However, First Group’s directors say that based on their review of the financial forecasts and taking into account the risks and uncertainties to which the company is exposed, they believe the firm has adequate resources to continue operating for another year.
First Group’s rail activities include British franchises Great Western Railway (GWR), Avanti West Coast (a 70:30 partnership with Trenitalia), the Transpennine Express (TPE) and South Western Railway (SWR) (a 70:30 partnership with MTR Corporation). The company also operates a number of British bus services, and holds North American businesses including First Student, the biggest provider of school transport in the US, First Transit, a North American bus company, and Greyhound inter-city bus services.
In its regular trading update in the middle of March, First Group noted that it has seen no significant impact from the coronavirus outbreak at that point. However, within days of the update, the company began to see “rapid and unprecedented changes” in the market, with passenger numbers dropping by up to 90% across the board.
Overall, the company generated £7.75bn in revenue in the year up to March 31, up 8.8% from £7.12bn year-on-year. The company recorded an operating loss of £152.7m, down from a £9.8m profit the previous year. The loss before tax was £299.6m, up from £97.9m year-on-year.
The statutory loss reflected Greyhound’s impairment charge of £186.9m, a North American self-insurance provision of £141.3m, restructuring and reorganisation costs of £58.2m, and coronavirus-related charges of £21.5m.
Overall, like-for-like passenger rail revenue increased by 0.2%, with strong performance from GWR and Avanti offset by challenges to TPE and SWR. The franchises are all underpinned until at least September by the emergency measures agreements introduced by the British government. First Group also secured an extension of its GWR contract from April 2020 until at least 2023.
The company says it is not currently possible to provide guidance for the financial year to March 31 2021, as there are material uncertainties around how rapidly demand will increase, the rate at which fiscal support tapers and the duration of social distancing rules, as well as the timing of North American schools reopening.
“There is no way of predicting with any certainty how the coronavirus pandemic will continue to affect the public transportation sector and the impact it may have on customer trends longer-term,” says CEO, Mr Matthew Gregory. “However, as leading operators in each of our markets we are strongly positioned for a recovery in passenger demand and for the opportunities that may emerge from this exceptional period.
“This will become ever more pertinent as the focus and drive towards zero-carbon public transportation systems inevitably increases, helping to create a better connected and more sustainable world.
“Despite the near-term uncertainty, the long-term fundamentals of our businesses remain sound. We are resolutely committed to delivering our strategy to unlock material value for all shareholders through the sale of our North American divisions at the earliest appropriate opportunity. The importance of public transport to society has never been more clearly demonstrated, and we will continue to take all necessary measures to enable the Group to emerge from this unprecedented situation in a robust position.”
“Despite some well-trailed challenges in SWR and TPE, First Rail as a whole has continued to deliver positive cash flow,” says group chairman, Mr David Martin. “I believe that with the appropriate political will and structural changes to the franchises, rail can deliver significant benefits for passengers and shareholders in and of itself and as part of an integrated transport strategy.
“We look forward to further clarity around the future shape of the rail industry in the UK in light of the government’s long-awaited review of franchising and the indications of their potential strategy that are implied by more recent contract awards and the structure of the emergency measures agreements currently in place.”
Despite the poor short-term outlook, Gregory said there was potential for growth from the situation.
“We are market leaders in all of our businesses, and are well positioned to assist customers if smaller operators are unable or less willing to do so, and we are already seeing an increase in potential acquisition or new business opportunities in some of our markets as a consequence,” he says.