Closing of the Acquisition Further to the announcement made on 28 September 2007, First Student is pleased to announce that the closing of our Acquisition of Laidlaw International, Inc. is taking place during US business hours today and accordingly, we expect the Acquisition to become effective later today. We will issue a further confirmatory announcement at that time.
US Antitrust review process As a result of the US Antitrust review process we have agreed to a package of remedies resulting in the divestment of some 800 yellow school buses out of a combined total of 62,000. As part of this agreement, further limited divestments or contract terminations may occur. A number of potential antitrust issues were addressed through the outcome of the most recent school bus contract re-bid cycle where, as we anticipated, we experienced some contract attrition due to the Acquisition. The current aggregated impact of these outcomes represents 3% of the school bus fleet of the combined business. The overall resulting financial impact is significantly less onerous than the original assumptions made by us at the time of our announcement of the Acquisition on 9 February 2007 (the “Acquisition Announcement”)
Funding The terms of our financing arrangements for the Acquisition were fixed at the time of the announcement of the Acquisition. At that time we expected to effect a further equity issue shortly following completion of the Acquisition.
Strong cashflows within Laidlaw since that date have reduced the level of debt required to finance the Acquisition and have effectively reduced the consideration to $3.4 billion. This, combined with strong cashflows in First Student, have led to a lower level of net debt for the combined group and consequently no further equity issue will be required as part of the Acquisition or is currently planned. We expect that the Group’s credit rating will remain investment grade.
Integration update We have made good progress with integration planning, within the parameters of the antitrust process, and have established a strong, experienced management team for the enlarged business comprising both former Laidlaw and First Student management. Dean Finch is seconded to the US to lead all aspects of the integration and the day-to-day operations of the combined business. As announced at the time of the Acquisition, we have commenced a strategic review of Greyhound and with effect from closing of the Acquisition will have full access to the business to enable that review to be completed.
Trading Update The Group reports on trading for the six months to 30 September 2007 ahead of a conference call with analysts.
We are pleased to report that the Group has made a good start in the first half of the year, in line with management expectations, with a good performance delivering strong cashflows and an improved Group operating margin.
UK Bus Our UK Bus division has delivered a strong performance during the period with passenger volume and revenue growth. This together with our initiatives to tightly control costs have delivered an improvement of over 1% to the operating margin. We continue to focus on improving service quality through investment in people and vehicles. We are pleased to report that operating performance has continued to improve during the period with further encouraging trends including lost mileage now below 1%.
UK Rail Strong revenue growth continues to be a feature across our UK rail operations. Passenger revenue growth has increased by over 9% on a like for like basis (six months to 30 September 2006) and this trend has accelerated in the second quarter. We continue to make investments in our rail division that will deliver improved services for passengers. At First Great Western we have made good progress on a significant programme of investment to refurbish our High Speed Train fleet, which will deliver capacity and performance uplift to that franchise. We are on course to fully complete the refurbishment by early 2008. Across our rail portfolio performance has continued to improve, this together with capacity and service enhancements will provide further prospects for future growth . In December our First TransPennine Express franchise will commence operation of Anglo Scottish rail services which will contribute some £10 million of additional revenue.
North America In North America our operating margin has remained stable, despite some fuel cost pressure during the period. We maintained our focus on rigorous cost control and productivity improvements. We have made good progress with our programme to install GPS equipment to our existing fleet that will deliver safety improvements and increased efficiencies. Our Transit division has successfully renewed a significant contract to provide transit services in Houston.
Laidlaw Overall trading at Laidlaw International, Inc. remains in line with their management expectations. Education Services continues to deliver good revenue growth and an improved operating margin. Volumes at Greyhound are beginning to recover as a result of passenger growth initiatives. In addition, cost control measures implemented during the period have had a positive effect.
The Group The Board remains confident of the prospects for the Group in all markets in which it operates and its continued strong cashflows. We have established a leading position in the UK and North American markets and a firm platform on which to deliver further profitable growth.
The Group will announce interim results for the six months to 30 September on Wednesday 7 November 2007.
A conference call for analysts will be held at 12 noon BST on Monday 1 October 2007. If you wish to participate in the conference call please contact Zoe Shaughnessy at First Student: Tel: +44 207 291 0507 or +44 207 291 0512.
A presentation will be available to download at www.First Student.com prior to the conference call.
Contacts: Rachael Borthwick Group Corporate Communications Director Tel: +44 7771 945432 (US business hours) Malcolm Moir J P Morgan Cazenove Tel: +44 207 588 2828