating lease (8.0) returns on incremental capital Gross cash capex 206.5 − First Rail capex mainly funded through franchise agreements 15 November 2016 FirstGroup half-yearly results for the six months to 30 September 2016 10
Net cash flow (£m) 251.7 Operating cash flow / cash conversion 1 : Sep 2016: £43.1m / +48% Sep 2015: £(53.2)m / (60)% 29.1 43.1 (178.0) (19.8) (11.4) (28.5) (26.1) (81.3) (64.3) EBITDA Non-Rail capex First Rail capex Disposal proceeds other provisions Working capital / Operating cash flow Pensions charge in excess of P&L Interest and tax Net cash outflow Insurance and other Gross cash capex (206.5) 1 Operating cash flow divided by Group adjusted operating profit 15 November 2016 FirstGroup half-yearly results for the six months to 30 September 2016 11
Financial position ▪ Strong liquidity and stable financing position with seasonally higher net debt of £1,491.5m − Headroom under committed facilities plus free cash: £824.8m (Mar 2016: £940.2m) − Net debt: EBITDA ratio 2.4x (Sep 2015: 2.6x) − Long term facilities in place – average maturity 3.9 years (Mar 2016: 4.4 years) − Ratings from Standard & Poor's and Fitch currently BBB- and stable outlook − $50m private placement notes repaid Oct 2016 − Next bond maturity Sep 2018, next bank refinancing 2019 ▪ Expect cash interest to remain broadly unchanged until bonds start to mature ▪ Pension deficit £500.3m (Mar 2016: £270.9m) due to lower real discount rates 15 November 2016 FirstGroup half-yearly results for the six months to 30 September 2016 12
Financial summary ▪ Operating profit maintained despite Rail margin rebasing under new contracts, mixed impact of fx and challenging trading environment in some businesses ▪ Seasonal net cash outflow of £64.3m is an improvement of £103.8m compared with prior period ▪ Trading in H1 consistent with expectation of good progress for the Group in the remainder of the year ▪ Continued capital discipline ▪ Highly confident of significant increase in free cash generation for the full year 15 November 2016 FirstGroup half-yearly results for the six months to 30 September 2016 13
Tim O'Toole Chief Executive Business review 15 November 2016 FirstGroup half-yearly results for the six months to 30 September 2016 14
First Student ▪ Robust 2016 bid season – continued progress toward a smaller but higher returning contract portfolio − 7.3% average price increases, 200bps higher than previous season − 80% retention rate, in line with budget ▪ US employment market continues to tighten but better positioned to respond to resulting driver cost inflation ▪ Margin improvement delivered from pricing strategy, additional operating days, cost efficiencies and fuel ▪ Successful school year start up as a result of improved location training and planning ▪ Well positioned to deliver expected margin progress to at least 9% for the full year 15 November 2016 FirstGroup half-yearly results for the six months to 30 September 2016 15
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