FirstGroup PLC New National Rail Contracts for SWR and TPE

 
TIDMFGP 
 
FIRSTGROUP SIGNS NEW NATIONAL RAIL CONTRACTS 
              FOR SOUTH WESTERN RAILWAY AND TRANSPENNINE EXPRESS 
 
FirstGroup plc ('FirstGroup' or 'The Group') is pleased to announce the 
agreement of  National Rail Contracts ('NRCs') with the Department for 
Transport ('DfT') for its South Western Railway ('SWR') and TransPennine 
Express ('TPE') train operating companies. The new NRCs will commence on 30 May 
2021, when the current Emergency Recovery Measures Agreements ('ERMAs') come to 
an end. 
 
  * New NRCs for SWR and TPE have a two-year term to May 2023 with options to 
    extend by up to two further years to May 2025 
  * FirstGroup bears no revenue risk and very limited cost risk under an annual 
    budget agreed with DfT; there is also no significant contingent capital 
    risk 
  * Annual fees on NRCs consist of a fixed management fee plus performance fee 
    based mainly on the delivery of customer-focused performance metrics 
 
National Rail Contracts are a new contract structure for agreements between 
train operating companies and the DfT and the contracts for both SWR and TPE 
are among the first wave of NRCs to be announced. NRCs replace the previous 
revenue risk-based franchising system. The NRCs have a primary two-year term to 
the end of May 2023 for both SWR and TPE, and both have an option to be 
extended by up to two further years at the DfT's discretion. 
 
Under the NRCs the DfT will retain all revenue risk and substantially all cost 
risk. For the Group's 70% share of the First MTR joint venture for SWR the 
fixed management fee is £3.3m per annum and there is the opportunity to earn an 
additional fee of up to £9.9m which is the maximum attainable performance fee. 
For TPE the fixed management fee is £2.3m per annum and there is the 
opportunity to earn an additional fee of up to £5.2m which is the maximum 
attainable performance fee. The punctuality and other operational targets 
required to achieve the maximum level of performance fee are designed to 
incentivise the highest level of performance for customers. 
 
The NRCs achieve a more appropriate balance of risk and reward between 
FirstGroup and the Government. They carry no significant contingent capital 
risk, with the Group's contingent capital for both the SWR and TPE NRCs 
totalling £15m, 50% of which is bonded. There are limited scenarios in which 
this contingent capital can be called upon, primarily in the event of early 
termination of the contracts by the operator. 
 
Both train operating companies will work collaboratively with industry partners 
and stakeholders to build back patronage, while delivering plans to upgrade our 
service offering. These plans include the introduction of flexible commuter 
tickets and continuing to facilitate a move towards electronic and mobile 
ticketing, smartcards and improved apps for both companies. 
 
FirstGroup's ambition is to be the partner of choice for low- and zero-emission 
transport. The Group recently became the first bus and rail operator in the UK 
to formally commit to setting an ambitious science-based target for reaching 
net zero emissions by 2050 or earlier. Sustainability is at the heart of the 
NRCs and both SWR and TPE will develop a decarbonisation policy and roadmap 
towards achieving net zero emissions in accordance with this goal. 
 
As the largest UK operator with four passenger rail contracts expected to run 
to at least 2023, FirstGroup is well placed to benefit from the Government's 
transition of the passenger rail industry to a commercial structure which is 
lower-risk and more predictable. The transition to a new model is expected to 
create a successful railway system that works better for passengers and 
taxpayers, while generating more resilient and consistent returns for 
shareholders. 
 
As previously announced, the West Coast Partnership ERMA is in place until the 
end of March 2022 and we are discussing an NRC with duration of up to 31 March 
2032 (with the core and extension periods to be determined). The existing 
Emergency Measures Agreement for GWR has already been extended to June 2021, 
and the underlying GWR direct award runs to 1 April 2023 with an extension 
option of up to one year. 
 
Commenting, Matthew Gregory, FirstGroup Chief Executive, said: 
"We welcome the announcement today by the Secretary of State of a plan for the 
future of the UK rail industry with the expertise, innovation and experience of 
private sector rail operators at the heart of the model. The National Rail 
Contracts agreed for SWR and TPE leave us well-placed for lower risk, cash 
generative rail operations on those two networks. We have long called for this 
transition to a new contract structure with a far better balance of risk and 
reward, and which benefits customers by a clearer focus on performance, 
including the introduction of a new set of passenger service metrics. 
 
"As the country begins the process of 'building back better' the essential role 
of public transport has never been clearer and our leading position in the 
sector means that we have an important role. Our rail services have a vital 
part to play in driving economic growth, combating climate change and 
supporting the development of vibrant and sustainable communities." 
 
Notes 
 
SWR plans under the National Rail Contract 
 
SWR will deliver improvements for customers and communities across their 
network during the NRC period, including: 
 
  * the introduction of a new suburban fleet of trains from Alstom 
  * pioneering next-generation on board 5G Wi-Fi from evo-rail - SWR will be 
    the first rail company to receive this technology developed in house by 
    First Rail 
  * continued high levels of performance, investment in stations and depots and 
    further steps made to improve the accessibility of the railway 
  * further steps to improve sustainability of the business, with development 
    of a zero net carbon roadmap 
  * working with BTP and other partners to safeguard children and vulnerable 
    people on the network 
  * continuing to deliver an enhanced apprenticeship programme. 
 
TPE plans under the National Rail Contract 
 
In the NRC period, TPE will continue to be at the heart of transformation plans 
for rail in the North of England and into Scotland, including: 
 
  * the final roll out of new Nova fleets of trains across the network, 
    offering greater capacity and flexibility 
  * continued high levels of performance, investment in stations and further 
    steps made to improve the accessibility of the railway 
  * further steps to improve sustainability of the business, with development 
    of a zero net carbon roadmap 
  * being a key partner in the significant infrastructure boost to be delivered 
    through the TransPennine Route Upgrade due to begin this year and be 
    delivered by 2028 which will provide a major enhancement to rail services 
    for the region 
  * Following the retirement of Liz Collins as Interim Managing Director, from 
    1 June, the TPE business will be led by Matthew Golton as Managing 
    Director. Matthew has three decades of experience in the rail sector, 
    including recently as GWR's Interim Managing Director, and will bring this 
    to bear at TPE as the business realises the significant benefits of major 
    rail investment across the region. 
 
Key financial terms for the National Rail Contracts 
 
  * The DfT retains all revenue risk. 
  * The DfT retains cost risk up to the agreed annual business plan budgetary 
    levels, with change protections. Under the NRC, the operating company bears 
    the risk of costs in excess of the agreed annual budget unless agreed in 
    advance with the DfT. Contractual change mechanisms exist that allow the 
    budget to be increased for items outside of the operating company's control 
    or changes requested by the DfT. 
  * The Performance Based Fee is scored against four categories (Operational 
    Performance, Customer Satisfaction, Finance and Business Management). There 
    is a mix of quantitative metrics and qualitative assessments with three 
    levels ('below acceptable', 'acceptable', 'good') - 'acceptable' rating 
    results in approximately two thirds of the performance-based fee element 
    being payable 
  * The NRCs make provision for additional incentive fees to be earned for 
    participation in significant industry change projects outside normal 
    operation, for example supplying project delivery expertise to help deliver 
    the TransPennine Route Upgrade programme due to start this year and be 
    delivered by 2028. 
  * The NRCs make no structural changes to the ring-fenced cash mechanism or 
    the working capital cap-and-collar mechanism in place; no significant 
    change is anticipated to the ring-fenced cash range in TPE but the SWR 
    range is expected to reduce marginally. 
  * The Group will also remain obliged under its contingent capital commitments 
    for the two existing franchise agreements until the expiration of the 
    relevant bonds in December 2021 (for TPE) and October 2022 (for SWR), plus 
    the TPE parent company support remaining after payment of the termination 
    sum announced on 11 May 2021, until final settlement of any net assets or 
    liabilities between TPE and the DfT relating to the previous franchise 
    period. Thereafter, the contingent capital liability will be £15m in total. 
  * SWR and TPE will continue to be fully consolidated in the Group accounts 
    with the net cost of operations and capex to be funded in advance by the 
    DfT. 
  * The Group will receive an annual dividend from the train operating 
    companies reflecting the post-tax net management and performance fees. 
    These dividends are expected to be paid in September following the 
    completion of the audited accounts of the train operating companies. 
 
A conference call for investors and analysts will be held at 9:00am today - 
attendance is by invitation. Please email [e-mail] in 

advance of the call to receive joining details. To access the presentation to 
be discussed on the conference call, together with a pdf copy of this 
announcement, go to www.firstgroupplc.com/investors. A playback facility will 
also be available there in due course. 
 
Contacts at FirstGroup: 
Faisal Tabbah, Head of Investor Relations 
Stuart Butchers, Group Head of Communications 
Tel: [phone] 
[e-mail] 
 
Contacts at Brunswick PR: 
Andrew Porter / Simone Selzer, Tel: [phone] 
 
Notes 
Legal Entity Identifier (LEI): 549300DEJZCPWA4HKM93. Classification as per DTR 
6 Annex 1R: 3.1. 
 
About FirstGroup 
FirstGroup plc (LSE: FGP.L) is a leading provider of transport services in the 
UK and North America. With £7.8bn in revenue in the year to 31 March 2020 and 
around 100,000 employees, we transported 2.1bn 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. Visit our website at www.firstgroupplc.com and follow us 
@firstgroupplc on Twitter. 
 
About SWR 
Operating over 1,500 services each weekday across the network, SWR employs more 
than 5,000 employees and provides commuter inter-urban, regional and long 
distance services to passengers in South West London and southern counties of 
England and Island Line services on the Isle of Wight, as well as providing 
connectivity to the ports and airports in the region. As well as commuters and 
business travellers, SWR transports leisure travellers across the region, to 
many tourist and heritage sites, and the numerous major sporting and social 
events that take place along the route every year. 
 
About TPE 
TransPennine Express is an intercity rail provider with a vision to Take the 
North Further. We are delivering an investment of over £500m that will 
transform travel and customer experience across the North and into Scotland. 
This includes the introduction of 220 brand new state of the art Nova 
carriages, providing new routes, services and will increase capacity by over 80 
per cent on a seven day a week timetable. 
 
Figures presented in this announcement are not audited. Certain statements 
included or incorporated by reference within this announcement are, or may be 
deemed to be, forward-looking statements. These forward-looking statements 
include, without limitation, all matters that are not historical facts. They 
appear in a number of places throughout this announcement and include, but are 
not limited to, statements regarding FirstGroup and its intentions, beliefs or 
current expectations concerning, among other things, the business, results of 
operations, prospects, growth and strategies of the Group, or parts thereof. By 
their nature, forward-looking statements involve risk and uncertainty because 
they relate to future events and circumstances. Forward-looking statements are 
not guarantees of future performance and the actual results of operations of 
the Group, or parts thereof, and the developments in the industries in which 
they operate, may differ materially from those described in, or suggested by, 
the forward-looking statements contained in this announcement. A number of 
factors could cause results and developments to differ materially from those 
expressed or implied by the forward-looking statements including, without 
limitation, general economic and business conditions, industry trends, 
competition, changes in law and regulation, currency fluctuations, changes in 
business strategy and political and economic uncertainty. Forward-looking 
statements may, and often do, differ materially from actual results. Any 
forward-looking statements in this announcement reflect FirstGroup's current 
view with respect to future events and are subject to risks relating to future 
events and other risks, uncertainties and assumptions relating to FirstGroup 
and its operations, results of operations and growth strategy. Other than in 
accordance with its legal or regulatory obligations (including under the 
Listing Rules, the Disclosure Guidance and Transparency Rules and the 
Prospectus Rules), the Group is not under any obligation and the Group 
expressly disclaims any intention or obligation (to the maximum extent 
permitted by law) to update or revise any forward-looking statements, whether 
as a result of new information, future events or otherwise. 
 
 
 
END 
 
 

(END) Dow Jones Newswires

May 20, 2021 02:00 ET (06:00 GMT)