FIRSTGROUP PLC
STRATEGIC decarbonisation PARTNERSHIP WITH
Hitachi
FirstGroup
plc (the `Group') is pleased to announce that it has agreed a
strategic partnership with Hitachi as part of the Group's bus fleet
and infrastructure decarbonisation programme. The partnership will
provide the following:
-
a newly
formed 50:50 joint venture, NextGen AssetCo Limited (`NextGen'), to
purchase up to 1,000 electric bus batteries valued at c.£100m, as
part of First Bus's expanding electric bus fleet;
-
an
anticipated contribution to the Group's adjusted earnings of c.£3m
per annum by FY 2026 before any potential operational
benefits;
-
a c.£20m
saving in the Group's FY 2024 capital expenditure, combined with
future savings of c.£40m to FY 2027; the Group now anticipates an
FY 2024 year end adjusted net cash position of £40-50m.
The key
terms of the strategic partnership with Hitachi ZeroCarbon Limited
(`Hitachi ZeroCarbon') include:
-
an option
for the Group to participate, via a small minority interest, in
future value creation through the deployment of Hitachi
ZeroCarbon's decarbonisation solutions to commercial fleet
operators worldwide;
-
the
batteries will be leased from NextGen to First Bus over an initial
eight-year period, at an underlying debt finance rate in line with
the Group's borrowing rate, with the potential to extend the lease
by a further two years at zero cost depending on battery
capacity;
-
the Group
will retain 75% of the residual value of the batteries at the end
of its bus useful life, with material second life value
opportunities given that the majority of the battery's capacity
remains;
-
the
provision of Battery and Charging Management Services (`BCMS') by
Hitachi ZeroCarbon for 1,000 buses powered by the new batteries as
well as a further commitment of 500 vehicles beyond FY 2026 as part
of First Bus fleet decarbonisation;
-
the BCMS
services will ensure efficient energy utilisation, maximise battery
health and residual value and potentially extend battery bus useful
life for a further two years beyond the OEM warranty
period.
Graham Sutherland, FirstGroup Chief Executive Officer
said:
"The
pioneering alliance with Hitachi is a major strategic partnership
for the Group as we progress towards our ambitious 2035
decarbonisation target for our bus fleet. It will allow us to
continue the electrification of our fleet and depots with increased
efficiency and greater visibility of our financial commitment, and
unlike other possible arrangements, we will retain much of the
residual value in the batteries as they are taken off our buses.
Looking ahead, we are also excited about the possibilities for
future value creation as Hitachi ZeroCarbon delivers market leading
decarbonisation solutions to transport operators worldwide,
leveraging our joint experience."
Alistair Dormer, Executive Vice President and Executive
Officer, General Manager of Green Energy & Mobility Strategy
Planning Division, Hitachi Ltd. said:
"Hitachi
is committed to becoming a climate change innovator. We
continuously strive for growth through collaboration and
co-creation with our partners and customers, and this specific
partnership enables us to use our innovative technologies and
global expertise to help decarbonise fleets efficiently, discover
untapped revenue streams and maximise the residual value of assets.
I'm delighted we've successfully grown our existing relationship
with FirstGroup, which will further add to our decarbonisation
experience and combined learnings, in developing solutions for
transport operators globally."
Notes
to Editors
The
strategic partnership with Hitachi for the electrification of the
First Bus fleet builds on the existing strong relationship the
Group has with Hitachi in its First Rail division where Hitachi
supply and maintain the electric trains for Hull Trains, Lumo and
some of the management fee-based train operating companies.
Increasing modal shift from cars to public transport powered by
sustainable energy is a key component of the Group's
decarbonisation journey. It is estimated that taking 1,500 diesel
buses off the road and replacing these with electric buses could
save c.84,000 tCO2e a year1.
The newly
formed 50:50 joint venture, NextGen, will purchase up to 1,000
electric bus batteries valued at c.£100m which will be installed on
First Bus's expanding electric bus fleet. Both the Group and
Hitachi have each committed a cash investment of £10m into NextGen,
with the remaining investment to be funded by debt.
It is
anticipated that the first c.400 of the 1,000 batteries to be
purchased by NextGen will be deployed to First Bus in FY 2024, with
the remaining c.600 batteries to be deployed over the following 24
months. The batteries will be leased from NextGen to First Bus (via
another wholly-owned Group subsidiary, FirstGroup Energy Limited)
over an initial eight-year period on an operating lease basis, at
an underlying debt finance rate in line with the Group's borrowing
rate, with the potential to extend by a further two years beyond
the OEM warranty period at zero lease cost depending on battery
capacity.
The Group
anticipates a c.£20m capital expenditure saving in FY 2024, with
further savings totalling c.£40m over the subsequent months, as the
batteries are acquired as part of the electrification of the First
Bus fleet, partially offset by the lease costs referenced above.
The Group now anticipates an FY 2024 year end adjusted net cash
position of £40-50m.
Once these
batteries have been removed from the bus fleet, the Group will
retain 75% of any residual value of the batteries providing
significant upside exposure from material second life value
opportunities, given that the majority of the battery's capacity
remains at the end of its bus useful life. Opportunities include
the redeployment of batteries for energy storage or alternative
commercial use, and ultimately recycling to extract valuable metals
for sale on secondary markets.
Under the
BCMS agreement, Hitachi ZeroCarbon will provide a range of services
including charger management services and battery health monitoring
and reporting. This will allow the Group to optimise battery
efficiency and cost, potentially resulting in materially lower
future capital deployment by extending the batteries' useful bus
life beyond their initial eight-year OEM warranty periods, at zero
lease cost. This may also enhance the batteries' residual value due
to the batteries being in better health. The Group also anticipates
a reduction in electricity consumption through smart charging and
dynamic energy management specific to the operating requirements of
each individual bus.
The Group
will also have an option to participate in future value creation
via a small minority interest in Hitachi ZeroCarbon, through the
development and provision of Hitachi ZeroCarbon's market leading
decarbonisation solutions to transport operators worldwide, aided
by its learnings from working with First Bus. These solutions
include Charging Management Services, Battery Management Services
and Telematics Services for operators of buses, commercial
vehicles, HGVs and trains.
The
Group's £10m investment in NextGen will be classified as "Joint
Operations" per IFRS 11, with a requirement to proportionately
(50%) consolidate NextGen financial statements. NextGen is a
wholly-owned subsidiary of NextGen MidCo Limited, which in turn is
owned by Hitachi and the Group on a 50/50 basis.
The
investment in NextGen is expected to result in an anticipated
contribution to Group's adjusted earnings of c.£3m per annum by FY
2026, before any potential operational benefits generated through
battery efficiency, extended battery life and residual value. In
addition, the Group expects a material benefit to cash flows
through a reduction in capex, both from the joint venture as well
as the potential extension of the battery useful life delaying the
need for replacement. Any participation in Hitachi ZeroCarbon value
creation will be reflected as a financial asset on the balance
sheet, with any fair value movements recognised in the Profit and
Loss Account.
1 Source:
Hitachi research, based on First Bus annual bus mileage and vehicle
type assumptions, Low Carbon Vehicle Partnership Euro VI diesel
vehicle efficiency data
(https://www.zemo.org.uk/assets/reports/LowCVP%20LEB%20Guide%202018%20V2.pdf)
and UK Government fuel emissions data (https://www.gov.uk/government/publications/greenhouse-gas-reporting-conversion-factors-2023)
Legal
Entity Identifier (LEI): 549300DEJZCPWA4HKM93. Classification as
per DTR 6 Annex 1R: 3.1.
Contacts
at FirstGroup: Contacts
at Brunswick Group:
Marianna Bowes, Head of Investor
Relations Andrew
Porter / Simone
Selzer
Stuart
Butchers, Head of Corporate Communications Tel:
+44 (0) 20 7404 5959
corporate.comms@firstgroup.co.uk
Tel: +44
(0) 20 7725 3354
Contacts
at Liberum Capital Limited: Contacts
at RBC Europe Limited:
Nicholas How / John
Fishley James
Agnew / Jack Wood
Tel:
+44 (0) 20 3100 2000 Tel:
+44 (0) 20 7653 4000
About
FirstGroup
FirstGroup
plc (LSE: FGP.L) is a leading private sector provider of public
transport services. With £4.8 billion in revenue and around 30,000
employees, we transported more than 1.8m passengers a day in 2022/23. We create
solutions that reduce complexity, making travel smoother and life
easier. Our businesses are at the heart of our communities and the
essential services we provide are critical to delivering wider
economic, social and environmental goals. Each of our divisions is
a leader in its field: First Bus is the second largest regional bus
operator in the UK, serving two-thirds of the country's 15 largest
conurbations with a fleet of more than 4,500 buses, and carrying
more than a million passengers a day. First Rail is the UK's
largest rail operator, with many years of experience running
long-distance, commuter, regional and sleeper rail services. We
operate a fleet of more than 3,500 locomotives and rail carriages
through three management fee-based train operating companies
(Avanti West Coast, GWR, SWR) and two open access routes (Hull
Trains and Lumo). We are formally committed to operating a
zero-emission First Bus fleet by 2035, and First Rail will help
support the UK Government's goal to remove all diesel-only trains
from service by 2040. In February
2023 FirstGroup was named as one of the world's cleanest 200
public companies for the fourth consecutive year by sustainable
business media group Corporate Knights in partnership with US
not-for-profit organisation, As You Sow. We provide easy and
convenient mobility, improving quality of life by connecting people
and communities. Visit our website at www.firstgroupplc.com and
follow us @firstgroupplc on X.
About
Hitachi ZeroCarbon
Hitachi
ZeroCarbon is a subsidiary of Hitachi Ltd. Its mission is to
provide innovative end-to-end solutions to decarbonise commercial
vehicle fleets globally, helping them to accelerate electrification
and sustainability, reduce battery risk and total cost of
ownership, and generate new revenues.
Through
data analytics and digital optimisation technologies, Hitachi
ZeroCarbon provides a platform to optimise battery performance and
life, charge Electric Vehicle fleets and decarbonise sites and
depots through a Battery Charging and Management-as-a-Service
model. Hitachi ZeroCarbon's solutions are designed to meet the
unique needs of commercial vehicle fleets, offering a range of
charging options that maximises fleet efficiency and minimises
costs. In addition, leveraging Hitachi's global reach and industry
experience, Hitachi ZeroCarbon can provide battery financing
solutions to help accelerate electric fleet transition, reduce
capital expenditure, and maximise the residual value of assets.
Further information can be accessed on the Hitachi ZeroCarbon
website at
https://zerocarbon.hitachi.com.
The
contracting entity for Hitachi is Hitachi Rail Limited, a wholly
owned subsidiary of Hitachi Group.