FirstGroup plc Returning to strength

Transcription

1 FirstGroup plc Returning to strength Proposed rights issue and full year results for the year to 31 March 2013 Monday 20 May 2013

2 Tim O Toole Chief Executive 2

3 Overview returning to strength Solid current performance Completed asset sales Fully underwritten c. 615m rights issue to remove balance sheet constraints 1.6bn capital programme over four years to drive growth, margins and returns 3

4 Chris Surch Group Finance Director Financial review 4

5 Financial overview Overall trading for the Group in line with our expectations Underlying operating profit 335.4m Underlying EPS 26.9p Transformation plan on course 400m underlying investment in the business c. 100m 1 proceeds from disposal of selected UK Bus assets Cash flow flat 1 Good liquidity and covenant headroom Proceeds from proposed equity raise to deliver appropriate capital structure, including maintaining investment grade, for continued investment and value creation 1. Including proceeds from London bus disposals, which are expected in H1 2013/14 (pending Transport for London and Traffic Commissioner approval) 5

6 Financial summary Underlying operations Mar 13 m Mar 12 m Change Revenue 6, , % Operating Profit (21.7)% Margin % 4.9% 6.4% (1.5)pp m Revenue Operating Profit 1 Mar 12 6, Student (64) 3 Transit 36 (7) Greyhound (10) 1 UK Bus (29) (44) UK Rail 289 (47) Mar 13 6, Revenue up 4.5% excluding the extra week of trading last year Operating profit reflects expected external cost pressures in UK Bus and lower FTPE profits in UK Rail North America operating profit impacted by Hurricane Sandy and the settlement of a historic legal claim First Student and Greyhound operating margins improved 1. Shown throughout presentation before amortisation charges, ineffectiveness on financial derivatives, exceptional items, loss on disposal of properties and discontinued operations 6

7 First Student Mar 13 $m Mar 12 $m Change Revenue 2, ,497.9 (4.8)% Operating Profit % Margin % 7.4% 6.8% 0.6pp $m Operating Profit Mar Extra week (9.0) Hurricane Sandy (13.2) Net contract retention (12.3) Management initiatives 45.7 Other (5.8) Underlying revenues reduced by 2.8% Excluding the impact of Hurricane Sandy operating margin c.8% Continued focus on higher margin / return contracts $100m cost savings programme on track Mar

8 First Transit Mar 13 $m Mar 12 $m Change Revenue 1, , % Operating Profit (12.8)% Margin % 6.0% 7.2% (1.2)pp $m Operating Profit Mar Extra week (1.2) Employee healthcare (5.5) Legal claim (13.5) Management initiatives 5.6 Volume / inflation 3.2 Strong underlying revenues (adjusted for the disposal of First Support Services) increased by 7.7% Underlying operating margin maintained at 7.6% excluding impact of legal claim Continued management actions offset increasing healthcare costs Mar

9 Greyhound Mar 13 $m Mar 12 $m Change Revenue 1, ,049.3 (2.6)% Operating Profit % Margin % 8.0% 7.7% 0.3pp $m Operating Profit Mar Extra week (1.6) Hurricane Sandy (2.0) Canada (4.4) US growth 4.5 Lower cost of claims 4.0 Mar Despite revenue being impacted by weak economic conditions in H2, margins improved Like-for-like revenue growth of 1.1%: US 1.6% and Canada (0.8)% Canada: regulatory reform now complete, rationalisation in process Greyhound Express continues to perform strongly with c.10% revenue growth in H2 9

10 UK Bus Mar 13 m Mar 12 m Change Revenue 1, ,157.2 (2.5)% Operating Profit (32.5)% Margin % 8.0% 11.6% (3.6)pp m Operating Profit Mar Extra week (3.3) London disposals (6.9) Government spending / cost pressures (44.0) Games transport 4.1 Volume / inflation / management actions 6.4 Mar Like-for-like passenger revenue growth of 2.4% (North 2.8%, South 1.9%) Anticipated reduction in operating profit due to external cost pressures and government spending cuts c. 100m disposal programme achieved 1 Early positive signs from transformational restructuring 1. Including proceeds from London bus disposals, which are expected in H1 2013/14 (pending regulatory approval) 10

11 UK Rail Mar 13 m Mar 12 m Change Revenue 2, , % Operating Profit (42.8)% Margin % 2.3% 4.4% (2.1)pp Operating margin lower due to FTPE franchise extension Continued strong demand with like-for-like passenger revenue growth of 7.4% Underlying passenger volume growth of 3.6% 11

12 Exceptional items Mar 13 m Disposals mainly asset write downs 32.4 Onerous contracts / impairments 17.6 Claims for old legal issues 19.0 UK Rail bid costs 6.0 Total

13 EBITDA Cash capex Interest & tax Dividends Pensions Disposals Provisions Exceptionals/other Working capital Net cash outflow 2012/13 cash flow 667m 338m 144m 125m 94m 54m 61m 22m 11m ( 74m) Excludes London Bus disposal proceeds of c. 80m expected in H1 2013/14 13

14 Capital structure Net Debt/EBITDA ratio 3.0x (2012: 2.5x) London disposals proceeds expected in H1 2013/14 Strong liquidity and covenant headroom under committed facilities Liquidity 1,215m (2012: 796m), Revolving Credit Facility EBITDA headroom 126m. 300m bond repaid in April 2013 Average debt maturity is 5.4 years (2012: 5.5 years) 14

15 Proposed rights issue Removes the constraints of the Group's current balance sheet and provides a sustainable capital structure going forward Reinforces the Group s objective to remain investment grade 1, including reaching an FFO-to-Debt ratio of 25% by March 2015 Underpins the Group's transformation and investment plans to create long term, sustainable value 1. The estimated run-rate incremental finance cost of going sub-investment grade is c. 50m p.a. by 2015/16 15

16 Summary of rights issue terms Gross funds to be raised c. 615m Rights issue terms 3 new for every 2 existing Closing price on 17 May p Issue price 85p Theoretical ex-rights price (TERP) 140.5p Theoretical nil paid price (TNPP) 55.5p Discount to TERP c.39.5% Subject to shareholder approval Expected timetable Prospectus published 22 May 2013 Record Date for rights issue C.O.B. 7 June 2013 Shareholder Meeting 10 June 2013 Nil paid rights start trading 11 June 2013 Deadline for acceptances 25 June 2013 Dealing in new, fully paid shares starts 26 June

17 Medium term financial objectives Operational returns: Earn returns in excess of cost of capital through the cycle Group revenue (ex Rail) to grow faster than the economies we serve Improving margins to double digits in First Student and UK Bus Post-tax ROCE of 10-12% target Capital structure: Maintain investment grade rating profile and appropriate liquidity and covenant headroom Net debt/ebitda x target range Minimum of 250m liquidity headroom Objective to return the Group to being a reliable, consistent cashgenerative business 17

18 Dividend policy Intention is to target appropriate and sustainable dividend pay-out, closely aligned to business performance 2012/13 and 2013/14: no final dividend in respect of the year to 31 March 2013 no interim dividend in respect of the year to 31 March 2014 final dividend for the year to 31 March 2014 subject to performance in line with expectations; up to 50m aggregate 2014/15 and beyond: the Board proposes a progressive dividend policy to target x cover 18

19 Summary 2012/13 trading in line with expectations Results demonstrate transformation plan progress Short term caution, with confidence in medium term objectives Balance sheet constraints to be removed Appropriate capital structure to deliver transformation 19

20 Tim O Toole Chief Executive Business review 20

21 First Student Recovery plan on track, progress from a more efficient operating model and uniform best practices Focus on contract retention and driving improving returns Client satisfaction scores highest for four years Innovative and environmentally friendly technology development continues Industry leading safety performance maintained On track to achieve US$100m p.a. in cost savings 21

22 First Transit Diverse and extensive mix of 340 contracts throughout North America Strong growth underpinned by contract wins First Support Services sold for US$10.2m, increased focus on our core segments Now the largest provider of shuttle bus services at airports and for universities Shuttle services on campus and in Canadian oil fields are important opportunities for continuing growth 22

23 Greyhound Continuing to transform operating model, enabling margin expansion despite economic headwinds Investing in technology, yield management and network modernisation Growth of successful new products including Greyhound Express, BoltBus, Crucero Direct, YO! Bus Further vehicles purchased or ordered during year by end 2014, most of fleet will be new or recently refurbished 23

24 UK Bus Early positive results from programme to restore performance and increase revenue and patronage New management team implementing strategy to fix and restore sustainable growth to the division Repositioning and rebalancing the portfolio; c. 100m disposal programme achieved 1 Network redesigns in Glasgow, Norwich, Southampton, Portsmouth and Aberdeen Local fares initiatives including Manchester, Sheffield, Bristol Successful partnership model in place 1. Including proceeds from London bus disposals, which are expected in H1 2013/14 (pending regulatory approval) 24

25 UK Rail Continued strong performance, franchise extensions currently being negotiated and positioned for recommencement of re-franchising process Focus on operating performance across existing franchises, while delivering major infrastructure and capacity upgrades with industry partners In discussions with the Department for Transport in respect of contract extensions for First Great Western and First Capital Connect Diverse rail portfolio encompassing long distance, regional and commuter operators, with strong track record of investment 25

26 Well positioned for future growth The Group has established a diverse portfolio of assets in a sector which is: a key enabler of economic growth essential to strong, vibrant and sustainable local economies driven by growing urbanisation higher congestion more complex transport demands increasingly turning to private sector operators with global expertise to deliver more efficient and innovative solutions Diverse business model Unrivalled scale and breadth Harnessing global expertise for the benefit of local markets Market leader in UK and North America Core skills in effective deployment of assets and people Focused on enhancing operational excellence Our vision is to provide solutions for an increasingly congested world keeping people moving and communities prospering 26

27 FirstGroup plc Returning to strength Proposed rights issue and full year results for the year to 31 March 2013 Q&A

28 Appendices Full year results for the 12 months to 31 March

29 Post-rights issue EPS, number of shares, bonus factor Bonus-adjusted underlying 2012/13 EPS 1 Illustrative bonus-adjusted March 2013/14 EPS 1 Underlying EPS for year to 31 March 2013 (a) 26.9p Expected no. of shares from 1 April 2013 to 25 June 2013 (e) 482m Share price at 17 May 2013 (b) 223.8p Expected no. of shares from 1 April 2013 to 25 June 2013, restated for bonus factor (f=e*d) 768m Theoretical ex-rights price (TERP) (c) 140.5p Indicative bonus factor 1 (d=b/c) Expected no. of shares from 26 June 2013 to 31 March 2014 (g) Expected bonus-adjusted weighted average no. of shares for year to 31 March 2014 (h=f * 12/52 + g * 40/52) 1,205m 1,104m Indicative bonus-adjusted underlying EPS for year to 31 March 2013 (a/d) 16.9p Illustrative net income for year to 31 March 2014 (i) 100m 2 Illustrative bonus-adjusted EPS for year to 31 March 2014 (i/h) 9.1p 1. The rights issue is treated as a bonus issue of shares + an issue of fully paid up shares. The bonus factor is used to reflect the bonus element of the issue, i.e. the discounted (below market price) bonus issue of shares via the rights issue. Post rights issue completion, historic EPS and DPS are rebased (divided by) the bonus factor. The actual bonus factor will be calculated as at close on 10 June 2013, being the last trading day before the shares go ex-rights. Historic EPS restated for bonus element (IAS 33) m has been selected purely for illustrative purposes 29

30 Divisional composition Revenue ( m) Operating Profit ( m) Operating Margin (%) Mar 13 1 Mar 12 Mar 13 1 Mar 12 Mar 13 1 Mar 12 Student 1, , % 6.8% Transit % 7.2% Greyhound % 7.7% UK Bus 1, , % 11.6% UK Rail 2, , % 4.4% Group items (29.5) (29.9) Total 6, , % 6.4% 1. For all businesses excluding UK Rail this year includes 52 weeks compared to 53 weeks last year 30

31 First Transit like-for-like revenue growth Mar 13 $m Mar 12 $m Growth Total revenue 1, , % FSS (91.7) (113.2) Extra week impact - (19.6) Core revenue 1, , % US Dollar revenues excluding the extra week and adjusted for the disposal of First Support Services (FSS) increased by 7.7% 31

32 UK Rail Passenger revenue growth Mar 13 Mar 12 FCC 7.2% 9.3% FGW 7.7% 8.0% FSR 6.1% 7.4% FTPE 8.5% 10.2% Hull Trains 6.3% 1.1% Total 7.4% 8.4% Continued solid demand across all of our franchises journey volumes increased by 3.6% 32

33 UK Rail franchise contracts FCC FGW FSR FTPE Start date Apr 2006 Apr 2006 Oct 2004 Feb 2004 Expiry date Mar 2014 Oct 2013 Mar 2015 Mar 2015 Extension period - - May 2015 Oct 2015 DfT RFP programme Sep 2014 July Feb 2016 Transport Scotland agreed in Dec 2012 to extend its existing FSR franchise agreement from November 2014 to March 2015 The DfT gave notice in January 2013 to extend the existing FGW franchise agreement by seven reporting periods to October 2013 The DfT gave notice in March 2013 to extend the existing FCC franchise agreement by seven reporting period to March 2014 There has been no change to FTPE s position. The DfT has a right to curtail the franchise before March 2015 but has not exercised that right 33

34 UK Rail bonds Mar 13 m Mar 12 m FTPE Performance bond FSR Performance bond FSR Season ticket bond FSR Maintenance bond FCC Performance bond FCC Season ticket bond FGW Performance bond FGW Season ticket bond Total Season ticket bond monies are included within rail ring-fenced cash 2. Performance bonds are non-cash items 34

35 Diesel hedge position after Bus disposals UK North America 2012/ / / / / /15 Annual volume (barrels m) % Hedged 90% 85% 33% 69% 69% 37% Crude rate ($/barrel) $ $ $99.25 $93.58 $93.38 $89.41 Diesel rate ($/barrel) $ $ $ $ $ $ Equivalent cost per litre 48.6p 49.9p 46.6p US 76.1c US 77.1c US 74.1c UK Bus UK Rail Student Transit Greyhound Total Annual volume (barrels m) Prices include crude and refining cost but exclude delivery margins, duty, taxes and BSOG Equivalent cost per litre assumes a constant FX rate of $1.60 : 1:00 North America annual volume excludes c.1.9m barrels provided by customer or protected by contract escalator The decrease in expected annual volume consumption from 2013/14 reflects the contractual end dates of UK Rail franchises and the impact of UK Bus disposals. FGW included to October 2013 only Schedule will be updated once the negotiated position on franchise extensions is complete 35

36 Capital expenditure Cash Fixed asset additions Mar 13 m Mar 12 m Mar 13 m Mar 12 m First Student First Transit Greyhound UK Bus UK Rail Group items Total Cash New finance leases Total cash capital expenditure In addition during the year we entered into operating leases for new vehicles in UK Bus with capital value of 21.6m (2012: 43.4m) and First Transit 12.5m (2012: nil) 2. Total equivalent investment includes cash capital expenditure of 338.1m plus creditor movements and assets acquired under operating leases 36

37 Capital investment Mar 13 m Mar 12 m First Student First Transit Greyhound UK Bus UK Rail Other Total Underlying total equivalent investment increase of 37.4m or 10% in the year principally reflecting new buses in First Student and UK Bus 37

38 Pensions Group deficit decreased by 20m to 248m principally due to better actual returns on assets partly offset by lower discount rates and higher inflation rates New IAS 19 rules will apply from 2013/14 onwards. Estimated to reduce operating profit in the current year by 60m These are non-cash changes Banking covenants are not affected as they are measured on a constant accounting basis Auto-enrolment is effective from 2013/14 in the UK and is estimated to cost an additional 4.5m 38

39 IAS 19 changes On adoption of the revised standard the Group will show interest on pensions in the finance cost line. The table below illustrates the estimated impact on FY 2013 & FY 2014: FY 2013 m FY 2014 m UK Bus (37) (32) UK Rail (25) (25) Greyhound 2 - Impact on operating profit (60) (57) Interest on pensions (mainly Greyhound) (10) (11) Total impact before FGW provision (70) (68) FGW impact treated as a prior year adjustment 10 - Impact on profit before tax (60) (68) Under the new standard the expected return on pension scheme assets is replaced by the same discount rate that is applied to the pension scheme liabilities. As a result the interest charge or income for any period is the discount rate applied to the net pension scheme deficit or surplus 39

40 Pensions Deficit Cash Contributions Income Statement Charge m North America (210.2) (215.2) (158.4) UK Bus (24.7) (27.4) (30.1) (12.3) (9.5) (1.9) UK Rail (12.9) (25.3) (54.7) Total (247.8) (267.9) (243.2)

41 Mar-13 FY 13/14 H1 FY 13/14 H2 FY 14/15 H1 FY 14/15 H2 FY 15/16 H1 FY 15/16 H2 FY 16/17 H1 FY 16/17 H2 FY 17/18 H1 FY 17/18 H2 FY 18/19 H1 FY 18/19 H2 FY 19/20 H1 FY 19/20 H2 FY 20/21 H1 FY 20/21 H2 FY 21/22 H1 FY 21/22 H2 FY 22/23 H1 FY 22/23 H2 FY 23/24 H1 FY 23/24 H2 FY 24/25 H1 Liquidity resources and debt repayment profile m 1,250 1, Liquidity resources at March 2013 of 1,215m comprised free cash balances of 394m and committed liquidity headroom of 821m. Committed liquidity headroom is mainly provided by a $1.25 billion revolving bank facility which expires in December 2015 Liquidity Headroom 300m Bond m Bond m Bond m Bond m Bond m Bond 2024 Bilateral term loans 250 D rawn debt at M ar 13 o n the $ 1.25B revo lver P rivate P lacement Notes Lease Finance 0 41

42 Taxation Mar 13 m Mar 12 m Current tax 10.6 (5.3) Deferred tax (21.2) 55.4 Tax (credit)/charge on continuing operations (10.6) 50.1 Tax paid Tax rate on underlying profit before tax 20.1% 20.1% 42

43 FFO-to-Debt is a key metric for our credit rating FirstGroup estimate of S&P s FFO-to- Debt calculation, as at 31 March 2013 FirstGroup EBITDA: 667m FirstGroup net debt: 1,979m Credit agency adjustments: 228m (operating leases, tax on pensions, rail adjustments 1, cash interest and tax) Credit agency adjustments: 787m (Operating leases, pensions, Rail TOC subordinated loan facilities etc.) FFO: 439m Debt: 2,766m 15.9% S&P medium term target for BBB- >=25% 1. Remove UK Rail EBITDA, add back dividends from Train Operating Companies (TOCs) 43

44 Disclaimer This document has been prepared by FirstGroup plc (the "Company") solely for use at a presentation (the "Presentation") of its financial results for the year to 31 March 2013 and in advance of a possible offer of ordinary shares (the "Shares") of the Company (the "Offer ). For purposes of this notice, "Presentation" shall mean and include this document, the oral briefing by the Company that accompanies it, and any question-and-answer session that follows that briefing. The Presentation has not been independently verified and no representation or warranty, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information or opinions expressed herein. In no circumstances, to the fullest extent permitted by law, will the Company, or any of its respective subsidiaries, shareholders, affiliates, representatives, partners, directors, officers, employees, advisers or agents be responsible or liable for any direct, indirect or consequential loss or loss of profit arising from the use of the Presentation, its contents (including the management presentations and details on the market), its omissions, reliance on the information contained herein, or on opinions communicated in relation thereto or otherwise arising in connection therewith. The Presentation does not constitute an offering circular or prospectus in connection with the Offer. Investors must not accept any offer for, nor acquire, any Shares referred to in the Presentation except on the basis of information in the prospectus to be published by the Company in connection with the Offer, if made (the "Prospectus"). 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In addition, statements regarding past trends should not be taken as a representation that they will continue in the future. The forward-looking statements reflect knowledge and information available at the date of preparation of the Presentation and, the Company believes, are based on reasonable assumptions. The Company undertakes no obligation to update these forward-looking statements. Nothing in the Presentation should be construed as a profit forecast. The Company s results are reported under International Financial Reporting Standards ( IFRS ). This Presentation also contains underlying EBITDA, underlying operating profit, underlying profit before tax, underlying basic earnings per share and net debt, which are not measures defined by IFRS. The Company believes that these non-ifrs measures are appropriate measures of the operating performance of the Company. These non-ifrs measures do not have any standard meaning prescribed by IFRS. The Company s calculation of these measures may differ from the methodology used by other companies, and accordingly, may not be comparable to similarly-titled measures used by other companies. The Presentation is necessarily based on economic, monetary, market and other conditions as in effect on, and the information available to the Company as of the date hereof. The information contained in the Presentation does not address any legal, regulatory, tax or accounting matters that may be relevant to an assessment of any proposed transaction relating to the Company. Any recipient of the Presentation must take their own financial, tax, accounting and legal advice in relation to any of the matters addressed in the Presentation or in relation to any related transaction. 44