In compliance with Listing Rule 9.6.1, the Company has today
submitted a copy of the following documents to the UK Listing
Authority, which will shortly be available for inspection via the
National Storage Mechanism which can be viewed at
www.morningstar.co.uk/uk/NSM:
In accordance with DTR 6.3.5(3) the 2015 Annual Report and
Financial Statements and the Notice of Meeting will also be
available to view on the Company website:
www.firstgroupplc.com.
A condensed set of FirstGroup plc financial statements and
information on important events that have occurred during the year
and their impact on the financial statements were included in the
Company's preliminary announcement on 10
June 2015. That information together with the information
set out below which is extracted from the 2015 Annual Report and
Financial Statements constitute the requirements of DTR 6.3.5 which
is to be communicated via an RIS in unedited full text. This
announcement is not a substitute for reading the full 2015 Annual
Report and Financial Statements. Page and note references in the
text below refer to page numbers in the 2015 Annual Report and
Financial Statements. To view the preliminary announcement, visit
the Company website: firstgroupplc.com.
The following responsibility statement is extracted from the
Statement of Directors' responsibilities in respect of the annual
report and financial statements on page 104 of the 2015 Annual
Report and Financial Statements and is repeated here solely for the
purpose of complying with DTR 6.3.5. The statement relates to the
full 2015 Annual Report and Financial Statements and not the
extracted information presented in this announcement or the Final
Results announcement.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
are required to prepare the Group financial statements in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union and Article 4 of the IAS
Regulation and have chosen to prepare the parent company financial
statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards and
applicable law). Under company law the Directors must not approve
the financial statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Company and of
the profit or loss of the Company for that period.
In preparing the parent company financial statements, the
Directors are required to:
In preparing the Group financial statements, International
Accounting Standard 1 requires that Directors:
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company’s website. Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategy report, Directors’
remuneration report and Governance section that comply with that
law and those regulations.
The Strategic report comprising pages 2 to 54 and the Governance
section comprising pages 56 to 104, and including the sections of
the Annual Report and Accounts referred to in these pages, have
been approved by the Board and signed on its behalf by:
The risks set out below are extracted from the pages 45 to 49 of
the 2015 Annual Report and Financial Statements and are repeated
here solely for the purpose of complying with DTR 6.3.5.
These risks have been assessed taking into account their
potential impact, the likelihood of occurrence and any change to
this compared to the prior year and the residual risk after the
implementation of controls. Each risk is linked to the relevant
strategic objectives, which are detailed on page 14. Further
information on our risk management processes is contained in the
Corporate governance report on pages 58 to 75.
| Risk and potential impact |
|
Movement during the year |
|
Mitigation |
| Economic
conditions |
|
|
|
|
Economic
conditions affect our businesses in different ways.
A downturn could have a negative impact on our businesses in terms
of reduced demand and reduced opportunities for growth or to retain
or secure new business. The same factors could also affect our key
suppliers.
An improving economic climate, particularly when combined with
lower fuel prices, may result in reduced demand for public
transportation in our Greyhound business as alternative modes of
transport become relatively more affordable.
Improving economic conditions may also result in a tightening of
labour markets resulting in employee shortages or pressure to
increase pay. |
|
Whilst economic conditions have generally improved in our markets,
in some areas economic recovery has been varied, for example in
some of our local UK Bus markets. |
|
To an
extent, our UK Bus and Greyhound operating companies are able to
modify services to react to economic impacts.
An applicant tracking system has been introduced in our UK
divisions to streamline the recruitment process and assist in
providing a suitable pool of drivers to help manage any shortages
in an efficient and cost-effective way. A similar system is being
rolled out in our North American divisions. |
|
Political and regulatory issues
|
|
|
Our
businesses are all subject to numerous laws and regulations
covering a wide range of matters including health and safety,
equipment, employment (including working time, wage and hour,
mandatory breaks and holiday pay), competition and anti-trust, data
protection and security, bribery and corruption, environmental
(including carbon and air emissions), insurance coverage, consumer
protection, and other operational issues. Failure to comply could
have financial or reputational implications, could result in
increased litigation and claims and have a negative impact on the
Group’s ability to bid for new contracts.
These laws and regulations are constantly subject to change, the
impact of which could include increased compliance costs and/or a
reduction in operational flexibility or efficiency.
Political risk remains an issue, particularly in the UK where the
new Government is proposing to devolve powers for cities to
regulate bus services in their area. Any such regulation could
impact the profitability of our operations or impose additional
costs or operating constraints. |
|
Our businesses are at risk from further political and regulatory
change. |
|
The Group
has embedded operating policies and procedures in all of our
businesses to ensure compliance with existing legislation and
regulation.
The Group has dedicated legal teams in the UK and North America who
oversee the Group’s compliance and training programmes and advise
on emerging issues.
The Group actively engages with the relevant government and
transport bodies and policy makers to help ensure that we are
properly positioned to respond to any proposed changes. |
|
Contracted businesses |
The
Group’s First Student, First Transit and UK Rail divisions are
contracted businesses dependent on the ability to renew and secure
new contract wins on profitable terms. Failure to do so would
result in reduced revenue and profitability and incorrect modelling
or bid assumptions could lead to greater than anticipated costs or
losses.
Failure to comply with contract terms could result in termination,
litigation and financial penalties and failure to win new or
non-renewal of existing contracts. |
|
No material change during the year. |
|
The relevant divisions
have experienced and dedicated bid teams who undertake careful
economic modelling of contract bids and, where possible, seek to
negotiate risk sharing arrangements with the relevant customer or
contracting authority. |
|
Competition |
|
|
All of the
Group’s businesses (both contracted and non-contracted) compete in
the areas of pricing and service and face competition from a number
of sources.
Our main competitors include the private car and existing and new
public and private transport operators across all our markets.
Increased competition can result in lost business, revenue and
reduced profitability. |
|
No material change during the year. |
|
The Group
continues to focus on service quality and performance as priorities
in making our services attractive to passengers and other
customers.
In our contract businesses, contract compliance, a competitive
bidding strategy and a strong bidding team are key.
In addition, wherever possible, the Group works with local and
national bodies to promote measures aimed at increasing demand for
public transport and the other services that we offer. |
|
Information technology |
|
|
The Group
relies on information technology in all aspects of our businesses.
Any significant disruption or failure, caused by external factors,
denial of service, computer viruses or human error could result in
a service interruption, accident or misappropriation of
confidential information (including credit card and personal data).
Process failure, security breach or other operational difficulties
may also lead to revenue loss or increased costs, fines, penalties
or additional insurance requirements. Prolonged failure of our
sales websites could also adversely affect revenues.
Continued successful delivery and implementation of the Greyhound
IT transformation plan is required to improve yield management and
drive future growth.
Failure to manage the implementation of new IT systems properly may
result in increased costs and/or lost revenue. |
|
Web and mobile sales channels are of increasing importance across
many of our businesses. |
|
As a
result of the continuing threat of cyber-attacks, our operations
are implementing new threat detection systems.
The Group has also increased its focus on asset management and
further enhanced its IT security processes and procedures during
the year.
The Group has further strengthened its IT project management
capability during the year, particularly within Greyhound. |
| Rail
franchises/bidding |
|
|
Competition for new rail franchises is intense. We bid against
operators of current UK rail franchises and rail operators from
other countries, principally from within the European Union. Whilst
our current UK rail franchises have been extended, failure to win
franchises in the future will result in a lower UK Rail division
contribution and profitability.
Rail franchises are large and complex arrangements and incorrect
modelling or bid assumptions could lead to greater than anticipated
costs or losses. Breach of the Group’s existing franchise
agreements could potentially result in their termination causing
loss of revenue and cash flow as well as some or all of the amounts
set aside as security for performance and season ticket bonds.
The new First Great Western franchise will cover a period during
which there will be significant change in the franchise including
major infrastructure work, electrification and re-signalling as
well as the introduction of new trains, which will require careful
planning and management. Failure to manage these risks adequately
in accordance with our plans could result in financial and
reputational risk to the Group. |
|
Direct awards have been made in the year to extend the First
TransPennine Express and First Great Western rail franchises. |
|
The Group
has an experienced and dedicated rail bid team which will continue
to compete for franchises as they are re-let.
The Group also has a comprehensive review process for bids as they
are developed and finalised involving a number of divisional and
Group functions as well as final Board sign off.
Compliance with our rail franchise agreements is closely managed
and monitored on a monthly basis by senior management and
procedures are in place to minimise the risk of non-compliance.
|
|
Treasury risks |
|
|
As set out
in further detail in note 23 to the financial statements on pages
136 to 140, treasury risks include liquidity risks, risks arising
from changes to foreign exchange rates and interest rates and
hedging risk.
Foreign currency and interest rate movements impact profit, balance
sheet and cash flows of the Group.
Ineffective hedging arrangements may not fully mitigate losses or
may increase them.
The Group is credit rated by Standard & Poor’s and Fitch. A
downgrade in the Group’s credit ratings to below investment grade
may lead to increased financing costs and other consequences and
affect the Group’s ability to invest in its operations. |
|
No change in the year. |
|
The
Group’s treasury policy and delegated authorities are reviewed
periodically to ensure compliance with best practice and to control
and monitor these risks appropriately.
The Group is continuously focused on improving operating and
financial efficiency as part of our strategic objectives as
outlined on page 14. |
|
Pensions |
The Group
sponsors or participates in a number of significant defined benefit
pension schemes, primarily in the UK
Future cash contribution requirements may increase or decrease
based upon financial markets, notably investment
returns/valuations, the rates used to value the liabilities and
through changes to life expectancy and could result in material
changes in the accounting cost and cash contributions
required. |
|
No material change during the year. |
|
Through
diversification of investments, hedging of liabilities, amendment
of the defined benefit promises and the introduction of a defined
contribution scheme for new starters in UK Bus and Group, the Group
has reduced these risks.
Under the UK Rail franchise arrangements, the Group’s train
operating companies are not responsible for any residual deficit at
the end of a franchise so there is only short term cash flow risk
within a particular franchise. |
| Fuel costs
|
|
|
|
|
Fuel is a
significant component of the Group’s operating costs. Fuel prices
and supply levels can be influenced significantly by international,
political and economic circumstances.
Volatility in fuel prices or supply restrictions, shortages or
interruptions could adversely impact the Group’s operations, cash
flow and profitability. For example, Greyhound’s passenger revenues
were adversely affected during the year by the rapid decline in oil
prices.
The Group may be unable to pass fuel cost volatility on fully to
customers and hedging arrangements may not fully mitigate losses or
may increase them.
Oil prices may also adversely affect the economic activity of those
customers which are dependent on oil and gas revenues, reducing
demand for our services. |
|
No overall material change during the year. |
|
The Group
has a forward hedging programme providing fixed fuel prices and
cost certainty.
Some of the Group’s contracts also enable us to pass on fuel cost
increases to customers.
The Group’s businesses may have the opportunity to limit the impact
of unexpected fuel price rises or revenue reductions caused by
lower oil prices through efficiency, pricing and cost control
measures.
First Student’s DriveSMART and the purchase of new fuel efficient
buses in our UK Bus division are initiatives aimed at reducing fuel
usage in our businesses. |
|
Terrorism |
|
|
The threat
from terrorism is enduring and continues to exist in all of our
markets. Public transport has previously been subject to attack and
across our businesses, we take all reasonable steps to help guard
against such activity on the services we operate.
An attack or threat of attack could lead to reduced public
confidence in public transportation, and/or specifically in the
Group’s security and safety record and could reduce demand for our
services, increase costs or security requirements and cause
operational disruption. |
|
No material change during the year. |
|
We
continue to develop and apply good practice, and train our
employees so that they can identify and respond effectively to any
potential threat or incident.
Our focus is enhanced through close working relationships with
specialist government agencies both in the UK and North
America. |
| Customer
service |
|
|
|
|
| The Group’s revenues
are at risk if we do not continue to provide the level of service
expected by our customers. Failure to provide acceptable levels of
customer service could lead to non-renewal of contracts, reductions
in passenger revenues and/or have negative reputational
impact. |
|
No overall material change in the year. |
|
Our
commitment to our customers is embedded in our values (see page
12). The relevant employees undertake intensive training programmes
to ensure that they are aware of, and abide by, the levels of
service that are required by our customers in each business.
Ongoing engagement with customers and community stakeholders takes
place across the Group, including through ‘meet the manager’
events, customer panels, consultations and local partnerships.
The Board also monitors customer service KPIs to ensure that strict
targets are being met. |
|
Litigation and claims |
|
|
|
The Group
has three main insurable risks: third party injury and other claims
arising from vehicle and general operations, employee injuries and
property damage.
The Group is also subject to other litigation, which is not
insured, particularly in North America, including contractual
claims and those relating to employee wage and hour and meal and
break matters.
A higher volume of litigation and claims can lead to increased
costs, reduced availability of insurance cover, and/or reputational
impact.
A large single claim or a large number of smaller claims may
negatively affect profitability and cash flow. |
|
The claims environment, particularly in our North American
businesses, remains a challenge despite our continued focus on
safety. |
|
The Group
has a very strong focus on safety and, as described on page 12, it
is one of our five values. The Group self-insures third party and
employee injury claims up to a certain level commensurate with the
historical risk profile. We purchase insurance above these limits
from reputable global insurance firms. Claims are managed by
experienced claims handlers.
Non-insured claims are managed by the Group’s dedicated in-house
legal team with external assistance as appropriate. |
|
Attraction and retention of key management
|
|
|
| Attracting and
retaining key members of senior management is a vital part of
ensuring that the Group continues to have the necessary expertise
and continuity to execute its strategy and turnaround plans. |
|
Our defined business plans have enabled us to attract and retain
high quality management. |
|
Our Group-wide
succession planning process and performance development approach is
designed to identify talented individuals, set development goals
for progression to other roles and to assess the depth of talent
and any gaps throughout the leadership of FirstGroup. The Group
also offers market-based compensation packages consisting of an
appropriate mix of long and short term incentives. |
|
Employee costs and relations
|
|
|
Employee
costs represent the largest component of the Group’s operating
costs, and political or union pressure to increase wages could
increase these costs. Improving economic conditions resulting in
labour shortages or decreasing unemployment rates could hinder our
ability to recruit and retain qualified employees. Our employees
are key to service delivery and therefore it is important that good
employee relations are maintained.
High employee turnover could lead to higher than expected increases
in the cost of recruitment, training and employee costs and
operational disruption. Similarly, industrial action could
adversely impact customer service and have a financial impact on
the Group’s operations. |
|
No material change during the year. |
|
The Group
seeks to mitigate these risks via its recruitment and retention
policies, training schemes and working practices.
An applicant tracking system has been introduced in our UK
divisions to streamline the recruitment process and assist in
providing a suitable pool of drivers to help manage any shortages
in an efficient and cost-effective way. A similar system is being
rolled out in our North American divisions.
Our working practices include building communication and engagement
with trade unions and the wider workforce. Examples of this
engagement include regular leadership conferences, employee surveys
and the presence of Employee Directors (Directors voted for by the
employees to represent them) on many of the Group’s UK divisional
boards and the Board. |
|
Environmental |
|
|
The
Group’s operations store and manage large quantities of fuel which
presents a potential regulatory, reputational and financial risk in
the event of significant loss or spillage.
As a leading transport provider, we face the challenge of
addressing climate change, both through managing its impact and
reducing emissions. The Group’s businesses are at risk from future
changes in the regulatory regime which could increase compliance
costs or impose operational constraints. |
|
No material change overall during the year. |
|
To
mitigate these risks, the Group’s storage facilities are subject to
regular inspection and we have detailed fuel handling procedures
which are regularly audited.
Robust environmental policies, strategies and management systems
are maintained across the Group.
The Group continues to target reductions in our emissions,
including through behaviour change initiatives and investment in
new technology. |
| Severe
weather and natural disasters |
|
|
Greater
and more frequent adverse weather could lead to interruptions or
disruption to service performance and reduced customer demand with
consequent financial impact, potential increased costs and accident
rates.
Severe weather can reduce profits, for example through lower demand
for our services, increased costs, business disruption and
increased accidents. |
|
Whilst the Group’s North American operations were not as badly
affected by severe weather as they were in the prior year, adverse
weather in the north eastern US in the last quarter still had an
impact. |
|
The geographic spread
of the Group’s businesses offers some protection. In addition, some
of our contract-based businesses have force majeure clauses in
place. We have severe weather action plans and procedures to manage
the impact on our operations. |
The risks listed are not all of those highlighted by our risk
management processes and are not set out in any order of priority.
Additional risks and uncertainties not presently known to us, or
currently deemed to be less material, may also impact our business.
Indication of a movement in a risk may not indicate a change in the
overall net risk position after taking into account risk
mitigations.