Firstgroup Plc · LSE:FGP
Firstgroup — Investor Day (January 2014)
113 slides from Firstgroup's investor day presentation, Jan 23, 2014
Slide 1: Returning to strength – FirstGroup plc Investor Day
Returning to strength FirstGroup plc Investor Day 23 January 2014
Slide 2: Agenda
Agenda 10:00 Welcome Tim O’Toole, Chief Executive Initial impressions John McFarlane, Chairman Overview Tim O’Toole, Chief Executive First Transit Brad Thomas, President First Transit First Student Linda Burtwistle, First Student Dennis Maple, President First Student 11:30 Coffee break Greyhound Dav
Slide 3: John McFarlane, Chairman
First (p John McFarlane Chairman So) re
Slide 4: Tim O’Toole, Chief Executive
Tim O’Toole Chief Executive 4
Slide 5: Returning to strength
Returning to strength • Clear direction for each division: – Transit will continue its market leadership, achieving growth without sacrificing margin – Student will deliver cost reductions, better asset utilisation and disciplined pricing to achieve a sufficient return on capital – Greyhound will ut
Slide 6: First Transit
First Transit Brad Thomas, President
Slide 7: First Transit – overview
First Transit – overview • Public transit ridership at the highest level in five decades; ageing population will increase the Market need for transportation services opportunity • Increasing federal government spend on transportation • Growing $24bn per annum market, with only 30% currently outsourc
Slide 8: First Transit – a market leading position
First Transit – a market leading position • Continent-wide scope across nearly 40 US states and four Canadian provinces, Puerto Rico and US Virgin Islands • Operate and manage approximately 11,500 buses and provide maintenance services for approximately 38,000 vehicles and pieces of equipment • 317m
Slide 9: Business overview
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Slide 10: First Transit – business overview
First Transit – business overview FY13 revenue - $1.2bn Fixed Route, 37% Vehicle Services, 11% Shuttle, 22% Paratransit, 30% Revenue ($m) $1,200m $1,000m 1,129 1,195 1,007 1,026 1,078 $800m $600m $400m $200m $0m FY09 FY10 FY11 FY12 FY13 10
Slide 11: First Transit – scale of operations
First Transit – scale of operations West $292m Fixed Route 1,100 vehicles Paratransit 1,745 vehicles Shuttle 59 vehicles Central $272m Fixed Route 861 vehicles Paratransit 1,069 vehicles Montreal Shuttle 361 vehicles East $304m Fixed Route 656 vehicles Paratransit 1,010 vehicles Shuttle 629 vehicles
Slide 12: First Transit – business overview
First Transit – business overview Headcount Operated vehicle count 8,000 5,000 7,000 Totals: Totals: FY09 14,051 4,000 FY09 7,254 6,000 FY13 16,758 FY13 8,390 5,000 3,000 4,000 3,000 2,000 2,000 1,000 1,000 0 Fixed Route Paratransit Shuttle Vehicle Corp/Region 0 Services OH Fixed Route Paratransit S
Slide 13: Market background
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Slide 14: The fixed route market
The fixed route market Market potential First Transit 90% of market Leader in market has not been contracted First Transit City/Counties/Municipalities Technology and scale revenue growth Growth will continue as customers seek cost competitive advantage greater than savings and expertise alternative
Slide 15: The paratransit market
The paratransit market Market potential First Transit Major player in the paratransit segment High growth customer base First Transit 25% of $4bn - Aging population increases demand for Expertise and scale revenue growth market has not future growth allows future growth greater than been contracted
Slide 16: The shuttle bus market
The shuttle bus market Market potential First Transit Recent success in penetrating the shuttle segment Universities, airports and corporate clients - Customers outsource non-core competency which First Transit 10% of $2bn will facilitate growth Technology solutions and tools revenue growth market h
Slide 17: The vehicle services market
The vehicle services market Market potential First Transit Scale and profitability competitive advantage Municipalities and corporate clients - Constrained local municipal budgets in need of cost First Transit 67% of $3bn savings will drive future growth revenue growth market has not Low capital, hi
Slide 18: Business strategy
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Slide 19: Continuing to leverage our successful model
Continuing to leverage our successful model People Success Solutions Expertise/structure Technology and tools Price Low bidder Fixed Route Paratransit First Transit growth Vehicle Shuttle Services 19
Slide 20: Strategic initiatives – capabilities to win
Strategic initiatives – capabilities to win Best in People Best in Solutions • Top management in the industry: • Technology-driven efficiencies and – Industry experience and tenure tools: – Solid reputation, results – MI Dashboard – Company preferred – GPS tracking • Training and development: – Driv
Slide 21: First Transit – summary
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 se
Slide 22: First Student
First Student Linda Burtwistle Dennis Maple, President
Slide 23: First Student – overview
First Student – overview • $24bn market, $9bn currently outsourced; public sector customers – lower credit risk Market • Fragmented competition with c.5,000 small independents – consolidation opportunity opportunity • Safety remains paramount; increasing customer focus on technology and cost efficie
Slide 24: Business overview
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Slide 25: Scale of operations
Scale of operations Northwest • We transport 6 million students daily Rev ($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 Buse
Slide 26: Large footprint, with many state-by-state variations
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
Slide 27: Market background and the competitive environment
Market background and the competitive environment 27
Slide 28: A review of the last ten years
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 600,000 533,000 492,000 500,000 +0.2% Student’s market share 500,000 2004 2013 400,000 342,000 320,000 (0.
Slide 29: Sources of growth in the $24bn market
Sources of growth in the $24bn market $9bn $15bn 100% • Organic growth − Typically around 0.5-1.0% per annum 80% ~4,900 Mom and Pops − Recession caused three years of organic retraction 60% ~10,000 School Districts and ~12,000 other Next 4 schools 40% STA • Share shift Durham 20% − Through the compe
Slide 30: The decision making process
The decision making process • Key decision makers in academic and community institutions decide whether to contract out, or retain in-house Key influencers and decision makers US school organisation and structure (impacting conversions and renewals) Public school districts Private schools Activist S
Slide 31: The other national operators
The other national operators Student Durham Transportation Atlantic Express Illinois Central of America HQ Warrenville, IL Wall, NJ Staten Island, NY Channahon, IL 30+ states & 4 11 states & 1 Geography 7 states 5 states Canadian provinces Canadian province Buses 20,000 10,000 5,300 3,500 Unionisati
Slide 32: Business strategy
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Slide 33: The business prior to the recovery programme
The business prior to the recovery programme Retention rate Operating profit ($m) Margin 100% $300m 12% $250m 281 10% 11.0% 90% 91% 90% $200m 8% 80% 200 8.1% 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 busines
Slide 34: Step 1: Driving efficiency through the cost base
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 exce
Slide 35: Step 1: Snapshot of an average school bus location
Step 1: Snapshot of an average school bus location Revenue • 2 – 3 school board contracts ($000) Per bus • $4.4m in billing; 8% from charter work Total billed revenue $4,400 $47,825 • 92 buses at 7.3 years old Driver compensation 1,965 Driver compensation % to revenue 45% Driver operations • 100 dri
Slide 36: Step 1: Right-sizing the cost base at the location level
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 $70k - 2% reduction and tar
Slide 37: Step 2: Disciplined approach to improving returns
Step 2: Disciplined approach to improving returns Existing work New contracts Retention Share shift • Maximise retention while maintaining • Bid responsibly by being disciplined acceptable rates on pricing and pursuing a targeted − Extend higher margin business to approach protect against margin ero
Slide 38: Step 2: Contract portfolio management
Step 2: Contract portfolio management % of FY14 contract portfolio High 13% Manage margin erosion to retain >15% margin Medium 51% Retain business and improve margins 5-15% margin Low Look to shed poor performing contracts and improve 36% <5% margin margins significantly on remaining • Protect high
Slide 39: The roadmap to double digit margins
The roadmap to double digit margins Cost efficiency ($m) 11% >1.0% Cost efficiency ($m) Driver comp c.2.0% >10.0% Depreciation 10% c.(0.5%) $400 Maintenance c.2.0% $85 $1,060 $195 Fuel 9% $225 Insurance $230 Other running 8% costs / overhead c.7.5% Portfolio ($m) 7% Portfolio ($m) >1.0% $90 $105 6%
Slide 40: First Student – summary
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
Slide 41: Dennis Maple, President – first impressions
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 e
Slide 42: Greyhound
Greyhound Dave Leach, President 42
Slide 43: Greyhound – overview
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 custo
Slide 44: Business overview
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Slide 45: The actions taken have driven results
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 Trans
Slide 46: Initial stages of Greyhound’s transformation
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? $140 • Reduced cost structure to a leveragable bas
Slide 47: Greyhound’s passenger brands
Greyhound’s passenger brands Multi level brand strategy achieves broader market potential Learnings in the three growth offerings give us confidence to continue transformation into core network Description Markets served Fleet size 2000+ destinations in the US Iconic national network Access to Mexic
Slide 48: Market background
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Slide 49: Size of the potential US coach market
Size of the potential US coach market Size of the potential market presents a significant opportunity for growth Market size based on segmentation study results of people who have taken or have considered a coach trip • More than 42m people currently consider coach travel in the US • We estimate tha
Slide 50: The network advantage
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Slide 51: Greyhound network breadth
Greyhound network breadth Applying what we have learned from Express across the rest of the network offers substantial growth potential North America Express sales ($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 maj
Slide 52: Greyhound’s network – a true competitive advantage
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 t
Slide 53: Greyhound’s network – a true competitive advantage
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 Oklahoma Tulsa City Little Rock Express Lawton Ex. Houston - Dallas RPM Load Yield O&D Specific $1.07 8 13.4
Slide 54: Growth strategy
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Slide 55: Growth strategy: one more passenger
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 • Frictionle
Slide 56: ‘Airline style’ revenue management offers significant value
‘Airline style’ revenue management offers significant value Dynamic pricing enables yield and capacity optimisation High Demand Management Network Management • Maximizing revenue in high Current State Future State demand corridors Peak Off-Peak Peak Off-Peak Current State Future State – Peak pricing
Slide 57: Greyhound – summary
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 an
Slide 58: UK Rail Business Review
UK Rail Vernon Barker, Managing Director Business Review UK Rail PLC 26th November 2013
Slide 59: UK Rail – overview
UK Rail – overview • £8bn of long-term contract-backed passenger revenue available – 19 major franchise Market opportunities opportunity • Third generation of government procurement process with capital-light characteristics • New franchises expected to have clearer upfront contingent capital requir
Slide 60: UK Rail – scope of operations
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 re
Slide 61: Our successful record in rail
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- 15% £60m recurring charges % 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 • Fi
Slide 62: Industry opportunity
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Slide 63: UK Rail sector overview
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 f
Slide 64: DfT and Transport Scotland refranchising programme
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
Slide 65: The franchise model
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Slide 66: Rail franchise bids in the UK
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
Slide 67: The franchise model – passenger revenue
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 20% Leisur
Slide 68: The franchise model – franchise costs
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 fra
Slide 69: Parent company contingent financial support
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 Paren
Slide 70: Our strong rail credentials
Our strong rail credentials 70
Slide 71: UK Rail – expertise and a record of delivery
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 •
Slide 72: UK Rail – expertise and a record of delivery
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 tr
Slide 73: UK Rail – quality improvement
UK Rail – quality improvement • First Great Western recorded the largest Train Performance Improvement from 06/07 – as measured by PPM Public Performance Measure (PPM) 5% improvement of any franchised TOC – 5.9% since 2006/07 4% FirstGroup • The improvement in National Passenger 3% Survey (NPS) incl
Slide 74: Leveraging our expertise and capability
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 P
Slide 75: UK Rail – summary
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 proj
Slide 76: UK Bus
UK Bus Giles Fearnley, Managing Director 76
Slide 77: UK Bus – overview
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 Sco
Slide 78: The UK Bus market remains attractive
The UK Bus market remains attractive Bus trips by journey purpose Other Escort FirstGroup captures 20% of UK market (outside London): 2% Business 2% Personal - £871m revenues (FY13) business 10% Shopping 25% - Carrying 577m passenger (FY13) Education/ education escort - Operating principally in ma
Slide 79: We have compelling positions in key markets
We have compelling positions in key markets Aircoach Wales 5% Cymru 5% 3% Ireland 3% Glasgow 15% Essex 6% Mid & West 6% Norfolk/Suffolk Lothian 6% 4% Scotland 6% 24% Aberdeen Midlands 6% 3% Revenue £865m £866m South West 2% 63% South & North Yorkshire 9% 25% Hants Dorset & Berks 7% England 68% Brist
Slide 80: UK Bus – a snapshot of our operations
UK Bus – a snapshot of our operations 80
Slide 81: The UK Bus strategy has changed
The UK Bus strategy has changed 160.0% Cost per mile 120.0% Average fare +22 Public Funds % RPI Commercial/Other Rev 80.0% +5% Mileage 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 a
Slide 82: Bus transformation plan – the levers for change (1)
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 m
Slide 83: Bus transformation plan – the levers for change (2)
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 individual roles and • Leaders and managers receiving personal development respons
Slide 84: Bus transformation plan – cost efficiency opportunities
Bus transformation plan – cost efficiency opportunities Drivers • New starter rates • Scheduling and rostering • Terms and conditions Non Building Other Overheads 5% Overheads Fuel Building 8% • DriveGreen – driving behaviours Overheads 3% Parts & • Working with manufacturers for continuous Support
Slide 85: Commercial volume growth – strategy delivering results
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 • N
Slide 86: UK Bus case study – Bristol
UK Bus case study – Bristol Consolidated Mayor of Fares Public from 3 to 2 Bristol increase consultation depots elected deferred 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 se
Slide 87: UK Bus case study – Leeds
UK Bus case study – Leeds Delivery of Fare 100 Olympic increase buses deferred 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 rises Trinity Shopping campaign Centre The issues Actions taken The re
Slide 88: UK Bus case study – Manchester
UK Bus case study – Manchester Evolving marketing Oldham campaign FirstGroup / M60 Fare fined by traffic fare reductions commissioner trials through GM 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 A
Slide 89: UK Bus case study – Sheffield
UK Bus case study – Sheffield Strong yields from inflationary fare Extensive increases student Phased price campaign 2011/12 reductions 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 campa
Slide 90: UK Bus case study – Glasgow: network redesign
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 • Continual mileage reductions • SimpliCITY network introduced • Against backdrop of a struggling local had focused on reduc
Slide 91: UK Bus capital investment
UK Bus capital investment Total capex (£m) PCV capex (£m) 140 120 120 100 100 80 60 80 Other 40 60 PCV's 20 0 40 Property 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 D
Slide 92: The roadmap to double digit margins
The roadmap to double digit margins Costs (£m) 12% £73 Drivers c.3.0% c.3.0% c.10.0% Fuel (net) 10% £70 Tyres £52 £339 Engineering 8% c.3.0% £114 Traffic 0.1% PCV 1.0% £126 6% £6 Overheads 4.7% Revenue (£m) 4% Portfolio ($m) (1.8%) £62 c.3.0% £49 Fare paying 2% passengers Concessions £546 Tenders £2
Slide 93: UK Bus – summary
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 •
Slide 94: Financial framework
Financial framework Chris Surch Group Finance Director 94
Slide 95: Key topics
Key topics Group profile Financial objectives and supporting management framework Capital structure Medium term potential 95
Slide 96: Group profile
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 UK Bus 16% 16% Group ROCE at 31 March 2013 was 7.6% Financial year 2012/13: post-IAS19 excluding Group items 96
Slide 97: Medium term financial objectives
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 invest
Slide 98: Return on capital employed
Return on capital employed ROCE FY13 (£m) Operating profit after tax All assets and liabilities, excluding debt items Operating profit (post-IAS19) 275.5 Effective tax rate 20.1% • Calculation based on statutory accounts disclosures Operating profit post-tax 220.1 • ROCE includes tax structuring ben
Slide 99: Framework for managing and driving improved returns
Framework for managing and driving improved returns 1 Revenue growth Operational Divisional turnaround Margin expansion returns: 2 plans ROCE 10-12% Capital structure: 3 Operating leverage Drive Investment Grade EPS Objectives returns Rating 2.0x net debt / EBITDA in Capital expenditure medium term
Slide 100: Revenue growth
1 Revenue growth • 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 pip
Slide 101: Divisional turnaround plan – First Student
2 Divisional turnaround plan – First Student Cost efficiency ($m) 11% >1.0% Cost efficiency ($m) Driver comp c.2.0% >10.0% Depreciation 10% c.(0.5%) $400 Maintenance c.2.0% $85 $1,060 $195 Fuel 9% $225 Insurance $230 Other running 8% costs / overhead c.7.5% Portfolio ($m) 7% Portfolio ($m) >1.0% $90
Slide 102: Divisional turnaround plan – UK Bus
2 Divisional turnaround plan – UK Bus Costs (£m) 12% £73 Drivers c.3.0% c.3.0% c.10.0% Fuel (net) 10% £70 Tyres £52 £339 Engineering 8% c.3.0% £114 Traffic 0.1% PCV 1.0% £126 6% £6 Overheads 4.7% Revenue (£m) 4% Portfolio ($m) (1.8%) £62 c.3.0% £49 Fare paying 2% passengers Concessions £546 Tenders
Slide 103: Operating leverage – improved margins
3 Operating leverage – improved margins Margin FY13 Medium term plan Objective • Transformation Student 7.4% Double digit • Growth and efficiency 7.6% • Growth Transit Stable (underlying) • Cost containment • Growth Greyhound 8.4% c.12% • Cost containment • Transformation UK Bus 4.7% Double digit •
Slide 104: Operating profit
Profit – building blocks to future value 600 500 400 Operating profit 300 200 100 0 Actual FY13 Turnaround Trading Economic Potential Potential FY17 programmes recovery Rail wins 104
Slide 105: Capital expenditure
4 Capital expenditure Annual capex Maintenance capex Fleet growth and other capex Gross capex (£m) Student 180 - 200 Student Share shift at good returns Transit 30 - 40 Expansion in growing 1.2x depreciation Transit shuttle market Greyhound 50 - 70 = Greyhound Yield management system UK Bus 110 - 12
Slide 106: Capital structure – funding
5 Capital structure – funding Gross debt • Net debt ‘right sized’ through rights issue £3.0bn £2.5bn • Simple Net Debt/EBITDA reduced to 2.4x at £2.0bn September 2013, from 3.3x at March 2013 £1.5bn • Strong liquidity £1.0bn • Primarily Bond and Lease financed £0.5bn £0.0bn • Considerable bank finan
Slide 107: Capital structure – Investment Grade status
5 Capital structure – Investment Grade status S&P Fitch Current Rating (Outlook) BBB- (Negative) BBB- (Stable) Key Metric FFO/ Net Debt Net lease adjusted FFO Leverage Target level 25% 3.5x Reported March 2013 15.8% 4.6x Continued commitment to Investment Grade rating • Rights Issue put us on track
Slide 108: Capital structure – pensions
5 Capital structure – pensions Magnitude of pension schemes P&L vs. cash charges Scheme assets Net deficit Op profit P&L Cash: Cash: Cash: £m 30 Sep 13 30 Sep 13 2012/13 £m 2012/13 accrual deficit total UK Bus 1,936 (45.3) 53.5 UK Bus 24.7 29.1 20.0 49.1 Rail 1,334 (7.9) 38.0 Rail 45.4 42.4 - 42.4 S
Slide 109: Returning to sustainable cash flows
Returning to sustainable cash flows Cash sources and uses Net cash inflow Net cash outflow W.cap/other W.cap/other Pensions Cash flow £'m Pensions Interest Interest & tax & tax EBITDA EBITDA Cash Cash capex capex 2012/13* Medium term plan* Cash generation available to distribute as dividends or rein
Slide 110: Tim O’Toole, Chief Executive
Tim O’Toole Chief Executive 110
Slide 111: Q&A
First (p Q&A COOOO
Slide 112: Appendix: abbreviations
Appendix: abbreviations ADA Americans with Disabilities Act NPS National Passenger Survey ASE Automotive service excellence – qualification NR Network Rail awarded by the National Institute for O&D Origin and destination Automotive Service Excellence ORR Office of Rail Regulation CAGR Compound annua
Slide 113: Disclaimer
Disclaimer Certain statements included or incorporated by reference within this presentation may constitute “forward looking statements" in respect of FirstGroup plc's operations, performance, prospects and/or financial condition. Such statements are based on FirstGroup plc's current expectations an