FirstGroup plc (FGP) Earnings Call Transcript & Summary

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.