Strategic initiatives – capabilities to win Best in People Best in Solutions Top management in the industry: Technology-driven efficiencies and • • tools: – Industry experience and tenure – MI Dashboard – Solid reputation, results – GPS tracking – Company preferred – DriveCam Training and development: • – Infor – Promotions in-house – TimeForce – First Transit University Engineering analytics: – e-Learning • – Real-time vehicle monitoring – Manager-in-Training programme Maintenance technology solutions: • Safety training and engagement • – Paperless system ASE certifications, etc • Safety behaviour data analysis • Best in Price Resources utilised by all business segments • People and technology drive efficiencies and price • National service platform/leverage infrastructure • Low bidder wins business = growth • 20
First Transit – summary • Proven business model in place for continued growth Our business • Diversified, balanced business segments all delivering solid returns • Top performer/competitor for past five years and continues to build base capabilities for future growth • Growth opportunities in all segments as customers continue to outsource to transit companies that provide expertise, solutions and savings Our plans • Continue to optimise technology solutions to enhance customer retention and growth • Key acquisitions in each segment immediately increase market share, leverage scale and improve profits/returns • Leader in market with exceptional management and technology solutions Value opportunity • Above cost of capital returns will continue to support future investments • Size and scale will facilitate and leverage growth initiatives 21
First Student Linda Burtwistle Dennis Maple, President
First Student – overview • $24bn market, $9bn currently outsourced; public sector customers – lower credit risk Market • Fragmented competition with c.5,000 small independents – consolidation opportunity opportunity • Safety remains paramount; increasing customer focus on technology and cost efficiency • Budget pressures causing short-term impact on discretionary element of spend, but will drive demand for high quality, high efficiency players in the medium term • Clear market leader (bigger than next four competitors combined) – scale economies in Our buying, insurance, fleet management, technology development, etc strengths • Differentiated offering – technology, safety record, strong customer relationships and satisfaction scores • Significant progress in cost efficiency programme – $100m run-rate achieved so far Strategic • Uniform best practice identified and rolled out to 500+ locations progress • Raising returns through disciplined management of contract portfolio (‘up or out’) and assets (charter growth, cascading) • Several avenues for growth available once margins restored • Double digit margins through execution of recovery plan Our • Disciplined management of returns objectives • Position the business for profitable growth 23
Business overview 24
Scale of operations Northwest We transport 6 million students daily • Rev ($m) $ 310 Buses 6,600 We operate in 38 states and 8 Canadian • provinces Southwest Rev ($m) $ 205 We represent 1,300 school districts • Buses 3,800 We keep c. 4 million cars off the road every day • Central Rev ($m) $ 245 Buses 5,600 Atlantic Southeast Rev ($m) $ 305 Western Buses 6,900 Canada Great Lakes Eastern Rev ($m) $ 270 Buses 5,800 Canada Northeast Northeast Rev ($m) $ 275 Northwest Buses 5,700 SNE S New England Rev ($m) $ 355 Great Lakes Buses 6,300 Canada East Southwest Atlantic Rev ($m) $ 275 Southeast Buses 6,500 Central Canada West Rev ($m) $ 135 Buses 2,900 TOTAL Rev ($m) $2.4bn Buses 50,000 Locations 550 25
Large footprint, with many state-by-state variations Michigan/Ohio – new Western Canada run the oldest administrations pushing conversion fleet in the company with good opportunities (pension-related) ancillary revenue opportunities Illinois is a former low bid state. Now allowed to consider quality and safety Eastern Canada - Ontario market moving from evergreen to RFP Alaska – good market share with significant competitive advantage Massachusetts is a low bid state West Coast – trend toward alternative fuel solutions New Jersey uses unique buses not cascadable to any other state (but run for 15 years). All contracts bid annually South Carolina – State provides all buses and maintenance California – legislation impedes further outsourcing but regulations Florida – Monitoring outsourcing and climate allow for an older fleet potential 26
Market background and the competitive environment 27
A review of the last ten years 2004 2006 2008 2010 2012 2014 3.3% market Global US Government Hyper- Organic growth recession stimulus competition growth Organic Eastern retraction Canadian RFP 600,000 533,000 Student’s market share 492,000 500,000 +0.2% 500,000 2004 2013 400,000 (0.4%) 342,000 …of total market: 320,000 335,000 300,000 3.7% 10.0% 200,000 …of outsourced market: 100,000 191,000 +1.4% 180,000 157,000 11.5% 27.8% 0 10 Year CAGR 2004 2007 2013 Schools Contractors Source: School Bus Fleet Magazine 28
Sources of growth in the $24bn market $9bn $15bn 100% • Organic growth − Typically around 0.5-1.0% per annum ~4,900 Mom 80% and Pops − Recession caused three years of organic retraction 60% ~10,000 School Districts and ~12,000 other Next 4 schools STA 40% • Share shift Durham − Through the competitive bidding process 20% First Student − Increases our share of the outsourced market 0% − Have averaged 700 buses over the last three years 20% 40% 60% 80% 100% • Acquisitions − Many 100 – 500 bus companies which could enhance our portfolio • Conversion − Relatively low volume and has been slow to develop − Have averaged 400 buses per annum, over the last three years Source: First Student (Internal)/School Bus Fleet Magazine 29
The decision making process • Key decision makers in academic and community institutions decide whether to contract out, or retain in-house Key influencers and decision makers (impacting conversions and renewals) US school organisation and structure Bus Activist State/local Union Public school districts Private schools parents lawmakers leaders contractors • 13,000 school districts • 7,500 elementary schools • 52,500 elementary schools • 900 secondary schools • 14,000 middle schools • 3,900 K-12 schools • 14,000 high schools School Board members School district • 2,100 K-12 schools (politicians) administrators Catholic schools Other institutions • 6,500 elementary schools 4,000 year-round schools • • 1,250 secondary schools 2,500 special education • Funding primarily from local and schools • 125 K-12 schools state governments 1,900 magnet schools • 10,000 charter schools • Source: National Center for Education Statistics 30
The other national operators Student Durham Transportation Atlantic Express Illinois Central of America HQ Warrenville, IL Wall, NJ Staten Island, NY Channahon, IL 30+ states & 4 11 states & 1 Geography 7 states 5 states Canadian provinces Canadian province Buses 20,000 10,000 5,300 3,500 Unionisation ~35% ~30% ~80% ~50% Margin 10.2% 5.6% Not published Not published • Top 5 companies (including First Student) account for almost 50% of the outsourced market Source: Company websites 31
Business strategy 32
The business prior to the recovery programme Retention rate Operating profit ($m) Margin 100% $300m 12% 281 $250m 10% 11.0% 90% 91% 90% $200m 8% 80% 8.1% 200 81% $150m 6% 170 6.8% 70% $100m 4% 60% $50m 2% 50% $0m 0% FY10 FY11 FY12 FY10 FY11 FY12 FY10 FY11 FY12 Operations Culture • Inflexible business model in a difficult economic • Disengaged organisation environment • Default to status quo – no focus on continuous • Lack of standardisation improvement • Lack of accountability through clear performance • Overly negative environment management and incentives system • Short-term decision making resulting in siege • Excess layers of management resulted in mentality inefficient decision making • Poorly priced contracts 33
Step 1: Driving efficiency through the cost base Driver labour costs - $1.1bn per annum Maintenance costs - $225m per annum Tighten standard hours without deteriorating service Establish standard repair times and performance • • levels management system Active management of standard hours and exceptions Optimise maintenance model and staffing levels • • - every minute saved is worth $2.5m Implement lean processes and systems • Reduce non-driving time • Harmonise fleet to decrease complexity • Review wage and remuneration policy • Savings - $40m delivered from FY11 - FY14 Savings - $12m delivered from FY11 - FY14 Fuel expense - $195m per annum Other significant costs per annum Drive Smart programme targeting: $15m downsizing in FY12, removing a layer of • • management from Student Excess idling and speeding • Cumulative indirect procurement benefit of $10m, • Aggressive driving and the link with safety • created First Market Place to deliver future benefits Measuring (technology) and communicating with • Plus the elimination of non-value added activities • each driver across the organisation Savings - $35m delivered from FY11 - FY14 Savings - $13m delivered from FY11 - FY14 34
Step 1: Snapshot of an average school bus location Revenue Per bus ($000) • 2 – 3 school board contracts • $4.4m in billing; 8% from charter work $47,825 Total billed revenue $4,400 • 92 buses at 7.3 years old Driver compensation 1,965 45% Driver compensation % to revenue Driver operations Maintenance costs 415 • 100 drivers; 96,600 paid hours per year Maint Cost/Bus 4,500 • $70k in stand-by and overtime premium Fuel 360 Maintenance Insurance/other running costs 250 • 1 shop manager; 3 techs; 3 bays • Cost per bus = $4,500/year Location overhead 445 Depreciation 400 Fuelling • Consume 100,000 gallons of diesel Operating profit (gross contribution) $565 $6,140 Contribution margin 13% Location overhead • 1 location manager; 1 other manager Revenue generating fleet 92 Average age 7.3 • 1 - 2 dispatchers • $225k in facilities expense 35
Step 1: Right-sizing the cost base at the location level Driver’s compensation Paid hours 96,600 - Have removed 4,800 hours from the system (4.8%) Average rate $15.63 - Minimizing the union/non-union discrepancy Driver compensation $1,510k Benefits/taxes $384k Non-driving $70k - 2% reduction and targeting more Total $1,965k Percent of revenue 44.7% - Almost two full points improvement in efficiency Maintenance Fuel Labor costs $243k - $150/bus efficiencies in Gallons consumed 100,000 - 5% reduction overtime/tech wages Average price $3.60 - 8% off of retail Parts $134k - $50/bus savings through procurement Total $360k Other maintenance $38k - $40/bus savings in outside Percent of revenue 8.2% - half point improvement services in efficiency Total $415k Cost/Bus $4,500 - $240/bus savings in efficiencies 36
Step 2: Disciplined approach to improving returns Existing work New contracts Retention Share shift • Maximise retention while maintaining • Bid responsibly by being disciplined acceptable rates on pricing and pursuing a targeted approach − Extend higher margin business to protect against margin erosion Acquisitions − Assist lower margin business out to bid where we have competitive • Opportunistic, margin enhancing advantage acquisitions will be used to supplement share shift growth Organic Conversions • The market is expected to stabilise at 0.5% to 1.0% route growth per • Look to maximise our share of the annum bids while keeping strong returns Charter growth • Maximise revenue potential of fixed asset base 37
Step 2: Contract portfolio management % of FY14 contract portfolio High 13% Manage margin erosion to retain >15% margin Medium 51% Retain business and improve margins 5-15% margin Low Look to shed poor performing contracts and improve 36% <5% margin margins significantly on remaining • Protect high margin business through retention strategy • Improve mid-range contracts through consistent pricing • Disciplined approach on lower end work through rigid ‘up or out’ strategy 38
The roadmap to double digit margins 11% Cost efficiency ($m) >1.0% Cost efficiency ($m) c.2.0% Driver comp >10.0% 10% c.(0.5%) Depreciation $400 c.2.0% Maintenance $85 $1,060 9% $195 Fuel Insurance $225 $230 Other running 8% costs / overhead c.7.5% Portfolio ($m) 7% Portfolio ($m) >1.0% $90 $105 6% Contract revenue Student charter 5% FY14 Cost Portfolio Above CPI FY17 Commercial efficiency increases $2,175 charter / other 39
First Student – summary • Business turnaround is progressing Our business • $100m of cost efficiencies delivered to end of FY14 • Cost efficiency, uniform operating procedures and disciplined approach to managing the portfolio will provide solid returns and cash flows • Completion of the turnaround programme will return the business to double digit margins Our plans • The business will be repositioned to take advantage of strategic growth opportunities • Return to double digit margins and improve returns through execution of plan Value opportunity • Leverage market leading position and deliver profitable growth 40
Dennis Maple, President – first impressions • Ten years experience providing contracted services to the education sector • Established profile and contacts in this market • Understand the issues facing decision makers • First Student’s recovery programme has achieved significant change and greater efficiency, while improving safety and customer satisfaction • Clear direction to drive programme forward, with further opportunity from: – Cost savings – Pricing – Capital 41
Greyhound Dave Leach, President 42
Greyhound – overview • Intercity coach market renaissance continues, especially amongst younger demographic Market • Car ownership declining, driven by continued urbanisation, congestion and costs of driving opportunity • Intercity coach beginning to attract users back to coach travel plus new customer demographics – and today’s share of customers’ addressable journeys is still low • Iconic brand synonymous with long-distance coach travel • Only national network of scheduled intercity coach transportation – provides passenger feed Our and operating leverage to newer point-to-point services strengths • An operation that is re-engaged with the customer operating a refreshed fleet • Point-to-point product suite provides multiple price point approach to new markets • Operating model transformed – reduced cost base, capital profile and improved flexibility Strategic • Disciplined renew/refurb programme to manage capital investment requirement progress • Point-to-point yield management expertise highly applicable to traditional network • IT transformation will unlock yield management, dynamic pricing and enhance customer convenience throughout the network – and transform load factors • Investment in IT for Greyhound to facilitate better yield management and growth in excess of GDP Our objectives • Further roll out of successful new products such as BoltBus, YO!Bus, and Greyhound Express, and investment in fleet renewal and refurbishment 43
Business overview 44
The actions taken have driven results Greyhound’s hard work in getting our house in order makes us poised for growth. IT transformation, increased marketing and further expansion of network and brands will leverage this foundation and accelerate future growth Network Growth era Rightsizing era Transformation era restructure era 200 Rev / Mile* 175 Yield* 150 Load* 125 Revenue* 100 Passenger Miles* 75 Fleet* 50 Coach Miles* 25 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 $150m $100m EBIT* $50m $0m Fixed cost business model Variable cost Global recession New coach opportunity • • • • business model Long haul orientation Benchmarking Refocus on customer • • • Network exercise with • Promotions Fleet • • restructured FirstGroup led to • Customer experience Route networks • around centres of substantial cost Expanded sales channels • • Shorter haul price & network demand connected reductions Revenue at any cost • orientation by long haul pipes Location • Greyhound Express & BoltBus • Massive fleet investment • No investment, rationalisation • Beginnings of technology • Contribution margin too low to • leveraged and transformation Limited • generate meaningful profits exhausted growth investment Leverage existing costs and • era assets infrastructure for growth – BoltBus launch • load gains and learnings * Greyhound US Only 45
Initial stages of Greyhound’s transformation Initial stages of Greyhound transformation give us confidence in our future We have delivered consistent operating profit growth in the midst of a prolonged recession and new competition How did we do it? $140 Reduced cost structure to a leveragable base by • achieving $115m in cost savings over past 5 years $120 Recapitalised the fleet , significantly mitigating required • $100 maintenance capital, by introducing a refurbishment $80 programme that extends the life of coaches. Blue coaches represent 75% of the current fleet $60 Transformed the business , refocusing on the customer • $40 and delivering exceptional service $20 Restructured our Canadian business to deliver a more • $0 commercially viable service FY10 FY11 FY12 FY13 Introduced growth brands (BoltBus and YO!Bus) and • EBIT(Millions) EBITDA (Millions) launched Greyhound Express, a point to point premium service within the core Greyhound network Ontime performance Customer complaints/100,000 Passenger survey stats Pax 95% 80% 75% 91% 800 70% 70% 89% 575 552 90% 70% 600 87% 330 400 85% 60% 200 80% 0 50% FY11 FY12 FY13 FY11 FY12 FY13 FY12-H2 FY13-H1 FY13-H2 Respondents "Very Likely or Likely To Use Greyhound Again" 46
Greyhound’s passenger brands Multi level brand strategy achieves broader market potential Learnings in the three growth offerings give us confidence to continue transformation into core network Description Markets served Fleet size 2000+ destinations in the US Iconic national network Access to Mexico and Canada 1,675 Between most Premium service US and Canadian cities with connectivity to the core within the core network network Most Canada Markets US Northeast 100 Premium brand US Northwest (incl. Vancouver) California New York – Philadelphia Chinatown brand 20 New York – Boston 47
Market background 48
Size of the potential US coach market Size of the potential market presents a significant opportunity for growth Market size based on segmentation study results of people who have taken or have considered a coach trip • More than 42m people currently consider coach travel in the US • We estimate that we currently serve a quarter of this population • Of the people who travel by coach, they choose other modes 75% of the time • New offerings and better products, services and price have the potential to growth this market and the frequency of use 49
The network advantage 50
Greyhound network breadth Applying what we have learned from Express across the rest of the network offers substantial growth potential North America Express sales ($m) 150 121 100 48 50 2 0 10/11 11/12 12/13 • Greyhound Express footprint covers over 30% of our US network and already most of the major city pairs • Significant opportunity in applying Greyhound Express learnings across the network 51
Greyhound’s network – a true competitive advantage The power of the network provides a significant competitive advantage and an established base for further growth Background: US coach market can be classified into two broad segments: • Prolific Midwest and Northeast markets with high density city to city demand and high acceptance of public transport systems • Longer haul markets with low density between city pairs and under developed public transport systems Case Study 1: Northeast market Express Portland Montpelier Ex. New York - Boston RPM/CPM Load Yield Concord Albany Boston Syracuse O&D Specific $3.39 35 9.7 Network Rochester Hartford passengers Binghamton Express to Express Feed $0.10 1 10.1 New York account for only 20% of total Longhaul Feed $0.16 2 8.0 Pittsburgh ticket RPM Average Daily Round Trips Small City Feed $0.54 5 10.8 New York - Boston Network Washington Total Ticket $4.19 43 9.7 Point-to-Point infrastructure GLI Richmond Competitor Facility Income $0.51 - - supported ancillary products Legacy 3 Parcel Service $0.05 - - Raleigh and services Express 15 12 Greensboro increased Asheville Charlotte Food Service $0.17 - - Boltbus 12 Wilmington passenger RPM Spartanburg Yo!Bus 6 Myrtle Beach Total Ancillary $0.73 - - by a further 17% Columbia Total 36 12 Charleston Total RPM $4.92 43 11.4 • Short haul routes, high acceptance of public transport systems and congested freeways result in high density • These markets are ideal breeding grounds for new entrants because they offer expedited paths to profitability • While network feed is not the primary component of RPM in these markets, it helps maintain competitive pricing 52
Greyhound’s network – a true competitive advantage The power of the network provides a significant competitive advantage and an established base for further growth Case Study 2: Texas market Tulsa Oklahoma City Little Rock Express Lawton Ex. Houston - Dallas RPM Load Yield Dallas Texarkana Fort Worth O&D Specific $1.07 8 13.4 El Paso Network Tyler Express to Express Feed $0.43 3 14.3 passengers San Angelo accounted for Baton Rouge $0.68 5 13.6 Longhaul Feed Beaumont Bryan 70% of total New Orleans ticket RPM Small City Feed $1.41 10 14.1 Houston Total Ticket $3.59 26 13.8 Network Average Daily Round Trips infrastructure Facility Income $0.51 - - supported Dallas - Houston Parcel Service $0.15 - - ancillary products McAllen Point-to-Point GLI and services Competitor Food Service $0.17 - - increased Legacy 3 Total Ancillary $0.83 - - passenger RPM Express 8 by a further 23% Total 11 4 Total RPM $4.42 26 13.8 • Long haul routes with lower density city pair demand and underdeveloped public transport system • Lack of network feed can potentially put the viability of a coach operation in these markets at risk Conclusions • Network feed from 42 thousand city pairs delivers profit before the coach leaves the station • Ancillary revenues, leveraging network infrastructure provide an additional 23% of revenue • Ability to price as necessary to grow markets and gain share in competitive ones • Ability to offer more frequency than competitors from serving the broader network 53
Growth strategy 54
Growth strategy: one more passenger Investment in customer-facing technology that provides value to the customer will deliver profitable growth on existing capacity and resources Illustration: impact of one extra passenger per coach Enablers to load growth Maximum capacity of a coach 50 • Frictionless commerce making it easier for our customers to transact with us Average load 35 Average ticket price $45 • Ability to deliver personalised offerings that mean something Assumed fleet size 1,000 Incremental passenger/coach 1 • Right information for customers wherever and whenever Price of incremental ticket at 75% of average $34 they want it Incremental revenue/day (tickets*price*coaches) $33,750 • Proactive problem solving, anticipating needs before they EBIT impact/day at 90% flow through $30,375 happen Annual EBIT impact $11,086,875 • Yield and capacity management • Leveraging available capacity and adding one extra passenger per coach daily will generate $11m in annual incremental EBIT assuming 1,000 coaches operated • IT transformation will open up many new ways to interact with new and existing customers to better leverage and monetise the existing network capacity • Loyalty and ease of doing business with Greyhound post-transformation will also lead to greater shares of existing customers’ travel wallet • We expect to invest $30-50m to complete the programme over the next three years 55
‘Airline style’ revenue management offers significant value Dynamic pricing enables yield and capacity optimisation • Maximizing revenue in high High Demand Management Network Management demand corridors Current State Future State – Peak pricing opens up Peak Off-Peak Peak Off-Peak Current State Future State seats for those willing to pay – Price conscious consumers fill out open schedules • Ability to sell existing excess network inventory Moved from peak – Aggressively price ‘free’ schedule to off- peak schedule network inventory to Don’t make it on to the bus in the grow demand current state Load: 50 Load: 30 Load: 50 Load: 42 Load: 27 Load: 32 • Initial capabilities expected Yield: 0.12 Yield: 0.12 Yield: 0.20 Yield: 0.10 Yield: 0.1462 Yield: 0.1327 to be delivered in Q1 of FY15 RPM: 6.00 RPM: 3.60 RPM: 10.00 RPM: 4.20 RPM: 3.95 RPM: 4.25 Can’t Board Can’t Board Current State Future State Load: 40 Load: 46 Yield: 0.12 Yield: 0.15 RPM: 4.80 RPM: 7.10 Legend Price Conscious Customer Premium Customer Empty Greyhound Coach Seat 56
Greyhound – summary • Conversion to a lower cost business model offers flexibility in any market Our business • Solid margins and returns provide a platform poised for future growth • Uniquely positioned with a strong national network and iconic brand • IT transformation to deliver customer value and empower front line employees Our plans • Ample opportunity to expand footprint and grow within existing network • Improved operational performance and efficiency • Network leverage delivers top line growth and operating profit margin of Value approximately 12% in the medium term opportunity • Ample opportunities to expand penetration and footprint with multiple brands and services • Fleet recapitalisation and maintenance transformation offer further margin enhancement 57
UK Rail Vernon Barker, Managing Director Business Review UK Rail PLC 26 th November 2013
UK Rail – overview • £8bn of long-term contract-backed passenger revenue available – 19 major franchise opportunities Market opportunity • Third generation of government procurement process with capital-light characteristics • New franchises expected to have clearer upfront contingent capital requirements, greater revenue risk but earlier exogenous protection • Market participant since 1997; experienced in running all types of franchise Our • Strong commercial, rolling stock and major project (including infrastructure upgrade) strengths capabilities • Highly experienced bidding team – most successful in previous franchising rounds • Delivered more than £600m of pre-tax cash from franchises managed since 2006 Strategic • Outperformed industry in delivering punctuality and customer satisfaction improvements progress since 2006 • Already shortlisted for five bids representing 29% of current passenger revenue receipts • Maintain a significant share of UK rail market, with similar levels of profit and risk Our objectives 59
UK Rail – scope of operations • UK Rail division started operating in 1997 and has operated eight separate franchises, contracting to Government • Only provider with experience across commuter, regional, long distance and sleeper operations • Largest UK operator: ─ 23% of total industry passenger revenue ─ Employs 13,500 members of staff ─ Operates 2,800 diesel and electric rolling stock vehicles daily ─ Runs 395m vehicle miles per annum ─ Operates 662 stations Major market Premium / Franchise Contract period Comments sector(s) Subsidy First Great Western InterCity, Apr 06 to Sep 15 Premium InterCity element operated since 1998. New Commuter, agreement signed in Oct 13 Sleeper, Regional First Capital Connect Commuter Apr 06 to Mar 14 Premium In discussions with DfT on short contract award from Mar 14 to Sept 14 First Transpennine Express InterCity Feb 04 to Mar 15 Subsidy Joint Venture with Keolis (who own 45%) and potential contract award to Feb 16 First ScotRail InterCity, Apr 04 to Mar 15 Subsidy Shortlisted to bid for new franchise Commuter, Sleeper, Regional First Hull Trains InterCity Open Access n/a Operated by FirstGroup since 2004 with 20% minority shareholders 60
Our successful record in rail FirstGroup’s annual profit and share of UK national rail passenger revenue 30% £120m 25% £100m 20% £80m £m operating profit less non- recurring charges 15% £60m % share of franchise passenger 10% £40m revenue 5% £20m 0% £0m 06/07 07/08 08/09 09/10 10/11 11/12 12/13 FirstGroup’s portfolio of franchises have been operated since 1 April 2006 and • successfully delivered in excess of £0.6bn pre-tax cash generation for FirstGroup, including franchise investment spend and bid costs The main determinate on annual profit levels is variance from the bid model, • especially passenger revenue growth (CAGR since 1 April 2006 is 6.9%) Have retained a constant share of the total UK Rail franchise passenger revenue at • 24% over the seven year period 61
Industry opportunity 62
UK Rail sector overview The UK Rail market • Revenue £8bn • 19 current UK rail franchises – operated by 11 Owning Groups (including Directly Operated Railways) • High barriers to new entrants; regulated environment and rigorously defined contracting process • Contingent investment only – good cash flow potential Forthcoming opportunities • Third round of post privatisation franchising competition underway • In total, £5bn (including £1bn relating to FCC and Southern) of the current passenger revenue value is available for franchising in the period to April 2017 • Process has started with FirstGroup shortlisted for the first five available franchises 63
DfT and Transport Scotland refranchising programme Franchise Short 11/12 listed Market sector Passenger 2014 2015 2016 2017 2018 2019 2020 2021 revenue share TSGN (cost risk only) includes Yes London and South East 15% Sept First Capital Connect Essex Thameside Yes London and South East 2% Sept East Coast Yes InterCity 8% Feb Caledonian Sleeper (Transport Yes Specialist n/a Apr Scotland) First ScotRail (Transport Yes Regional 4% Apr Scotland) Northern Regional 3% Feb First TransPennine InterCity 2% Feb First Great Western InterCity 10% Jul Greater Anglia London and South East 8% Oct West Coast InterCity 11% Apr London Midland London and South East 3% Jun East Midlands InterCity 4% Oct South Eastern London and South East 8% Jun Wales & Borders Regional 2% Oct South West London and South East 11% Apr Cross Country InterCity 5% Nov Chiltern London and South East 2% Dec Source:: ORR, DfT and Transport Scotland 64
The franchise model 65
Rail franchise bids in the UK • Normally two years from start of bid consultation process until new franchise commences • Typically bid costs for FirstGroup range between £4m to £6m covering financial and legal advisors, revenue and market assessments and specialist advisors • The pre-qualification and bid requirements can create a significant barrier for new market entrants because: The high cost means it cannot be undertaken speculatively. New entrant cost likely – to be much higher as it cannot rely on FirstGroup’s economies of scale and level of expertise Pre-qualification requires the bidder to demonstrate credentials with a relevant – track record and experience in similar operations Difficulty in building up market expertise as limited pool of contract opportunities – and experienced people Different contractual market from other large outsourced environments – Margins based on revenue and cost risk profiles of individual bids • Source: DfT 66
The franchise model – passenger revenue Income characteristics in a franchise with passenger growth generation is • subject to a number of different factors including: Exogenous GDP growth – Fare changes – Passenger revenue base of FirstGroup UK Rail franchises – Regulated fares – 2012/13 Leisure 20% Advance purchase and yield management – Changes to timetable services – Business 48% Train performance and track engineering works – Commuter Revenue protection – 32% Marketing – Crowding constraints – Financial protection mechanisms include: • Anticipation that DfT will provide a mechanism for sharing revenue risk – linked to economic factors Government changes to regulated price regime are compensated – Network Rail compensation – 67
The franchise model – franchise costs Network Rail charges – Mainly fixed, covering access charges for track, stations and depots – Office of Rail Regulation (ORR) five yearly Network Rail charging review changes covered Cost base of FirstGroup’s UK by franchise payment adjustment mechanism Rail franchises – 2012/13 12% Network Rail Rolling stock charges 3% – Fixed operating lease costs 29% Staff costs – A variety of lease structures depending on 8% Rolling stock the level of maintenance responsibilities Fuel and utilities Staff costs 21% – Staff TUPE Commission payable – No long term pension funding liabilities 27% Other Assets and investment – Few owned assets – Mainly rolling stock, stations and depot operating leases – Franchise payment includes value for any direct investments 68
Parent company contingent financial support • New franchises are SPVs with the signatories to the Franchise Agreement being the SPV, Parent Company and the Franchising Authority • Typically the SPV has no significantly level of initial capitalisation and the Franchising Authority relies on the Parent to: – Provide a minimum loan facility to the SPV – Provide a re-let/performance bond payable on demand in the event of any default – Provide a Season Ticket Bond to protect the season ticket cash for future rail travel • Current levels of performance bonds and inter-company loan facilities total: £138m • For the forthcoming franchises the following published levels are: Essex East Franchises Thameside TSGN Coast ScotRail Re-Letting / Performance Bond (RPI indexed) £6m £20m £20m £35m Loan Facility (Minimum) £30m £50m £50m £25m • In addition further loan facilities may be required depending on franchise requirements Source: DfT 69
Our strong rail credentials 70
UK Rail – expertise and a record of delivery Delivering growth • Average FTPE revenue growth of 13% per annum delivered over the past nine years • First ScotRail has seen significant passenger growth since 2004, with annual journeys up by more than 30% to 83.3m in FY13 Delivering capacity upgrades • Four successful new fleet introductions in recent years • Currently involved in programmes delivering a further 1,500 further new vehicles • Major timetable service changes delivered across all four franchises 71
UK Rail – expertise and a record of delivery Delivering infrastructure upgrades • £850m Reading station remodelling project partnership between FGW and Network Rail • FCC working with Network Rail on £6bn Thameslink programme doubling train capacity • FSR worked with Network Rail to electrify and transform Paisley Canal line through innovative alliance • Working with DfT on electrification of Great Western mainline in preparation for InterCity Express Programme, Crossrail and new fleet of local electric trains 72
UK Rail – quality improvement • First Great Western recorded the largest Public Performance Measure (PPM) Train Performance Improvement from 06/07 – as measured by PPM improvement of any franchised TOC – 5% 5.9% since 2006/07 FirstGroup 4% • The improvement in National Passenger Survey (NPS) includes FGW increasing 3% Overall Satisfaction score by 8% Total 2% industry (excluding • FCC has seen challenges due to FirstGroup) 1% infrastructure and Thameslink 07/08 08/09 09/10 10/11 11/12 12/13 Programme works, but still increased by 5% over the period Customer Satisfaction as measured by NPS Spring Results – increase from Spring 07 (franchised only) 8% • Innovations improving customer 7% experience: 6% FirstGroup 5% – 1.6m journeys on FSR made with 4% smart tickets Total 3% Industry 2% (excluding – More than one million downloads FirstGroup) 1% of our customer app, providing 0% 2008 2009 2010 2011 2012 2013 journey planning and mobile retailing capabilities Source: Network Rail and Passenger Focus surveys 73
Leveraging our expertise and capability Industry recognition • More than 200 external awards within rail industry and wider since 2006 • FTPE: National Rail Awards – Passenger Operations 2013 and European Intercity Operator of the Year 2013 • FSR: National Rail Awards – Rail Operator 2010 (UK) and Passenger Transport Operator of the Year 2013 (Scotland) • Franchises all recognised by the British Quality Foundation with 4- and 5- star Business for Excellence ratings. FTPE first UK rail franchise to achieve 5 star • All TOCs accredited by Investors in People • FirstGroup first public transport operator to achieve British Standard for collaborative business relationships, as highlighted in McNulty Value for Money Report 74
UK Rail – summary • Profitable, successful division with ‘light’ direct capital requirement Our business • Only owning group with scope and experience across a range of franchise opportunities • Highly experienced management team • Delivering quality improvement in all operational areas, strong project management, partnering and rolling stock capability • Delivering rail services with customers at the heart of what we do Our plans • Bid to replenish portfolio, similar levels of profitability and risk • £5bn of UK rail turnover available for bid pre-April 2017 Value opportunities • Shortlisted for five franchising competitions to date 75
UK Bus Giles Fearnley, Managing Director 76
UK Bus – overview • Total revenues of £4.4bn per annum – UK, excluding London Market • Market segmentation offers great potential opportunity • 20% market share outside London Our • Operating in seven of the 12 most densely populated cities strengths • 57% of operations across major northern and Scottish conurbations • Delivering service quality through rigorous focus on disciplined operations The • Designing networks to maximise demand and offering real value for money fares proposition • Developing ticketing and customer-facing technologies that stimulate growth and loyalty • Transformation programmes across whole division Strategic • Network and fares reviews proving growth potential progress • Passenger volume growth 2.0% to date (FY14) • Strong revenue growth underpinned by sustained volume growth and tight cost controls Our • Double digit margins by 2017 objectives 77
The UK Bus market remains attractive Bus trips by journey purpose FirstGroup captures 20% of UK market (outside London): Other Escort 2% Business - £871m revenues (FY13) 2% Personal business Shopping 10% - Carrying 577m passenger (FY13) 25% Education/ - Operating principally in major urban areas education escort 17% Commuting Leisure and Growth strategies targeting each market segment: • 23% other 21% - By journey purpose and by age Young people provide a great growth opportunity: • Bus trips by age band - Between 1997 and 2012 the number holding full car driving licences fell by: 70+ 5-16 14% 15% Age 17-20 7% 17-20 60-69 10% 12% Age 21-29 9% 50-59 21-29 9% 16% Significant spare capacity to accommodate growth • 40-49 12% 30-39 12% Source: DfT National Travel Survey, Great Britain 2012 78
We have compelling positions in key markets Aircoach Ireland 3% Wales 5% 3% Cymru 5% Glasgow 15% Essex 6% 6% Mid & West Norfolk/Suffolk Lothian 6% 4% 6% Scotland 24% Aberdeen Midlands 3% 6% Revenue £866m Revenue £866m Revenue £866m Revenue £866m Revenue £866m Revenue £866m Revenue £866m Revenue £866m Revenue £866m Revenue £866m Revenue £866m Revenue £866m Revenue £866m Revenue £866m Revenue £865m Revenue £866m South West 2% 63% South & North Yorkshire 9% 25% Hants Dorset & England Berks 7% 68% Bristol & Avon 9% West Yorkshire 15% Manchester Fare paying passengers Concessions Tenders Other 10% Financial year 2012/13 revenues 79
UK Bus – a snapshot of our operations 80
The UK Bus strategy has changed 160.0% Cost per mile 120.0% Average fare +22 Public Funds % RPI Commercial/Other Rev +5% Mileage 80.0% Commercial Pax -3% 40.0% 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 Historic strategy – pre 2012 The transformed business Maximise yield per passenger and per bus by: Maximise revenue growth through: - Raising fares above inflation - Fares offering real value for money - Reducing service frequency - High standards of service - Variable service quality - Tight cost disciplines - Under-investment - Focused investment Poor customer proposition, increasingly not offering Deliver a strong, attractive customer proposition, value for money, leading to: creating: - Customer dissatisfaction - Responsive networks - Local authority despair - Valuable partnerships with local authorities - Increased competition - Increasing volumes - Greater market share RESULT: VOLUMES DECLINED RESULT: PROFITABLE VOLUME GROWTH 81
Bus transformation plan – the levers for change (1) Lever Initiative Progress to date Portfolio • Sale of non-core assets • Completed Disciplined • Core operating procedures and • Breakdowns reduced by 27% Operations standards • Vehicle defects reduced by 29% • Cost efficiencies • Engineering lost mileage reduced by 21% Network • Design – to maximise growth • Numerous route upgrades and initiatives Delivery opportunities and increase market • 10 major redesigns completed to date share • Examples of deeper arrangements including Sheffield Bus • Partnerships – to create strong Partnership and the Eclipse network in Hampshire delivery mechanisms with local authorities, improving service • Award of Better Bus Area status in Bristol, Sheffield and delivery York • Providing the strongest defence to the regulatory agenda • Fares and fare structures – a new • Reductions in selected fares products, particularly day approach to deliver volume and and weekly tickets, have now been applied to c.65% of revenue growth the business. Volume growth is achieving expectations • Focus on discounts to young people Together these measures deliver a compelling offer to customers 82
Bus transformation plan – the levers for change (2) Lever Initiative Progress to date People • Training and development for all • Driver CPC courses and on-the-job training for engineers employees, directly related to • Leaders and managers receiving personal development individual roles and support and training responsibilities • Managing Director appointments to each business unit • Creating a customer centric culture • Recruitment of specialist commercial and technology experts • 30% of senior managers recruited to role since 2012 • Significant cultural change Investment • Core operating procedures and • Deliveries on track and achieving reduction in average standards fleet age from 9.4 to 8.2 years in 2016 • Cost efficiencies • Plans developed to deliver smart and mobile products through 2014 • Apps and web channel upgraded; real time service information, working alongside local authorities Together these measures deliver a compelling offer to customers 83
Bus transformation plan – cost efficiency opportunities Drivers • New starter rates • Scheduling and rostering • Terms and conditions Non Building Other Overheads 5% Overheads Fuel 8% Building • DriveGreen – driving behaviours Overheads 3% • Working with manufacturers for continuous Parts & Support improvement Services - Lightweight and flybrid technologies PCV 14% - Low carbon certification for Streetlite 9% Traffic Engineering Total Drivers 7% • Labour recording system Labour Dep'n 43% 56% • Investment in diagnostic equipment 6% reducing breakdowns Engineering • Increasing skill levels 15% • Benchmarking by depot and vehicle type • Purchasing and supplier management Other Direct & Fuel 16% • Benefits from new buses Semi Direct Costs - Fewer vehicle types 2 % Fuel 16% - Lower maintenance costs Overheads • Continuous review of all support functions • Depot rationalisations • Energy efficiency programmes • Investing to support frontline delivery Financial year 2012/13 costs 84
Commercial volume growth – strategy delivering results April-December 2012 vs. April-December 2013 Mileage Commercial Commercial Area Actions Comments % Volumes % Revenue % • Service enhancements Major fares realignment Bristol +4% • Performance improvements +7% +3% introduced Nov 2013 following • No fares increase consultation • Stable network Pricing initiatives (day and • Performance improvements Leeds +4% +9% +5% weekly products) launched Jan • Inflation only fares increases 2014 (18 months) • Day and weekly prices Manchester +1% reduced by 30% (Apr 2013) +13% +1% Volumes continue to increase • Performance improvements • Partnerships from Oct 2012 Total ridership (all operators) for Sheffield 0% • Fares realigned +17% +12% adult fare-paying passengers • Performance improvements increased by 9% Significantly increasing the customer base Commercial volumes represent fare paying passengers 85 Commercial revenue excludes concessionary fares reimbursement and tendered service support
UK Bus case study – Bristol Consolidated Mayor of Fares Public from 3 to 2 increase consultation Bristol depots deferred elected of fares 2012/13 2011/12 2013/14 Pax – 4% Pax +3% Pax +6% Complaints +3% Complaints +4% Complaints +4%* STA – no STA +2% STA -1%* change Focus on Increased Fares changes service evening and implemented performance night services The issues Actions taken The results • Service performance improved through • Service performance badly • Additional resource to maintain lost mileage reduction of 21% affected by congestion timetable – but congestion remains a major issue • Over complex and anomalous • Passenger volumes increased by a further 6% following November fares fare structures leading to a • Responding to growing night- perception of over-pricing time economy with additional late changes evening and night services • Overall passenger satisfaction score rises • Difficult relationships with the West of England local authorities • Following a major public to 93% and the newly-elected Mayor of consultation (6,500 respondents) • Working closely with the Mayor to drive Bristol – launched a new fares structure the city’s economy from November 2013 – focused on zonal and young persons’ • The future products Fares consultation for Greater Bristol – networks, Spring 2014 Comprehensive marketing campaigns – STA – start time adherence Complaints – per 100 passengers 86 * STA and complaints metrics for 2013/14 are impacted by a significant programme of roadworks and construction activity in central Bristol
UK Bus case study – Leeds Fare Delivery of 100 Olympic increase deferred buses 2011/12 2012/13 2013/14 Pax – 4% Pax -4% Pax +10% Complaints +4% Complaints +2% Complaints -6% STA +2% STA -1% STA +3% Multiple fare Opening of Student Trinity Shopping rises campaign Centre The issues Actions taken The results • 100k additional passengers per week • Poor service performance • Transformation programme focusing on all aspects of service • 32% of new passengers new to bus and • Driver training backlog delivery 71% travelling only 1-3 times per month • Frequent service changes • Acceleration of training • Service performance improved through • History of above inflation fares programmes lost mileage reduction of 24% increases • Stable service network with • Delivering best defence to a regulatory • Little confidence from local additional growth mileage regime authority (West Yorkshire PTE) • Fares increase deferred six months and then applied at • The future inflation From January 2014 reduction in day – • Pro-active in developing and weekly tickets partnership proposals with local Aligned to the city’s growing – authority economy Opportunity for partnership working – STA – start time adherence Complaints – per 100 passengers 87
UK Bus case study – Manchester Evolving marketing campaign Oldham / M60 Fare FirstGroup fare reductions fined by traffic trials through GM commissioner 2011/12 2012/13 2013/14 Pax +2% Pax – 9% Pax +14% Complaints +2% Complaints +3% Complaints -2% STA -1% STA +3% STA +1% FirstGroup fares Delivery of Announced Delivery of considerably higher 100 Olympic intention to 30 new than competitors buses acquire Finglands buses The issues Actions taken The results • 150k additional passengers per week • Poor passenger and local • Transformation programme authority (Transport for Greater focusing on all aspects of service • 46% of new passengers new to bus and Manchester) perceptions: delivery 67% now travelling 1-3 times per month Variable service performance • Following trials, permanent – • Service performance improved through reductions of c.30% in day and Fares c.40% higher than lost mileage reduction of 32% – weekly products other operator comparables • Stronger relationships with local • Marketing strategy to maximise authority Tired fleet – awareness including extensive • Low employee morale door drops targeting car users • The future • An eroding market • Cross city services introduced Marketing campaigns continue – • 130 new buses Benefits of Finglands acquisition – • Staff engagement throughout STA – start time adherence Complaints – per 100 passengers 88
UK Bus case study – Sheffield Strong yields from Extensive inflationary fare student increases Phased price campaign reductions 2011/12 2012/13 2013/14 Pax – 8% Pax – 4% Pax +20% Complaints +1% Complaints +7% Complaints -10% STA +1% STA -3% STA +2% Bus partnership Targeted route New and launched campaigns building refurbished on fare position vehicles The issues Actions taken The results • Total passenger volume growth of 20% • Highly competitive network • Transformation programme on FirstGroup’s services (adult fare focusing on all aspects of service • FirstGroup’s fares 30-50% above paying is 30%+) delivery competitors • Volumes for all operators’ services now • Fares reductions (c.30% on day • Poor service quality growing by 9% and weekly tickets) • Elderly fleet • Sheffield Bus Partnership from • Service performance improved through • Disillusioned employees lost mileage reduction of 32% October 2012 delivering: • Deservedly poor reputation Co-ordinated route – • The future structures Elimination of over- Strong partnership foundation to – – deliver further growth resourcing Network changes following Strong network promotion – – consultation • 37 new buses + 30 refurbished • Strong staff engagement STA – start time adherence Complaints – per 100 passengers 89
UK Bus case study – Glasgow: network redesign 2005 2012 SimpliCITY from May 2013 services operating at frequencies of 10 minutes or better The issues Actions taken The results • Against backdrop of a struggling local • Continual mileage reductions • SimpliCITY network introduced economy: had focused on reduced May 2013 following extensive frequencies consultation with public and SimpliCITY outperforming the rest of – local authorities the Glasgow network • Route structure complex and many journeys not direct • High frequencies (10 mins or Against pre-launch trends SimpliCITY – better) restored to core services +1.2%, non-SimpliCITY +0.2% • An impossible proposition for effective marketing • Better co-ordination across all volume growth services • SimpliCITY represents 68% of the • Opportunities for competitor entry • Simpler links to and from city network’s revenue and 65% of resource centre • The future • Achieved with no increase in 420k households receiving direct – mileage marketing • A strong marketable proposition Further network strengthening – planned 90
UK Bus capital investment PCV capex (£m) Total capex (£m) 140 120 120 100 80 100 60 80 Other 40 60 20 PCV's 0 Property 40 08/09 09/10 10/11 11/12 12/13 20 London/Regulated Rest of UK/De-regulated 0 Additionally – mid-life refurbishments of: 379 buses in 2013/14 273 buses in 2014/15 Fleet age and DDA compliance (ex London) Reduction of 24 vehicle types by 2017 9.6 100% 9.4 90% Focus on fuel efficiency: 9.2 80% - lightweight, micro Hybrid and Flybrid technologies 9.0 70% 8.8 60% delivering 10%+ fuel efficiency 8.6 50% - low carbon certification on Streetlite qualifies for 8.4 40% 6p increase in BSOG payments 8.2 30% 8.0 20% Alternative fuel source trials – in 2014 include: 7.8 10% 7.6 0% - electric for York’s Park & Ride services Average Age - hydrogen for Aberdeen DDA Compliance Reducing average fleet age and achieving DDA compliance 91
The roadmap to double digit margins 12% Costs (£m) c.3.0% Drivers £73 c.3.0% c.10.0% 10% Fuel (net) £70 Tyres £52 £339 Engineering 8% c.3.0% £114 Traffic 0.1% PCV 1.0% 6% £126 £6 Overheads 4.7% Revenue (£m) 4% Portfolio ($m) (1.8%) £62 c.3.0% £49 Fare paying 2% passengers Concessions £546 Tenders 0% £214 FY13 Portfolio Headwinds Cost Growth FY17 Other revenues efficiency 92
UK Bus – summary • The transformation plan is working by: Our business – driving the potential in each market – utilising spare capacity to meet this increasing demand – successfully partnering with local authorities – aligning objectives and underpinning the delivery of high quality bus services • Each component of the transformation plan is coming together to enable the full potential within each market to be achieved Our plans • The introduction through 2014 of smart and mobile ticketing, together with enhancements to customer information channels will spur further growth • Exploiting the compelling position held in each market Value opportunity • Profitably expanding the customer base – passenger volumes are increasing at unprecedented levels • In combination, these strategies are creating a robust business • Restoring double digit margins by 2017 93
Financial framework Chris Surch Group Finance Director 94
Key topics Group profile Financial objectives and supporting management framework Capital structure Medium term potential 95
Group profile Revenue Operating profit UK Rail 12% First Student 22% First Student 36% UK Rail 41% UK Bus 18% First Transit 12% Greyhound 18% Greyhound 9% First Transit 16% UK Bus 16% Group ROCE at 31 March 2013 was 7.6% Financial year 2012/13: post-IAS19 excluding Group items 96
Medium term financial objectives • Four-year financial objectives: – Grow Group revenue (excluding UK Rail) at a faster rate than the underlying economy – First Student and UK Bus: improve margins to 10% – Greyhound: improve margins to approximately 12% – First Transit: maintain margins while investing to take advantage of key outsourcing opportunities – UK Rail: maintain similar levels of profitability and risk – Post-tax ROCE* in the range of 10%-12% • Treasury objectives: – Net debt : EBITDA ratio of 2.0x in the medium term – Maintain appropriate liquidity headroom – Maintain investment grade credit rating * Defined on next page 97
Return on capital employed ROCE FY13 (£m) Operating profit after tax Operating profit (post-IAS19) 275.5 All assets and liabilities, excluding debt items Effective tax rate 20.1% • Calculation based on statutory accounts disclosures Operating profit post-tax 220.1 • ROCE includes tax structuring benefits Balance sheet net assets 819 • Capital employed includes goodwill, excludes net debt Less: gross cash (Note 21 to Annual Report) (682) and accrued interest Plus: gross debt (Note 22 to Annual Report) 2,759 Capital employed 2,896 ROCE FY13 (as reported) 7.6% Medium term ROCE target of 10% to 12% 98
Framework for managing and driving improved returns 1 Revenue growth Operational returns: Divisional turnaround Margin expansion 2 plans ROCE 10-12% Capital structure: Drive Investment Grade 3 Operating leverage Objectives EPS returns Rating 2.0x net debt / EBITDA in Capital expenditure medium term 4 control Free cash flow Strong cash flow 5 Capital structure Returns FirstGroup to being a reliable and consistent cash generative business 99
Revenue growth 1 • General: GDP growth – GDP based businesses: economic recovery from 2015 • First Student: Contract growth and – Optimise existing portfolio and share shift optimisation – Charter growth to maximise utilisation of assets • First Transit: Continued growth – Continual focus on bid pipeline (retention and new opportunities) – Growth in context of margin maximisation and ROCE for shuttle • Greyhound: Yield management – Capacity and yield management on core network and Express services – New point-to-point services • UK Bus: Network rationalisation – Refreshed commercial proposition less funding – Passenger, concessions, other revenue volumes – Pricing and funding • UK Rail: – Passenger volumes Rail franchises – New contract bids 100
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