FirstGroup Stock

Good morning, everyone, and welcome to FirstGroup's 2026 Full Year Results Presentation. In a moment, I will hand over to Ryan to take you through the financial performance for the year. I will then provide an update on bus and rail before we take your questions at the end.

Moving on now to Slide 3. I'm pleased to report another strong year for the group. The successful execution of our U.K.-focused growth and diversification strategy has driven further earnings momentum and material shareholder returns, reinforcing our track record for delivering on our commitments.

Group adjusted revenue, which does not include the National Rail Contracts where we take substantially no revenue risk, has grown by 25% to over GBP 1.7 billion. This was largely driven by growth in First Bus revenues, aided by the acquisition of First Bus London, which completed in February 2025.

Group adjusted earnings per share for the year has increased by 5% to 20.3p, with earnings per share growth supported by the repurchase of 22 million shares during the year. As a result of our strong performance and cash generation, the Board has proposed a full year dividend of 7.2p per share, an increase of 11% against the prior year. We're also tightening our dividend policy. And over time, we expect our dividend cover ratio to move towards 2.5x.

We're also delighted to announce a further GBP 100 million share buyback program, which we expect to complete over the next 12 months. The U.K. bus and rail markets will continue to evolve during full year '27, with the transfer of our National Rail Contracts to public ownership and as bus franchising begins to gather pace. The work we have done to improve performance and restructure our business will allow us to maintain our adjusted earnings per share in full year '27 following a stronger outturn in full year '26. We also continue to see a strong pipeline of inorganic U.K. growth opportunities, building on our execution capability of previous years.

Moving now to Slide 4. This sets out some of the key highlights against our strategic framework. Delivering day in and day out remains a key priority. In First Bus, our expertise and delivery focus has driven further operational improvement in lost mileage and a higher Net Promoter Score, which has improved from plus 11 to plus 17. Our 2 successful open access operations have continued to lead in rail customer satisfaction rankings.

Looking at modal shift, generating additional demand for our service is a key commercial driver of our business and also crucial for reducing congestion, improving air quality and supporting government decarbonization goals. During full year '26, we have put more capacity into the market in both bus and rail. In bus, we have increased operated miles in regional bus and added capacity in our business and coach network. We have delivered on our commitment to increase capacity in open access in both Hull Trains and Lumo during the second half of the year.

Turning to our sustainability pillar. We continue to be recognized for our market-leading credentials. We remain at the forefront of bus fleet and infrastructure electrification and are working to capitalize on opportunities to unlock adjacent electrification revenue streams. This has included the launch of First Charge across 15 of our depots, together with the introduction of battery storage capability to some of our sites.

Diversifying our portfolio in attractive markets is a key strategic priority. We continue to make good progress, building a diverse, resilient portfolio, less exposed to changes in public policy. Over the last 4 years, we have invested around GBP 230 million on inorganic growth in First Bus. This includes the acquisition of RATP London, which is performing ahead of our acquisition expectations in its first full year.

We have also acquired a number of well-established profitable coach businesses to extend our operational footprint and geographical reach in key markets. We were also delighted to have been awarded the contract to run the London Overground rail network, building on our existing relationship with Transport for London. We successfully took over the operation on the 3rd of May.

Moving now to Slide 5. Looking ahead, we're now entering a phase of higher levels of free cash generation and expect to deliver around GBP 400 million over the next 3 years. This is supported by further earnings growth in bus and open access rail, together with the anticipated cash flow of GBP 90 million as the DfT TOCs transition to public ownership and our rail services businesses continue to provide support post transfer.

We have recapitalized the business as we invested in decarbonization and portfolio growth. This has been made possible by the work we have done to transform business performance over the last few years while still maintaining a strong balance sheet and leverage comfortably below our threshold.

Looking ahead, annual capital expenditure in First Bus will normalize in full year '28 to a range of GBP 80 million to GBP 100 million, following a period of accelerated investment in decarbonization whilst government co-funding was available. Our disciplined capital allocation policy remains unchanged, balancing investment in growth and returns to our shareholders. The FirstGroup team have achieved a lot over the last few years, and I remain excited about the potential for meaningful growth and material returns to our shareholders.

I will now hand over to Ryan, who will take us through our financial results for the year.

Thank you, Graham, and good morning, everyone. In my presentation, I'll be covering the following 3 areas: the strong growth in adjusted revenue, the improvement and underpinned progress in adjusted EPS; and finally, the financial guidance for full year 2027 and the application of our capital allocation policy.

So turning to the financial summary on Slide 7, where we have made progress across all of the relevant financial KPIs. The group adjusted revenue is up over 25%, driven by both organic and inorganic growth. The revenue improvements in bus and open access rail have largely been offset by inflationary cost increases, the circa GBP 16 million impact from the national insurance change and circa GBP 6 million business development costs in open access for the mobilization of the Stirling route, as well as SWR being nationalized in May 2025. Despite this, the group adjusted operating profit of GBP 219.4 million was broadly flat year-on-year, but from a much stronger, more sustainable base.

Our strong operating profit performance has been partially offset by higher net finance costs, resulting in the group delivering GBP 112.6 million in adjusted earnings. The share buyback program has reduced the average share count. And as a result, the group adjusted EPS has increased by 4.6% to 20.3p. This robust underlying business performance and strength of the balance sheet has resulted in the Board proposing a final dividend of 5p per share, resulting in a total dividend for the year of 7.2p, an increase of 10.8%. This dividend has been declared in line with the current progressive dividend policy of around 3x adjusted earnings per share.

Despite the accelerated investments in decarbonization in bus, the business generated just short of GBP 74 million in free cash flow and ended the year with GBP 137.7 million in adjusted net debt, and this is after GBP 35 million in bus acquisitions and GBP 89 million in shareholder returns. We have added a new measure, return on invested capital employed, reflecting the post-tax adjusted EBIT return against our total invested capital, which also contemplates IFRS 16 leases. The 10.7% ROIC delivered in the year is up 80 basis points and well above the group's WACC.

Turning to the 25% growth in adjusted revenue on Slide 8. The material increase in adjusted revenue has been mostly driven by the capital deployment in the second half of full year 2025, most notably with London Bus, in particular, performing well and delivering ahead of our investment expectations. In regional bus, the significantly reduced fare funding and marginally lower volumes have been more than offset by yield growth.

Strong progress has been delivered in our Business and Coach through the investments we've completed as well as some organic growth through, for example, the fixed contract. Bus franchising growth includes the full year effect of London that was acquired in February 2025. First Rail's open access and contracted rail operations delivered some revenue growth with this progress marginally impacted by the December timetable change and increased competition from LNER on the East Coast Mainline in the final quarter. The Rail Services business delivered strong revenue growth for the year with this growth offset by lower variable incentive fee opportunities at the DfT TOCs and SWR being nationalized in May.

Turning to Slide 9, showing the 7% improvement in bus operating profit. The government policy changes that were effective for the whole of the year had a material impact on the business. These policy changes, combined with a softer wider economic backdrop affecting volumes impacted the business by circa GBP 69 million. However, the strength and quality of the bus business, combined with strong performance in certain geographies, meant that the team were able to offset these policy headwinds through GBP 66.8 million in yield improvement.

Cost inflation resulted in a GBP 32.7 million increase in operating costs, with the majority of these being labor costs, representing about 50% of the bus P&L, and these were up 4% year-on-year, with the balance of costs increasing largely in line with CPI. Offsetting the inflation was GBP 25.9 million that has been taken out of the cost base through network and cost efficiency improvements, including the restructure of the business as well as a further drive to use technology to help with business performance.

The acquisitions and inorganic growth added GBP 15.6 million to profitability, reflecting successful capital deployment in driving results, with London Bus acquisition, in particular, performing well, along with the several bolt-on coach acquisitions.

Turning to the Rail performance on Slide 10, where we are changing how we report the segments going forward, reflecting our success in the award of the London Overground contract, which we are combining with our Open Access business, London Tram and the cable car contracts. Given the upcoming nationalization of our remaining 2 DfT TOCs, they are being combined with our rail services business for ease of valuation as the TOCs transition over the coming year.

In total, rail adjusted operating profit is down GBP 18.9 million, driven mostly by SWR being nationalized in May and the GBP 6.8 million lower IFRS 16 adjustment. The Rail Services business continued to grow with progress year-on-year driven by new business in Mistral and First Customer Contact revenue growth driven by higher levels of activity. The open access and contracted business revenues are up GBP 4.8 million with additional services that came into effect with the December timetable change and the extension of Edinburgh to Glasgow in the fourth quarter being partially offset by increased competition from LNER.

GBP 6.3 million costs were incurred in the mobilization for the new Stirling route that launched in May 2026 and GBP 1.8 million was higher infrastructure charges were incurred at Lumo, where this is now at the full rate. The GBP 3.3 million other movement primarily relates to the improved rail services business profit, partially offset by lower performance measures. For the DfT TOCs, net fees post tax and minority interest accrued in the year were GBP 29.3 million. This is down GBP 9.7 million, reflecting the lower variable fee opportunity and SWR ending. There are further details in the appendices relating to the DfT TOC accounting.

Looking at the 5% growth in adjusted EPS on Slide 11. This chart shows our adjusted EPS progression on a post-tax basis for the variances. Open access and contracted rail reduced by 1p due mainly to the revenue growth being offset by the additional circa GBP 8 million costs for mobilization and infrastructure charges. The DfT TOCs and rail services added 0.2p with the reduction in the TOC fees being more than offset by growth in the services businesses. The DfT TOC net fees earned in full year 2026 of GBP 29.2 million translates to circa 5.3p of the 7.9p total for the year, and this is down 1.3p year-on-year, with this reduced contribution in EPS being more than offset by the rail services growth.

First Bus increased operating profits contributed 1p to the improvement and the lower central costs added 1.1p, driven by cost efficiencies and the group restructure. Interest costs were 1.9p higher due mainly to lower interest received on lower cash balances and the group now being in an adjusted net debt position. The buyback program resulted in a lower number of average shares in issue, which added 1.5p. As can be seen, the work that we have been doing over the past few years, together with our disciplined capital allocation approach has grown our adjusted EPS to 20.3p with a continued improvement in the balance of the quality of the earnings generation.

Turning to the cash generation by the group on Slide 12. As a reminder, our adjusted measures exclude the ring-fenced cash and the impact of IFRS 16, mainly in the DfT TOCs. The group generated EBITDA of GBP 24.8 million (sic) [ GBP 204.8 million ] before the DfT TOC cash inflows, where we received GBP 45.4 million in distributions. Working capital was a net inflow of GBP 16 million, resulting in a total of GBP 266.2 million in cash generated by operations, up 25% year-on-year.

The cash from operations was deployed in investing GBP 189.9 million in CapEx, net of grant funding and the battery sales into the Hitachi strategic joint venture. Disposal proceeds of GBP 21.2 million relate mainly to depot sales completed following the closure of our operations in Cornwall and the sale of a depot in South Yorkshire as this market transitions to franchising. GBP 20 million was received from the bus pension escrows following the completion of the 2024 triennial valuation. GBP 12.9 million was paid in cash interest and tax, and this is mainly related to interest on the new finance lease arrangements for the electric fleet in First Bus, offset by interest earned on cash balances.

There was a nominal amount of cash tax paid in the period with a low level of cash tax driven by the historical losses and accelerated capital allowances relating to the decarbonization investment program. GBP 84 million has been recognized on the balance sheet relating to the deferred tax assets for historical losses that will provide future cash tax shield for several years to come.

Other movements include the payment to acquire shares for the Employee Benefit Trust that hold circa 23 million shares for future share award settlements and small cash payments into the pension schemes mainly to cover costs. Looking at how we've deployed the capital generated, GBP 30 million has been paid by way of dividends, GBP 35 million was invested in growth capital on several bolt-on acquisitions in First Bus, mainly in the business and coach market and GBP 50 million was deployed in the share buyback program during the year.

What is clear from the chart is that the group continues to deploy a very balanced approach to capital allocation, focusing on both organic and inorganic growth opportunities as well as meaningful returns to shareholders in line with our strategy. This resulted in the group ending the year with an adjusted net debt cover ratio of 0.6x, which is well below our leverage framework parameters.

To end with on Slide 13, looking ahead at the financial outlook for the year. Despite the stronger outturn for full year 2026, the group expects to maintain adjusted EPS in full year '27, with the balance continuing to be more weighted to sustainable income sources as the remaining DfT TOCs transition. The bus business anticipates sequential operating profit progress year-on-year with growth being driven by a material change in the business following the acquisitions as well as the underlying business improvement with an anticipated more stable policy backdrop. Bus revenues are expected to be above GBP 1.5 billion, demonstrating continued growth.

At First Rail, the open access revenues are expected to grow to GBP 130 million to GBP 150 million in full year '27, with Stirling continuing to ramp up only having just launched. Open access margins are anticipated to be mid-teens when Stirling and the Carmarthen routes are fully operating, and this is expected in full year 2029. The rail services businesses are expected to make progress year-on-year given the continued support provided to the previous and existing DfT TOCs as well as growth from new customers.

For the DfT TOCs, GWR has been confirmed to transition in December 2026, and we expect Avanti to contribute for the full year. The IFRS 16 positive adjustment to EBIT is anticipated to be circa GBP 23 million in 2027 versus GBP 39 million in 2026. For the DfT TOCs and related services, we provide the expected cash flows from April 2026 onwards of circa GBP 90 million with the fees being paid a year in arrears. This GBP 90 million does not include the services we continue to provide to former TOCs and the new businesses that have been contracted.

At the center, we expect costs to be largely in line with full year '26. We anticipate incurring circa GBP 45 million in interest, of which GBP 14 million relates to IFRS 16 charges on the DfT rail leases, meaning the net negative GBP 7 million adjustment in earnings relating to IFRS 16 that is not included in our adjusted earnings. We anticipate deploying a net GBP 140 million of CapEx in First Bus alongside co-funding of circa GBP 15 million and taking into account circa GBP 10 million of cash benefit from the Hitachi Strategic Battery partnership.

The full year 2027 CapEx in bus continues to be ahead of expected normal levels of GBP 80 million to GBP 100 million, given the success the business has had in accessing government co-funding, allowing for the acceleration of our decarbonization journey. First Rail remains capital light with some investment expected on inorganic growth in open access as the new routes are progressed. And for the pension escrow, just a reminder, there's GBP 65 million remains in escrow to be reviewed with the 2030 triennial valuation, and we continue to review options to derisk through potentially applying some of the escrow monies.

The group retains a very strong balance sheet with further progress anticipated in ROIC of an improved quality of earnings base. The group is now moving into a phase of higher cash conversion over the next 3 years, supporting the anticipated GBP 400 million free cash generation after CapEx, interest and tax, but before the deployment of growth capital, where we continue to evaluate a pipeline of opportunities. At the end of the 3 years, the business is anticipated to be in a stronger position and equally as important as a well-capitalized fleet with a better quality of earnings base.

And I'll hand over to Graham for the business review.

Thank you, Ryan. There's clearly quite a lot going on, and I will now take you through the business review.

Moving to Slide 15. I'll start with First Bus, which as you can see from this slide, is a very different business today, both in terms of performance and portfolio mix. FY 2026 has been another good year. Despite a challenging environment, we've grown revenue to GBP 1.4 billion with a strong pipeline of further growth opportunities. Bus adjusted operating profit of GBP 103 million was 7% up, driven by yield management, cost efficiencies and the benefit from recent acquisitions.

Over the last 4 years, bus adjusted operating profit has grown by circa GBP 60 million per annum. Our adjusted operating profit margin of 7.1% was lower than the prior year, reflecting the near GBP 300 million increase in lower-margin London franchise revenues and the policy impact from increased national insurance contributions and lower regional bus fare funding. Our bus portfolio will continue to evolve. And in the medium term, we anticipate bus adjusted operating profit margin to be in a range of around 8% to 9%.

Moving on now to Slide 16. We've grown regional bus revenue by 3% despite the really unprecedented headwinds in full year '26. Obviously, Ryan covered this in his review. This was driven by strong yield management as we actively dealt with the transition to a GBP 3 fare cap in England. Adjusted operating profit margin of 8.8% was lower than full year '25 and materially impacted by the increase in national insurance contributions, which had a negative impact of 1.7%.

We continue to make good progress on operational and customer metrics with improvements in revenue per mile, lost mileage and a sustained improvement in our customer Net Promoter Score. Concessionary volumes were up 4%, but this was more than offset by a 6% decline in commercial volumes. The chart shows how we are broadly tracking the wider market with the decline in passenger volumes largely due to the fare cap changes in England and lower levels of consumer confidence leading to fewer discretionary journeys. We've seen the rate of decline ease in the first quarter of our 2027 financial year.

On cost inflation, the team have worked hard to manage industry-wide inflationary pressures with multiyear pay awards delivered in full year '26 that flow into full year '27 and the continuation of our proactive fuel and electricity hedging program. We enter full year '27 with materially less headwinds than we experienced in full year '26.

Moving on to Business and Coach on Slide 17. We've had a good year in Business and Coach with revenue up nearly 30% to GBP 230 million, supported by a strong contracted base. The platform now has around 1,000 vehicles, which includes a well-capitalized fleet of nearly 600 coaches, providing the scale that will allow us to efficiently cascade our coaches across our businesses.

We continue to extend existing contracts and win new business. And full year '26 also saw the successful launch and subsequent expansion of our services for FlixBus. We are now operating 11 routes for FlixBus using vehicles based across 7 of our depots. As you can see from the map, we have made significant progress in growing our depot and operational footprint in key markets.

Full year 2026 acquisitions included J&B Travel and Tetley's Coaches in Leeds and Hills Coaches in Wolverhampton, which have bolstered our position in 2 key regions that are transitioning to franchising. Post year-end, we have also completed 2 more acquisitions in Bristol and Doncaster, again, key markets for us. These are all well-established profitable businesses with a strong local relationships, and we maintain a strong pipeline of opportunities to grow our share of this attractive market.

Moving on to bus franchising. The addition of First Bus London has had a positive impact on our bus division, providing growth, diversification and the delivery of excellent operational performance. First Bus London contributed revenues of GBP 310 million in full year 2026, and we expect this to grow to circa GBP 350 million in full year 2027.

Looking ahead, the acquisition of RATP's U.K. sightseeing operations and its Wandsworth depot in December 2025 provides scope to grow our London route contracts over time. A number of regions have continued to progress bus franchising during full year 2026. We estimate that annual revenues of around GBP 1 billion are expected to be competitively franchised over the next 5 years. This includes Liverpool and West Midlands, where we don't currently operate and South Yorkshire, West Yorkshire and Wales, where we currently earn annual revenues of around GBP 250 million.

We are working alongside our local authority partners to support the transition to franchising demonstrated through the recent sale of depots in South Yorkshire and Wales. There's still some uncertainty over which franchising models will be deployed, in particular, around fleet and depot ownership. This could lead to potential CapEx savings and property disposal should authorities opt for an all-in ownership model. Our track record of delivering quality bus operations under contract in London and Greater Manchester leaves us well positioned to actively take part in franchising growth.

Moving on to conclude on bus. We continue to make strong progress, not only in the decarbonization of our fleet and infrastructure, but also in positioning ourselves to benefit from future adjacent revenue streams. Over 1/4 of our bus fleet is now zero emission, over 40% of our London red buses, and we have 4 fully and 17 partially electrified depots. We expect at least 4 more to be electrified this financial year, and we continue to roll out our First Charge brand with third-party charging underway at 15 of our depots.

Our accelerated decarbonization spend has helped to materially reduce our fleet age, facilitating lower levels of bus CapEx from full year 2028 onwards. Our leading credentials continue to be recognized with further co-funding secured in Scotland and the work we are doing in South Yorkshire to electrify 2 depots ahead of franchising.

Turning now to Rail on Slide 20. It's been a pivotal year in First Rail with the award of London Overground and the work completed to deliver capacity growth in open access. We've also made further progress in our rail services businesses, FCC, Mistral, Consultancy, all have delivered performance improvement during full year 2026.

Looking ahead and in line with government policy, the DfT train operating companies are moving to public ownership. Our SWR team worked tirelessly with the DfT operator to ensure a smooth transition with the business exiting the group on schedule in May 2025. GWR, as Ryan has said, is now set to transfer on the 13th of December 2026, and we anticipate that Avanti Coast will transfer around the end of full year 2027. GWR and Avanti West Coast have also performed well in full year 2026.

Moving on to open access. Open access revenues were up 3% on full year 2025 despite increased LNER capacity and more intense price competition after the December 2025 East Coast Mainline timetable change. Open access adjusted operating profit declined to GBP 26 million, wholly due to GBP 6 million of mobilization costs for our new Stirling to London Euston service and a GBP 2 million scheduled increase in Lumo's infrastructure charge. We're also seeing some impact as lower levels of consumer confidence affect leisure passenger demand. Despite that, seat mile utilization remained stable at 65% and well above the long-distance rail industry levels. Competition continues to provide great value for customers. And looking ahead, our attractive open access proposition will continue to attract demand.

Moving on to Slide 22. Growing our open access capacity remains a key priority for the group, and we're on track to more than double seat miles in the next 2 to 3 years. The chart sets out how we see this developing over the coming years, including the pipeline of applications currently being assessed by the ORR. We have committed significant investment to facilitate the growth of our open access services, including our circa GBP 500 million agreement for 14 new Hitachi trains. They're being manufactured in County Durham, securing the skills base and jobs in the local area.

Hull Trains and Lumo have demonstrated the benefits that Open Access can bring to the rail industry as well as the U.K. taxpayer. They drive economic growth without government subsidy, bring considerable private sector investment, pay for access to infrastructure and connect previously underserved communities.

As Great British Railways take shape over the next few years, we firmly believe there is a continued role for private sector operators in the future railway with fair competition bringing significant benefits to passengers through new sustainable fleet investment, affordable fares and much greater choice.

So moving on to Slide 24 to conclude. Our strong performance in full year '26 in a challenging economic and policy environment is a testament to the skill and commitment of all our people. Following a stronger financial outturn in full year 2026, we're on course to maintain adjusted earnings per share in full year 2027. The quality of our earnings base continues to improve as we grow and diversify our portfolio.

Looking ahead, we will remain focused on delivery as we position the group for sustained value creation and material returns to our shareholders. We continue to position the group as a leading U.K. transport company. We have the commitment, expertise, scale and financial strength to build active long-term partnerships that will create better transport services. The U.K. transport sector is clearly evolving and changing at pace.

Our strong balance sheet and capital allocation policy gives us the flexibility to take advantage of value-accretive growth opportunities in bus and rail. Our discipline will ensure we work to achieve the right balance between growth investment and returns. Thank you for your time this morning. It's much appreciated. We will now open for questions, firstly from the room and then from the webcast. Thank you very much.

It's Ruairi Cullinane from RBC. The first -- actually, I think they're all on bus. But firstly, on the expectation that bus CapEx moderates to GBP 80 million to GBP 100 million, should we think of that as a sort of sub-maintenance level? Would that imply an aging of the fleet? How should we think about that?

And then secondly, on the expectations that bus margins trend towards 8% to 9%. I suppose that would be impacted by franchising. You'd expect margins to be lower than that under franchising. So what have you assumed there in terms of the models or percentage of revenues that go that way?

And then finally, on bus passenger volumes, obviously encouraging that the trends have improved. Perhaps the concern may be that there was some help from higher fuel costs, encouraging people to switch away from cars. Now fuel is coming down again. Is that too negative? Do you think there's a sort of underlying improvement even excluding the fuel?

Okay. On fleet age, we've worked hard over the last few years to bring it down. We felt the business wasn't well enough capitalized 3 or 4 years ago, and we've made significant efforts to move that forward. We're comfortable with where we are at this point in time, and we will look to maintain that into the future. And we feel that the CapEx envelopes we're setting out will enable us to do that.

On bus margins, yes, clearly, I mean, we -- where we ended up at 7.1% this year was obviously lower than what we had done, but there's significant headwinds, and we're also growing rapidly. As we said before, the London bus story is a turnaround story, moving from loss-making contracts to profitable contracts.

And as we laid out before, that journey will take 3 years. The first year has gone exceptionally well. The team in London have done a really, really good job. And we expect that to continue to improve. So when you look at -- as the mix of the business changes, what we're really saying is some parts of our business will have higher margins in that range and franchising will obviously be lower in a capital-light model. And really, where it ends up will really be dependent on the mix of the portfolio.

What we're committing to, obviously, here is that there -- we still think there's continued growth opportunities. So I think we're in a position now where we can grow margin percentage, but also grow the revenue. So we think it's an attractive place to be.

And on volumes, I don't think we've seen any significant shift to bus over the last few months given the geopolitical situation. I think what we're seeing is really a cycling out of the impact of the shift to GBP 3 fare and a flattening off of the loss of discretionary volume that took place in a challenging economic situation for many, many people. So we're cautious at this point, but we have seen an improvement over the last few months.

Gerald Khoo from Panmure Liberum. Three on bus for me as well. What happens when the current GBP 3 fare cap expires? I think, correct me if I'm wrong, that runs until March next year. Should we expect another last-minute extension? Is this actually going to fall away? How do you position yourselves against that uncertainty? Is it actually better to get away from a series of short-term support mechanisms and sort of get back to normal?

Secondly, on Liverpool franchising, have you had any feedback in terms of your bids in the first tranche? What do you think the winners are doing that you're not? And finally, on Business and Coach, how big a portion of the business is FlixBus? And what opportunities are there for you to do more with them? Do you want to limit how big a customer they are given their ambitions, isn't there rather significant upside potential?

Okay. Great questions. On the fare cap, when it runs out in March 27, you probably have as much idea as I have, Gerald, as to what's going to happen. I mean we're seeing lots of -- the first point to note is that the relative levels of funding that we receive on the GBP 3 fare cap are very, very small, and they wouldn't be material. If they disappeared, it would clearly -- we would have to look at our commercial situation, but it wouldn't have a major impact on our business.

What we are seeing is lots of potential initiatives being slated in lots of different areas like GBP 2 fare cap in Scotland, for instance, under 22 free travel, child free travel, et cetera. So I think we lean in, and we have good relationships with government. We're in constant discussion around options and what might work, what might not work. So we will just lean into it. But the real point to note is the business is materially less dependent on that source of funding than it was a year or 2, 3 years ago. So it's more about finding the right initiatives that are good for the government, good for the public and that we can help support and facilitate. I think that's our approach there.

On Liverpool franchising, we got very detailed feedback on the first tranche from the combined authority, which was very helpful. The winners, it was very competitive from a financial perspective. We maintained our usual discipline that we were not the cheapest bid. And on quality, there was a high bar and high standards. So we know where we -- I'm not going to go into the details, obviously, commercially sensitive, but we know where the differences were, and we've had really good feedback from the local authorities. So we're obviously acting on that as we look into the second phase. But the key message is we're always going to be financially disciplined. We're not going to do franchising for nothing. So we'll see how it plays out. But a good experience and lots of great feedback.

And on Business and Coach, Flix is a very small part of that portfolio today. We're working really well with them. And we're very happy with the contracts that we've signed and how they're developing. And as you've seen how our depot footprint is expanding, that gives us lots of optionality. One of the reasons we began to put this portfolio together was that there would be additional benefits from having that network and Flix is a prime example. It's the first real prime example of seeing it.

And as we look at that platform, we're obviously going to look at technology and other options to make this a really attractive platform that's kind of well integrated. And we're on that journey. It's still early days. But as you can see from the revenue growth, it's a very fragmented market. There's a lot of contracts out there. And if you have good quality local relationships and good assets, then I think there's no reason why you wouldn't do well. So we're quite upbeat about the progress and obviously, a lot more to do.

Luka Trnovsek from Berenberg. So just 2 for me. So first on open access rail. You mentioned increased competition on the East Coast Mainline. Could you give us some color on how you maintain competitiveness and profitability in FY '27? And then just on free cash flow generation, you said you anticipate GBP 400 million of free cash flow over the next 3 years. Could you give us some color on the phasing of that GBP 400 million? And maybe how much you expect to spend on growth opportunities in proportion to that?

Okay. Great. Well, I'll take the open access rail and then maybe Ryan can go through the cash flow. I mean what's happened on the East Coast Mainline, obviously, with the December timetable change, one of the outcomes from that was additional hourly services on LNER from London to Newcastle. That effectively put in 1 shift 50% extra capacity into that market, which is very, very significant. And that has driven more intense price competition.

As you know, we run this business. We look at every service every day from 8 weeks out. And our whole ethos is seat mile utilization because we have a clear understanding of the utilization required to make a profit, and we work accordingly. So we've seen little impact on our volumes so far, and we've managed to maintain our seat mile utilization, which is good. But that's come at the expense of lower yields.

So what does that mean for us going forward? We have a very competitive platform. We have great people. We run a brilliant service, and we're a value player. So we will always look to fill our seats and make our profits that way. We think competition will -- at this level will continue for a while. But how sustainable that is when you're an organization that's running a public subsidy, I'm not sure. So we'll see. But I have no concerns about our competitiveness in open access going forward. We have a really, really good operation performing well.

And then on the cash flow, in terms of phasing of the GBP 400 million, I suppose you just kind of look at it in a few buckets. One bucket is the GBP 90 million we're expecting to get from the DfT train operating companies in terms of that cash flow over the next 24 to 36 months, that almost -- as that starts to decline, the level of investment in bus almost more than compensates for that as well as a continued improvement trend in bus profitability. So it's reasonably balanced.

The bus CapEx commitment for next year is slightly higher than our GBP 80 million to GBP 100 million guide in terms of more sustainable level in terms of stay in business CapEx, but that's primarily driven by success that we've had in accessing grant funding. So it's almost -- it's a fairly smoothish transition to the GBP 400 million. I mean the key point to note and I sort of touched on in the presentation is at the end of the 3-year cycle, it's not like we're kind of extracting cash out of the business. It's just simply the cash generation where we will still continue to invest. And so the quality of the business at the end of that is even better than when we actually start given the transition away from the DfT TOCs, if that makes sense.

And in terms of sort of capital allocation to growth, there's a number of acquisitions that we've got in the pipeline as a target. We're generally doing bolt-on acquisitions in bus between sort of GBP 5 million to GBP 10 million or so in terms of the scale of what we're investing. And we're deploying on average, if you sort of take out RATP London deal that we did in 2025, we're generally doing about GBP 20 million to GBP 30 million, and it really is opportunity led rather than us necessarily driving, and we've got quite a high bar from a return expectations. If we can't take the business forward from what we're doing, then we don't -- we won't do it. And arguably, the share buyback program gives us a decent amount to sort of flex against that to almost sort of keep us honest to ensure that we're investing wisely if that makes sense.

No more -- any more questions from the room? Gerald, come back for extras.

A couple of extra for me. On bus NPS, obviously, positive number, but slightly in a vacuum because no one else really does this, I believe. What's a really good number for you? I mean how -- where would you need to get to for you to feel that, that is -- that the NPS score was generating revenue?

And secondly, on open access, what do you think the time line is on deciding on your pending applications? I know that you've got assumptions about when those services start, but when do you actually think ORR is going to make a decision?

Okay. Good questions. Yes, no, it would be more helpful if we had more people publishing NPS scores. It's a tough measure, as you know. And my opinion, once you get north of plus 20%, you're in a strong kind of loyalty environment. And we've made really good progress over the last couple of years. And we have strong linkages between improvements in operational performance and what our NPS number is saying. So the read-through for us is the more reliability we have, effectively, the more relative effective cost base we have, the higher NPS, more revenues, and that's our read-through.

And my personal view, once we get north of plus 20%, I think we're in a good territory for the type of industry we are, given it's a high-volume dynamic almost 24/7 business. So I think the team have done a really good job, and we have an awful lot of detail here, and we're using it in terms of how we're making operational decisions on the ground. In terms of open access applications, without trying to overcommit, I think some of them are imminent. So I expect over the next couple of months, we will get an indication on quite a few of the pending applications.

Colin Smith from Capital Access Group. You mentioned, Ryan, that your ROIC was well above your WACC. I just wondered if you could comment about what you think the group's WACC is. And then in the context of the improving underlying business and the plan to reduce the overall level of dividend cover balanced with the increasing cash flow and the CapEx program that you set out, what's the thoughts about the way the balance sheet changes potentially to improve the overall cost of capital that you face?

I mean on the WACC currently, our calculations suggest it's sort of 8.8%. So delivering over 10% is substantially ahead of that, which should, in theory, mean that we're creating a lot of value for shareholders. I think at the outturn of the GBP 400 million of cash generation, I don't think that our balance sheet structure is going to be that different at the end of it than it is at the beginning. And clearly, the IFRS 16 leases in the train operating companies will be gone. I mean, in theory, if you look at the statutory measures for this last fiscal year, we've deleveraged by GBP 260 million, but it's not our risk of those contracts. It's for DfT account in terms of how those work.

So as those sort of cycle out because they're sort of counted into our ROIC and then replaced by our balance sheet, which doesn't have such a high level of lease, generating such a low level of margin in theory based on the earnings that we get out of the DfT TOCs, that should drive a substantially greater improvement in return on capital employed from an investment point of view. But overall, our leverage is sitting at sort of 0.6x adjusted EBITDA measure.

We kind of think that that's probably slightly too low. We'd be comfortable of being sort of at 1x in the current cycle. But we also want to maintain a strong balance sheet. So should there be something more meaningful that we can target from an acquisition point of view, provided we can kind of get the returns right, and it's a decent deal for our shareholders, then we've got the balance sheet capacity to be able to do that. And I think you had a question on sort of dividend cover.

Yes. Just -- I mean, obviously, dividend cover of 3, you're talking about bringing it down to 2.5. Sort of what's the thinking behind that? And how does it interrelate with the plans around share buybacks?

When we set out the policy a number of years ago, we only started paying a dividend of full year 2022. It was not that long ago after being out of the dividend for more than a decade. We indicated at that time that the policy was going to be progressive in quantity and progressive in policy. So sort of a double factor for us to sort of to use. And we haven't moved away from that.

Now we'd expect our dividend in terms of quantum to remain positive even if we go through a period of more static earnings per share like we've guided for this next year. So investors should expect to see a continued progress in that regard.

Okay. Well, look, thank you very much. Any questions on the webcast? Okay. That's great. Well, look, thank you for your time today. It's much appreciated, and thanks for all the great questions, and we move forward. Thank you very much.

Good morning, and welcome to FirstGroup's 2026 Half Year Results Presentation. In a moment, I will hand over to Ryan to take you through the financial performance for the first half of the year. I will then provide an update on business performance in bus and rail before we take your questions at the end.

Moving on to Slide 3. I'm pleased to report another strong half for the group despite several economic and policy headwinds. Strong execution has ensured that we've been able to fully counter the negative impacts of lower bus funding in England, above inflation wage pressures and higher levels of employer national insurance contributions.

Group adjusted revenue, which does not include the national rail contract revenues, where we take substantially no revenue risk has increased by 30% to GBP 834 million. This was largely driven by growth in First Bus due to the acquisition of First Bus London, which completed in February.

Adjusted earnings per share for the half year has increased by 16% to 9.9p, with earnings growth supported by the repurchase of circa 22 million shares during the period. As a result of our strong performance in the first half, the Board has proposed an interim dividend of 2.2p per share, up 29% against the prior year.

As a result of our continued strategic delivery and the restructuring of the business completed earlier this year, we are on track to deliver modest growth in our adjusted earnings per share for the full year. We expect to then at least maintain adjusted earnings per share in full year 2027 as both Avanti West Coast and GWR are nationalized. This leaves us well positioned for the remainder of the year. Our focus will continue on operational delivery and the successful execution of our U.K. growth and diversification strategy.

Turning now to Slide 4, which sets out some of the key highlights against our strategic framework. Delivering day in and day out remains a key priority for the group. We continue to drive operational efficiencies in First Bus with a 24% reduction in lost mileage to 1.3%. We have also increased our Net Promoter Score to plus 15 as service delivery remains core to our strategy.

We have also completed our business restructure to deliver annualized overhead savings of around GBP 15 million, which will help offset the impact of -- on the group of increased national insurance contributions. We will see the full benefit of the restructuring in the second half.

Looking at modal shift, generating additional demand for our service is a commercial driver of our business and also crucial for reducing congestion, improving air quality and supporting government decarbonization goals. In open access rail, our seat miles capacity utilization of 67% remains significantly above the industry average. And we've also secured Rolling stock for our new Stirling to London Houston service, which we expect to be fully operational in mid-calendar year 2026.

Turning to our sustainability pillar. We are at the forefront of bus fleet and infrastructure electrification and are working to capitalize on opportunities to unlock adjacent electrification revenue streams. In the first half, this has included the launch of First Charge and a small investment in Palmer Energy technology to bring battery storage capability to our sites.

We continue to diversify our portfolio with the First Bus London performing ahead of our expectations, and we continue to grow our business and coach asset footprint with high-quality value-accretive acquisitions. At open access rail, we were pleased to have been awarded Extra pass on our existing services and the extension of some of Lumo services to Glasgow.

We've also submitted applications for new routes, where we can commit further material investment and utilize our proven expertise to drive economic growth through connecting underserved communities. I will now hand over to Ryan, who will take us through the financial results for the half year.

Thank you, Graham, and good morning, everybody.

This has no doubt been a more challenging half year given the headwinds of inflation and national -- employers national insurance increases. However, the early actions that we have taken have helped mitigate some of these pressures and the group has continued to make progress across the business.

In my presentation, I'll be covering the following 3 areas: strong growth in adjusted revenue, the improvement in adjusted EPS with further progress on a much better balance of earnings distribution; and finally, reinforcing our capital allocation policy and our financial guidance for full year 2026 as well as full year 2027. So turning to the financial summary on Slide 6, where we have made progress across all financial KPIs despite the headwinds.

The group's adjusted revenue is up over 30%, driven by both organic and inorganic growth and decent performances across the business. The revenue improvements in bus and open access rail have largely been offset by inflationary cost pressures as well as the national insurance impact as well as business development costs in open access with the mobilization of our Stirling route, which is now underway.

As a result, group adjusted operating profit of GBP 103.6 million is up 2.8%. Our positive operating profit performance has benefited somewhat by the IFRS 16 adjustment in rail being lower given SWR ending, partially offset by higher net finance costs, resulting in the group delivering GBP 55.5 million in adjusted earnings, up 7.1%. The ongoing share buyback program has reduced the average share count. And as a result, the group's adjusted EPS has increased by 16.5% to 9.9p.

This robust underlying business performance and strength of the balance sheet has resulted in the Board proposing an interim dividend of 2.2p per share, an increase of 29.4%. The dividend is in line with the group's current progressive dividend policy of around 3x adjusted earnings per share with around 1/3 in the interim and 2/3 at the final.

The free cash flow generation before acquisitions and returns to shareholders has been impacted by the timing of a more material investment in bus electrification in the half year, and this is us taking advantage of the available government funding, resulting in an above-normal spend in the half year. The group's adjusted net debt position was GBP 207.6 million with a strong free cash generation offset by the accelerated CapEx as well as about GBP 10 million in acquisitions and GBP 76 million returned to shareholders through the buyback program and the final dividend for the year.

At the bus business, despite the material organic and inorganic growth investments in the year, the post-tax return on capital employed was 9.4%, which was impacted by the acquisition of the London business in February. And as expected, the profitability is initially lower from this business.

Turning to the 30% growth in adjusted revenue on Slide 7. The material increase in adjusted revenue has been mostly driven by the capital deployment in the second half of full year '25, with London in particular, performing well and is operating ahead of the investment expectations. The regional bus business passenger demand has ever been marginally weaker with a number of factors contributing to this, which Graham will cover later.

However, despite the marginally lower volumes, the bus business has been able to deliver some yield growth that has been partially offset by lower government funding. First Rail's open access operations delivered some revenue growth with this progress marginally impacted by the strike action that we saw in whole trains.

The Rail Services business also delivered a strong performance in the half year. And what is pleasing to note now is that more than 30% of the current contracted revenues are now with external parties, demonstrating the continued strong value creation from these businesses.

Looking at the 16.5% adjusted EPS growth on Slide 8. This chart shows our adjusted EPS progression on a post-tax basis for all the variances. Open access and rail services contributed 0.5p in growth, with this now at 3.6p of our EPS, representing a materially higher proportion of earnings in rail now from more sustainable business streams.

H1 has, however, had a marginal benefit from once-off rail center provision releases. First Bus increased operating profits contributed 0.2p to the improvement and central costs are 0.3p lower year-on-year, driven by the cost efficiencies and the group restructure executed earlier. Despite SWR ending in May 2025, the earnings from the DfT talks are 0.1p higher than the prior year, with the first half benefiting from once-off enhanced variable management fees as well as lower disallowable costs.

Interest costs were 0.5p higher due mainly to lower interest received on cash balances and the group now being in an adjusted net debt position. The buyback programs that have now run for several years has resulted in a lower number of average shares, and this contributed 0.8p per share. As can be seen, the work that we have been doing over the past few years, together with our disciplined capital allocation approach has grown our adjusted EPS to 9.9p per share. But equally as important, we are continuing to drive a far better distribution and the quality of our earnings as we look ahead.

Turning to the adjusted cash flow movements for the past 12 months on Slide 9. As a reminder, our adjusted measures excludes the ring-fenced cash as well as the impact of IFRS 16 from the DfT train operating companies. The group generated EBITDA of GBP 181.4 million before the DfT TOC cash inflows where we have received GBP 37.9 million in distributions.

Just as a reminder, these DfT TOC management fees are paid by way of dividends generally in the second half of the following year after completion of the top statutory audited accounts. Working capital was a net inflow of GBP 4.4 million in the 12 months, resulting in a total of GBP 223.7 million of capital generated from operations versus the full year of 2025 of GBP 207.4 million.

The capital generated was deployed in investing GBP 126.5 million in CapEx, net of grant funding and battery sales into the Hitachi strategic joint venture. GBP 6.5 million was paid in cash interest and tax, mainly relating to interest on the new finance leases and arrangements for the electric fleet in First Bus, offset by interest earned on the cash balances.

There was a nominal amount of cash tax paid with the low level of cash tax being driven by the historical losses as well as the accelerated capital allowances that should apply for several years given our decarbonization investment program. Other movements include payments to acquire shares for the Employee Benefit Trust that continues to hold around 20 million shares for share award settlements and small cash payments into the pension schemes, mainly to cover costs.

This has meant that the business has generated a total of GBP 78.3 million in cash despite the accelerated investment in electrification of bus. Just short of GBP 150 million was deployed in growth capital with the acquisition of RATP London for GBP 90 million being the major contributor to that as well as several bolt-on acquisitions in First Bus, mainly in the business and coach market, but also includes investment into several innovative energy businesses as well as combined with the 2 open access rail businesses with Stirling in mobilization phase.

GBP 37.1 million has been paid by way of dividends in the 12 months and GBP 99.1 million was spent on the share buyback programs. What is clear from the chart is that the group continues to deploy a very balanced approach to capital allocation, focusing on both organic and inorganic growth opportunities as well as meaningful returns to shareholders in line with our strategy.

This results in the group ending the half year with GBP 207.6 million in adjusted net debt and a debt cover ratio of 0.95x, which is well below our leverage policy parameters despite being a fairly busy 12 months, combined with a seasonally high level of adjusted net debt at the half year.

Turning to our capital allocation framework on Slide 10. As we look ahead, we have a leverage policy of less than 2x adjusted net debt to EBITDA. With our forecast year-end position being well below 1x, there's plenty of capacity for the U.K. growth for the right opportunities, where the post-tax IRR from these investments exceeds our WACC.

On an underlying basis, pre-deployment of capital for acquisitions, we expect to maintain our leverage below 1x for the time being. We have a strong focus on decarbonization in First Bus with the additional cost and efficiency benefit this brings, and we will continue to deploy capital in this area, particularly where this is supported by government funding to help deliver the U.K.'s wider decarbonization strategy.

At First Bus London, we continue to expect this business to be operating cash positive from full year '27 onwards, and we are very pleased with the business performance to date. For the DfT TOCs we now estimate that GBP 125 million will be received in cash from October 2025 onwards to the end of the contracts. And this includes the anticipated continued support as required under contract from the rail services businesses.

This is effectively higher than the GBP 120 million that we guided in June, due mainly to the longer-dated contracts agreed in rail services business, slightly better DfT TOC end dates and partially offset by the cash that we received in the first half of the year. Our current dividend policy remains around 3x adjusted earnings per share with this ratio and quantum being progressive over time.

And finally, in line with our disciplined capital allocation approach, the group is committed to any surplus cash that cannot be effectively deployed in growth will be returned to shareholders. Given the current adjusted net debt and the pipeline of U.K. opportunities that are currently being evaluated, we are not announcing an extension to the buyback program at this stage, and this will be reviewed again with the full year results.

To end with on Slide 11, looking ahead for the financial outlook for full year 2026 as well as adding in guidance now for full year 2027, given the transition of the remaining DfT TOCs at some stage within the next 12 to 18 months. The group expects to deliver modest growth in adjusted EPS for full year 2026 and then to at least maintain this level into full year '27 off a higher base.

The bus business anticipates making sequential operating profit progress year-on-year with growth being driven by the material change in the business following the acquisitions, including London, with bus now consisting of 3 strong business segments, delivering a combined annual revenue that's anticipated to be above GBP 1.4 billion for full year '26.

In First Rail, the open access businesses are anticipated to deliver results ahead of full year 2025, reflecting strong demand and yield management being offset by inflationary cost pressures as well as the costs for mobilizing the Stirling business.

The rail services businesses are expected to make progress year-on-year given the continued support provided to previous and existing DfT TOCs as well as growth in new customers. For the DfT TOCs, the fees are anticipated to be at more normal levels going forward and combined with SWR ending means that the underlying management fees will be lower.

The IFRS 16 positive impact to EBIT for the year is expected to be circa GBP 36 million in full year 2026. At the center, we anticipate costs to be circa GBP 8 million lower, benefiting from the central restructuring that was completed in the first half. Below operating profit, we anticipate incurring GBP 60 million worth of interest, of which GBP 34 million relates to IFRS 16 charges mainly due to the DFT rail leases.

We anticipate deploying a net circa GBP 180 million of CapEx in the First Bus after taking into account grant funding and the benefit of GBP 10 million cash from the Hitachi Strategic Battery partnership. This CapEx of GBP 180 million now includes GBP 30 million of CapEx in London for electric vehicles, where the group is trialing an outright ownership model rather than an operating lease model on a specific large route that commenced late in 2025 due to the operating margin benefit that the ownership model delivers.

The current level of CapEx in bus is above the expected normal levels given the success the business has had in accessing grant funding and annual CapEx is anticipated to be around GBP 100 million per annum as we look ahead, depending on the model that may be applied in London.

First Rail remains capital light, but with some investment expected on the inorganic growth in open access as we mobilize these routes. For the pensions escrow, we have now finalized the Bus Section 2024 triennial valuation. This resulted in GBP 20 million of cash being returned to the group in November with GBP 20 million paid into the scheme and the balance of GBP 43 million retained in escrow.

The escrow will be reviewed with the 2030 valuation, where a number of medium-term actuarial and asset judgments will be clarified in the scheme's performance. And when this is combined with the group section, it means that GBP 65 million is now in escrow that we will continue to explore derisking options that will be tested on the 2030 valuations.

We anticipate ending the year with circa GBP 125 million to GBP 135 million worth of adjusted net debt. And this guidance is before any further inorganic growth opportunities, where there's a decent pipeline in the U.K. that we continue to evaluate. As you can see, the group retains a very strong balance sheet position with a much improved quality of earnings trajectory where we expect modest growth in EPS for full year 2026 and then to at least maintain this higher level for full year 2027.

I'll now hand over to Graham for the business review.

Thank you, Ryan, for the update. Much appreciated. Moving on to Slide 13. It's been a solid half year for First Bus with operating profit growth of 4%, driven by yield management, cost efficiencies and the benefits of recent acquisitions. This has come in a challenging environment, where the transition to a GBP 3 fare cap in England resulted in lower funding levels, down GBP 17 million on last year. This, combined with related pricing activity and generally a softer economy has negatively impacted regional bus volumes.

Concessionary volumes are up 4%, but this has been more than offset by a 7% decline in commercial volumes, leaving overall volumes down by 4%. As well as the move to the GBP 3 fare cap, economic factors are impacting demand. It's worth noting that just over 40% of all bus trips are for shopping and leisure purposes and around 20% are for commuting, and we're seeing these journeys impacted by lower levels of consumer confidence.

To offset the drop in funding and softer demand, we introduced a new simple distance-based fare structure, resulting in a circa 10% yield improvement in the first half. Inflationary pressures remain with cost increases due to inflation of circa 3%, mainly in wages, where there was a 4% average increase in driver pay awards. We have now settled the majority of our largest bargaining units with 2-year awards achieved in most cases.

We have also delivered GBP 7 million of efficiencies through the electrification progress and overhead savings, including a GBP 2 million saving in fuel costs. We've also benefited from our new businesses in London and a business in Coach, where we also continue to extend and win value-accretive contracts. Adjusted operating profit margin of 6.1% after absorbing 1.4% impact from higher national insurance contributions. Regional bus operating profit margin was 8.2%, slightly lower than the prior year.

Moving now to Slide 14. The First Bus portfolio is evolving as we grow our business in Coach segment and develop our franchising capability centered on First Bus London and our operations in Rochdale. In Business and Coach, we are actively growing our operational footprint and asset base. In the first half, this included the acquisition of Tetley’'s Coaches, an established profitable operator with a large own depot in Central Leeds.

This segment's revenue grew by 30% in the first half due to contract wins and extensions, the launch of Flixbus services and the contribution of our new businesses, which are trading in line with expectations. This is an attractive market worth an estimated GBP 3 billion, and we have a strong pipeline of opportunities to further grow our market share.

The significant increase in our franchising segment's revenue reflects the addition of First Bus London, which contributed GBP 150 million in the first half. Thanks to our focus on service delivery to drive customer satisfaction and performance incentives, both our London and Rochdale franchise businesses consistently hold top positions in the operator league tables.

Looking ahead, a number of Merrill authorities outside London are progressing with bus franchising schemes. These include Liverpool City Region, West Yorkshire, South Yorkshire, Wales and the West Midlands, representing an opportunity for us to enter new markets. There is still some uncertainty over which franchising models will be deployed, in particular around fleet and depot ownership.

This could lead to potential CapEx savings and property disposals should authorities opt for an ownership model. Our track records of delivering quality bus operations under contract in London and Greater Manchester leaves us well positioned to actively take part in franchising growth.

And moving on to Slide 15. The electrification of our fleet and infrastructure is a key part of our strategy to transform our bus business and to unlock potential adjacent revenue streams. We continue to make good progress with circa 23% of our fleet zero emission with 3 fully and 17 partially electrified depots across the U.K.

As I flagged on a previous slide, we're benefiting from electrification efficiencies, including through fuel costs. This has led to a net fuel cost per mile reduction of 20% over the last 3 years. We're also making good progress identifying and capitalizing on opportunities to further monetize our electrification assets -- we recently launched the First Charge brand, giving access to chargers at 15 of our depots. We also made a small investment in Palmer Energy Technology to bring battery storage capability to some of our depots.

This included the launch of a battery energy storage facility in Holford, and we expect to launch a second facility in Aberdeen next year. Over time, this will drive further cost efficiencies and provide a potential platform for commercial second life use of bus batteries.

And now moving on to open access rail on Slide 16. Our 2 open access rail operations, Hull Trains and Lumo delivered adjusted operating profit of GBP 16.3 million in the first half. This is lower than the prior year with some impact from industrial action at Hull Trains and GBP 1.3 million of mobilization costs for our new Stirling to London Houston service.

Lumo saw strong demand during the summer months and Hull Trains had a good ramp-up in business traveler demand in September. Seat miles operate were 3% lower than the prior year, reflecting higher levels of engineering works on the East Coast mainline and industrial action. Seat miles utilization remains high for both operators and still well above the rail industry benchmarks.

Looking ahead, the mobilization of our new Stirling to London Houston service is progressing well, and we expect the service to be fully operational in mid-calendar year 2026. As you can see on the slide, we've set out our current rail open access seat miles capacity and how we see this developing over the coming years.

We were pleased to announce in July that the ORR had approved our applications for Extra Pass on our existing services from December 2025 as well as the extension of some of Lumo's services to Glasgow. These extensions will add an additional 118 million seat miles, a 13% increase to our existing capacity. This, together with our new Sterling and Carmarthen services will see us more than double our existing seat miles capacity over the next 2 to 3 years.

We've also launched a number of applications with the ORR. This includes services from Payton to London Paddington, Hereford to London Paddington, the extension of the Sterling track access agreement to December 2038 with the addition of new battery electric trains a revised Rochdale to London Houston application and an application for a new route between Cardiff and New York.

We've committed significant investment to facilitate the growth of our open access services, including our circa GBP 500 million agreement for 14 new Hitachi trains that are being manufactured in County Durham, securing the skills base and jobs in the local area. If our ongoing applications are successful, we will make use of our option to commit further investment in new Hitachi trains, representing a further U.K. manufacturing investment of around GBP 300 million.

And moving on to Slide 17. Our teams managing the national rail contracts at Avanti West Coast and DWR continue to focus on enhanced service delivery and effective cost management. Both teams are performing well and attributable net income from the national rail contracts has been in line with our expectations at GBP 15.3 million in the first half.

In line with government policy, the DfT train operating companies are moving into public ownership. Our SWR team worked tirelessly with the DfT operator to ensure a smooth transition with the business exiting the group on schedule in May. The dates for the transfer of Avanti West Coast and GWR have not yet been announced by the government, but are anticipated to be in full year 2027.

Our rail services businesses, FCC, Mistral and Consultancy continue to progress and perform well with revenue showing encouraging growth. Almost 1/3 of the current contracted revenues are now from external customers. We continue to look at opportunities to scale these businesses as we believe private sector expertise will continue to be vital to the success of the rail industry.

Moving on to conclude on Slide 19. Our robust performance in the first half and a challenging economic and policy environment is testament to the work we have done to transform, grow and diversify our business. We're on track to deliver modest growth in adjusted earnings per share for the full year, and we expect to then at least maintain adjusted earnings per share in full year '27 as we transition our train operating companies to the government.

In First Bus, we're an experienced operator with a large, well-capitalized fleet and a network of own depots that will allow us to continue to improve performance and to grow in attractive markets. The electrification of our fleet and infrastructure continues at pace as we look to unlock cost efficiencies and potential adjacent revenue streams. We will also be able to leverage these capabilities when bidding for new contracts.

In First Rail, we will continue to work to grow our open access capacity and revenues, look to optimize our rail services businesses and to bid for contracts where we can bring forward our experience and capability. In our remaining 2 DfT train operating companies, we continue to prioritize contractual and operational delivery together with the work required to ensure a professional handover to the DfT operator.

Our strong balance sheet allows us to evaluate a good pipeline of value-accretive U.K. growth opportunities. We remain committed to our discipline on capital allocation, and we'll continue to return any surplus cash to our shareholders. As a leading U.K. public transport operator, we have a critical role to play in the delivery of the U.K.'s wider economic, social and environmental goals.

We will continue to be proactive, demonstrate our strengths as an experienced partner, underpinned by our significant investment in growth and decarbonization. To close, the work we have done over the last few years has allowed us to maintain our positive earnings trajectory as the U.K. bus and rail markets partially transition to new models. We aim to continuously improve performance to drive more demand for bus and rail services and to capitalize on strategic U.K. growth opportunities.

Thank you for your time this morning, and we will now open for questions. We will take questions from the room first and then from the webcast.

Good morning, everyone. Gerald Khoo from Panmure Liberum. 3, if I can. Firstly, on bus franchising. You set out the regions that are moving towards franchising. I was wondering whether you could sort of quantify the sort of revenue opportunity and also what's potentially at risk in, I think, just West Yorkshire is the area that you're in amongst those.

Secondly, there's been quite a big increase in the CapEx guidance for the year, but not a very big increase in the adjusted net debt guidance. I was just wondering what the sort of reconciling item there is.

And finally, you talked about having a look at owning electric buses in London. I mean what are the challenges around that versus owning diesel buses in London? Is it -- is it significantly more challenging to cascade electric buses into the regions to on to other London bus contracts?

Thank you, Gerald. And it was good to see the question starting before I even sat down. So I'm very impressed. I'll maybe take the first one on bus franchising. Look, I mean, obviously, we are in West and South Yorkshire. So that's clearly a risk for us, particularly given how some of these bids are formed with the ability only to win certain depots.

But when we look at the opportunities outside, we kind of feel that we can balance the kind of risk/reward scenario here. And the fact that we've worked very hard to strongly capitalize our assets over the last few years with improved fleet, improved depot, I think it leaves us in a strong position in discussions with the local authorities in terms of how those assets are positioned and the future use within franchising.

So I'm not going to quote individual subsector numbers, but I think the general feeling in the team is that we will come out of this process. We're likely to release some capital from the business in the areas where we have strong asset base. And we feel we've got the qualities and the experience now within our business, particularly bringing in the London business and what we've learned from that to be competitive in the bidding process.

And obviously, that has started, the results of the first phase of Liverpool around the end of this calendar year. So we'll begin to get some insight as to where we stand in pretty short order. Ryan, do you want to take the second question on CapEx and net debt?

Yes. So CapEx is higher by GBP 30 million. It's primarily driven by us trialing the GBP 30 million, it's 59 EVs that we're trialing on a specific route in London, which is all electric that the business effectively retained and won that starts later this year. So the guidance is better than what we previously gave effectively with that sort of GBP 30 million going out and a couple of reasons for that.

1 is the GBP 20 million of escrow cash that's come into the business in the second half of the year as well as some underlying sort of cash -- stronger cash generation, particularly coming out of the rail business than what we originally anticipated. So a combination of those 2 factors offset against the CapEx in London is where the net debt guidance has ended being -- being slightly higher, but better off.

And just also a reminder, we deployed GBP 10 million in growth M&A in the first half of the year as well. So we've got GBP 40-odd million and GBP 20 million back on the pensions escrow, but our net debt is slightly better than that, obviously, mathematically.

And then on the bus ownership in London.

Yes. So the EVs in London, I mean the TFL is committed to electrification in London. I think that the sort of risk of transition of technology in terms of how these EVs work and the warranties that the OEMs are now providing has kind of gone beyond the kind of risk factor that you previously, I think, would have taken and hence, kind of moving those to operating leases.

I think the world is also moving to more post-IFRS 16 basis in terms of financial judgments. And I think there's quite a few bankers in the room. I think the banks eventually also start moving up to covenants to be sort of on a post-IFRS 16 basis. So your net debt to [ EBITDAR ] and your total cost of borrowing is going to be all kind of caught into one thing rather than just being simply off balance sheet.

And combination of sort of commitment by TFL to go to electric. So we always have a use for those buses one way or the other is a positive. Technology improvements on the OEMs in terms of length of warranty is a positive. And if we can use our strong balance sheet to effectively kind of fund our business model in London at our WACC of 9% versus the WACC of the ROSCOs, then which is much, much higher, then we can sort of, in theory, kind of capture that benefit and that capture of that benefit really kind of translates into slightly higher margins.

But we're just trialing this on a specific route. So we don't want people to think that we are just buying buses now in London. We're not going to uplease them. We're just trialing them on a specific route just to see that the kind of financial benefits are as we expect them to be over time.

Alex?

3 from me as well, please. Firstly, just in the remote possibility that the budget doesn't like the blue touch paper of the U.K. economy and the consumer still doesn't feel great on the 27th of September. If commercial bus volumes remain somewhat subdued and the trend you saw in the first half continues, what sort of levers have you got? Should we expect more mileage reduction there?

Secondly, if I can just elaborate on the bus franchising question. Manchester has obviously bought depots and fleet from previous operators. Birmingham has acquired a depot, look like they're going to buy more and fleet as well. What do you expect in the regions, where you think they may franchise? You talked about capital release. I don't know if you can quantify that at all.

And then finally, just on the rail services, it sounds like you've had a very positive outcome on those continuing for longer. What do you think the end game is? Should we expect government provision of these services or private? If it's private, is there actually an opportunity for you to increase your market share?

Okay. Thanks, Alex. Very comprehensive questions. I mean the budget, obviously, when you look back a year, we obviously had to deal with national insurance contributions. I think the team worked very hard to manage that. The reality is when you're running a large business, you don't always deal with these issues in a 3-month period.

So the reality is it's probably taken us right through to the end of the half year to do all the work that we wanted to offset those increased costs, and we will now see that in the second half. When we look at this budget, again, we will just deal with what comes our way. I mean, on volumes, we began to see volumes begin to -- this time last year, we were talking about volumes being up 4%.

So clearly, there's been a number of impacts that have affected them. But we did see them begin to drop off in the January to March period and have largely been around the 4% level since then. We begin to cycle that effect out in January this year. And we're obviously working with various initiatives to stimulate more demand as well, including having put more frequency on in some of our larger urban areas to try and stimulate more demand.

So we -- it's difficult to gauge, where volumes will be next year. But we still have population growth. We still have some macro tailwinds. So we do think it will settle down a bit, but we're prepared to deal with it, if we see softer volumes next year. So it's hard to call, but I do -- we do expect some improvement from the current level.

In terms of bus franchising, yes, I mean, we have seen the signal from a number of areas that they want to own depot fleet in total. But we have also seen discussions around potentially a split fleet in certain areas given the lack of available funding to do the whole thing. So I don't think it's clear how that will completely play out. A lot of it will be down to choices at a Merrill authority level as to where they invest their money.

I think the fact that we have a well-capitalized business is helpful. And also, we have available capital if the opportunity arises. So I think we'll lean into each individual situation as it kind of prevails. And as I said, if in Western South Yorkshire, they're looking at an ownership model, certainly the depots and maybe partially for the buses, then we're in a strong position to work with them to make that happen.

So yes, so I think relatively positive in our ability to work there, but it's very hard to call out numbers because these are active negotiations, and they're not concluded at this point. I think then on rail services, the team have done a good job. There's no doubt about that. And we provide some high-quality expertise into the train operating companies, and we've been able to broaden some of these services beyond our -- obviously, into the external market, which is a positive.

It's difficult to fully assess where GBR will go. But it's -- the reality is they may bring some in-house. They may combine and consolidate and look for 1 or 2 private sector partners. And at the end of the day, our job at the moment is to provide quality services, put good contracts in place, and then we'll respond to how the market evolves. But I think we have optionality here. And within the number, the GBP 125 million of cash receipts, that includes an assumption of how much rail services cash will be there.

And we're more than comfortable with giving that guidance at this point. So evolving area. But since we last spoke, we have a better contract position now than we would have had 6 months ago, and that's encouraging.

Good morning. It's Ruairi Cullinane from RBC. The first question, I think the M&A was described as a U.K.-focused growth strategy. Should we infer from that, that you're likely to continue primarily buying businesses in the U.K.? And is there still a reasonable pipeline of opportunities there?

Secondly, I was quite struck that bus CapEx could normalize towards GBP 100 million in the medium term. Is that -- does that come back to the shift to franchising and then more regions opting to own assets?

And then finally, what have you assumed in terms of the timing of the exit of the remaining talks in terms of the upgrade of the cash inflow from DfT TOCs from GBP 120 million to GBP 125 million?

Okay. Thanks very much. On M&A, we are solely focused at this point in time on our U.K. pipeline of opportunity. We've been able to do over the last 18 to 24 months, 7 or 8 acquisitions. And we have a pipeline that at the moment that's made up of live opportunities under discussion and some more medium-term opportunities that we feel could come to the market.

So our job right now is to run down those opportunities. They're a good fit with the strategy of the business in terms of more growth in bus and the potential to obviously completely optimize what's there on open access. So we feel there is enough there to have a strong growth story around bus and open access rail for the next 2 to 3 years.

We -- as I've said before, we -- given the type of organization we are, stuff comes our way to assess and look at. So we will continue to look at opportunities outside the U.K., but we have absolutely -- at the moment, that's really just from a kind of good corporate citizen perspective. We are solely focused on driving and delivering the U.K. pipeline we have. And until that pipeline weakens, we have no real intention of looking elsewhere. Bus CapEx, Ryan, do you want to maybe take that one?

On the CapEx, there's a number of sort of variables on that. One of them being, obviously, as we transition towards franchising some of the markets, our own fleet in terms of our regional bus operations will be slightly smaller as a result of that. Now I kind of spoke a little bit earlier in one of the questions in terms of is it going to be depots and buses owned by the combined authorities or whether we can have a partner ownership.

Now clearly, we're going to have to own the buses under that scenario, then clearly, the CapEx number will be higher, but that should then be reflected in the margins that those bids will go for in terms of cost of capital pricing. So that GBP 100 million kind of doesn't include the fact that we might have to buy buses under the franchising model, and we'll obviously update the market as and when that happens in terms of how the structure is going to end up.

The other factor is that we've got a lot more confidence now on the electrification of our existing diesel fleet in terms of transitioning it from being a diesel fleet to an electric bus by just doing the -- putting in an electric drivetrain and battery. Normally, with the diesel bus about midlife, they'd have a massive engine replacement and a big refurbishment. And that happens instead of putting a diesel engine back into the bus, we're now putting in an electric drivetrain as well as the batteries. And that then gives us a sort of more limited amount of CapEx that we need to then spend to be able to electrify those fleets.

And so that's -- I think we've got sort of 40, I think, in operation now, [ Janet ], I think from 30 in operation already, and we've got a sort of an investment in a business called KleanDrive, which is another one of these sort of adjacencies where we're trying to use our sort of scale and expertise to be able to help monetize the benefit of being a leader in this electrification journey for large fleets.

And it's those sort of factors combined means that our overall CapEx, therefore, should be a lower number on a go-forward basis. But clearly, in the shortest term, whilst we've been successful in accessing government funding, which is very important to us in order to be able to continue this accelerated journey, then that CapEx level is generally higher. And you can see it from our average fleet age being down sort of just over 8.8 years currently versus starting out 11 years as early as 4 years ago.

And then on the TOC access, I mean, as we said during the presentation, we expect both of them to be transferred by the end of full year '27. Nothing has been announced by the government, but that's a kind of working assumption at this point.

And as Ryan said, on the kind of cash upgrade number that we put out there is really a function of better operating performance and a little bit more longevity on some of our contracts, which is a positive. And I think it is worth saying as well that the operational performance, particularly Avanti in terms of what they can control outside of infrastructure failures has been very, very good.

It's a significant step forward over the last 12 months and all credit to the team performing well above the industry averages on those metrics. So in terms of cancellations. So that obviously has a benefit as well in the short term. So I think general, just improved performance and contract longevity is really what's driving that upgrade.

Any further questions in the room? Okay. Any questions on the web?

Currently no questions on the webcast. So I'll hand back for closing remarks.

Okay. Well, look, thanks, everyone, for coming along today, and thanks for all the questions. It's been fantastic to deal with them. And then look, the company continues to push forward and grow its key financial metrics, and we intend to continue doing that. So thank you very much for your time today.