FirstGroup plc · LSE:FGP
FirstGroup — FY2011 Earnings Presentation
49 slides from FirstGroup's earnings presentation, May 11, 2011
Slide 1: FirstGroup plc Preliminary results
FirstGroup plc Preliminary results for the 12 months to 31 March 2011 Wednesday 11 May 2011 1
Slide 2: Tim O'Toole, Chief Executive
Tim O’Toole Chief Executive 2
Slide 3: 2010/11 Overview
2010/11 Overview • Breadth and strength from diverse portfolio helping to mitigate risk • 4 out of our 5 businesses performed in line or significantly better than expected, offset by First Student performing below our expectations • Achieved what we set out to do in terms of increased cash generatio
Slide 4: Jeff Carr Financial Review
Jeff Carr Finance Director Financial Review 4
Slide 5: Key Highlights
Key Highlights • Overall performance in line with expectations – operating profit of £457.4m impacted by: – Strong UK Rail passenger revenues – Lower fuel costs across all businesses – First Student margin impact • Total net one-off charges of £105m in the year • Good progress on working capital – i
Slide 6: Financial results
Financial results Mar 11 Mar 10 Continuing operations Change £m £m Revenue 6,429.2 6,261.9 2.7% EBITDA 1 778.2 763.9 1.9% EBITDA % 12.1% 12.2% (0.1)pp Operating Profit1 457.4 449.6 1.7% Margin % 7.1% 7.2% (0.1)pp Interest (182.4) (189.9) 3.9% Profit before tax1 275.0 259.7 5.9% • EBITDA margin maint
Slide 7: Income statement
Income statement Mar 11 Mar 10 Continuing operations Change £m £m Profit before tax1 275.0 259.7 5.9% Amortisation charges (42.9) (34.7) Non-recurring items (104.9) (49.7) Profit before tax 127.2 175.3 (27.4)% Tax (17.0) (31.2) Profit after tax 110.2 144.1 (23.5)% Proposed final dividend 15.0p 14.0p
Slide 8: Principal one-off charges
Principal one-off charges £m Impact UK Rail – settlement of Network Rail claim 22.5 H1 2010/11 Principally accelerated FGW – contract provision (59.9) depreciation Annualised benefits in First Student – recovery plan (39.5) excess of $65.0m 5 Year Contract life FSS – goodwill impairment and contract
Slide 9: First Great Western – contract provision
First Great Western – contract provision £m Projected losses to 31/03/12 11.2 Projected losses to 31/03/13 48.7 59.9 • Re-negotiation of extension period terms unlikely, therefore taking action to put ourselves in strong position to bid for successor franchise • One-off charge to cover accelerated d
Slide 10: First Student – recovery plan
First Student – recovery plan Area One-off charge Right size fleet / asset write-offs $33.3m Reduce overheads $12.0m Contract performance $8.7m Labour and engineering efficiencies $7.0m $61.0m • Improved efficiency and reduced operating costs expected to deliver annualised benefit in excess of $65m
Slide 11: Profit bridge by division
Profit bridge by division Breadth and strength from diverse portfolio helping to mitigate risk £21m £5m £457m £450m £53m £24m £16m £4m 11
Slide 12: First Student
First Student Mar 11 Mar 10 Change $m $m Revenue 2,480.2 2,544.7 (2.5)% EBITDA 432.9 509.9 (15.1)% EBITDA % 17.5% 20.0% (2.5)pp Operating Profit 200.2 281.1 (28.8)% Margin % 8.1% 11.0% (2.9)pp • School board budget pressures resulted in high contract churn and organic route losses – overall market c
Slide 13: First Student – US Dollar margin impact
First Student – US Dollar margin impact 13
Slide 14: First Transit
First Transit Mar 11 Mar 10 Change $m $m Revenue 1,199.0 1,160.1 3.4% EBITDA 103.5 98.8 4.8% EBITDA % 8.6% 8.5% 0.1pp Operating Profit 89.5 84.4 6.0% Margin % 7.5% 7.3% 0.2pp • Good revenue growth driven by new contract wins in core segments – revenue growth excluding FSS was 5.1% • Strong EBITDA an
Slide 15: Greyhound
Greyhound Mar 11 Mar 10 Change $m $m Revenue 985.0 963.4 2.2% EBITDA 106.6 85.3 25.0% EBITDA % 10.8% 8.9% 1.9pp Operating Profit 62.3 39.6 57.3% Margin % 6.3% 4.1% 2.2pp • Revenue growth of 2.2% • Encouraging revenue growth trend +1.6% in Q4 (following disappointing Q3 revenue reduced by 2.5%) • Max
Slide 16: UK Bus
UK Bus Mar 11 Mar 10 Change £m £m Revenue 1,137.5 1,170.6 (2.8)% EBITDA 220.5 200.2 10.1% EBITDA % 19.4% 17.1% 2.3pp Operating Profit 148.8 124.6 19.4% Margin % 13.1% 10.6% 2.5pp • Like-for-like passenger revenues increased by 1.4% • H2 operating profit reduced by £4.0m due to severe weather • Margi
Slide 17: UK Rail
UK Rail Mar 11 Mar 10 Change £m £m Revenue 2,269.8 2,131.0 6.5% EBITDA 166.1 141.9 17.1% EBITDA % 7.3% 6.7% 0.6pp Operating Profit 108.7 88.3 23.1% Margin % 4.8% 4.1% 0.7pp • Good margin improvement despite premium increase of £120.6m • Strong revenue growth and cost improvements of >£50m resulted i
Slide 18: UK Rail passenger revenue growth
UK Rail Passenger revenue growth Mar 11 Mar 10 FCC 4.6% 2.6% FGW 4.9% 1.3% FSR 5.9% 3.2% FTPE 7.7% 5.6% Hull Trains 3.7% (4.4)% Total 5.3% 2.3% • Improving like-for-like revenue growth, increased by 5.3% • Encouraging revenue trends continue across all of our TOCs • Q4 revenues increased by 6.6%, pa
Slide 19: Cash flow
Cash flow Mar 11 Mar 10 Change £m £m £m EBITDA (including discontinued operations) 778.7 769.6 9.1 Non-recurring items (100.8) (49.6) (51.2) Impairment charges 19.5 - 19.5 Other non-cash P&L items 11.4 6.3 5.1 Operational cash flows 708.8 726.3 (17.5) Working capital inflow/(outflow) 78.4 (45.4) 123
Slide 20: Net debt:EBITDA
Net debt:EBITDA Net debt £bn 3 £2.50bn £2.28bn 2 3.2x £1.95bn 3.0x 1 2.5x 0 2009 2010 2011 • Net debt £1,949m, reduced by £332m (£210m net cash and £122m FX/other) • Net cash target of £150m for 2011/12 • Targeting continued leverage reduction 20
Slide 21: Strong financial platform
Strong financial platform Mar 11 Mar 10 Mar 09 Average debt maturity 6.1 years 6.3 years 4.6 years Net debt:EBITDA 2.5x 3.0x 3.2x • New $1.4bn 5-year committed bank facilities implemented in December 2010 • Committed facility headroom £527m at March 2011 • Continue to reduce leverage • Committed to
Slide 22: Tim O'Toole, Chief Executive
Tim O’Toole Chief Executive 22
Slide 23: Key priorities
Key priorities • Recovery plan to address First Student – Optimise cost base – ‘get low’ and increase efficiencies – Stabilise margin in 2011/12 – Strengthen business model – Maximise growth opportunities from sustainable competitive advantage • Maximise leadership position in UK Rail – Harness unri
Slide 24: First Student – the issues
First Student – the issues • Difficult trading conditions with significant pressure on school board budgets and structural issues • Last school year – particularly high percentage of contract churn and greater than expected organic route reduction meant we lost a higher than usual number of buses •
Slide 25: First Student – the solution
First Student – the solution • Taking one-off charge to recover performance and create a stronger business • Recovery programme underway will create more flexible business model • New bid team and structure in place for current year – Focused retention strategy – Normalised level of buses ‘at risk’
Slide 26: First Student – the opportunity
First Student – the opportunity • Clear market leader but not currently exploiting its leading position – Operating in approx 40 states in the US and 8 Provinces in Canada – Total fleet of 57,000, average age of 6.9 years – >1,500 contracts – low concentration risk – Approx 600 locations, 60,000 emp
Slide 27: First Transit
First Transit • Market leader with growth opportunities in highly fragmented marketplace Shuttle Fixed Route Paratransit c.8% c.3% c.8% Market size Market size Market size c.$2 billion c.$15 billion c.$4 billion • c.350 contracts – well diversified • Good operating margin from low capital investment
Slide 28: Greyhound
Greyhound • Transforming the business – significantly improved operational gearing • Optimising the network – Network Transformation Plan – 20% of properties now right sized or right located – Sale of Washington DC terminal under contract – due diligence underway – Canada network management – broken
Slide 29: UK Bus
UK Bus • Market leading position – focused in high density, urban areas • Established, well diversified networks – opportunity for growth • New management with strong focus on delivering: – developing best in class operating standards – revenue growth through network developments, simplified fares a
Slide 30: UK Rail – leveraging our expertise
UK Rail – leveraging our expertise • Building on our strong track record • Market leader – leveraging our unrivalled expertise – Management team with skills and experience – commuter, regional, intercity long- distance, open access operations – Innovation with operational competence – implementation
Slide 31: First Great Western
First Great Western • Strategic decision to maximise our opportunity to win new Greater Western franchise • Reflects changed environment including significant investment in region • Major infrastructure upgrade taking place over the next few years – Reading upgrade – Crossrail & Paddington remodelli
Slide 32: UK Rail – the future
UK Rail – the future • Significant opportunity in UK rail industry • Long-term key player – track record of strong operational and financial performance • Selected partner for key industry initiatives – First ScotRail working with Network Rail to deliver objectives of new devolved structure • Franch
Slide 33: Summary
Summary • Economic outlook remains uncertain • Recovery plan in place to address First Student and harness potential of business • Encouraged by improving trends in UK Rail and Greyhound and continued steady performance in UK Bus and First Transit • Clear focus to improve operations and drive effici
Slide 34: Q&A
Q&A 34
Slide 35: Appendices
Appendices Preliminary results for the 12 months to 31 March 2011 35
Slide 36: Diesel Hedge Position
Diesel Hedge Position UK North America 2010/11 2011/12 2012/13 2010/11 2011/12 2012/13 Annual volume (barrels’m) 2.5 2.6 2.5 1.7 1.7 1.7 % Hedged 90% 82% 34% 90% 59% 22% Crude rate ($/barrel) $76.23 $87.58 $94.06 $89.40 $94.69 $91.76 Diesel rate ($/barrel) $96.49 $105.16 $115.59 $107.40 $112.87 $113
Slide 37: Gross Debt Distribution
Gross Debt Distribution 450 400 350 300 250 200 150 100 50 0 £200m Bond 2024 £350m Bond 2021 £250m Bond 2019 £300m Bond 2018 £300m Bond 2013 Private Placement Loan Notes Bilateral term loans $1,250 Revolver Debt Loan Notes Lease Finance 37
Slide 38: Net Finance Costs
Net Finance Costs Mar 11 Mar 10 £m £m Bonds 91.6 85.2 Bank borrowings 64.2 80.3 Loan notes 1.0 1.1 Finance lease interest 7.8 7.6 Notional interest 19.7 17.5 Investment income (1.9) (1.8) Hedge ineffectiveness on financial derivatives ¹ (0.3) (1.0) Net finance costs 182.1 188.9 Lower interest rates
Slide 39: Foreign Exchange
Foreign Exchange • Weaker US$ reduced translated Sterling debt compared to March 10 Mar 11 Mar 10 Closing rate for the balance sheet US$ $1.60 $1.49 Closing rate for the balance sheet CAN$ $1.57 $1.53 • The movement in the effective rate resulted in a marginal increase in operating profit Mar 11 Mar
Slide 40: Non-recurring items & amortisation
Non-recurring items & amortisation Mar 11 Mar 10 £m £m UK Rail FGW contract provision 59.9 - First Student recovery plan 39.5 - UK Rail settlement of NR claim (22.5) - FSS goodwill impairment and contract provision 16.6 - UK Rail bid costs 2.7 - UK Rail joint venture provision 1.8 - North American &
Slide 41: Cash capital expenditure
Cash capital expenditure Mar 11 Mar 10 £m £m First Student 107.7 89.1 First Transit 6.8 10.7 Greyhound 33.8 30.0 UK Bus 64.6 32.5 UK Rail 45.1 36.3 Group items 0.7 3.1 Total 258.7 201.7 Cash purchases 210.3 205.6 Disposal proceeds (21.8) (35.6) New finance leases 70.2 32.0 258.7 202.0 41
Slide 42: Taxation
Taxation Mar 11 Mar 10 £m £m Current tax 37.0 4.1 Deferred tax (20.0) 27.1 Tax charge on continuing operations 17.0 31.2 Tax rate on adjusted profit before tax 21.8% 22.4% Cash tax rates (based on full year PBT) 19.7% 0.7% 42
Slide 43: Pensions
Pensions (Deficit)/Surplus Cash Contribution P&L Charge £m 2011 2010 2009 2011 2010 2009 2011 2010 2009 North America (158.4) (157.3) (163.5) 11.3 13.7 14.4 7.4 9.1 (2.0) UK Bus (30.1) (129.0) 39.0 34.7 31.0 27.7 (1.9) 1.7 (4.0) UK Rail (54.7) (44.5) (44.2) 38.6 40.1 38.9 35.6 31.9 36.3 Total (243.2
Slide 44: UK Rail subsidy/(premium) profile
UK Rail subsidy/(premium) profile £m FCC FGW FSR FTPE GBRf Total FY 2009/10 (145.3) (140.7) 249.2 115.8 2.8 81.8 FY 2010/11 (156.7) (249.9) 270.0 120.8 0.4 (15.4) FY 2011/12 (194.9) (338.8) 300.5 104.7 - (128.5) UK Rail subsidy/(premium) profile excluding changes principally relating to CP4 £m FCC F
Slide 45: Revenue support/profit share
Revenue support/profit share Estimate Mar 11 Mar 10 10/11 £m £m FCC Revenue Support 80% 26.9 39.7 FGW Revenue Support 80% 141.3 133.1 FTPE Profit Share 52% (10.9) (16.3) Total 157.3 156.5 FSR eligible for revenue support but currently trading above target revenue 45
Slide 46: UK Rail Bonds
UK Rail Bonds Mar 11 Mar 10 £m £m FTPE Performance bond 8.8 8.8 GBRf MetroNet bond - 0.8 FSR Performance bond 25.0 25.0 FSR Season ticket bond 4.5 4.0 FSR Maintenance bond 24.0 28.6 FCC Performance bond 18.6 21.2 FCC Season ticket bond 50.0 44.0 FGW Performance bond 46.2 46.2 FGW Season ticket bond
Slide 47: UK Rail Ring-fenced Cash
UK Rail Ring-fenced Cash Mar 11 Mar 10 £m £m FCC 86.3 77.2 FGW 75.8 69.0 FSR 55.1 30.5 FTPE 66.6 57.5 Total 283.8 234.2 47
Slide 48: UK Rail franchise contracts
UK Rail franchise contracts FCC FGW FSR FTPE Years 4+2+3 7+3 10 8+5 Start date Apr 2006 Apr 2006 Oct 2004 Feb 2004 Expiry date Mar 2012 Mar 2013 Nov 2014 Jan 2012 Extension period Mar 2016* (performance related) Authority extension period (at Up to Mar 2015 Jan 2017 discretion of the DfT) • *FirstGr
Slide 49: 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