FIRSTGROUP PLC - Statement re South Western rail franchise award

FirstGroup and MTR welcome South Western rail franchise award

FirstGroup plc and MTR Corporation Limited welcome today’s announcement by the Department for Transport (‘DfT’) of its intention to award the new South Western rail franchise to our 70:30 joint venture First MTR South Western Trains Limited (the ‘Franchise Operator’). The new franchise will operate from 20 August 2017 until at least August 2024.

Over the course of the franchise, £1.2bn will be invested to raise the quality of every aspect of train journeys on the South Western network. We are giving customers and community groups a say in setting priorities for that investment by focusing on the following areas, based on their feedback:

State of the art trains: We will introduce 750 new, spacious train carriages for the Windsor, Reading and London Suburban routes by December 2020, as well as 18 additional, fully refurbished trains (90 carriages) on the London-Portsmouth route from December 2018. We shall deliver 52,000 more peak seats per day at London Waterloo compared to today’s services by December 2020. The 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: From December 2018 our plans will deliver faster journey times 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-introduce through services between Portsmouth, Southampton, Bournemouth and Weymouth to aid regional connectivity. We will also significantly improve weekend services with more than 400 extra Sunday trains across the network.

Easier tickets and fares: We will introduce simpler fares with mobile and smart ticketing. These will include flexible season tickets and new lower fares for 16-18 year olds, recognising the importance of accessible rail travel. Claiming compensation will also be made simpler with the introduction of an easy-to-use ‘delay repay’ scheme for the first time on the network. Our new passenger app will be a key gateway to all travel options throughout the region.

Station improvement: £90m will be invested in our stations, including a major refurbishment at Southampton Central station. Car parks will be extended at key locations with at least 1,500 extra spaces and new electric vehicle charging points. We will use station buildings 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: An important objective is to 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. We will launch a £2.6m annual fund to support community projects across the franchise from April 2020. Connections between other local rail and bus services will deliver genuine joined up journeys, and we plan to introduce the biggest rail operator apprenticeship scheme in Britain.

Commenting on today's announcement, Secretary of State for Transport Chris Grayling said:

“This is great news for rail passengers. FirstGroup and MTR will deliver the improvements that people tell us they want right across the South Western franchise area, from Southampton and Portsmouth, to Bristol and Exeter, to Reading, Windsor and London.

“We are delivering the biggest rail modernisation programme for over a century and this franchise will deliver real changes for passengers, who can look forward to modern trains, faster journeys and a more reliable service.”

FirstGroup Chief Executive Tim O'Toole said:

“We are delighted that our partnership with MTR has been selected by the DfT to run the South Western rail franchise, a key part of the country’s railway network which millions of people rely on every day. Our successful bid will deliver the tangible improvements that customers and stakeholders have told us they want from this franchise. Passengers can look forward to new and better trains, more seats and services, quicker journey times, improved stations and more flexible fare options.”

Jeremy Long, CEO – European Business, MTR Corporation said:

“MTR is known across the world for the excellent quality of its rail services, and we look forward to working with FirstGroup to provide a best-in-class travel experience for passengers in London and the South West. Together we will deliver a major programme of upgrades, including improvements to both rail services and customer experience, for passengers travelling across the South Western network.”

Key franchise terms

The new franchise will start on 20 August 2017 and is planned to run for a core period of seven years, with an extension option of up to eleven months at the DfT's discretion. Under the contract, the Franchise Operator will deliver £2.6bn real NPV* in premium payments to the Government over the core period. The JV shareholders will provide a loan of up to £30m, and £88m (of which 50% is bonded) in subordinated contingent loan facilities to the Franchise Operator, as well as a £15m performance bond and a season ticket bond of up to £80m. The franchise terms include GDP and Central London Employment revenue protection mechanisms to mitigate the financial impact of exogenous economic factors outside the control of the Franchise Operator, and a profit sharing arrangement whereby a proportion of profit in excess of pre-specified thresholds will be payable to the DfT.

The franchise will benefit from investment of £1.2bn, primarily during the first four years of the franchise, leading to enhanced customer experience and passenger capacity. Approximately £80m of investment will be directly funded by the Franchise Operator. Franchise passenger revenues, which were £991m in 2015/16, are expected to increase from the additional capacity created. FirstGroup expects to achieve margins comparable with the recent overall industry average and to earn an appropriate return over the life of the contract, reflecting the franchise risk profile. FirstGroup expects a working capital inflow of approximately £100m principally relating to season ticket monies, to be treated as restricted cash.

The franchise award is subject to the customary ‘standstill period’ of ten days, after which formal contracts will be signed by the DfT. As with other UK rail franchise awards, the Competition and Markets Authority is also required by law to carry out a ‘phase one review’.

* 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%.

Key benefits of the new South Western franchise:

        New trains – 750 new carriages for suburban services

• Introduce 750 carriages by December 2020, forming 90 brand new trains primarily for London Suburban routes and Windsor/Reading lines

• Average age of the entire fleet coming down by almost half by December 2020

• New fleet will provide over 46% more peak capacity for our customers than today’s trains on the Windsor, Reading and London Suburban routes

• Enhanced travelling experience for customers – free reliable Wi-Fi, at-seat charging points, air conditioning, toilets, wide gangways and wide doors to improve ease of boarding and alighting

  Improved carriages – 90 for Portsmouth fast services / comfortable seating on all fast services

• 18 trains / 90 carriages refurbished to ‘as new’ for Portsmouth to London services by December 2018

• Comfortable ‘two plus two’ seating on all Portsmouth fast trains to London by December 2018

  More seats – 22,000 extra morning peak seats into Waterloo and 30,000 in evening peak from Waterloo

• Boosting peak seats each weekday by around 30% by December 2020

  Increased frequency, better weekend services and quicker journeys from December 2018

• Mainline journey times reduced, including Weymouth-London and Poole-London journey times reduced by up to 14 minutes; Bournemouth-London reduced by up to nine minutes and Southampton Central-London reduced by up to eight minutes. Trips from Portsmouth will be quicker with an average five minutes cut from fast journeys and up to seven minutes from slower trips

• Better connectivity on the South Coast, with four trains an hour between London and Portsmouth, direct service along the South Coast connecting communities from Portsmouth to Weymouth, and a second hourly semi-fast service between Portsmouth and Southampton

• Sunday afternoon services will match weekdays on most routes for the first time from 2018 with almost 400 more services; number of fast trains to Portsmouth will double on Sunday afternoons. West of England will see two trains per hour earlier on a Sunday than currently and we will speed up Weymouth services by deploying a standard weekday stopping pattern

• Double the number of trains each hour to Reading and Windsor from two to four – Reading will see two semi-fast and two stopping services every hour and Windsor will receive two extra semi-fast services via Hounslow

• We will improve late evening frequencies and later last trains across the network

  Free and fast Wi-Fi on trains and stations

• Free Wi-Fi both on-board mainland trains and at stations, with up to five times greater bandwidth than today

• Introduce free infotainment to many of our mainland trains by December 2018, making films, catch-up TV, newspapers and magazines available – and full coverage of our mainland fleet by December 2020

  Real-time information on all trains ensuring customers have a smooth and rapid, door-to-door journey

• Live updates to passenger information screens on all our mainland trains

  Charging points accessible from every seat for all our mainland trains

• Our new suburban trains, introduced by December 2020, will all have charging points

• We will introduce charging points on all other mainland trains – Class 442s, Class 444s and 450s by December 2018, Class 158s and 159s by December 2020

  New innovative customer app

• New customer app will make it the primary source of travel advice for our customers making it easier to use our trains, pointing customers towards less busy trains or less busy coaches within trains

  Mobile ticketing and new smartcards

• Mobile phone barcode tickets will be available on the network for the first time, covering a wide range of journeys

• We will implement our smartcard scheme across the franchise including pay-as-you-go functionality

• We will offer flexible season products

  Automatic Delay Repay

• We will bring in Delay Repay for the first time, making it simple and easy for our customers to claim for late trains with a fully automated process offered to those buying season and advance tickets direct on smartcards

  £90m station investment

• £90m station investment programme, including the refurbishment of Southampton Central

• At least 1,500 new car parking spaces across the network and 60 electric vehicle charging points at stations

• New stations: we will work with stakeholders to progress plans for new stations such as Park Barn, Merrow and Wilton Parkway and others during the franchise

  Working with the Isle of Wight community to develop proposals for Island Line’s future

• We will engage with the Isle of Wight community to develop plans to secure a more sustainable Island Line

• Proposal to be submitted to Government with Island support

• Annual £50,000 Customer and Communities Improvement Fund for Island Line

  More than 100 apprenticeships each year

• We plan to introduce the biggest rail operator apprenticeship scheme in Britain – we will launch our apprenticeship programme from franchise start on a wide range of courses

  Customer and Communities Improvement Fund

• £2.6m annual fund for community projects across the franchise to be launched from April 2020

Investor information

A conference call for investors and analysts will be held at 8:30am today. Please call [phone] in advance of the call to register and receive joining details. A presentation pack together with a pdf copy of this announcement and a playback facility will be available at www.firstgroupplc.com/investors.

Contacts at FirstGroup:
Faisal Tabbah, Head of Investor Relations
Stuart Butchers, Group Head of Media
Tel: [phone]

Michael Harrison / Andrew Porter, Brunswick PR
Tel: [phone]

Contacts at MTR:
Nick Collins, MHP Communications
[e-mail]
[phone]

Notes
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 FirstGroup 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 which may cause actual results, performance or achievements of FirstGroup 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, FirstGroup 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 transport operator in the UK and North America. With £5.2 billion in revenues and 110,000 employees, we transported around 2.2 billion passengers last year. Each of our five divisions is a leader in its field: In North America, First Student is the largest provider of student transportation with a fleet of around 47,000 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 coach services. In the UK, FirstGroup is one of Britain's largest bus operators running a fleet of some 6,200 buses, and we are one of the country's most experienced passenger rail operators, carrying around 140 million passengers last year. Our vision is to provide solutions for an increasingly congested world... keeping people moving and communities prospering. Visit our website at www.firstgroupplc.com and follow us @firstgroupplc on Twitter.

About MTR Corporation
MTR Corporation is headquartered in Hong Kong and is acknowledged as one of the world’s leading operators of metro, commuter, inter-city and airport rail systems with rail operations in Hong Kong, China, Australia, Sweden and the UK. It is also a property developer, and manages shopping malls, retail units, apartments and other major buildings along some of its lines.

In the UK, MTR is the operator of the Elizabeth Line concession (the name for the Crossrail route), and currently runs TfL Rail services between Liverpool Street and Shenfield. MTR was a joint venture partner in London Overground Rail Operations Ltd (LOROL) between November 2007 and November 2016.

Listed on the Hong Kong stock exchange, MTR has a market capitalisation of approximately £22.3 billion, and is included on the FTSE4Good and Dow Jones Sustainability Indexes. It won over 50 awards in 2016 for quality, customer service and sustainability.

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