FGP Firstgroup Plc

 
TIDMFGP 
 
FIRSTGROUP PLC 
 
                  UPDATE ON TRAIN OPERATING COMPANY CONTRACTS 
 
FirstGroup plc ('FirstGroup' or 'the Group') has reached agreement with the 
Department for Transport ('DfT') on next steps for the South Western Railway 
('SWR') and West Coast Partnership train operating companies, the latter of 
which comprises Avanti West Coast and the shadow operator for HS2 (together, 
'Avanti'). 
 
As announced on 20 September, these two companies are currently operating under 
Emergency Recovery Measures Agreements ('ERMA') which were put in place by the 
DfT to provide continuity for rail passengers and the industry during the 
coronavirus pandemic. The ERMA for Avanti is in place to the end of March 2022 
and the SWR ERMA is in place to the end of March 2021. Both can be extended by 
a further half year at the DfT's discretion. 
 
As previously stated, the ERMAs required the train operators and the DfT to 
agree whether any payment is required to terminate the pre-existing franchise 
agreements, and if so how much, based on a pre-coronavirus trajectory financial 
model. The DfT and FirstGroup have agreed that no termination sum is required 
for Avanti, which commenced operations in December 2019 and was performing well 
prior to the pandemic. Agreement has also been reached for a termination sum 
for SWR, which requires a further FirstGroup contribution of GBP33.2m. This 
represents the Group's share of parent company support and additional funding 
commitments under the franchise agreement, less amounts already paid into the 
operating company, and which will be paid at the end of the ERMA term. The full 
exposure to SWR performance bonds and parent company support has already been 
provided in our accounts. The pre-existing franchise agreements will therefore 
terminate at the end of the ERMA term for SWR and Avanti. Agreement of the 
termination sums significantly reduces the overall financial risk within the 
First Rail franchise portfolio. 
 
Following agreement of the termination sums we are now negotiating new directly 
awarded management contracts with the DfT, which will come into effect at the 
end of the ERMAs, under which each incumbent train operator will deliver 
passenger rail services. The DfT have indicated that these new National Rail 
Contracts would last to 1 April 2023 for SWR, and to 1 April 2026 for Avanti, 
each with extension periods of up to two further years at the DfT's discretion. 
 
Our TransPennine Express ('TPE') rail franchise is also operating under an 
ERMA, and the process to agree the franchise termination sum for TPE has been 
extended to the end of January 2021 by the DfT. As also previously announced, 
the existing Emergency Measures Agreement for Great Western Railway ('GWR') has 
already been extended to June 2021. 
 
Commenting on today's announcement, FirstGroup Chief Executive Matthew Gregory 
said: 
 
"We welcome this agreement, which marks a further evolution of the contractual 
framework for our SWR and Avanti train operating companies, both in the context 
of providing resilient services throughout the coronavirus pandemic and also a 
more sustainable long-term approach. These new directly awarded management 
contracts will focus on passengers and operational performance, with a more 
appropriate balance of risk and reward. We look forward to working 
constructively with the DfT to make this a reality, and to use our expertise 
and understanding of the needs of our customers to deliver improvements that we 
know passengers want." 
 
"We have acted flexibly to ensure continuity of service while implementing 
social distancing, as well as enhanced cleaning protocols and innovative 
technology to improve the customer experience. Passengers and employees alike 
can be confident that our trains are safe. We are now operating around 90% of 
the rail services we were prior to the pandemic. We will continue to bring all 
our experience to bear alongside Government and industry partners to deliver 
the next phase of recovery of the rail network." 
 
Notes 
 
Termination assessments 
 
As previously announced, the ERMAs require that each train operating company 
agrees with the DfT appropriate terms to terminate the pre-existing franchise 
agreements that were overlaid with the Emergency Measures Agreements in March. 
The objective is to agree if and how much parent company support ('PCS') or 
other sums would have been payable had the pandemic not occurred. The amounts 
are based on the financial status of each franchise prior to the pandemic and 
the DfT's assessment, acting reasonably, of their potential trajectory for the 
remainder of the franchise term under those pre-existing agreements in the 
absence of the pandemic. The assessments take into account the franchise 
agreement change mechanisms and certain other input from the operating 
companies. 
 
The PCS and additional funding commitments under each pre-existing franchise 
agreement, plus the performance bonds, less any monies already paid by the 
parent into the train operating company are the maximum remaining cash exposure 
of the parent company under the termination sums process conducted by the DfT 
in respect of SWR, TPE and Avanti. Following this announcement, the relevant 
commitments to FirstGroup of the three train operating companies are shown 
below, together with the total accounting provisions for losses on their 
franchise agreements that have been provided for: 
 
GBPm                                           Avanti       SWR       TPE     Total 
                                               (70%      (70% 
                                             share)    share) 
 
Maximum remaining cash exposure as at 31      106.4      44.4     143.4     294.2 
March 2020 
 
PCS and additional funding commitments       (92.4)         -       TBD    (92.4) 
not required 
 
Performance bond (limited exposure risk)     (14.0)    (11.2)    (17.1)    (42.3) 
 
Maximum remaining cash exposure following         -      33.2     126.3     159.5 
Avanti and SWR agreements; TPE to be 
determined 
 
Note: the operations also have season ticket bond commitments, but these are 
covered by cash resources within each Train Operating Company. The TPE 
termination sum agreement process has been extended to end of January 2021 by 
the DfT, and any termination sum for TPE may be subject to discounting. 
 
GBPm                                           Avanti  SWR (70%       TPE 
                                               (70%    share) 
                                             share) 
 
Initial accounting provisions for losses          -     102.1     106.3 
(IAS 17 basis) 
 
Ring-fenced cash 
 
For the duration of the ERMAs, the train operating companies will continue to 
maintain ring-fenced cash balances. As at 19 September 2020, GWR had GBP258.4m of 
ring-fenced cash, SWR had GBP164.9m, TPE had GBP47.9m and West Coast Partnership 
had GBP75.5m. 
 
GWR 
 
As announced on 1 September 2020, the Emergency Measures Agreement in respect 
of Great Western Railway (GWR) was extended under its previous terms until at 
least 26 June 2021. The PCS and performance bond commitments associated with 
GWR are each GBP10m, and cash ring-fenced within the train operating company was 
GBP266m as at 31 March 2020. GWR's original Emergency Measures Agreement was 
signed on the same day as the new franchise agreement in March, and the DfT's 
option to extend it formed part of that contract. This process and timing is 
different from our other three rail franchised operations which were already on 
established franchise agreements before adopting Emergency Measures Agreements 
as a result of the pandemic. 
 
Contacts at FirstGroup: 
 
Faisal Tabbah, Head of Investor Relations 
 
Stuart Butchers, Group Head of Communications 
 
corporate.comms@firstgroup.com 
 
Tel: +44 (0) 20 7725 3354 
 
Contacts at Brunswick PR: 
 
Andrew Porter / Simone Selzer, Tel: +44 (0) 20 7404 5959 
 
Legal Entity Identifier (LEI): 549300DEJZCPWA4HKM93. Classification as per DTR 
6 Annex 1R: 3.1. 
 
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. 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. 
 
About FirstGroup 
 
FirstGroup plc (LSE: FGP.L) is a leading provider of transport services in the 
UK and North America. With GBP7.8 billion in revenue in the year to 31 March 2020 
and around 100,000 employees, we transported 2.1 billion passengers. 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 43,000 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 1.4 million passengers a day in 2020, and First Rail is one of 
the country's most experienced rail operators, carrying 340 million passengers 
in the year. 
 
Visit our website at www.firstgroupplc.com and follow us @firstgroupplc on 
Twitter. 
 
About First Rail 
 
FirstGroup is one of the most experienced rail operators in the UK and the only 
one to run every type of railway - long distance, regional, commuter and 
sleeper operations. We carried more than 340m passengers almost 10bn miles last 
year. We operate four passenger franchises - Avanti West Coast, Great Western 
Railway, South Western Railway and TransPennine Express - and one open access 
service, Hull Trains. We also operate the London Trams network on behalf of 
Transport for London, carrying around 27 million passengers a year. As well as 
Avanti services, the West Coast Partnership also includes the 'shadow operator' 
for future high speed rail services which will design, develop and mobilise 
operations for the new line working with HS2 Ltd and the Department for 
Transport. 
 
 
 
END 
 

(END) Dow Jones Newswires

December 10, 2020 02:00 ET (07:00 GMT)

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