TfL Business Plan Finance Committee 18 December 2019 1
2019/20 – We continue to operate in a challenging climate 2024/25 Business • The challenges we faced in the 2018 Business Plan remain. plan: Key • We built financial resilience over the past two years through robust cost control and made messages difficult decisions on our investment programme. We are maintaining our commitment to breaking even by 2022/23, through: • Continued focus on efficiency and reducing core costs. Maintaining financial • Growing alternative sources of income to reinvest in our transport services. resilience through • A disciplined capital plan that delivers the same outcomes, but focus is to ensure safe, rebuilding our cash, and reliable services are delivered and covered by our existing funding sources. better defining the We have a much clearer view of the investment we require in our assets: minimum cost to continue • We evolved our capital prioritisation methodology to define our baseline – what is required to operating our network keep our assets safe and operating at their current level, replacing them when their life expires safely and reliably but not adding anything new to the network. • We can afford to fund our baseline, but future enhancements will need to be supported by external funding sources, either from government or third party funding sources. 2
Section 1 The challenge The challenge 1 Our approach 2 How we'll do it Getting the basics right 3 Transforming our core 4 Planning for the future Long term Capital Strategy 5 Managing our risks 6 Conclusion 7 3
Our Our challenges Our response challenges remain £ Intensive operating cost Long term funding control Cancelled / deferred Economic downturn projects Crossrail Reduced renewals Asset sales 4
We are still Changes in TfL’s funding adjusting to 11/12 13/14 15/16 18/19 the loss of DfT grant split: Half operating grant Remaining operating First year without an operating/capital switched to Business grant starts to reduce operating grant government Rates Retention (BRR) £3.5bn grant £3.0bn £2.5bn £2.0bn £1.5bn £1.0bn £0.5bn - 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19 19/20 20/21 21/22 22/23 23/24 Operating BRR Operating grant Investment BRR Investment grant Excludes one-off / exceptional grants e.g. Metronet, Crossrail, Overground 5
The economic London Employment UK Retail Sales Year-on-year change outlook gives us 5% 6% 5% 4% continued 4% 3% 3% grounds to be 2% 2% 1% cautious 1% 0% Apr '13 '14 '15 '16 '17 '18 '19 -1% Apr '13 '14 '15 '16 '17 '18 '19 '20 UK GDP UK Saving Ratio Growing household debt and low interest rates leave both households and the wider economy vulnerable to shocks 6 Sources: ONS data unless stated
Wider trends in Declining overall transport Steady population growth Subdued overall demand demand trends London show Average trip rates (Londoners) Annual change in population Annual growth in journeys short term low LU 2.50 1.7% Buses demand growth 2.14 0.9% 2013/14 2018/19 2009 2018 12/13 17/18 22/23 Our forecasts adjusted to reflect more positive Average Londoner makes 14 per Short-term growth is lower than Year on year growth has slowed in recent results, but cent fewer transport trips than early 2010s the past few years. underlying trends are not five years ago. Population is still predicted to However, Tube journeys have This is mirrored by similar national grow from 8.9 million to 10.5 returned to growth. as positive as they were trends. million by 2030s Bus demand is still in decline but earlier in the decade Trend has stabilised in past year, London is still the fastest growing is forecast to stabilise. with very small increase relative to region in the UK 2017/18 7
Crossrail is Elizabeth line phasing delayed – but will bring huge May 2018 Dec 2019 As soon as practically As soon as possible after Paddington and Paddington and Reading possible 2021 Central section open benefits Heathrow Terminal 4 open Central section Paddington - Reading & Heathrow T5 Abbey Wood connected to central section Open Delayed Net operating impact of further Elizabeth line delay on our plan (compared to 2018 plan) (net of income and cost) 19/20 20/21 21/22 22/23 23/24 £0.0bn We have modelled the impact of the additional (£0.1bn) revenue loss to be £750m (£0.1bn) which peaks in 2021/22 and 2022/23 (£0.3bn) c.£0.75bn worse over the plan (£0.3bn) mainly due to delayed passenger income. This is in addition to the c.£0.6bn included in last year’s plan 8
Mitigating the Construction £1.4bn capital grant from GLA (made up of £1.3bn loan from impact of the costs DfT – paid back over 10 years using MCIL – and £100m cash contribution from the GLA.) This will be consumed by mid-2020 Crossrail delay £750m loan facility from the DfT to TfL assumed to be received and fully utilised in 2020; discussions ongoing with DfT and GLA on funding of additional cost overruns Operating £500m to 750m impact compared to 2018 plan spread over four Our strong budgetary years (net impact, after accounting for the additional revenue from Reading to Paddington account performance means we services starting in December 2019). are well placed to absorb Revenue loss will be managed through further savings , the additional revenue encouraging more people to use public transport, £100m business losses rates repurposing and use of cash reserves we have been building for this purpose Governance We continue to work closely with Crossrail’s Board to support the successful completion of the project and support 9
Section 2 Our approach The challenge 1 Our approach 2 How we'll do it Getting the basics right 3 Transforming our core 4 Planning for the future Long term Capital Strategy 5 Managing our risks 6 Conclusion 7 10
Strong historic Net cost of operations (excluding former General Grant) performance 15/16 16/17 17/18 18/19 19/20 (£307m) (£422m) (£873m) We have a great track (£1,083m) record of delivery which sets us in a strong position (£1,479m) to face the challenges Latest forecast ahead 11
We will rebuild TfL cash balance (excluding Crossrail account) our cash reserves to increase £3.5bn resilience £3.0bn £2.5bn £2.0bn £1.5bn £1.0bn £0.5bn Minimum cash reserves of - £1.2bn which is the 13/14 14/15 15/16 16/17 17/18 18/19 19/20 20/21 21/22 22/23 23/24 24/25 equivalent to 60 days of operating expenditure Further investments, assuming we can £1.2bn £0.6bn afford critical safety spend and external risks don’t Minimum cash reserve Risk buffer materialise 12
We remain on TfL net cost of operations track to break In 19/20, our net cost of operations is over Net cost of operations even by 2022/23 £1bn better than it was in 15/16, if grant is If General Grant removed excluded despite the £700m headwinds we £500m £300m face £100m (£100m) (£300m) (£307m) (£500m) (£700m) (£900m) (£1,100m) (£1,300m) (£1,479m) (£1,500m) 15/16 16/17 17/18 18/19 19/20 20/21 21/22 22/23 23/24 24/25 Our efficiency is better than the headline improvement as previous years were bolstered by the General Grant, which we no longer receive 13
How we will get What changes between 2019/20 and 2022/23 there 19/20 (£307m) Building back to steady state Renewals (£220m) Financing (£120m) Reflects planned borrowing The Underground and Buses/Streets/other Inflationary cost pressures (£26m) Elizabeth line are the Rail £20m New services largest contributors to Further 30% reduction Back office £105m turning a deficit into a New revenue streams PropCo £39m surplus by 2022/23 Includes business rates /group items £88m Business rates/other Revenue growth and modernisation LU £257m Elizabeth line £222m Moving from a deficit to a surplus 22/23 £58m 14
Key rail modes Passenger journeys: comparison of recent plans 2019 Plan still growing but 2018 Plan 2017 Plan at a slower rate Underground Buses Rail 1,500m 2,400m 450m 1,400m 2,200m 400m 1,300m 2,000m 350m Demand changes from last 1,200m 1,800m 300m 2015/16 2018/19 2021/22 2024/25 2015/16 2018/19 2021/22 2024/25 2015/16 2018/19 2021/22 2024/25 year reflect the revised assumptions on Elizabeth Demand higher than last Demand stabilises driven by Slower growth based on line opening date. year’s plan reflecting current latest trends reliability improvements trend as well as delayed opening of Elizabeth line journey growth by journeys flat over the journey growth by ▲ 3% 0% ▲ 21% 2024/25 plan to 2024/25 2024/25 15
We will diversify Sources of funding (excluding Crossrail) and grow our income 4% 6% 1% 2% 8% 16% 11% Fares will play an 13/14 19/20 24/25 50% 19% 56% increasingly important 38% 25% 64% role. We are growing our commercial income to diversify our revenue Business Rates and sources Fares Other income Property/assets Borrowing Other Grants Fares will grow Commercial Sales of property 23/24 is first year Loss of General from half to two income doubles in assets to be re- TfL is not Grant already thirds of income importance to us invested in our planning to reflected in – making us housing borrow. 2019/20. Reduction more exposed to development in 24/25 owing to changes in the programme other specific grants economy 16
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