FIRSTGROUP PLC HALF-YEARLY RESULTS FOR THE SIX MONTHS TO 30 SEPTEMBER 2018

Transcription

1 Tuesday 13 November 2018 FIRSTGROUP PLC HALF-YEARLY RESULTS FOR THE SIX MONTHS TO 30 SEPTEMBER 2018 FirstGroup plc, a leading provider of transport services in the UK and North America, reports growth in revenue, adjusted profit and adjusted EPS in the first half of the 2018/19 financial year. Overview Matthew Gregory appointed as Chief Executive with immediate effect First half trading in line with plans outlined at start of the financial year; full year outlook unchanged Road divisions' constant currency growth +2.0% in revenue and +17.9% in adjusted 1 operating profit Strong bid season and growth in First Student; First Bus margin improvement continues Greyhound review complete and plan underway; action taken to address Western Canada Net cash inflow increased in period; net debt reduced compared to prior year Adjusted 1 H H Change Change in constant currency 2 SWR-adjusted change, in constant currency 3 Revenue 3, , % +21.6% +6.0% Operating profit % +9.2% +19.7% Operating profit margin 2.8% 3.2% (40)bps (30)bps +40bps Profit before tax % +63.4% EPS 2.9p 1.9p +52.6% +81.3% Net debt 4 1, ,179.9 (11.2)% (11.6)% Statutory H H Change Revenue 3, , % Operating profit (19.3)% Loss before tax (4.6) (1.9) (142.1)% EPS (0.6)p 0.2p n/m 5 Financial summary (percentage changes in constant currency unless otherwise stated) Group revenue +6.0% excluding SWR rail franchise that started towards end of comparable period; Group revenue including SWR was +21.6% Adjusted 1 operating profit +9.2%, with Road divisions +17.9% led by First Student and First Bus partially offset by a decline in Greyhound; the contribution from the Rail division was 5.8% lower, as expected Adjusted 1 profit before tax +63.4% and adjusted 1 EPS +81.3%, reflecting higher adjusted 1 operating profit, lower finance costs and reduction in US tax rates Net cash inflow of 50.6m (H1 2017: 21.9m before working capital inflow from the start of SWR franchise) Statutory loss before tax of (4.6)m (H1 2017: (1.9)m) and statutory EPS of (0.6)p (H1 2017: 0.2p), reflecting restructuring and reorganisation costs from withdrawal of Greyhound services in Western Canada Divisional updates First Student's fleet to grow this year following strong bid season: 92% contract retention and new customer wins, with pricing remaining in excess of the cost inflation from driver shortages First Transit continues to add to business portfolio; margin stabilising reflecting changing contract mix and non-recurrence of prior year costs Greyhound improvement plan underway, targeting at least mid-single digit margins in the medium term, including recent withdrawal from Western Canada. Long haul markets in particular remain challenging resulting in like-for-like 6 revenue (0.7)% First Bus delivered +1.5% like-for-like 6 passenger revenue growth and strong margin momentum, underpinned by increased commercial passenger volumes from our focus on making journeys simpler First Rail like-for-like 6 passenger revenue +5.5%, with solid financial contribution driven by GWR despite infrastructure issues. SWR has experienced challenging trading with issues relating to infrastructure reliability, industrial relations and the effects of the revenue protection mechanisms included in the franchise. We are working with industry partners to resolve our issues Outlook unchanged for the full year Our performance in the first half is encouraging although conditions in our markets remain challenging. We make no change to our full year outlook, and continue to expect broadly stable Group operating earnings in

2 FirstGroup plc Results for the six months to 2 constant currency for the full year, with improvement in the Road divisions and a smaller Rail contribution. We also expect broadly stable free cash generation for the full year. Commenting, Chief Executive Matthew Gregory said: "We have made good progress in the first half delivering on our plans to strengthen the Group, generating sustained cash flow to further reduce leverage and deploy to targeted growth. First Student's bid season success will see our largest business return to growth as planned, while maintaining our disciplined approach to pricing. In September, First Bus completed the rollout of contactless payment across the UK on schedule, becoming the first of the UK's principal bus operators to do so. Together with other revenue and cost actions this helped First Bus to achieve strong margin improvement in the period. Meanwhile our First Rail operations continued to focus on improving services for our passengers while maintaining overall profitability in a more challenging industry environment during the period. "We completed our review of Greyhound and have launched a plan to optimise our smallest business for the challenges it is facing. Having recently addressed our loss-making activities in Western Canada, these further actions will assist in improving Greyhound's performance going forward. "In summary, we are getting on with delivering our plans to improve performance in our divisions. Although conditions in our markets remain challenging, our performance to date underpins the confidence we have in our unchanged outlook for the full year." Chairman Wolfhart Hauser said: "We are implementing clear divisional strategies across our portfolio to mobilise the considerable value inherent in the Group, and I am encouraged by the progress made in the period. I am confident that with Matthew Gregory as Chief Executive, we have the right person to drive forward our plans at pace, and with the appointment of Steve Gunning as an independent non-executive director, we are strengthening the Board further. In addition, we are developing a more agile business, with its emphasis firmly on a divisional framework. This allows us to make the most of our evolving markets and customer requirements, while maintaining strong stewardship and creating more strategic flexibility at the Group level. We are also driving a strong focus on service throughout the Group, ensuring that we continue to create solutions for our customers that reduce complexity, making travel smoother and life easier." Contacts at FirstGroup: Faisal Tabbah, Head of Investor Relations Stuart Butchers, Group Head of Media Tel: +44 (0) Contacts at Brunswick PR: Andrew Porter / Alison Lea, Tel: +44 (0) A presentation for investors and analysts will be held at 9:00am today attendance is by invitation. A live telephone 'listen in' facility is available for joining details please call +44 (0) A playback facility will be available together with presentation slides and a pdf copy of this report at Please see the separate announcement released by the Group for further details of the FirstGroup Board changes announced today. Notes 1 Adjusted figures throughout this document are before other intangible asset amortisation charges and certain other items as set out in note 3 to the condensed consolidated financial statements. 2 Changes 'in constant currency' throughout this document are based on retranslating H foreign currency amounts at H rates. 3 Growth excluding SWR franchise revenue (which became part of First Rail in August 2017), in constant currency. 4 Net debt is stated excluding accrued bond interest, as explained on page Not meaningful. 6 'Like-for-like' revenue adjust for certain factors which distort the period-on-period trends in our passenger revenue businesses, as described on page 11. First Rail's like-for-like passenger revenue growth of 5.5% excludes SWR (which was only part of the division for four weeks of the prior period). Legal Entity Identifier (LEI): DEJZCPWA4HKM93. Classification as per DTR 6 Annex 1R: 1.2. About FirstGroup FirstGroup plc (LSE: FGP.L) is a leading provider of transport services in the UK and North America. With 6.4 billion in revenue and around 100,000 employees, we transported 2.1 billion passengers last year. Whether for business, education, health, social or recreation we get our customers where they want to be, when they want to be there. We create solutions that reduce complexity, making travel smoother and life easier. We provide easy and convenient mobility, improving quality of life by connecting people and communities. Each of our five divisions is a leader in its field: In North America, First Student is the largest provider of home-to-school student transportation with a fleet of 42,500 yellow school buses, First Transit is one of the largest providers of outsourced transit management and contracting services, while Greyhound is the only nationwide operator of scheduled intercity coaches. In the UK, First Bus is one of Britain's largest bus companies with 1.6 million passengers a day, and First Rail is one of the country's largest and most experienced rail operators, carrying more than 260 million passengers last year. Visit our website at and follow on Twitter.

3 FirstGroup plc Results for the six months to 3 OPERATING AND FINANCIAL REVIEW Group revenue in the first half increased by 19.2%, principally reflecting First Rail s SWR franchise which commenced in August Group revenue increased by 6.0% in constant currency after adjusting for SWR. In the period revenue in constant currency from the Road divisions increased by 2.0%, principally driven by First Student and First Bus; Greyhound revenues were lower reflecting ongoing challenges in its long haul markets and withdrawal of services in Western Canada. Rail revenue growth of 80.7% was driven by the inclusion of SWR, the planned transition of GWR from premium to subsidy in period, and like-for-like growth. Group adjusted operating profit in constant currency increased by 9.2% or by 19.7% adjusting for SWR. The Road divisions' contribution to adjusted operating profit increased by 17.9% in constant currency, reflecting progress in First Student, First Transit and First Bus, partly offset by the challenges in Greyhound. The adjusted operating profit contribution from First Rail in the period was lower, as expected. Group adjusted operating profit margin in constant currency decreased by 30bps to 2.8%, reflecting a 40bps increase for the Road divisions and the expected rebasing of the Rail margin. In reported currency, adjusted operating profit increased by 3.4% to 92.4m (H1 2017: 89.4m). 6 months to 6 months to Year to Revenue Operating profit 1 Operating margin 1 % Revenue Operating profit 1 Operating margin 1 % Revenue Operating profit 1 Operating margin 1 % First Student , First Transit , Greyhound First Bus Group items (20.9) 7.4 (16.7) 16.2 (31.2) Road divisions 2, , , First Rail 1, , Group 3, , , North America in USD $m $m % $m $m % $m $m % First Student 1, , First Transit , Greyhound North America 2, , , Adjusted. 2 Tramlink operations, central management and other items. Net finance costs before adjustments were 50.4m (H1 2017: 58.9m) with the decrease mainly reflecting the refinancing in March 2018 at lower interest rates. Adjusted profit before tax increased by 37.7% to 42.0m (H1 2017: 30.5m). Adjusted profit attributable to ordinary shareholders was 34.9m (H1 2017: 22.4m) with the increase due to the higher adjusted profit before tax together with the lower effective tax rate of 22.5% (H1 2017: 30.0%). Adjusted EPS increased by 52.6% to 2.9p (H1 2017: 1.9p). In constant currency, adjusted EPS increased by 81.3%. EBITDA decreased by 8.3% to 255.1m (H1 2017: 278.2m), with Road EBITDA increasing by 1.8% in constant currency and Rail EBITDA decreasing by 25.8%. Statutory operating profit decreased by 19.3% to 46.3m (H1 2017: 57.4m), principally reflecting restructuring and reorganisation charges relating to Greyhound's withdrawal from Western Canada, net of a 0.6m gain on disposal of surplus property in the region, of 28.5m (H1 2017: nil). In the period cash restructuring and reorganisation costs of 3.7m were incurred and 0.8m in surplus property proceeds were received. The Group expects that disposal proceeds from surplus properties in Western Canada will largely offset the cash costs of the restructuring and reorganisation, over time. The statutory loss attributable to equity shareholders was 6.9m (H1 2017: profit of 2.1m), and statutory EPS decreased to (0.6)p in the period (H1 2017: 0.2p). The net cash inflow for the period of 50.6m (H1 2017: inflow 21.9m before the working capital inflow of 75.1m from the start of the SWR franchise) represents an improvement of 28.7m compared with the prior period. This improvement was driven by timing of certain working capital items in First Rail and lower interest payments as a result of the refinancing in March 2018, partly offset by lower EBITDA in First Rail. The net cash inflow, combined with movements in debt of (26.9)m due to foreign exchange, resulted in a net debt decrease in the first half of 22.6m relative to the position (H1 2017: decrease of 110.0m). As at, the net debt: EBITDA ratio was 1.6 times (H1 2017: 1.7 times). Adjusting for cash ring-fenced in the First Rail division, net debt: EBITDA was 2.2 times (H1 2017: 2.2 times). Liquidity within the Group has remained strong; as at there was 727.3m (H1 2017: 844.1m) of committed headroom and free cash, being 587.0m (H1 2017: 800.0m) of committed headroom

4 FirstGroup plc Results for the six months to 4 and 140.3m (H1 2017: 44.1m) of free cash. Our average debt maturity was 4.0 years (H1 2017: 3.2 years). In November 2018 the Group agreed to amend and extend our main revolving bank facilities to November During the period, gross capital expenditure of 269.6m (H1 2017: 205.9m) was invested in our business, with the Road divisions capital expenditure being 223.3m (H1 2017: 149.4m) including operating leases with a capital value of 40.2m (H1 2017: nil), and the investment in First Rail being 46.3m (H1 2017: 56.5m). The increase in the Road divisions' gross capital expenditure was driven principally by the higher retention rates and new business wins achieved in First Student's recent bid season. ROCE was 9.2% (H1 2017: 7.2% at constant exchange rates and 7.9% as reported). First Student $m Change in 6 months to 30 September constant currency 1 Revenue 1, % Adjusted operating profit % Adjusted operating margin 3.5% 1.8% 3.2% 1.9% +160bps 1 Based on retranslating H foreign currency amounts at H rates. Following a strong bid season, First Student will be operating a fleet of approximately 42,500 buses for the balance of the school year, growing our fleet for the first time in a number of years. We maintained our consistent bidding discipline, securing average price increases in excess of the employee cost inflation we face, which is due to persistent driver shortages from the strong employment market in parts of the US. We achieved a retention rate of 92% on contracts up for renewal, significantly higher than the previous year's 83%, while remaining focused on only retaining or bidding for contracts at prices that reflect an appropriate return on the capital we invest. Across the entire portfolio of multi-year contracts, retention was 97%. In addition, we exceeded our target for net new business wins, securing contracts representing approximately 1,580 additional buses, mainly from competitors. First Student's revenue in the first half was $1,038.5m or 775.2m (H1 2017: $982.8m or 763.1m). Compared with the prior period, revenues principally reflect the net effect of our pricing strategy noted above, additional operating days in the half as anticipated, and additional weather recovery days, reflecting the significant number of school closures due to snowstorms in the last quarter of our previous financial year. Adjusted operating profit was $36.6m or 24.6m (H1 2017: $18.1m or 14.8m), resulting in an adjusted operating margin of 3.5% (H1 2017: 1.8%). In addition to weather recoveries and additional operating days due to the timing of the school calendar, we benefitted from cost and efficiency savings in maintenance and other management actions to offset the cost inflation associated with driver labour pressures noted previously. During the period we have continued to build out a pipeline of potential opportunities to grow through 'bolt-on' acquisitions in the highly fragmented home-to-school market, and in August we acquired CG Pearson Bus Lines, an Ontario-based provider of school and charter transportation services. CG Pearson was founded in 1947 and runs almost 60 routes and 70 buses. The transaction extends First Student s operations in Ontario, where we currently have more than 30 locations. We continue to roll out our FirstView bus location app, and are developing further offerings to leverage our market leadership and strong customer service credentials. Following on from First Student's successful bid season, we were pleased that this year s school start-up has gone well, with our improved planning and processes ensuring that we maintained our strong customer satisfaction scores from the previous year. First Student's results are always heavily weighted to the second half because of the overlay of our financial year with the North American school calendar, so our performance in the second half as ever remains key. Our strong first half and greater consistency of delivery means that First Student is well positioned to deliver on our strategy for profitable growth for the full year. First Transit $m Change in 6 months to 30 September constant currency 1 Revenue Adjusted operating profit % Adjusted operating margin 4.7% 3.9% 4.7% 3.9% +90bps 1 Based on retranslating H foreign currency amounts at H rates. First Transit s revenue in the first half was $691.3m or 519.6m (H1 2017: $692.0m or 536.4m), in line with the prior year in constant currency. Recent contract awards and organic growth were sufficient to offset the

5 FirstGroup plc Results for the six months to 5 end of a number of relatively large contracts in revenue terms, including the previously noted high margin business in the Canadian oil sands region that was not renewed at the end of the last financial year. Adjusted operating profit was $32.5m or 24.4m (H1 2017: $26.7m or 20.9m), resulting in an adjusted operating margin of 4.7% (H1 2017: 3.9%). Our margin in the period improved in part due to the non-recurrence of impacts such as the hurricane which devastated Puerto Rico in the prior period. We won 18 new contracts in the period including new fixed route and paratransit business for the city of Visalia, Ca., which includes operation of battery-powered and Compressed Natural Gas (CNG) bus fleets. We also achieved a 96% retention rate in the period, amongst other contracts retaining a major paratransit contract for the Washington DC metropolitan region's transit authority. In the period First Transit also signed five contracts to manage Shared Autonomous Vehicle pilots, as well as extending a number of partnerships with ridesharing providers to enhance our efficiency for customers. First Transit remains focused on driving growth by responding to new opportunities and adapting our business model in both our core and adjacent markets. For the full year we anticipate First Transit will achieve a broadly similar year-on-year margin performance, with our ongoing productivity and cost efficiency improvements partially offset by the persistently challenging cost environment for drivers in the US and the previously noted changes in contract mix. Greyhound $m Change in 6 months to 30 September constant currency 1 Revenue (1.6)% Adjusted operating profit (55.8)% Adjusted operating margin 2.8% 6.6% 3.0% 6.5% (360)bps 1 Based on retranslating H foreign currency amounts at H rates. In the period we completed our review of Greyhound's business and prospects. The review concluded that there is considerable value in our nationwide network, and that shrinking the business to focus on certain regions or types of journey would not sustainably enhance Greyhound's overall profit and cash contribution to the Group. While the short and long haul businesses use the same infrastructure, they are subject to different competitive challenges and opportunities, and the review has identified several revenue and cost opportunities to improve overall returns from the current position. We have developed a clear path to turning around Greyhound's financial performance and are targeting at least mid-single digit margins for the division in the medium term, with focused revenue improvement and cost reduction initiatives. This plan is being executed at pace. We are also continuing to invest to enhance our services for customers, principally in a targeted bus refurbishment and purchase programme, as well as in driver training and improving our terminal amenities. Greyhound s revenue was $455.4m or 342.6m (H1 2017: $463.0m or 358.8m) in the first half. Short haul journeys continue to outperform long haul, where there is more intense competition from the ultra-low cost airlines: our point-to-point Greyhound Express business delivered a like-for-like revenue increase of 2.3% in the period, while like-for-like revenue for the division as a whole decreased by 0.7%. The divisional decline includes some demand reductions in Western Canada in advance of our announced decision to withdraw services in October, as well as the earlier closures of routes in British Columbia effective from 1 June In the period we reduced mileage modestly in the Greyhound US business to assist in improving load factors and revenue per mile, which increased by 0.4%, and towards the end of the period we commenced further cost saving measures and made management changes as part of our plans to turn around Greyhound's performance. Adjusted operating profit was $12.9m or 10.2m (H1 2017: $30.5m or 23.5m), or an adjusted operating margin of 2.8% (H1 2017: 6.6%). The margin has been affected by higher maintenance costs as well as fuel price increases, partially offset by a gain on sale of a property of $6.5m or 5.0m. As noted elsewhere, the withdrawal of service in Western Canada resulted in a charge of $37.9m or 29.1m for restructuring and reorganisation. In the period we booked a 0.6m gain on disposal from the sale of the first surplus property in the disposal programme. The Group estimates that disposal proceeds from surplus properties in Western Canada will largely offset the cash costs of restructuring and reorganisation, over time. Greyhound's performance in the second half is expected to benefit from the withdrawal from Western Canada, the investment in our bus fleet and our turnaround plan following the review. Although we face significant challenges in the North American coach market, we are confident that Greyhound can deliver a unique and attractive customer proposition, which we will harness to optimise its value.

6 FirstGroup plc Results for the six months to 6 First Bus Change in 6 months to 30 September constant currency 1 Revenue % Adjusted operating profit % Adjusted operating margin 5.7% 3.7% +200bps 1 Based on retranslating H foreign currency amounts at H rates. First Bus reported revenue of 433.9m (H1 2017: 428.2m) in the period, with like-for-like passenger revenue increasing by 1.5%. Commercial passenger volumes increased by 0.7% in the period and commercial revenue per mile increased by 5.2%. Although we benefited from an improving overall environment and the more favourable summer weather than the comparative period, demand patterns remain variable amongst our local markets across the country. As previously flagged, retail footfall trends continue to affect passenger numbers in many of our markets, particularly in the North and Scotland, whilst traffic congestion in a number of cities contributes very significantly to operating challenges. Adjusted operating profit was 24.8m (H1 2017: 15.8m) and adjusted operating margin increased by 200bps to 5.7% (H1 2017: 3.7%), mainly reflecting cost efficiency actions in the current and prior periods. These include continuous review at a local level to optimise our timetables and route provision, standardising our operating procedures and work practices, the introduction of central shared services and a benefit of lower fuel costs, partially offset by inflation. During the first half we also continued to consolidate our depot footprint, closing our Clacton site. After the period end, we announced the closure of our Rusholme depot and the redeployment of some of its routes to other depots in our Manchester operation. In September, we became the first of the UK's principal bus operators to offer contactless payment for customers on all our networks. Together with mobile ticketing, contactless is pivotal as we continue to make bus travel easier and more convenient for our customers. We have now seen more than ten million contactless transactions since we began roll out in May 2017, and growth in mobile tickets continues to exceed our expectations. Both help us to speed up bus journeys by reducing customer boarding times. As previously reported, we are focusing our investment in areas where our local authority stakeholders recognise the importance of the bus and we can work together with them to improve congestion, meet air quality targets, support social exclusion agendas, and strengthen local economies. We were delighted that we worked with seven out of the ten city regions in England that were recently shortlisted for a share of the latest 840m tranche of public transport funding from the Transforming Cities Fund. For the current year we expect to take delivery of approximately 260 new buses (year to March 2018: 180 buses). Additions during the period include 75 low-emission vehicles for Glasgow, which will all be introduced into service in time for the new citywide Low Emissions Zone restrictions coming into effect from December. We are also investing in a new employee app to assist in communicating with our driver employees and driver training to improve customer satisfaction. We are pleased that our focus on delivering a frictionless digital customer offering is driving patronage growth and sustained margin improvement despite relatively challenging industry conditions. Although the market uncertainties are likely to persist, our systematic programme of actions will continue to improve our margin and restore our ability to drive sustainable value creation in First Bus. First Rail 6 months to 30 September Change Revenue 1, % Adjusted operating profit (5.8)% Adjusted operating margin 2.4% 4.6% (220)bps First Rail like-for-like passenger revenue growth was 5.5% for our portfolio excluding SWR (which was only part of the division for four weeks of the prior period). Industry conditions remain very challenging with macroeconomic uncertainty, infrastructure upgrade works across our networks and the industrial action in SWR all affecting our franchise performance levels. Like-for-like passenger volumes decreased by 1.9% in the period, reflecting the transfer of certain of GWR's Thames Valley flows to Transport for London in May Recent volume trends also reflect changing work patterns resulting in a shift away from season tickets towards pay-as-you-go tickets, an effect which is exaggerated by the way these journeys are recorded in industry volume statistics. Divisional revenues increased to 1,224.2m (H1 2017: 677.4m), with a full period of operation for our SWR franchise and the planned transition of GWR from premium to subsidy in period due to the cost of new rolling stock. Adjusted operating profit was 29.3m (H1 2017: 31.1m), with the margin reducing as expected, to 2.4% (H1 2017: 4.6%).

7 FirstGroup plc Results for the six months to 7 Divisional profitability was driven by GWR, where customers are seeing more capacity and services as a result of the introduction of new trains. Although electrification works by Network Rail have proved to be slower than originally planned which has led to issues with training drivers for the new trains, we are now introducing Hitachi Intercity Express Trains across the network. We also continue to work with our industry partners to reflect the impact of these delays in the level of our franchise commitments and model. Our rail franchises cover a period during which there is significant change (major infrastructure work, electrification and resignalling, and introduction of new trains). These changes require careful planning, management and negotiation with industry partners, in particular where delays can impact the delivery of franchise assumptions. Failure to manage these risks adequately could result in financial and reputational impacts to the Group. After the period end we have also begun the process of transferring the operational aspects of Heathrow Express to GWR, as previously announced. SWR performance levels remain challenging, reflecting infrastructure issues that began before we took over the franchise. An independent review chaired by Sir Michael Holden has set out a blueprint for Network Rail and SWR to return service to levels that our customers expect. As part of these plans, we are investing 5m in performance improvements and next year the first of our 895m new suburban fleet will arrive. We are also introducing more convenient ticketing options such as flexible and auto-renewing season tickets. Our SWR customers have also faced considerable disruption to their journeys due to RMT s ongoing industrial action, which we view as completely unnecessary since no employees will lose their job. In fact we have guaranteed that a guard with safety critical competencies will be rostered on every train, and, given our plans envisage running more services, SWR will want more guards in future not fewer. SWR are focused on delivering a resolution of the industrial dispute in the interests of our passengers. TPE delivered growth and financial results in line with our revised expectations. Our plans to increase capacity on the network by more than 80% and create a true intercity railway for the North continue with new trains to be introduced in the next few months. Franchise performance at TPE was significantly affected by the timetable changes in May, as challenges experienced by other operators in the region had a knock-on effect on TPE s punctuality statistics. Meanwhile our open access operator Hull Trains is performing in line with our expectations despite some challenges due to fleet unavailability. New trains are due to be brought into the fleet next year. In July, a national rail industry decision was announced to defer this winter s timetable changes for several train operators, including GWR, SWR and TPE. This deferral is a significant and an unforeseen change, which means we cannot deliver some additional services and other passenger benefits as originally scheduled. In accordance with current franchise agreements, we are engaged in discussions with the DfT to work through potential commercial and contractual amendments, a process that is ongoing. The SWR franchise agreement includes a mechanism to share the Central London Employment (CLE) revenue risk with the DFT. There is uncertainty regarding the outcomes of this mechanism over the remaining franchise term, which has the potential to significantly impact the profitability of the franchise. We are reviewing the effectiveness of this mechanism and whether it is functioning as originally intended by both parties. As a result of ongoing industry conditions and the tough operational environment our portfolio is experiencing, we continue to expect a smaller year-on-year adjusted operating profit contribution from Rail. Finance costs and investment income Net finance costs before adjustments were 50.4m (H1 2017: 58.9m) with the decrease principally reflecting lower bond interest due to the early bond redemption in March 2018 partly offset by the interest on the new senior unsecured loan notes. Profit before tax Adjusted profit before tax as set out in note 3 to the condensed consolidated financial statements was 42.0m (H1 2017: 30.5m). An overall charge of 46.6m (H1 2017: 32.4m) for adjustments, reflecting restructuring and reorganisation charges relating to Greyhound's withdrawal from Western Canada of 28.5m (H1 2017: nil), net of gains on disposal of surplus property in the region, and other intangible asset amortisation charges of 17.6m (H1 2017: 32.0m), resulted in a statutory loss before tax of 4.6m (H1 2017: loss before tax of 1.9m). Tax The tax charge, on adjusted profit before tax, for the period was 9.4m (H1 2017: 9.2m) representing an effective rate of 22.5% (H1 2017: 30.0%). The effective rate is lower due to the reduction in the US corporate income tax rate. There was a tax credit of 4.8m (H1 2017: 12.1m) relating to other intangible asset amortisation charges and other adjustments. The total tax charge was 4.6m (H1 2017: credit of 2.9m). The actual tax paid during the period was 4.3m (H1 2017: 7.1m).

8 FirstGroup plc Results for the six months to 8 EPS Adjusted EPS was 2.9p (H1 2017: 1.9p). Basic EPS was (0.6)p (H1 2017: 0.2p). Shares in issue As at there were 1,205.9m shares in issue (H1 2017: 1,206.4m), excluding treasury shares and own shares held in trust for employees of 6.0m (H1 2017: 2.8m). The weighted average number of shares in issue for the purpose of basic EPS calculations (excluding treasury shares and own shares held in trust for employees) was 1,205.0m (H1 2017: 1,206.2m). Reconciliation to non-gaap measures and performance Note 3 to the condensed consolidated financial statements sets out the reconciliations of operating profit and profit before tax to their adjusted equivalents. The principal adjusting items are as follows: Other intangible asset amortisation charges The charge for the period was 17.6m (H1 2017: 32.0m) with the reduction due to a number of customer contract intangibles which have now been fully amortised. Restructuring and reorganisation costs There was a charge of 28.5m (H1 2017: nil) for restructuring and reorganisation costs relating to Greyhound's withdrawal of services in Western Canada, net of a 0.6m gain on disposal relating to the initial property disposals completed in the region. Notional interest on TPE onerous contract provision There was a charge of 0.5m (H1 2017: nil) in the year for notional interest on the unwinding of the TPE onerous contract provision. Cash flow The net cash inflow for the period of 50.6m (H1 2017: inflow 21.9m before the working capital inflow of 75.1m from the start of the SWR franchise) represents an improvement of 28.7m compared with the prior period. This improvement was driven by timing of certain working capital items in First Rail and lower interest payments as a result of the refinancing in March 2018, partly offset by lower EBITDA in First Rail. The net cash inflow, combined with movements in debt of (26.9)m due to foreign exchange, resulted in a net debt decrease in the first half of 22.6m relative to the 31 March position (H1 2017: decrease of 110.0m), as follows: 6 months to 30 September Year to March 2018 EBITDA Other non-cash income statement charges Working capital excluding First Rail start of franchise cash flows Movement in other provisions (38.3) (19.3) (10.5) Pension payments in excess of income statement charge (30.8) (31.0) (47.9) Cash generated by operations excluding First Rail start of franchise cash flows Capital expenditure and acquisitions (191.9) (194.0) (425.6) Proceeds from disposal of property, plant and equipment Interest and tax (53.6) (80.0) (137.6) Acquisition of non-controlling interest - - (13.8) Dividends paid to non-controlling minority shareholders - - (1.1) Other 0.6 (4.4) (9.1) Net cash inflow before First Rail start of franchise cash flows First Rail start of franchise cash flows Net cash inflow after First Rail start of franchise cash flows Foreign exchange movements (26.9) Other non-cash movements (1.1) (0.9) (2.6) Movement in net debt in the period Capital expenditure Cash capital expenditure was 189.6m (H1 2017: 191.1m) and comprised First Student 101.5m (H1 2017: 69.5m), First Transit 10.8m (H1 2017: 9.2m), Greyhound 15.7m (H1 2017: 14.4m), First Bus 14.8m (H1 2017: 39.7m), First Rail 46.8m (H1 2017: 57.1m) and Group items nil (H1 2017: 1.2m). First Rail capital expenditure is typically matched by franchise receipts or other funding. In addition, during the period

9 FirstGroup plc Results for the six months to 9 we entered into operating leases for passenger carrying vehicles with capital values in First Student of 7.8m (H1 2017: nil), First Transit of 3.4m (H1 2017: nil), Greyhound of 10.2m (H1 2017: nil) and First Bus of 18.8m (H1 2017: nil). Gross capital investment (fixed asset and software additions plus the capital value of new operating leases) was 269.6m (H1 2017: 205.9m) and comprised First Student 168.3m (H1 2017: 123.8m), First Transit 14.2m (H1 2017: 9.4m), Greyhound 19.3m (H1 2017: 11.6m), First Bus 21.5m (H1 2017: 3.4m), First Rail 46.3m (H1 2017: 56.5m) and Group items nil (H1 2017: 1.2m). Net debt The Group s net debt at was 1,047.7m (H1 2017: 1,179.9m) and comprised: Analysis of net debt Sterling bond (2018) Sterling bond (2019) Sterling bond (2021) Sterling bond (2022) Sterling bond (2024) Sterling bank loans US Dollar bank loans Canadian Dollar bank loans HP contracts and finance leases Senior unsecured loan notes Loan notes Gross debt excluding accrued interest 1, , ,626.0 Cash (140.3) (44.1) (163.4) First Rail ring-fenced cash and deposits (453.8) (383.8) (391.5) Other ring-fenced cash and deposits (0.9) (0.9) (0.8) Net debt excluding accrued interest 1, , ,070.3 Under the terms of the First Rail franchise agreements, cash can only be distributed by the Train Operating Companies (TOCs) either up to the lower amount of their retained profits or the amount determined by prescribed liquidity ratios. The ring-fenced cash represents that which is not available for distribution or the amount required to satisfy the liquidity ratio at the balance sheet date. First Rail ring-fenced cash increased by 62.3m in the period principally due to working capital inflows at GWR and SWR. Funding and risk management Liquidity within the Group has remained strong. At, there was 727.3m (H1 2017: 844.1m) of committed headroom and free cash, being 587.0m (H1 2017: 800.0m) of committed headroom and 140.3m (H1 2017: 44.1m) of free cash. Largely due to the seasonality of First Student, committed headroom typically reduces during the financial year up to October and increases thereafter. Treasury policy requires a minimum level of committed headroom is maintained. Our average debt maturity is 4.0 years (H1 2017: 3.2 years). The Group s main revolving bank facilities require renewal in November 2023 following a two and a half year amendment and extension agreed in November The Group does not enter into speculative financial transactions and uses only authorised financial instruments for certain financial risk management purposes. Balance sheet Net assets have increased by 228.2m since the start of the period. The principal reasons for this are translation reserve movements of 172.4m, favourable after tax hedging reserve movements of 35.6m and actuarial gains on defined benefit pension schemes (net of deferred tax) of 24.9m. Pensions We have updated certain of our pension assumptions as at for the defined benefit schemes in the UK and North America. The net pension deficit of 273.7m at the beginning of the period has decreased to 228.8m at the end of the period principally due to release of irrecoverable surplus, additional cash contributions and higher real discount rates in North America partly offset by unfavourable foreign exchange movements. Based on the most recent actuarial valuations, the combined funding deficit of the First Bus and Group defined benefit schemes in the UK, taking into account funding guarantees provided by FirstGroup plc, is approximately 200m higher than the balance sheet position on an accounting basis. The main factors that influence the balance sheet position for pensions and the sensitivities to their movement at are set out below:

10 FirstGroup plc Results for the six months to 10 Movement Impact Discount rate +0.1% Reduce deficit by 30.6m Inflation +0.1% Increase deficit by 25.1m On 26 October 2018 the High Court ruled that guaranteed minimum pensions should be equalised between men and women. As a result pension scheme trustees will be obliged to adjust benefit payments in order that benefits received by male and female members with equivalent age, service and earnings histories are equal. We are working with the trustees of our UK pension schemes and our actuarial and legal advisors to fully understand the extent to which this ruling could crystallise additional liabilities in our UK pension schemes. We estimate that the impact could be significant and we anticipate that any adjustment will be recognised in the second half of the current financial year. Fuel price risk We use a progressive forward hedging programme to manage commodity risk. We have hedged 87% of the 'at risk' crude requirements for the current year in the UK (1.9m barrels p.a.) at an average rate of $60 per barrel, 65% of our 'at risk' UK crude requirements for the year to 31 March 2020 at $65 per barrel and 30% of our requirements for the year to 31 March 2021 at $68 per barrel. In North America, we have hedged 62% of current year 'at risk' crude oil volumes (1.4m barrels p.a.) at an average rate of $58 per barrel, 40% of the volumes for the year to 31 March 2020 at $60 per barrel and 17% of our volumes for the year to 31 March 2021 at $66 per barrel. Interest rate risk We seek to reduce our exposure by using a combination of fixed rate debt and interest rate derivatives to achieve an overall fixed rate position over the medium term of at least 50% of net debt. Foreign currency risk Certain and highly probable foreign currency transaction exposures may be hedged at the time the exposure arises for up to two years at specified levels, or longer if there is a very high degree of certainty. The Group does not hedge the translation of earnings into the Group reporting currency (pounds Sterling), but accepts that reported Group earnings will fluctuate as exchange rates against pounds Sterling fluctuate for the currencies in which the Group does business. During the period, the net cash generated in each currency may be converted by Group Treasury into pounds Sterling by way of spot transactions in order to keep the currency composition of net debt broadly constant. Foreign exchange The most significant exchange rates to pounds Sterling for the Group are as follows: 6 months to 6 months to Year to Closing rate Effective rate Closing rate Effective rate Closing rate Effective rate US Dollar Canadian Dollar Seasonality First Student generates lower revenues and profits in the first half of the financial year than in the second half of the year as the school summer holidays fall into the first half. Dividends The Board recognises that dividends are an important component of total shareholder return for many investors and remains committed to reinstating a sustainable dividend at the appropriate time, having regard to the Group s financial performance, balance sheet and outlook. The Board is not proposing to pay a dividend in respect of the six months to but will continue to review the appropriate timing for restarting dividend payments. Impact of new accounting standards The new accounting standard, IFRS 16 Leases comes into effect for accounting periods beginning after 1 January 2019, and will be adopted by the Group from 1 April It eliminates the operating lease classification and leases will be required to be recognised as right of use assets and lease liabilities on the balance sheet. A project is underway to implement this standard for the year ended 31 March Until this project is finalised it is not possible to accurately determine the value of right of use assets and lease liabilities that will be recognised on adoption of the standard. In note 34 of the Annual Report and Accounts 2018 the Group

11 FirstGroup plc Results for the six months to 11 disclosed total operating lease commitments of 3,622.1m as at, which represented the gross value before the discounting of lease commitments to their present value required by IFRS 16. Note 1 provides details on the adoption of IFRS 9 Financial Instruments and IFRS 15 Revenue from contracts with customers, neither of which has had a material impact on the Group. Both standards came into effect for accounting periods beginning after 1 January 2018, and were adopted by the Group from 1 April Forward-looking statements Certain statements included or incorporated by reference within this document may constitute forward- looking statements with respect to the business, strategy and plans of the Group and our current goals, assumptions and expectations relating to our future financial condition, performance and results. By their nature, forwardlooking statements involve known and unknown risks, assumptions, uncertainties and other factors that cause actual results, performance or achievements of the Group to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Shareholders are cautioned not to place undue reliance on the forward-looking statements. Except as required by the UK Listing Rules and applicable law, the Group does not undertake any obligation to update or change any forwardlooking statements to reflect events occurring after the date of this document. Definitions Unless otherwise stated, all financial figures for the six months to (the first half, the 'period' or H ) include the results and financial position of the First Rail business for the period ended 15 September 2018 and the results and financial position of all the other businesses for the 26 weeks ended 29 September The figures for the six months to (the prior period or H ) include the results and financial position of First Rail for the period ended 16 September 2017 and the results and financial position of all the other businesses for the 26 weeks ended 23 September Figures for the year to include the results and financial position of the First Rail division for the year ended 31 March 2018 and the results and financial position of all the other businesses for the 53 weeks ended 31 March Full year results for 2019 will include the results and financial position of First Rail for the year to 31 March 2019 and the results and financial position of all the other businesses for the 52 weeks ended 30 March All references to 'adjusted' figures throughout this document are before other intangible asset amortisation charges and certain other items as set out in note 3 to the condensed consolidated financial statements. ROCE or Return on Capital Employed is a measure of capital efficiency and is calculated by dividing adjusted operating profit after tax by all period end assets and liabilities excluding debt items. 'EBITDA is adjusted operating profit less capital grant amortisation plus depreciation. 'Net debt' is the value of Group external borrowings excluding the fair value adjustment for coupon swaps designated against certain bonds, excluding accrued interest, less cash balances. References to like-for-like revenue adjust for changes in the composition of the divisional portfolio, holiday timing, severe weather and other factors, for example significant engineering possessions in First Rail, that distort the period-on-period trends in our passenger revenue businesses. Principal risks and uncertainties for the remaining six months of the financial year There are a number of risks and uncertainties facing the Group in the remaining six months of the financial year. The principal risks and uncertainties, which are the same as set out in detail on pages 34 to 39 of the Annual Report and Accounts 2018, are: Economic conditions including Brexit implications Political and regulatory Contract businesses including rail franchising Competition and emerging technologies Information technology (IT) Data security (including cyber security and GDPR) Treasury and credit rating Pension scheme funding Compliance, litigation and claims, health and safety Labour costs, employee relations, recruitment and retention Disruption to infrastructure/operations

12 FirstGroup plc Results for the six months to 12 CONDENSED CONSOLIDATED INCOME STATEMENT Unaudited 6 months to Continuing Operations Notes Unaudited 6 months to Year to Revenue 2, 4 3, , ,398.4 Operating costs (3,257.0) (2,713.9) (6,594.6) Operating profit/(loss) (196.2) Investment income Finance costs 5 (52.0) (59.7) (132.0) Loss before tax (4.6) (1.9) (326.9) Tax 6 (4.6) (Loss)/profit for the period (9.2) 1.0 (290.9) Attributable to: Equity holders of the parent (6.9) 2.1 (296.0) Non-controlling interests (2.3) (1.1) 5.1 (9.2) 1.0 (290.9) Earnings per share Basic 7 (0.6)p 0.2p (24.6)p Diluted (0.6)p 0.2p (24.2)p Adjusted results 1 Adjusted operating profit Adjusted profit before tax Adjusted EPS 7 2.9p 1.9p 12.3p 1 Adjusted for certain items as set out in note 3.