30 Mar 2020
FirstGroup plc (‘FirstGroup’ or ‘the Group’) has signed a Direct Award (the ‘agreement’) with the Department for Transport (‘DfT’) to continue operating Great Western Railway (‘GWR’) services from 1 April 2020, when the Direct Award under which services are currently being operated comes to an end.
The agreement runs until 31 March 2023, with a possible extension of up to one further year at the DfT’s discretion. The agreement ensures continuity of operation and will run concurrently with the DfT’s previously announced Emergency Measures Agreement (‘EMA’) for at least the first six months. FirstGroup’s experience of managing the route over many years will be crucial to restoring the service to full operation once the immediate crisis has abated, and will facilitate the ongoing transformation of GWR, through the biggest changes to the network in a generation.
Today’s announcement provides continuity for customers, employees and other stakeholders beyond the period of emergency measures currently proposed, as well as an appropriate balance of risk and reward between FirstGroup and the Government, supported by a contractual Forecast Revenue Mechanism (‘FRM’) which eliminates the majority of the revenue risk. GWR will build on the improvements it has delivered to services over the past five years, with a focus on connecting people and local communities looking to restore normality when the present restrictions on travel due to the coronavirus pandemic are over.
The agreement has a strong emphasis on improving regional connectivity, helping customers return to the railway by making rail a more convenient and environmentally-friendly way to travel. As part of this, GWR will bring additional trains into service to provide thousands of extra seats on regional routes across the network.
There will also be increased funding to improve services for local communities and at stations, and the introduction of a combination of new flexible ticket products for customers who do not commute to work every day, such as discounted part-time season tickets and the extension of paperless pay-as-you-go schemes.
Since 2015, GWR has successfully delivered new fleets of modern intercity and local trains comprising 785 new carriages, and introduced faster, more frequent services for customers across the network through the successful introduction of the largest timetable change in decades last December. GWR recently posted some of its highest ever passenger satisfaction scores and delivered the most improved punctuality scores in the UK last year.
Commenting, Matthew Gregory, FirstGroup Chief Executive, said:
“Whilst the immediate focus of GWR is to ensure that key workers, vital to the country’s response to coronavirus, can get to where they need to go, continuity of rail services will also be critical to a restoration of normal life when the present uncertain and difficult situation is overcome. In the longer term this new agreement will mean that customers can return to rail as their preferred choice of travel; with more seats, more services, better stations and more flexible ticketing to help reconnect the people and communities we serve.
“When the present emergency measures agreed with Government come to an end, today’s agreement will ensure that GWR will continue to deliver sustainable benefits for customers and an appropriate balance of risk and reward for our shareholders and the Government. We are proud of GWR’s achievements over the last few years, working with industry partners to transform the experience for passengers with new, faster and more environmentally friendly trains and a timetable offering record fast journey times to the major towns and cities on the route.”
The new agreement for GWR begins when the previous Direct Award contractual arrangements end on 1 April 2020 and has a three year duration to 31 March 2023 with a possible extension of up to one year at the DfT’s discretion.
As previously announced on Monday 23 March, FirstGroup welcomes and has accepted the comprehensive response of the UK Government to provide emergency support for the country’s vital rail networks during the coronavirus pandemic. These measures will provide continuity and certainty for all DfT-let rail franchises through EMAs which will last six months or longer if required. For the duration of the EMAs, the Government will take revenue and cost risk, and franchise operators will be paid a fixed management fee with the potential for a small performance-based fee.
At the conclusion of the EMA period, GWR will operate services as a franchise with revenue risk shared with the DfT through a Forecast Revenue Mechanism (‘FRM’) governed by today’s agreement, which also makes provision for a revenue rebasing exercise as required. The FRM will apply if revenue variances differ from target in the bid assumptions, outside of a nil rate band, and is available from the start of the agreement. Payments or receipts occur when actual revenue is 1.5% higher or lower than the expected FRM revenue, at 90% of the revenue difference.
At the conclusion of the EMA period, GWR will also comply with the normal performance and customer satisfaction regimes; will subsequently introduce a new Service Quality Regime and has agreed customary profit share arrangements with the DfT. Following the end of emergency measures, FirstGroup expects to earn a margin around the average of typical industry ranges overall during the award period. Under the agreement, GWR will continue as a subsidy train operating company, reflecting the new fleets of trains and the significantly expanded timetable.
FirstGroup, as parent company to GWR, will provide subordinated contingent loan facilities of £10m (£5m of which is bonded) and a performance bond of £10m to GWR, as well as a cash-collateralised season ticket bond of c.£35m. A wide range of scenarios were considered as part of the modelling to assess the award, including with respect to pensions, passenger demand and to the risk sharing mechanisms provided by DfT, and the Board of FirstGroup is of the view that there is an appropriate balance of risks and rewards in the agreement.
Legal Entity Identifier (LEI): 549300DEJZCPWA4HKM93. Classification as per DTR 6 Annex 1R: 3.1.
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 the Group 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 that cause actual results, performance or achievements of the Group 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. Notwithstanding the mitigations and emergency measures already disclosed by the Group, the overall impact of the coronavirus pandemic will have on the financial performance and prospects of the Group in the near as well as the medium to longer term remains extremely unclear. The situation is evolving very rapidly and while every effort has been made to verify the accuracy of the information in this announcement, the impact coronavirus is having on the performance of the Group means such statements should be treated with extra caution. Except as required by the UK Listing Rules and applicable law, the Group does not undertake any obligation to update or change any forward-looking statements to reflect events occurring after the date of this announcement.
FirstGroup plc (LSE: FGP.L) is a leading provider of transport services in the UK and North America. With £7.1 billion in revenue and around 100,000 employees, we transported 2.2 billion passengers last year. 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.
Each of our five divisions is a leader in its field: In North America, First Student is the largest provider of home-to-school student transportation with a fleet of 43,000 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 coaches. In the UK, First Bus is one of Britain’s largest bus companies with 1.6 million passengers a day, and First Rail is one of the country’s largest and most experienced rail operators, carrying 345 million passengers last year.
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Great Western Railway (GWR) provides high speed, commuter, regional and branch line train services. We help over 100 million passengers reach their destinations every year – across South Wales, the West Country, the Cotswolds, and large parts of Southern England.
We’re currently seeing the biggest investment in the network since Brunel so we can offer more trains, more seats, and shorter, more frequent journeys and continue the network’s heritage of helping connect more businesses to new and prosperous markets. Through a series of initiatives we aim to be a good neighbour to the communities we serve and are committed to making a positive social impact in those regions. Learn how we’re Building a Greater West at GWR.com. GWR is a FirstGroup company.