FirstGroup Plc - Agreement to acquire RATP London
agreement to acquire bus operator RATP London
The Acquisition will see the Group enter the
-- 10 depots across Central and West London (four owned and six leased);
-- a fleet of c.1,000 buses of which a third are fully electric;
-- c.3,700 employees over 80% of whom are drivers;
-- c.90 Transport for London (`TfL') route contracts, typically of
seven-year term; (weighted average remaining contract life of 3.3 years)
-- revenues of £271m for the year ended 31 December 2023 ; and
-- an experienced management team with a proven track record of developing
and implementing a comprehensive turnaround plan that includes enhanced
bid discipline and improved operational and cost performance
The enterprise value is underpinned by c.£100m of physical assets including freehold property of c.£50m.
The Acquisition will be financed with £45 million from the Group's existing cash reserves and the assumption of RATP London's asset backed vehicle finances leases (c.£45m).
Following completion of the Acquisition, the Group anticipates:
-- the Acquisition will be broadly earnings neutral in FY 2025 and FY 2026;
onerous contract provisions totalling c.£40-50m will be utilised over
several years;
-- as the route contract portfolio evolves over the next five years, annual
revenues are expected to grow to £300-350m, with operating margins in
line with historical London levels of c.6-7%;
-- looking ahead, in addition to the measures included in the current
turnaround plan, the Group has identified a number of potential
synergies that could further enhance profitability;
-- operating cash outflows of c. £30m, after bus operating lease payments
and capex, in the first two years of ownership, following which the
business is expected to be operating cash positive from FY 2027 onwards;
-- RATP London's current management team will transfer with the business
and are expected to be retained post-acquisition.
The Acquisition is subject to French government approval (in its capacity as the ultimate owner of the business) and is conditional on TfL consent to the change of control. The Group anticipates completion of the Acquisition in H1 Calendar Year 2025.
"This is a significant acquisition for the Group that will diversify our portfolio and materially grow our earnings in the medium term. It allows us to enter the
"We look forward to continuing to build on our relationship with TfL and welcoming RATP London's employees into the Group, to continue the transformation of the business and to capitalise on the growth potential in the
Investor & Analyst webcast
A webcast for investors and analysts will be held at 09:00 (GMT) today. To request the webcast details, please email corporate.comms@firstgroup.co.uk . To access the presentation slides, together with a pdf copy of this announcement, go to www.firstgroupplc.com/investors. A recording of the webcast will also be available on the website in due course.
Notes to Editors
Operational and financial overview
RATP London was formed through the consolidation of London United, London Sovereign and London Transit bus companies. RATP London is most prominent in
RATP London has c.3,700 employees and operates a fleet of c.1,000 buses out of four owned and six leased depots, as well as a number of smaller ancillary properties, in Central and
The majority of the senior management team joined the company over the last three years and have developed and implemented a comprehensive turnaround plan for the business. Good progress has been made since the implementation of the plan, both in enhanced bid discipline with c.30 routes rebid over the past two years, including the early termination of loss making routes at contract review dates as well as improved operational performance and cost control, and workforce stabilisation. This improvement in performance can be seen in the TfL Q2 FY 2025 Bus Operator
RATP London operates c.90 routes on behalf of TfL. These route contracts typically have a seven year maturity with on average, c.13 contracts in the portfolio renewed each year. As the route contract portfolio evolves over the next five years, the Group anticipates that annual revenues will grow to £300-350m, with operating margins in line with historical norms in
RATP London reported group revenues of £271m for the year ended
Buses are currently acquired under operating leases, which the Group will review going forward. The Group anticipates aggregate capital expenditure of c.£40-50m which excludes bus acquisitions, over the first three years of ownership relating primarily to depot electrification, charging infrastructure, existing fleet replacement batteries, and a small amount of spending on other non-current assets. The capex forecast excludes the buses that may be acquired under operating leases and this will be reviewed in the context of the Group's wider approach to electrification.
TfL is targeting an entirely zero-emission bus fleet by 2034 at the latest and electrification is now compulsory in the bidding process. RATP London has been an early mover in bus fleet and infrastructure electrification, with a third of the fleet electric. The Group will seek to capitalise on electrification expenditure efficiencies through its existing capabilities and arrangements.
The Group anticipates operating cash outflows of c. £30m after bus operating lease payments and capex, in the first two years of ownership, with the business expected to be operating cash generative from FY 2027 onwards.
Looking ahead, in addition to the measures included in the current turnaround plan, the Group has identified a number of synergies that could further enhance profitability. These include fuel and electricity pricing, insurance, on bus advertising, materials contracts, fleet purchasing, vehicle sale benefits through the use of the Group's Ensignbus business, and through the merging of some back-office functions. The Group will also consider the future financing of electric buses, including the potential benefits of bringing electric bus batteries into its joint venture with Hitachi Zero Carbon.
Impact on the Group's FY 2025 and FY 2026 financial outlook
Should the Acquisition complete in the fourth quarter of the Group's financial year ending
In FY 2026, RATP London is anticipated to make a small contribution to the First Bus adjusted operating profit, at a lower margin, and the Group's net capital expenditure is expected to increase to c.£125m, with the majority of expenditure in First Bus electrification. There will be an increase in the Group's interest cost of c.£6m, including IFRS 16, relating to the Acquisition, and the Group's FY 2026 year-end Adjusted net debt is expected to be c.£130m.
Share Purchase Agreement terms
Under the terms of the Share Purchase Agreement (`SPA'),
The Group has provided a parent company guarantee to underpin the obligations of First Bus under the SPA, and similarly the Seller's parent, RATP Dev, guarantees the obligations of the Seller. The SPA includes a customary suite of warranties and indemnities, subject to caps and limitations as appropriate.
The Seller is required to carry on operating and funding the business in line with past practice in the period to completion. A limited suite of transitional services will continue to be provided by the Seller and its group for a short period post-completion under the terms of a Transitional Services Agreement
(`TSA'). Satisfaction of the conditions is subject to a longstop date of
Bus patronage is expected to continue to recover back to pre-Covid levels, supported by modest population growth across
Looking at modal share, despite a slight shift towards the London Underground and more recently, suburban rail networks, bus remains the primary mode of transport within
The size of the
Overview of TfL contracts
Individual route contracts are tendered competitively by TfL, generally over seven-year terms, resulting in a franchising model where there is minimal risk of losing large parts of the business at one time, and with a view to full decarbonisation of the fleet.
The route contracts bear no revenue risk on the base price bid. Inflation is allowed for based on 85% of revenue against which CPI is applied, and TfL assuming 15% of bus operator cost base does not inflate.
TfL is entitled to make deductions for lost mileage (at a specified rate per mile) where caused by reasons within the operator's reasonable control (such as missing drivers or mechanical breakdown), and fares payment irregularities (i.e. underpayment by passengers). Operators are not penalised for lost mileage that is not within their control, for example traffic or roadworks delays.
In addition, operator performance is measured and incentivised / penalised through quality of service indicators within the contracts, known as Quality of Service Indicators (`QSIs'). Under the QSI regime, bonus payments and liquidated damages are based on the operator's performance against a defined minimum performance standard of Excess Wait Times (`EWT') or a minimum percentage of "On-Time" services. Bonuses are earned up to an annual maximum 15% of contract payments (less any deductions for lost mileage) (the `Contract Sum') for good performance, with liquidated damages for poor performance capped annually at 10% of the Contract Sum.
1 Source: TfL data
Contacts atFirstGroup :Marianna Bowes , Head of Investor Relations Contacts atBrunswick Group : Stuart Butchers, Group Head of CommunicationsAndrew Porter /Simone Selzer corporate.comms@firstgroup.co.uk Tel: +44 (0) 20 7404 5959 Tel: +44 (0) 20 7725 3354
Contacts at Panmure Liberum (Corporate RBC Europe Limited (Financial Adviser and Broker): Corporate Broker):Nicholas How /John More Philip Turville /James Agnew /Jack Wood Tel: +44 (0) 20 3100 2000 Tel: +44 (0) 20 7653 4000
This announcement contains inside information and the person responsible for publishing the announcement is
Notes
Legal Entity Identifier (LEI): 549300DEJZCPWA4HKM93. Classification as per DTR 6 Annex 1R: 3.1.
Forward-looking statements
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. No statement in this announcement should be construed as a profit forecast for any period. Shareholders are cautioned not to place undue reliance on the forward-looking statements. Except as required by the
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