In accordance with LR 9.6.1R, FirstGroup plc (the “Company”) has
today submitted copies of the documents listed below to the
Financial Conduct Authority’s National Storage Mechanism.
These documents will shortly be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism:
As required by DGTR 6.3.5R (3), the 2021 Annual Report and the
2021 AGM Notice are also available on the Company’s website at
www.firstgroupplc.com.
A condensed set of the FirstGroup plc financial statements,
including information on important events that have occurred during
the year and their impact on the financial statements, were
included in the Company’s announcement of its full year results
published on 27 July 2021 (“Final
Results Announcement.” The Final Results Announcement is
available for viewing on the Company’s website at
www.firstgroupplc.com.
DGTR 6.3.5R requires that certain information relating to all
listed companies’ financial results be communicated in unedited
full text through a Regulatory Information Service. The content of
the Final Results Announcement, together with the information set
out below in the Appendix, which is extracted from the 2021 Annual
Report, constitute the material required to satisfy the
requirements of DGTR 6.3.5R. Cross-references and page numbers in
the Appendix refer to sections in the 2021 Annual Report.
This announcement is not a substitute for reading the 2021 Annual
Report.
The Directors are responsible for preparing the Annual Report
and the Financial Statements in accordance with applicable law and
regulation.
Company law requires the Directors to prepare Financial
Statements for each financial year. Under that law the Directors
have prepared the Group Financial Statements in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006 and the Company Financial
Statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards,
comprising FRS 101 “Reduced Disclosure Framework”, and applicable
law). Additionally, the Financial Conduct Authority’s Disclosure
Guidance and Transparency Rules require the Directors to prepare
the Group Financial Statements in accordance with international
financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European
Union.
Under Company law, 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 Group and Company and of the
profit or loss of the Group for that period. In preparing the
Financial Statements, the Directors are required to:
The Directors are also responsible for safeguarding the assets
of the Group and Company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group’s and
Company’s transactions and disclose with reasonable accuracy at any
time the financial position of the Group and Company and enable
them to ensure that the Financial
Statements and the Directors’ Remuneration Report comply with
the Companies Act 2006.
The Directors are responsible for the maintenance and integrity
of the Company’s website. Legislation in the United Kingdom governing the preparation and
dissemination of Financial Statements may differ from legislation
in other jurisdictions.
The Directors consider that the Annual Report and Accounts,
taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Group’s
and
Company’s position and performance, business model and
strategy.
Each of the Directors, whose names and functions are listed in
Board of Directors confirm that, to the best of their
knowledge:
business and the position of the Group and Company, together
with a description of the
principal risks and uncertainties that it faces.
In the case of each Director in office at the date the
Directors’ report is approved:
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note.
To deliver our strategy, it is important that we understand and
manage the risks that face the Group. The table below outlines our
principal risks:
Risk description,
full Group |
Impact of sale of First Student
and First Transit to risk description |
Mitigation |
Comment on risk change
during the year |
Impact of sale of First Student
and First Transit, if any, to the risk change during the
year |
External Risks |
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Economic conditions |
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The Group’s success
depends on adapting to economic fluctuations which may negatively
impact performance through increased costs, changing customer
needs,
reduced demand and/or reduced opportunities for growth.
Globally, the economic
outlook is less certain, and the Group specifically has experienced
a change in travel
behaviour and new policies and procedures related to the pandemic.
All these market
changes have the potential to decrease the Group’s available
financial resources to
invest capital in innovative solutions that drive demand.
Additionally, when these economic uncertainties are combined with
lower fuel prices,
they may further reduce demand for public transportation
particularly in our
Greyhound and First Bus divisions. |
With the sale of First
Student and First Transit, the ongoing Group is less
susceptible
to changes in economic conditions. The new concession-based
National Rail
Contracts have low revenue and contingent capital risk.
Additionally, the Group has
capacity and demand planning processes in place to efficiently
adapt to changing economic and demand conditions. As a result, the
Group’s performance is less impacted by economic volatility. |
In order to adapt to
market uncertainties and continue to drive demand, the Group
continues to be customer-focused and strives to provide innovative
transport
solutions. Whilst the Group has temporarily reduced certain capital
investments,
we continue to focus on strategic ventures to develop new
innovative service offerings (e.g. electric fleet and autonomous
vehicles, ticket initiatives) in order to provide our customers
with transport solutions that reduce complexity and retain customer
demand through unstable economic conditions.
In 2020 the Group accelerated implementation of real-time seating
capacity on our First Bus app to support social distancing
requirements as well as a number of further customer engagement
actions through technology to provide greater insight to manage
operations. Through this tracking the Group is able to adapt bus
schedules to real-time demand to better manage operational
costs. |
Although it is not yet
clear the lasting impacts the pandemic will have on commuting
behaviours, lock down orders have begun to lift, resulting in
increased travel demands within the UK; First Bus saw volumes
increase to c.60% of pre-pandemic levels during
the most recent lockdown easement. We expect increased demand
over
the summer holidays as we anticipate
travellers largely taking domestic trips instead of travelling
internationally. |
The Group’s First Rail
division has
entered into no risk and low cost risk contracts to protect the
remaining
business from economic fluctuations. Further, if lockdown
procedures or shelter in place orders are extended the ongoing
Group will be able to right-size bus schedules based on real-time
demand monitoring and
government support arrangements
in First Bus are expected to be extended to allow for social
distanced public
transport to continue.
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Climate change |
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Businesses globally
continue to come under increasing pressure from all
stakeholders, particularly investors, to demonstrate strong
progress on their climate-related performance. Inadequate attention
to our climate-related programmes
and emerging technologies could negatively impact the Group’s
performance,
reputation and/or result in decreased demand.
Within the UK, the government has set a legally binding target for
net-zero greenhouse
gas emissions by 2050. All companies that operate in the UK or are
owned by
UK-based companies will be substantially impacted by
decarbonisation policies
introduced to meet this target. As a result, the Group is under
increased pressure and scrutiny from both investors and government
bodies to provide evidence of our
strategic plans in place to mitigate climate change risks.
There are also physical risks resulting from climate change (e.g.
extreme weather events) which could impact our customers, service
reliability, and disrupt our energy supply and/or supply chain.
Delays in implementing our strategic plans to mitigate
climate-related risks, including
transitioning our fleets to zero emissions, could result in lost
business, reduced
revenue and reduced profitability. |
The Group is committed to
accelerating the transition to a zero-carbon world, which includes
responding to the clear mandate and binding net-zero targets
currently set within the UK for greenhouse gas emissions. Although
the US government has not yet announced the same binding targets,
the current administration’s position is clear and we expect these
to result in coming years. However, we do not anticipate adverse
impacts and/or changes to these risks and/or operations with the
sale of First Student and First Transit. |
The Group’s strategic
framework for sustainability, Mobility Beyond Today, sets out
the company’s ambition to be the partner of choice for innovative
and sustainable
transport.
In 2021, FirstGroup became the first bus and rail operator in the
UK to formally
commit to setting an ambitious science-based target aligned with
limiting global warming to 1.5°C and reaching net-zero emissions by
2050 or earlier.
Within First Bus we have committed to investing in only
zero-emission vehicles from
December 2022, and to have a 100% zero-emission fleet by 2035. The
National Bus
Strategy, announced on 15 March 2021, pledged £3bn for buses in
England outside London, including a commitment to support the
purchase of at least 4,000 new zero emission buses for the UK, from
which the Group is well positioned to benefit.
We also publicly support the UK Government’s ambition to remove
diesel-only trains from the network by 2040. As outlined in the
Government’s rail White Paper, published in May 2021,
electrification of Britain’s rail network will be expanded, and
alternative technologies such as hydrogen and battery power will
help to achieve zero emissions from trains. We look forward to
working with the government and industry partners in support of the
government’s investment plans to decarbonise
Britain’s rail network.
Our externally assured carbon and energy performance can be found
in the KPI section on pages 55-56 and in our TCFD reporting on
pages 57-60, with a more detailed breakdown in our 2021
Environmental Performance Report, available on our website.
Business continuity plans are in place for all areas of our
businesses in case of extreme weather or other physical
events. |
The Group recognises
the continued
pressure and opportunity to create a more sustainable world and
maintains our commitment to invest in new
technologies and collaborate with partners to create a cleaner
future. The commitments we have made this year – particularly our
science-based
target and zero emission fleet target for First Bus – and the
strategies we are developing to meet them will ensure we are
managing our climate transition risks effectively. |
With the sale of the US
businesses,
the regulatory environment on climate
change simplifies for us as we will deal
predominantly with UK policy which is well defined and which we are
on track to meet with our current commitments.
The physical risks of climate change are also less variable and
with less extreme weather events in the UK than North America. |
Geopolitical |
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The political landscape
within which the Group operates is constantly changing.
The Group’s operations depend on government policy, funding regimes
and
infrastructure initiatives continuing to support private company
operators in public
transportation. Inability to maintain rail contracts and/or
leverage national funding and
develop government partnerships may result in the reduction and/or
an elimination of
rail contracts and/or an inability to sustain and develop new bus
routes resulting in adverse financial impacts.
Group operations are also dependent on obtaining the necessary
mechanical pieces to maintain our fleets. Changes in the political
landscape may have supply chain
implications and decrease the number of vehicles available to
support demand. |
The sale of First
Student and First Transit constitutes the majority of the Group’s
North
American business, as a result of which there is a reduction in the
operational and geographical diversity of the ongoing Group. The
ongoing Group is therefore more
dependent on the performance of, and revenue from, its UK divisions
(i.e. First Bus and First Rail). As a result, changes in government
policies, funding regimes and
infrastructure initiatives in the UK have a greater overall impact
on the ongoing Group. |
While the Group
collaborates with industry bodies to help anticipate government
policy or funding regime changes in order to adjust operations, the
Group is an
apolitical organization and does not have the ability to control or
substantially
influence government policy.
The Group has been able to mitigate supply chain disruptions by
utilising mechanical
parts from vehicles not in use due to decreased demand levels as a
result of the pandemic. |
The UK government
announced its
intention to bring the UK’s current rail franchising system to an
end and replace it with a new rail contract model for delivery of
rail passenger
service by private operators. See
pages 22-24 for additional information on
the termination sum agreements of the pre-existing franchising
contracts and
details of the newly negotiated National
Rail Contracts (NRC). Additionally, the UK government also
announced new infrastructure investments, including c. £3bn to
transform bus services across the country providing the Group with
new opportunities to grow the First Bus division. |
Although the new
contracts are expected
to be based on a more appropriate
balance of risk and reward, First Rail is a proportionately larger
part of the Retained Group and therefore the future
performance of the ongoing Group will
be intrinsically aligned with successful
negotiations of new rail contracts and continued government
support. |
Strategic Risks |
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Contracted business |
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The Group’s contracted
businesses are dependent on the ability to secure and renew
contracts on profitable terms, comply with contract terms and avoid
termination.
Additionally, the ability of the Group to achieve performance
targets is dependent
on our ability to exceed passenger performance metrics laid out in
rail contracts.
Failure to do so would result in reduced revenue and profitability
and / or negative
impact on delivering the Group’s strategic objectives. |
With the sale of First
Student and First Transit, the ongoing Group has less
geographic
diversity and therefore is more dependent on the performance of the
UK divisions;
however, the new National Rail Contracts will provide the ongoing
Group with a consistent single-digit margin, more cash generation,
and overall greater resilience.
These contracts have low cost, contingent capital and revenue
risk. |
The new contract
structure will be concession-based with performance incentives
resulting in a far better balance of risk and reward. As the
largest incumbent with
four UK rail operations expected to be in place until at least
2023, we have the
extensive operational expertise needed to meet new contract
performance incentives.
We have dedicated departments that focus on DfT negotiations and
ensure that
future commitments to UK rail will have an appropriate balance of
potential risks and rewards for shareholders. |
The transition from
franchising to contracts will lead to a better balance of risk and
reward via reduced revenue risk,
minimal cost and contingent capital risk, and will provide more
consistent cash
generation each year. As the largest
incumbent the Group has the operational
structure and expertise to exceed
passenger performance targets and to
build on our base business with no
revenue risk. |
With the sale of First
Student and First Transit, First Rail is a proportionally
greater part of the ongoing Group. Although this results in a less
diverse portfolio, the new National Rail Contract structure
provides a strong base business for the ongoing Group and provides
opportunities to build on that
foundation with no revenue risk and limited cost risk. |
| Competition and emerging
technologies |
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The Group’s market
share and competitiveness is dependent on effectively
competing in areas of pricing and service options. Our success is
also dependent on
identifying and developing innovative offerings in line with the
Group’s goal to be the
partner of choice for our customers’ transport solutions,
accelerating the transition to a zero carbon world. Our main
competitors include the private car and other
transportation service providers (e.g. ride share, price comparison
websites, etc.).
Airline competition also impacts demand for bus and rail travel,
especially in
Greyhound’s long-haul business. Zero emission and emerging
technologies such
as autonomous vehicles and on-demand schemes provide opportunities
to grow and develop our market segments. The Group may also begin
to experience more
competitors for rail contracts as a result of the decreased
contingent capital
requirements of the National Rail Contract structure.
Failure to effectively compete in the market and/or develop new and
innovative options could result in decreased customer retention,
decreased demand and/or adverse financial and reputational
impacts. |
The sale of First
Student and First Transit allows the ongoing Group to further
focus
on our digital innovation, enhance business efficiency and
flexibility, and target
opportunities in adjacent markets and geographies. |
To meet our goal to be
the partner of choice for our customers’ transport solutions,
we continue to focus on service quality and delivery in order to
attract passengers
and other customers to our portfolio of businesses. We are leaders
in the operation and maintenance of electric and autonomous
vehicles, and we continue to invest in the technology and services
to support connected and on-demand travel, including
Mobility as a Service (MaaS).
The Group also continues to have a dedicated cross-divisional
consumer experience
team who help implement innovative customer convenience solutions
(e.g. real-time seat capacity, contactless and capped ticketing,
smart tickets, 5G/Wi-Fi, data driven pricing) which focus on
improving access to our services and our overall service to
customers.
The Group has also identified expansion opportunities in adjacent
markets and new
geographies to support the expansion of public transport throughout
the UK.
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. |
Low fuel prices and
changes in demand for public transportation
due to the pandemic have led to reduced
passenger volumes. Although the lasting impact to commuting
behaviours and
consumer travel demand continues to be unknown, the Group saw
passenger
volumes reach c60% of pre-pandemic
levels in some areas during the most recent lockdown easement.
The Group has continued to invest in emerging technologies this
year, including autonomous and electric vehicles, and services to
support connected and on-demand travel, including mobility as
a service (MaaS).
We continue to increase the number of low and zero emission
vehicles operating in our road and rail fleets, and to focus on
providing easy and convenient mobility,
encouraging the switch from private car journeys to our
services. |
Due to the sale of
First Student and First Transit the ongoing Group has increased
capacity to strategically focus innovation efforts on markets
within the UK,
particularly in left behind towns and cities where public
transportation, specifically buses, are integral to meeting the
UK
Government’s economic growth agenda. |
Operational Risks |
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Financial resources |
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As set out in further
detail in note 25 to the financial statements on pages 192-197,
treasury risks include liquidity risks, risks arising from changes
to foreign exchange
and interest rates and fuel price risk.
Liquidity risk includes the risk that the Company is unable to
refinance debt as it becomes due. Foreign currency and interest
rate movements may impact the profits, 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 S&P Global Ratings and Fitch. A
downgrade in the Group’s credit ratings to below current investment
grade may lead to increased
financing costs
and other consequences and affect the Group’s ability to invest in
its operations |
The sale of First
Student and First Transit allows us to significantly reduce the
level of debt for the ongoing Group and also includes a cash
reserve to provide adequate
financial resources until end markets begin to emerge from the
pandemic.
While the sale provides significant debt decreases and working
capital reserves, it also decreases the Group’s revenue streams and
may impact the ongoing Group’s
ability to obtain credit when the ongoing Group targets new debt
facilities. |
The Group monitors our
leverage ratios and overall liquidity consistently to ensure we
remain within our target range and have adequate financial
resources on a two to three year look forward.
Although the completion of the sale of First Student and First
Transit decreases the ongoing Group’s revenue stream, S&P
Global Ratings and Fitch currently rate us as investment grade and
we do not anticipate a reduction in our ability to secure credit,
including the targeted debt facilities. In the event the ongoing
Group did not obtain the targeted debt facilities we have
additional capacity within our current financial
structures to continue our strong financial positions, such as
extending our 2022 bonds. |
As a result of varying
passenger demand
throughout the fiscal year, the Group secured additional funding to
support
liquidity during the pandemic.
Additionally, we secured covenant
amendments for both our March and September 2021 testing dates. The
Group has continued with our strategy to sell First Student and
First Transit in order to invest and focus on our UK divisions
which are less susceptible to
impacts from passenger demand and will provide us strong cash
generation and liquidity in future. |
The Group will apply
the net proceeds from the sale to discharge certain long-term
liabilities, including the £300m CCFF loan. Additionally, c£100m
pro
forma net debt position to be retained to
ensure the ongoing Group has adequate
financial resources available while UK end markets begin to emerge
from the pandemic over and above the estimated short-term capital
needs. As a result, the ongoing Group has a
significantly de-risked balance sheet and strong financial position
to unlock growth in our target markets. |
Pandemic |
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The pandemic has
altered the way in which the Group operates and how we serve our
communities. Our success depends on continuing to anticipate and
adapt to changes in consumer commuting and travel behaviours,
implementing safeguards to prevent spread and complying with new
laws and regulations relating to the
pandemic.
Failure to balance operational changes whilst also implementing
appropriate
safeguards and procedures to prevent additional spread of the
pandemic and promote containment may result in adverse reputational
or financial impacts. |
The Group is committed
to the health and safety of our employees, customers and
others with which we do business. With the sale of First Student
and First Transit, the
ongoing Group is less susceptible to changes in consumer community
behaviour and
demand. The new National Rail Contracts include a management fee
that is not
dependent on demand and within First Bus we have the ability to
adjust and change
schedules in order to adapt to changing demand patterns. |
To adapt our operations
to impacts resulting from the pandemic the Group has
implemented new policies and procedures across all vehicle fleets.
These policies and procedures include providing personal protective
equipment to drivers and
technicians, increased sanitation and appropriate social distancing
requirements. The Group complies with all applicable public health
authority guidance, include the use of face coverings where
mandated.
Additionally, during 2020 the Group fast-tracked implementation of
real-time seating capacity on our Bus app to support social
distancing requirements.
Under the new National Rail Contracts First Rail will not
experience revenue risk as a
result of decreased demand, except for in our Hull Trains open
access service. Our other divisions, have a greater risk of loss
caused by decreased demand. While First Bus saw passenger volumes
increase to c.60% of pre-pandemic levels during the most recent
lockdown easement, to adapt our operations to potential changes in
commuting and travel behaviour, the division has dedicated teams to
assess and
monitor workforce and route planning. The dedicated teams use
advanced data
analytics that provide an efficient way to adjust schedules.
Once end markets have emerged from the pandemic, the Group also has
plans ready
to reshape routes and timelines to align with observed demand. The
actions taken via
these plans will be based on real-time passenger flow data now
available following digital transformation initiatives. |
While the Group has
implemented
safeguards across our fleet to prevent
further spread of the pandemic, guidance regarding the methods
of
spread and effective containment
procedures continue to develop.
These methods and procedures are further impacted by the new
variants
of the coronavirus developing throughout
the world, including in the UK. This changing knowledge could
continue to
affect the ways in which we must adjust our operations to protect
the safety of our
customers, employees and third parties
who interact with our business. |
With the sale of First Student and
First Transit, the ongoing Group is less susceptible to changes in
consumer commuting behaviour and demand. |
Safety |
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The Group is committed
to fostering and maintaining a culture of safety. However, public
transport inherently includes safety related risks, many of which
are out of our control. These risks include terrorism, adverse
weather, human error and increased
traffic / congestion on public roadways. A safety incident, or a
threat of an incident,
could lead to reduced public confidence in public transportation
overall and potentially
reduce demand for our services. |
Safety is one of the
Group’s core values and the sale of First Student and First Transit
has no impact on our unwavering commitment to safety. Despite our
commitment to safety, we recognise that, regretably, incidents and
legal claims do occur. As North
America has a higher degree of litigious activity, the sale of
First Student and First
Transit reduces the Group’s liability insurance risk and associated
costs. Although the ongoing Group will continue to operate in North
America via the Greyhound division, a
portion of the sale proceeds has been retained to de-risk any
remaining self-insurance
requirements.
Whilst the sale of First Student and First Transit reduces the
ongoing Group’s
insurance risk, it also reduces our geographical diversity. In the
event of a terrorist
attack and / or safety incident within the UK, the Group may
experience a decrease in
demand which will not be offset by stable demand within the
US. |
In order to promote and
maintain our culture of safety, all divisions have extensive safety
plans and safety training for our drivers and employees. Points of
access to vehicles are secured to prevent against malicious access.
Mechanical safety controls (speed monitoring, cameras, etc.) are
implemented across our fleet of vehicles.
While the Group has implemented preventative safety measures and
procedures, we recognise that incidents may be caused by factors
that are ultimately out of our control and do at times result in
legal claims. As a result, the Group has dedicated
departments, utilising third party experts when needed, to analyse
and maintain
effective insurance structures and levels. |
Although the Group
continues to assess, update and implement safety procedures across
our businesses, risk mitigation in this area continues to be a
focus. Even
with this attention, the legal climate in
North America, particularly in the US, continues to deliver
judgements which are disproportionately in favour of
plaintiffs, and at times unpredictable.
Additionally, the extent to which the claims environment may be
impacted by
the effects of the pandemic is not yet clear. |
In relation to the sale
of First Student and
First Transit, as previously stated the legal climate in North
America continues to
deliver judgements disproportionately in favour of plaintiffs.
While the Group has
legal claim risk in the UK, the ongoing Group’s overall insurance
risk has decreased. Although the ongoing Group’s insurance risk has
decreased, the ongoing Group also has less geographical diversity
to offset
any decrease in demand following a terrorist attack and / or safety
incident within the UK. |
Pension scheme funding |
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The Group sponsors or
participates in several significant defined benefit pension
schemes, primarily in the UK. Within our North American
subsidiaries, we participate in several multi-employer pension
schemes in which our contributions are pooled with the
contributions of other contributing employers.
In both schemes the Group’s future cash contributions and funding
requirements are dependent on investment
performance, movements in discounts rates, expectations of future
inflation and life expectancy. Within North America, funding of the
schemes is also reliant on the ongoing participation by the other
contributing employers.
In order to maintain adequate cash funding and prevent adverse
financial impacts
or reputational damage, the Group must monitor the performance of
our fund
investments and movements in other contributing factors (e.g.
discount rates,
life expectancy, etc.). |
Following the sale of
First Student and First Transit, the ongoing Group continues to
be responsible for all pension plans other than those relating to
the sold divisions for which the liability has transferred as part
of the sale.
Although the Group used some of the net disposal proceeds to
improve pension
scheme funding, the ongoing Group’s ability to contribute to the
Pension Schemes on an ongoing basis will be dependent on the
profits of a less diversified business with a
reduced operating cash flow, in particular, in relation to the
First UK Bus Pension Scheme. |
In order to effectively
monitor our funding requirements, all our cash models/forecasts
include significant pension deficit funding. The Group also
utilises third party experts
to monitor movements in discount rates and inflation
expectations.
We continue to replace our defined benefit schemes with defined
contribution
arrangements where possible. We are also focusing on diversifying
asset classes and
reallocating riskier investments to investments that better match
the characteristics of
the liabilities as funding levels improve.
Under the First 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 any particular franchise.
The Group intends to use £337m of the net disposal proceeds to
contribute to the Bus and Group pension schemes. Additionally, the
increase in funding levels allows for greater flexibility for the
management of the pension liabilities including buy-ins and further
liability hedging. |
The Group has closed
most of its defined benefit schemes in its road divisions to
future accrual. This will lead to the natural reduction of the size
and volatility of the pension funding risk over time.
Through our membership of the Rail Delivery Group we are engaged in
an industry-wide project to consider the long-term funding model
for the Railways Pension Scheme. |
Following the sale of
First Student and First Transit, a portion of the net disposal
proceeds was used to materially improve pension scheme funding and
thereby
decrease our overall funding risk. |
Data security and consumer privacy, including
cyber-security |
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The Group continues to
see an increase of mobile and internet sales across all divisions.
These mobile and internet channels gather large amounts of data
which require safeguards in order to protect our customers’ data
and to comply with the
General Data Protection Regulation (GDPR) and California Consumer
Privacy Act (CCPA). Whilst this data requires compliance with
consumer privacy regulations, it also makes us a target of data
security attacks by third parties.
In addition to maintaining infrastructures that protect our
consumers’ data, our operations rely on information technology
systems. Cyber-attacks, computer
malware, viruses, spamming and phishing attacks have become more
prevalent and may result in a breach of our systems. A breach of
our facilities and / or network could disrupt our operations and
impair our ability to protect consumer data, and / or
compromise our confidential business information.
A failure to prevent, mitigate or detect security breaches and / or
improper access to our business and / or customer’s information and
/ or comply with consumer privacy
regulations could result in disruption to our operations,
significant penalties and have an adverse impact on consumer
confidence in the Group. |
The Group is committed
to protecting the privacy and personal data of our customers,
employees and others with which we do business. The sale of
First
Student and First Transit has no impact on our commitment to
protect our
consumers’ data and our business systems against security breaches
and / or comply with all GDPR and CCPA regulations. |
To protect our
customers’ data and comply with all data privacy regulations,
IT
infrastructure controls have been implemented Group-wide. We also
have dedicated
compliance officers in each division. The Group also administers a
training
programme to all employees, communicating their role in protecting
and preventing
the unauthorised access to sensitive data. Additionally, in order
to comply with user
preferences, the Group is implementing a software solution that
makes it easier to record and update customer preferences. |
Despite the Group’s
continued mitigation efforts, the risk of a cyber security
attack
for all companies continues to increase. This risk has been
additionally impacted by the increase of a remote workforce
during the pandemic. |
The sale of First
Student and First Transit has no impact to the risk change
during
the year. |
Regulatory compliance |
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The Group’s operations
are subject to a wide range of legislation and regulation.
Complying with such legislation and regulations may increase the
Group’s operating
costs, and non-compliance could lead to financial penalties,
investigation expenses,
legal costs or reputational damage. The Group’s corporate
governance, which is
recognised by external ESG ratings as strong and well aligned with
stakeholder
interests, supports our ability to respond to, and prepare for,
financial and ESG laws
and regulations.
The main regulatory compliance risks specific to the Group that are
not covered
in other principal risks include workplace compliance (employee
wage and hour, meal and break matters, etc.), workplace health and
safety and anti-trust/anti-bribery
regulations. |
The Group is dedicated
to maintaining compliance with the regulatory environment
within which it works and the sale of First Student and First
Transit has no impact on our commitment to comply with our
regulatory requirements. |
To help the Group
comply with all legislation and regulations, we have dedicated
compliance professionals who ensure applicable laws by locality and
state are
followed. We also engage with third party legal experts when
necessary to advise on policies and procedures and other related
compliance matters. We also provide a hotline for employees and
third parties to report concerns.
Whilst we strive to maintain compliance within the regulatory
environment, we also maintain insurance for third party injury
claims arising from vehicle and general operations, employee
injuries and property damage.
To help mitigate non-compliance risk with anti-bribery and
anti-trust regulations we maintain robust policies and procedures
and our employees receive regular training on the policies. We also
complete periodic audits of our training programmes to
ensure consistent training and participation. |
Although our
legislative and regulatory
environment continues to change, the
Group maintains our commitment to assess and adapt not only our
insurance structure but also our policies and
procedures to prevent non-compliance. |
The sale of First Student and First
Transit has no impact to the risk change during the year. |
Human resources |
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Employee costs
represent the largest component of the Group’s operating costs.
These costs include expenses related to recruitment, retention and
talent development.
The costs are impacted by changes in employment markets, new
regulatory
requirements from Brexit and diversity and inclusion programmes. A
failure to effectively
recruit and retain a diverse and talented workforce could have
adverse financial,
reputational and operational impacts.
Our driver and technician employment market has been affected by
the pandemic
which has increased our recruitment and retention costs and may
impact operations
as consumer travel demand increases. Our employee turnover rate may
also be impacted by Brexit employment regulations and the
announcement of the intent to sell the North American
businesses. |
The attraction,
development, retention, reputation and succession of senior
management and individuals with key skills are critical factors in
the successful
execution of the Group’s strategy, and operation of the Group’s
divisions.
The reduction in size and diversification of the ongoing Group
following the sale of First Student and First Transit may make it
more difficult for the Group to attract and retain employees. |
In order to increase
retention and decrease employee costs, the Group has enhanced
recruitment practices, including leveraging online channels for all
roles. The Group
also has implemented all necessary coronavirus-related safety
protocols to support the health and safety of our drivers and
technicians.
In response to Brexit employment regulations, we have secured
Sponsorship Status and are in the process of implementing new
employment record requirements to
comply with regulations.
To help prevent overall employee turnover, we continue to focus on
improving
communication with employees, investing in employee development and
diversity and inclusion, and providing market competitive wages and
benefits. |
The lasting impact the
pandemic will
have on the labour market and employee
work conditions continues to develop and will require the Group to
assess and adapt our operations in the future.
Additionally, employee and community
expectations continue to impact our recruitment, retention,
diversity and development strategies. |
With the sale of First
Student and First Transit, the ongoing Group has reduced
in size and includes a less diverse portfolio which, if combined
with any negative publicity associated with the sale, may impact
the ongoing Group’s
ability to attract and retain employees. |