FirstGroup plc South Western Rail franchise award Monday 27 March 2017
Overview Delighted to be selected by the Department for Transport (DfT) to operate the South Western franchise for at least seven years from 20 August 2017 1.2bn will be invested to raise the quality of every aspect of train journeys on the South Western network, through state of the art trains, more seats and services, quicker journey times, improved stations and more flexible fare options Look forward to working with customers and community groups, employees, local authorities and Transport for London to give them a real stake in the future of rail travel in the region FirstGroup and 70:30 JV partner MTR have committed to a bid that will deliver the tangible improvements that customers and stakeholders have told us they want. That approach combined with realistic growth prospects, the DfT's efficient allocation of risk and sensible bonding requirements will produce a franchise that provides value for money for passengers and a fair deal for taxpayers 2
The South Western franchise today Critical part of the national rail infrastructure Services from London Waterloo to destinations throughout south-west London and counties in southern England Key termini include Portsmouth, Weymouth, Exeter, Bristol, Reading. Also includes the Isle of Wight Island Line service Significant commuter patronage but major inter-urban, regional and long distance as well Key facts (current franchise) Passenger revenue (2015/16): 991m Revenue CAGR (2007-16): 6.9% Passenger journeys (2015/16): 235m 1,700 trains per weekday 370 trains 186 stations 4,800 employees 3
Delivering for passengers State of the art trains 750 new, spacious train carriages for the Windsor, Reading and London Suburban routes by December 2020 18 additional, fully refurbished trains (90 carriages) on the London-Portsmouth route from December 2018 52,000 more peak seats per day at London Waterloo (22,000 morning and 30,000 evening seats) compared to today's services by December 2020 Rest of our mainland fleet will be refreshed and will have free, more reliable Wi-Fi, at-seat charging points and free infotainment as well as real time travel and connection information screens Additional and faster services Faster journey times from December 2018 to stations including Hounslow, Reading, Southampton, Bournemouth, Weymouth, Portsmouth and Salisbury Double the service to both Reading and Windsor throughout the day; double the off-peak service between Southampton and Portsmouth and re-introduction of through services between Portsmouth, Southampton, Bournemouth and Weymouth to aid regional connectivity Significantly improve weekend services with more than 400 extra Sunday trains across the network 4
Delivering for passengers Easier tickets and fares Introduce simpler fares with mobile and smart ticketing, including flexible season tickets and new lower fares for 16-18 year olds Introduction of an easy-to-use delay repay scheme for the first time on the network New passenger app will be a key gateway to all travel options throughout the region Station improvement 90m invested in our stations, including a major refurbishment at Southampton Central Car parks will be extended at key locations with at least 1,500 extra spaces and new electric vehicle charging points Station buildings used to host community projects and independent retailers Passengers will also benefit from this summer s London Waterloo platform extension project that is scheduled for completion within days of the start of the new franchise. Further capacity at Waterloo will be introduced at the end of 2018 when the former Waterloo International platforms are fully redeveloped and brought back into use People and communities Increase engagement with customers, employees, local authorities and community groups to give them a real stake in the future of rail travel in their area 2.6m annual fund to support community projects across the franchise from April 2020 Plan to introduce the biggest rail operator apprenticeship scheme in Britain 5
Franchise process JV with MTR, operator of Hong Kong's highly-regarded mass transit system and with experience of operating London Overground and TfL Rail on behalf of Transport for London Franchise Train Operating Company is owned 70:30 by FirstGroup and MTR respectively All costs, risks and rewards shared accordingly FirstGroup financial presentation: will consolidate 100%, with MTR share of profit and cash flowing out to 'non-controlling interests' in the accounts Disciplined bidding process maintained Robust economic and cost assumptions, based on both JV partners' industry experience and external advice Extensive analysis of growth and efficiency opportunities as well as downside risks Rigorous governance process including internal and external challenge to our plans Bid submitted in September 2016 DfT assessed bid on weighted price and quality scores 6
Key franchise terms Operates from 20 August 2017 for seven years, with an extension option of up to 11 months at DfT discretion Robust exogenous risk mitigation mechanisms: GDP protection variable revenue support/sharing to extent that UK Gross Domestic Product deviates (beyond a 'nil band') from expected baseline throughout the franchise CLE protection variable revenue support/sharing to extent Central London Employment deviates (beyond a 'nil band') from expected baseline throughout the franchise Profit share mechanism with DfT Total premium of 2.6bn NPV in real terms* to Government * Net present value of forecast premium payments over the seven year core franchise period, expressed in 2017/18 prices and discounted using the DfT's 'real' discount rate of 3.5% 7
Franchise financial commitments Loan facilities provided by JV shareholders to support working capital and capital investment: Minimum agreed funding commitment of up to 30m shareholder loan 88m subordinated contingent loan facilities, of which 50% bonded 15m performance bond Cash received by franchise from season ticket payments backed by a bond of up to 80m All these commitments shared 70:30 between FirstGroup and MTR 8
Financial returns Expecting to achieve margins comparable with the recent overall industry average Operating cash flow after capital expenditure is expected to be slightly positive in Year 1 and thereafter cash flow should largely reflect share of operating profit, subject to timing of capital expenditure Of the capital invested, c. 80m will be directly funded by the franchise operator Expected working capital inflow of c. 100m principally relating to season ticket monies, treated as restricted cash 9
Expected franchise timeline Franchise start (August 2017) Waterloo modernisation Class 442 trains introduced refurbished to 'as new' New timetable: faster mainline journeys and higher suburban frequency More reliable Wi-Fi provision Southampton Central upgrade New Metro trains introduced Smart ticketing Infotainment on all trains New timetable: greater suburban capacity and faster Station improvements completed 11 period extension at DfT discretion 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 10
Next steps Customary 'standstill period' of ten days before award formally confirmed and contracts signed Competition and Markets Authority required by law to carry out a 'phase one review', as with other UK rail franchise awards Experienced team from across FirstGroup and MTR working on mobilisation plans Plans to meet local stakeholders in the coming months to consult on details of customer benefits in their areas Confident our disciplined bidding process has developed a proposal that will deliver for South Western passengers, while achieving a good deal for the taxpayer and appropriate risk-adjusted returns for our shareholders 11
Disclaimer Certain statements included or incorporated by reference within this presentation may constitute forward looking statements" in respect of FirstGroup plc's operations, performance, prospects and/or financial condition. Such statements are based on our current expectations and beliefs concerning future events and are subject to a number of known and unknown risks and uncertainties that could cause actual events or results to differ materially from any expected future events or results referred to in these forward looking statements. Such statements are also based on numerous assumptions regarding our present and future strategy and the environment in which we operate, which may not transpire. We undertake no obligation to update any forward looking statements contained in this presentation or any other forward looking statements we may make. Nothing in this presentation should be construed as a profit forecast. Past performance cannot be relied upon as a guide to future performance and persons needing advice should consult an independent financial adviser. Nothing contained in this presentation is intended to constitute an invitation or inducement to engage in investment activity for the purposes of the prohibition on financial promotions in the UK Financial Services and Markets Act 2000. In making this presentation available, FirstGroup plc makes no recommendation to buy, sell or otherwise deal in shares of FirstGroup plc or in any other securities or investments whatsoever and you should neither rely nor act upon, directly or indirectly, any of the information contained in this presentation in respect of any such investment activity. 12