FirstGroup plc 2019 full year results and strategy update Thursday 30 May 2019 30 May 2019 FirstGroup results for the year to 31 March 2019
Overview ▪ Clear divisional strategies delivering better business performance: − First Student: revenue/fleet growth while maintaining pricing discipline and margin progression − First Transit: winning additional business in core markets and capturing opportunities in Mobility as a Service (MaaS) and Shared Autonomous Vehicles (SAV) − Greyhound: responding to improvement plans; withdrawal from Western Canada; property disposals − First Bus: passenger revenue growth through focus on customer convenience; 180bps margin expansion from cumulative effect of cost efficiency and network/depot consolidation actions − First Rail: Despite uncertainties on SWR and TPE, division delivered strong operating profit in the year ▪ Delivered strong revenue, adjusted profit and adjusted EPS growth and generated substantial cash flow ▪ Future emphasis on core First Student and First Transit contracting divisions in North America through portfolio rationalisation plans: − Unlocks long term sustainable value and growth opportunities for all shareholders and stakeholders − Tangible, deliverable plan cognisant of constraints and friction costs required to maximise value 30 May 2019 FirstGroup results for the year to 31 March 2019 2
Financial review for the year to 31 March 2019 30 May 2019 FirstGroup results for the year to 31 March 2019 3
Financial summary SWR- and 53 rd Change in £m Mar 2019 Mar 2018 Change week-adjusted CCy 1 change, in CCy 2 Revenue 7,126.9 6,398.4 +11.4% +11.0% +5.7% Adjusted 3 - EBITDA 670.3 690.6 (2.9)% (3.6)% - Operating profit 332.9 317.0 +5.0% +4.0% +10.5% - Margin % 4.7% 5.0% (30)bps (30)bps +20bps - Net finance costs (106.6) (120.0) (11.2)% - Profit before tax 197.0 +14.9% +13.1% 226.3 - Effective tax rate % 22.5% 22.4% +10bps - Attributable profit 173.6 147.7 +17.5% +15.7% - EPS p 14.4p 12.3p +17.1% +15.2% Net cash inflow 197.3 110.5 +78.6% Net debt 4 903.4 1,070.3 (15.6)% (17.2)% Net debt: EBITDA x 1.3x 1.5x Ring-fenced cash adjusted net 2.1x 2.1x debt: EBITDA x 1 Change in constant currency ('CCy') is based on retranslating FY 2018 foreign currency amounts at FY 2019 rates 2 Change excluding SWR franchise (which became part of First Rail in August 2017) and the 53 rd week in the Road divisions, in constant currency 3 Before other intangible asset amortisation charges and certain other items 4 Net debt is stated excluding accrued bond interest 30 May 2019 FirstGroup results for the year to 31 March 2019 4
Revenue performance Group revenue growth +5.7% in CCy excluding SWR and 53 rd week ▪ 425.1 7,126.9 ▪ Road divisions growth +2.0% on same basis, led by First Student ▪ Rail LFL passenger growth of 5.8% supplemented by transition of GWR from premium to subsidy and full year of SWR 272.8 1.1 6,701.8 15.2 94.1 11.5 6,398.4 24.8 6,342.7 (35.6) (80.5) Mar 2018 Currency 53rd week Mar 2018 First Student First Transit Greyhound First Bus (ex-SWR) Group items Mar 2019 SWR Mar 2019 sub-total baseline First Rail revenue revenue 30 May 2019 FirstGroup results for the year to 31 March 2019 5
Adjusted 1 operating profit Road divisions’ operating profit +3.6% in CCy excluding 53 rd week, with growth and margin ▪ progress in First Student and First Bus more than offsetting Transit and Greyhound ▪ GWR main contributor to Rail adjusted profit increase ▪ Change in Group items largely due to £7m of currency gains on bond settlement in prior year 14.5 332.9 20.6 16.0 (10.4) 3.1 317.0 (5.6) 309.4 (11.6) (10.7) Mar 2018 Currency 53rd week Mar 2018 First Student First Transit Greyhound Group items Mar 2019 operating operating baseline First Bus First Rail profit profit 1 Before amortisation charges and certain other items 30 May 2019 FirstGroup results for the year to 31 March 2019 6
Income statement – continued Reported Change in £m Mar 2019 Mar 2018 change CCy Adjusted 1 Operating profit 332.9 317.0 +5.0% +4.0% Bond refinancing, Net finance costs (120.0) (11.2)% (106.6) lower net debt Profit before tax 226.3 197.0 +14.9% +13.1% Tax (50.9) (44.2) Tax guidance - Effective tax rate % 22.4% +10bps 22.5% unchanged Non-controlling interests (1.8) (5.1) MTR is 30% partner in SWR Attributable profit 173.6 147.7 +17.5% +15.7% EPS p 14.4p 12.3p +17.1% +15.2% 1 Before amortisation charges and certain other items 30 May 2019 FirstGroup results for the year to 31 March 2019 7
Non-GAAP adjustments Mar Mar ▪ Amortisation lower due to full utilisation of old £m 2019 2018 customer contract intangibles Amortisation charges (29.9) (70.9) ▪ Restructuring/reorganisation costs mainly relate to Greyhound withdrawal from Western Canada. Net SWR onerous contract provision (145.9) - cash cost of £4.8m in the year (see appendix) North America insurance reserves (94.8) (32.7) − Group estimates that disposal proceeds from Restructuring and reorganisation (24.1) (26.0) surplus properties in Western Canada will exceed Guaranteed minimum pensions (21.5) - the cash costs of restructuring, over time Manchester loss on disposal (16.2) - ▪ £21.5m charge reflecting effect on our UK Bus and Profit on Greyhound Chicago sale 9.3 - Group schemes of the High Court’s recent ruling TPE onerous contract provision and (1.1) (106.3) regarding guaranteed minimum pensions on all UK notional interest unwind schemes Greyhound goodwill and other asset - (277.3) impairments ▪ £16.2m loss on disposal of First Bus assets in Bond make-whole costs - (10.7) Manchester partially offset by £9.3m profit on sale of Other non-GAAP adjusting items (294.3) (453.0) Greyhound Chicago depot ▪ Charge of £1.1m (2018: £nil) in the period for notional (523.9) Total non-GAAP adjustments (324.2) interest on unwind of £106.3m TPE onerous contract provision. TPE provision not utilised during the year ▪ North America insurance reserves and SWR provision discussed on following pages 30 May 2019 FirstGroup results for the year to 31 March 2019 8
North America insurance reserves ▪ North America continues to deliver legal judgments increasingly in favour of plaintiffs and punitive in certain regions ▪ Increasingly complex and judgmental area; reserve levels recommended by our actuarial advisors ▪ Adverse settlements, developments on a number of aged insurance claims and hardening backdrop in the wider motor claims environment has led to higher specific case reserves and adverse development factors ▪ As a result, we instructed an additional independent actuarial review of the expected risk position, including the claims handler’s reserve position − Confirmed a deterioration in the claims environment and increase in the expected level of settlements − Adjusting charge of £94.8m ($125.0m) to increase self-insurance reserve, reflecting the cost of meeting existing claims in the current environment − Expect the majority of these claims will be settled over the next five years − 2018/19 operating charge reflects the revised environment ▪ For 2019/20, charge is expected to increase in line with revenue growth in the businesses, plus inflation ▪ Group has a strong focus on safety and risk mitigation in this area will continue to be a key area of focus 30 May 2019 FirstGroup results for the year to 31 March 2019 9
SWR onerous contract provision ▪ SWR is a critical part of the national infrastructure: − Services from London Waterloo to destinations throughout south-west London and southern England − Franchise Train Operating Company owned 70:30 by FirstGroup and MTR – all costs, risks and rewards shared accordingly − Franchise is profitable to-date ▪ Looking forward, a number of issues have emerged which have frustrated our ability to deliver on our objectives for passengers: − Impact of changes in timetables, capacity, aging infrastructure and rolling stock − Functioning of the Central London Employment (CLE) revenue protection mechanism − Most significantly passenger revenue growth and future impact of the industrial action in addition to uncertainty as to the level of strike amelioration recoverable from the DfT ▪ We continue to be engaged in negotiations with the DfT to agree commercial and contractual remedies, and progress has been made, but there is a range of potential outcomes at present ▪ Therefore we have prudently provided for the potential future losses while negotiations continue with DfT: − Provided for the maximum unavoidable loss under the franchise agreement of £145.9m − FirstGroup’s 70% share is therefore £102.1m − FirstGroup’s 70% share of undrawn PCS and bonds is £65m 30 May 2019 FirstGroup results for the year to 31 March 2019 10
Group cash flow (£m) 542.9 Includes £88m of working capital inflows and net capital receipts, which will unwind in future years 172.5 366.1 (47.8) 199.6 197.3 193.6 (88.8) (320.0) (29.9) (2.3) (25.5) (3.8) Road EBITDA Road cash capex Road insurance and Road working capital / Road operating cash Rail operating cash Operating cash flow Pensions charge in excess of P&L Interest and tax Exceptionals Free cash flow Acquisitions Net cash flow other provisions flow flow other 30 May 2019 FirstGroup results for the year to 31 March 2019 11
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