FirstGroup Results underpin outlook for full year

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FirstGroup (LON:FGP) has announced its half-year results for the six months to 30 September 2019.

Overview

Overall first half adjusted trading in line with expectations outlined at start of the financial year, with growth in Group revenue and Adjusted² operating profit in the period
Statutory loss before tax and reported EPS in the first half includes charges for Greyhound impairment and North American self-insurance
Reduction in adjusted² PBT and adjusted² EPS and increase in net debt mainly reflect first time adoption of IFRS 16 lease accounting
Outlook unchanged (before the effects of IFRS 16)
Focused on value creation by all appropriate means; progressing portfolio rationalisation with a number of important steps undertaken in the period

Financial summary (percentage changes in constant currency¹ unless otherwise stated)

Group revenue +4.1%; all divisions delivered growth after excluding disposals and withdrawals from loss-making routes. Reported Group revenue was +6.9% reflecting the strengthening of the dollar on translation
Statutory operating loss of £118.1m (H1 2018: profit of £46.3m) and statutory EPS of (14.3)p (H1 2018: (0.6)p) including the Greyhound impairment charge of £124.4m, North American self-insurance reserve charge of £59.3m and restructuring and reorganisation costs of £15.4m
Adjusted² operating profit +2.1% to £97.7m (H1 2018: £92.4m). Excluding the effect of transitioning to IFRS 16 as set out on page 5, Adjusted² operating profit decreased by 7.3%, largely reflecting fewer First Student operating days and poorer UK summer weather in First Bus compared with prior period
Adjusted² profit before tax and adjusted² EPS decreased by 35.9% and 35.5% respectively, principally due to the first time adoption of IFRS 16 and dollar-denominated financing costs
Adjusted cash outflow⁵ of £78.0m (H1 2018: inflow of £50.6m) reflects the partial unwind of First Rail working capital and capital grant inflows described in the May results
First time recognition under IFRS 16 of leased assets, mainly Rail rolling stock, increases reported net debt to £2,084.1m. Net debt: EBITDA on the ‘frozen accounting standards basis’ relevant to the Group’s banking covenants was flat at 1.6 times (H1 2018: 1.6 times) and Rail ring-fenced cash adjusted net debt: EBITDA on the same basis was 2.3 times (H1 2018: 2.2 times)⁶

Divisional performance

First Student’s fleet and market share set to grow again following another strong bid season and two complementary acquisitions of 300 buses in the period; delivered pricing in excess of cost inflation and a strong school start-up this autumn
First Transit continues to grow contract portfolio in current and new mobility services segments. H1 Adjusted² margin was affected by two adverse legal judgements and higher self-insurance costs but expecting improvement in H2 relative to the prior year, reflecting ongoing cost efficiency programme
Greyhound like-for-like³ revenue +0.7% benefitted from higher immigration flows during Q1 which slowed to a five year low in Q2; adjusted² margin increase reflects pricing and yield management activities and the action taken to address Canadian losses last year
First Bus like-for-like³ passenger revenue +1.6% despite poor summer weather; on track to deliver network optimisation and other efficiencies in H2 which will result in further Adjusted² margin progress for the year
First Rail like-for-like³ passenger revenue +4.9%, with strong financial contribution driven by GWR.
West Coast Partnership mobilisation is on track for start-up in December. We continue to negotiate with DfT to resolve issues in SWR and TPE

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Group outlook for the 2019/20 financial year

Group outlook (before the effects of the introduction of IFRS 16) is in line with our expectations and has increased since our last results to reflect a part-year contribution from our successful bid for the West Coast Partnership and favourable currency translation rates
At the adjusted² profit before tax and adjusted² EPS level we expect adoption of IFRS 16 to partially offset these upgrades
No change to adjusted cash flow⁵ expectations

Commenting, FirstGroup Chief Executive Matthew Gregory said:
“In the first half we continued to execute the clear commercial strategies in each of our divisions to ensure they deliver future progress and growth. In particular, we were pleased to have delivered another strong bid season and two complementary acquisitions in our largest business First Student, as well as the award of the West Coast Partnership to our rail venture with Trenitalia. We are, however, disappointed with the further deterioration in the US motor claims environment which has required an increase in insurance costs for our North American businesses. As ever, first half trading mainly reflects the highly seasonal nature of the Group’s operations, given the timing of the North American school holidays in our First Student business. Based on current trends and underpinned by our activities to reduce the cost base further, we are confident in delivering our trading expectations for the full year.
“We are focused on rationalising our portfolio and are progressing through the detailed work to prepare for separation. We have taken a number of important steps since our announcement in May including the sale process for Greyhound, future UK Bus pension scheme funding and the strengthening of our Rail portfolio. We are intent on realising value for shareholders and will actively manage our entire portfolio by all appropriate means. We look forward to reporting on further progress in the second half.”