FIRSTGROUP PLC
COVID-19 UPDATE
FirstGroup plc (‘FirstGroup’ or the ‘Group’) provides the
following update on the rapidly evolving impact of the Coronavirus
(‘COVID-19’) pandemic on the business, our response to the UK
government’s announcement of emergency measures to support the rail
industry which is vital in keeping key workers moving, and the
other actions the Group is taking to manage the risks to
passengers, employees and its operations.
Our first priority since the start of the COVID-19 outbreak has
been the health and safety of the Group’s passengers, employees and
communities. The Group continues to rigorously apply the advice of
governments and health authorities throughout our businesses,
including implementing additional cleaning regimes and the
provision of advice to passengers. At the same time, we recognise
our leading role in providing essential transportation services, to
ensure that key workers and people who need to travel have the
ability to do so.
In recent days the Group has seen unprecedented changes in the
market environments for all its businesses. There have been
substantial volume reductions in our passenger demand businesses in
North America and the UK. First
Student has been impacted by the closure of almost all of the
schools which it serves, while First Transit is experiencing
significantly reduced service requirements. Government advice and
policy in our markets is changing rapidly, and we are in very
active discussions with many of our customers about future service
levels and full or partial payments in lieu of reduced service.
Given these changes are all taking place during a significant
trading period for the Group, we are no longer able to provide
guidance on the outturn for the remainder of the financial year to
31 March 2020.
However, the Group’s resilience in this situation reflects:
- The Group’s diverse portfolio of market-leading
businesses
- Benefit from contractual structures and protections already in
place in several businesses
- The fast and comprehensive emergency measures the UK Government
has put in place for the next six months, in order to support the
continuity of critical rail industry services during this
unprecedented period of demand reductions
- Productive engagements with our major customers, including
school boards throughout North
America, and local, state and national governments in the
UK, US and Canada
- Customers recognise the need to rapidly adjust services to fit
current demand including for key workers, whilst preserving ability
to restore service when required
- The Group has significant current liquidity
- £400m in committed undrawn facilities and free cash as at end
of February 2020
- Access to additional sources of financing, including a £250m
bank bridge facility signed 19 March
2020
- The Group’s net debt: EBITDA ratio was 1.5 times on the banking
covenant test which requires less than 3.75 times at the end of the
first half, and typically improves in the second half
- Immediate and significant management actions to preserve
cash
- Actions already implemented across entire Group to reduce
operating expenditure
- Future capital expenditure orders on hold and managing existing
commitments accordingly
- Decisive management actions include a range of salary deferrals
and sacrifice, hiring freezes, and halting of consultant and
contract labour where possible across the Group
- We welcome the emergency support programmes to protect jobs and
businesses that governments have announced in our markets, and will
access them as appropriate
- Will continue to take all necessary actions to preserve cash
through period of uncertainty
Matthew
Gregory, FirstGroup Chief Executive said:
“The health and safety of our people, our passengers and their
communities is our top priority and across all of our businesses we
are working hard to support the response to the growing pandemic,
and closely following all government and health authority guidance.
I want to thank my colleagues across the Group for their
outstanding effort and commitment in providing vital services for
our customers and communities in the face of a rapidly changing
environment.
“Continuity of transport is essential to governments, local
services and many of our customers throughout this time, and they
will also be critical to a restoration of normal life when the
present uncertain and extremely difficult situation is overcome. We
welcome and have accepted the UK Government’s swift and
comprehensive offer of emergency measures which provides certainty
for all of the Group’s franchises and the continuity of our vital
rail networks during this time.
“We have taken immediate and significant actions to preserve
cash and protect our financial position. Our customers recognise
this is an unprecedented situation, and we have led constructive
and positive engagement with them, including with school boards
throughout North America and
across all levels of government in the UK and North America. Currently, the situation is
changing day by day, and accordingly we are fully utilising all
levers at our disposal to ensure the most effective management of
our cost base through this intense period of uncertainty.
“We have significant liquidity, and a diverse portfolio of
leading transportation assets that are critical to the 2.1 billion
passengers we carry and for the communities we serve, both now and
in the future. The long-term fundamentals of our businesses are
sound, we have taken immediate action and will continue to do all
that is necessary to ensure the Group emerges from this exceptional
situation in the most robust position possible.”
Financial position and liquidity
The recent precipitous and continuing reductions in service
levels and demand resulting from the outbreak of and response to
COVID-19, the very active discussions underway with many of our
customers about future service levels and full or partial payments
in lieu of reduced service, and the rapidly evolving policies of
governments in our markets are all taking place during a
significant trading period for the Group. As a result, we are no
longer able to provide guidance on the outturn for the remainder of
the financial year to 31 March
2020.
The Group has considerable financial headroom and liquidity. As
at the end of February 2020, the
Group’s undrawn committed headroom and free cash was approximately
£400m. The Group’s committed facilities include an £800m revolving
bank facility which matures in November
2023 and is currently less than half drawn, as well as £82m
in committed bank and leasing facilities signed since the end of
the first half of the financial year. The Group has free cash in
excess of £100m in addition to cash held inside our rail franchise
operations and available supplier financing arrangements of more
than $100m.
On 19 March 2020 the Group signed
a new £250m bank bridge facility for the refinancing of the next
bond maturity in April 2021.
The Group also has access to a £150m accordion feature on the
revolving bank facility and other leasing facilities, which are
currently unutilised. The Group is in discussions to arrange
additional facilities in a number of lending and leasing markets to
provide further headroom and greater security for the Group. The
Group also notes the recent announcement from the UK Treasury and
the Bank of England of a new
commercial paper programme for which we would expect to qualify
given our investment grade ratings, significant UK employment and
UK headquarters.
The Group’s three bonds outstanding have no financial covenants
and the Group’s committed facilities and US private placement notes
include a net debt:EBITDA covenant of no more than 3.75 times and a
fixed charge cover of no less than 1.4 times. Both are measured at
end September and end March on a ‘fixed GAAP’ basis, i.e. excluding
the effects of the new IFRS16 operating lease accounting standard
(which increased ‘headline’ net debt by £1,022m at end September,
principally for rail rolling stock leases). As at 30 September 2019, FirstGroup’s net debt: EBITDA
ratio was 1.5 times and the fixed charge cover was 1.7 times on the
banking covenant tests. Given the nature of the fixed charge
calculation, the EBITDA headroom on the two covenants is broadly
comparable.
As at end of February 2020, the
Group’s remaining future cash exposure to the rail franchise
operating companies was £272m. For the duration of the Emergency
Measures Agreements with the UK government the Group does not
expect any cash outflow to support the rail franchise operating
companies.
Covid-19 update by division
First Student
(£352m or 50% contribution to 2019 Group EBITDA)
We are the market leader with a fleet of 42,500 yellow school
buses across 40 US states and seven Canadian provinces. Following
the recent changes in government advice, almost all of the schools
served by First Student have now announced closures. Most closures
are likely to be maintained until at least the end of the Easter
holidays, and there can be no certainty that schools will start up
again before the end of the summer holidays. School closures also
result in the cancellation of school charter trips and we have also
seen a significant decline in the demand for external charters
(charter represents approximately 8% of divisional revenue).
Although some of our 1,100 contracts include guaranteed minimum
revenue commitments (mainly in Canada), the majority do not. First Student is
therefore currently in very active and productive discussions with
all of our school board customers on a contract-by-contract basis
to agree a level of payment that will ensure we retain the
capability to restart services when schools reopen. As the leader
in the industry, we have reinforced the importance of maintaining
the driver and operational capability for our customers through the
current situation by engaging with industry bodies and the sector.
It should be noted that most school districts remain fully funded
to continue to provide education, school transportation and other
services. So far, we have resolved discussions with customers
representing approximately 55% of our school bus fleet in the US
and Canada, within which we have
secured full or partial payment (either contractually or by recent
agreement) from more than 90%.
First Transit
(£71m or 10% contribution to 2019 Group EBITDA)
We are a market leader and operate more than 300 contracts in
the fixed route, paratransit, shuttle, vehicle maintenance and
other transit management segments. The majority of contracts
reflect payment for making services available over agreed time
periods, with the principal exception being in paratransit where
the revenue is driven more by the volume of trips undertaken by the
business. Our fixed route operations (35% of divisional revenue)
are largely classed as essential services but due to the
significant reduction in ridership, and increasing orders to
‘shelter in place’ by various US states, we are likely to see
reduced service requirements. Paratransit operations (32% of
divisional revenue) are seeing trip numbers decline by
approximately half. Shuttle operations (16% of divisional revenue)
are seeing service reductions in certain airport contracts and all
university clients have now reduced service requirements
significantly to holiday timetables and/or engaged e-learning
protocols. As with First Student, we are in active dialogue with
our customers regarding payment through any reductions in service
to ensure the operations are in a position to restart efficiently
at the appropriate time. So far, we have proactively engaged with
the 135 customers (representing more than 65% of divisional
revenue) with identified material service impacts, and to date 17%
of those customers have already agreed to make full or partial
payments in lieu of reduced service requirements. We are also
requesting waivers for all liquidated damages consequential on the
outbreak and are typically receiving favourable responses from our
clients.
Greyhound (£39m or
5% contribution to 2019 Group EBITDA)
Revenues have fallen by approximately 65% as the outbreak and
government advice has developed, and border closure plans between
the US and Canada have recently
been announced. The business is rapidly reducing capacity to match
lower demand levels and is reducing headcount. Alongside airlines
and other transport operators, Greyhound is urgently seeking
federal and state assistance to ensure that the community-critical
transportation connections that it provides, as the only national
intercity bus operator in North
America, are maintained through the present situation.
Greyhound is also in active discussions with government
transportation agencies to obtain relief on rents and fees for
intermodal facilities.
First Bus (£120m
or 17% contribution to 2019 Group EBITDA)
In the UK our First Bus business, which operates approximately
20% of regional bus services in the UK and Ireland, has seen fare-paying passenger
revenue declines and concessionary volume declines of approximately
65%. The bus industry is engaging with national and local
government to ensure that service provision can be rapidly adjusted
to meet reduced demand without any of the usual notice periods,
given the pace at which the situation is evolving. First Bus
anticipates further reductions in demand and is rapidly reducing
service levels to weekend timetables which will reduce mileage
significantly across its networks. We are working with all of our
key stakeholders to ensure that the changes to timetables,
concessionary travel rules and provision of specific services
continue to support healthcare and other key workers, and are
communicating these developments to our customers. We are actively
engaged with the UK government, alongside the bus industry, for the
purpose of securing the urgent support required including a
guarantee of already budgeted sources of income for bus and coach
operators.
First Rail (£127m
or 18% contribution to 2019 Group EBITDA)
In line with the wider UK rail industry, passenger volumes in
our businesses have reduced substantially since last week with
revenue up to 90% lower over the last few days as Government advice
has changed. Following consultation with Government, the industry
will operate a reduced timetable akin to weekend service levels
from Monday.
We welcome and have accepted the comprehensive response of the
UK Government who have acted swiftly to provide support for the
country’s vital rail networks. These measures provide continuity
and certainty for all of the Group’s rail franchises through
Emergency Measures Agreements which will last six months or longer
if required. For the duration of the Agreements, the Government
will waive our revenue, cost and contingent capital risk. During
this time our train operating companies will be paid a fixed
management fee, which varies according to the individual profile of
the franchise, and have the potential for a small performance-based
fee.
Cost reduction and cash management
There remains considerable uncertainty as to how the impact of
the outbreak and government guidance and policy will continue to
affect demand going forward. In addition to the actions taken to
sustain revenue, the Group has also taken immediate and significant
actions to reduce costs and optimise cash flow and liquidity,
including removing all non-essential operating expenditures,
halting all future capital expenditure and managing any existing
capital expenditure commitments where practical1. Across
the Group, a combination of salary sacrifice and deferrals, hiring
freezes, and the halting of consultant and contract labour are
being implemented. We welcome the government packages of emergency
measures recently announced in North
America and the UK to assist companies in managing their
employment costs during this time.
Contacts at FirstGroup:
Faisal Tabbah, Head of Investor
Relations
Stuart Butchers, Group Head of Communications
corporate.comms@firstgroup.com
Contacts at Brunswick PR:
Andrew Porter / Simone Selzer, Tel: +44 (0) 20 7404 5959
Notes
1 Cash capital
expenditure (excluding disposal proceeds) for the Road divisions in
the 2019 financial year of £322m comprised: First Student £233m,
First Transit £32m, Greyhound £32m and First Bus £25m. The Road
divisions’ net asset value excluding goodwill, other intangible
assets, debt and taxation as at 30 September
2019 was £1,641m.
Legal Entity Identifier (LEI): 549300DEJZCPWA4HKM93.
Classification as per DTR 6 Annex 1R: 2.2. This announcement
contains inside information. The person responsible for arranging
the release of this announcement on behalf of FirstGroup is
Keith Hubber, Group General Counsel
and Company Secretary.
Figures presented in this announcement are not audited. Certain
statements included or incorporated by reference within this
announcement 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,
forward-looking 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. Notwithstanding the mitigations and
emergency measures referred to above, the overall impact COVID-19
will have on the financial performance and prospects of the Group
in the near as well as the medium to longer term remains extremely
unclear. The situation is evolving very rapidly and while every
effort has been made to verify the accuracy of the information in
this announcement figures in this announcement that relate to the
current impact COVID-19 is having on the financial performance of
the Group should be treated with extra caution because of the
difficulties in such a fast-evolving situation of obtaining
accurate and up-to-date data from across the businesses in the
Group. Except as required by the UK Listing Rules and applicable
law, the Group does not undertake any obligation to update or
change any forward-looking statements to reflect events occurring
after the date of this announcement.