Good morning, and thank you for joining us. Welcome to the Presentation of FirstGroup Plc's FY 2024 Half-Year Results. Presenting today are Graham Sutherland, Chief Executive Officer, and Ryan Mangold, Chief Financial Officer. All participants will be in listen-only mode during the presentation.
Afterwards, there will be a question and answer session, in which registered attendees may ask questions by raising their hands on the Zoom app or website. Just to remind you, this event is being recorded and will appear in due course on the firstgroupplc.com website, where you can also find today's presentation slides and other materials. I will now hand over to Graham.
Thank you. Good morning, and welcome to the FirstGroup 2024 Half-Year Results Presentation. In a moment, I will hand over to Ryan to take you through the financial performance for the half year, after which I will provide an update on the business performance in bus and rail, and also on our key priorities, before we take your questions at the end.
Let me start by saying that we have delivered another strong set of financial results in half-year 2024. All key financial metrics show significant growth over the prior year, despite the challenging economic and industrial relations environment. Group adjusted earnings per share at 8.1 pence has increased by 76%, from 4.6 pence per share in the prior year. This has been driven by strong financial performance across all areas of the bus and rail businesses.
We also finished the half year with adjusted net cash, GBP 77 million, which was up from GBP 7 million at the half year in 2023. First Bus continues to make very good progress, with operating profit margin at 7.1%, up from 4.8% in half year 2023. This leaves us well positioned to deliver on our commitment of a 10% operating margin, and we expect to see continued improvement in the second half of the year.
We have also recently entered a strategic partnership with Hitachi, which will help optimize our position in the decarbonization value chain and support bus operating margin improvement over time. In First Rail, we've had an excellent start to the year, with good execution on our national rail contracts and continued better than expected performance at our Lumo and Hull Trains open access operations.
Our strong balance sheet and disciplined capital allocation policy has been maintained. This has facilitated the declaration of an interim dividend per share of GBP 0.015, up from GBP 0.009 per share in the prior year. We've also continued our share buyback programs, returning GBP 67 million in the period.
Our strategy continues to deliver as we focus on continuous improvement in operational performance, driving modal shift and demand for our services, diversifying our portfolio to increase resilience, and to focus on growth opportunities, and leading on decarbonization in public transport. We believe that continued focus on these priorities will deliver value to our shareholders. I will now hand over to Ryan, who will take us through our financial results.
Thank you, Graham, and good morning, everyone. This has been another period of strong financial delivery, despite the macro and economic headwinds faced during the period. In my presentation, I'll be covering the following three areas: the strong progress in the financial performance across the group, the significant de-risking of pension liabilities, and finally, the guidance for the remainder of full year 2024.
Turning to the financial summary on slide five. With the half year period being 30 September versus the prior year of 24 September, at Bus, there is an extra week in the period that has a minor benefit in the current year on the reported numbers. For the half, the group's continuing business revenues are flat year-on-year.
As passenger demand improved, net fare increases and yield management were implemented in bus and open access rail, combined with adjacent revenue growth, were offset by lower government grant funding as passenger volumes continued to recover, as well as the lower revenues in the management fee TOCs, where the TPE contract ended in May.
Given we take limited revenue risks on the management fee TOCs, the revenue improvements in bus and open access rail have only been partially offset by cost increases, and this, combined with higher variable fees at the management fee TOCs, resulted in the adjusted operating profit for the group at GBP 106 million, up 52% year-on-year.
We have simplified the adjusted earnings measure that excludes adjusting items and now also removes the net impact of IFRS 16 at the management fee TOCs, given that we take no cost risk on the lease contracts. The positive business performance has also benefited from lower net finance costs, but has been impacted by the higher corporation tax rate, resulting in the group delivering GBP 36.5 million in earnings, up 66%.
Adjusted EPS were 8.1 pence, up 76% from the prior year, with the current year benefiting from the impact of the reduced number of shares in issue from the share buyback program that commenced in December 2022, where circa 10.5% of the shares in issue have been acquired by the period end.
This robust underlying business performance and strength of the balance sheet have resulted in the board declaring an interim dividend of GBP 0.015 per share versus GBP 0.009 in the prior year. This is in line with the current dividend policy of three times adjusted earnings.
Going forward, given the progress that we have made with the share buyback, the progressive dividend cover ratio will be applied against our adjusted EPS measure in determining the dividend per share. The adjusted net cash for the group ended the period at GBP 77.1 million, versus a net cash of GBP 7.3 million in the prior year.
With the strong underlying cash generation from the business, the proceeds from the Greyhound property sales in the second half of the prior year, and the part receipt of the Transit earn-out in the current year, being partially offset by capital deployment in the business and returns to shareholders.
Turning to the bus performance on slide six, where the bus is demonstrating progress towards the 10% margin target. Bus revenues were up GBP 77.2 million, or 18%, with higher commercial and adjacent services revenue growth only partially offset by lower government revenue grants, where these were down GBP 19.2 million.
The increase in revenue has been underpinned by solid passenger demand growth, as well as continued expansion into the B2B market and contract market in both organic and inorganic growth, where revenues from these segments have grown 80% year-on-year to GBP 116.2 million in the half year.
This growth has either benefited from strong demand in rail replacement, particularly at TPE, where we don't expect this to continue at this elevated level. If you look at this at a trailing 12-month basis, the bus business is now effectively a GBP 1 billion business that has demonstrated substantial growth over the past few years. Passenger volumes were up 12% to 210 million, with 84 million miles being run, which is down 3% year-on-year.
The mileage and passenger volume statistics include Scotland East to the point of sale and Southampton to the point of closure during the prior year. The network realignment to better match demand, combined with passenger volume growth, has meant that passengers per mile have increased by 16%, and this operational leverage is a key driver of profitability improvement.
The strong revenue growth has either been partly offset by underlying inflationary cost increases of roughly circa 7% on the inflationary cost base, particularly in driver wages. Our fuel hedging policy has provided protection against the year-on-year increases in fuel costs, and looking ahead, 62% of full year 2025 and 17% of full year 2026 has been hedged, with our electricity hedging program reflecting similar coverage. Details of both fuel and electricity hedging are included in appendix to the presentation.
As a result, Bus delivered an operating profit of GBP 36 million at a margin of 7.1% versus GBP 20.7 million at 4.8% in the prior year. The sequential margin improvement to 7.1%, that is up 2.3 percentage points year-on-year, reflects a decent trend in what is a seasonally lower first half and good progress towards our 10% margin target.
Turning to rail on slide seven. The rail business continues to deliver strong financial performance in the period, with reported adjusted operating profit up GBP 21.6 million. For the management fee TOCs, these delivered an attributable net income of GBP 23.2 million after tax and non-controlling interests, up GBP 4.1 million in the prior year, with progress across all franchises.
These results benefited from stronger actual performance scores in full year 2023 than was initially approved that have been recognized in the period. As a reminder, the performance fee element is generally predicated on delivering an on-target performance that reflects 65% of the fee potential. Going forward, we expect the accounting for performance fees to be more stable, given how the scoring has changed that Graham will cover later in the presentation.
T he Open Access businesses made a combined operating profit of GBP 15.7 million in the period, up GBP 9 million, driven by continued strong demand in yield management, only partially offset by cost inflation. We expect the growth in demand and yield for these services to continue, with this partially tempered by cost increases, particularly access charges at Lumo that are now in effect following the launch in 2021.
The additional services in rail delivered an operating profit of GBP 6.4 million in the period, with steady progress in delivery by all businesses versus the prior year, where the prior year also included on some one-off benefits. Turning to slide eight on our key financial performance metric of underlying adjusted earnings, all divisions have continued to contribute to the strong progress on growth year-over-year.
As noted before, there is a change in the way that we calculate and present our adjusted earnings measure, in that this now simply excludes the impact of IFRS 16 in the management fee TOCs, given that this creates a high degree of earnings volatility that is not for our account. On this revised basis, the tax and non-controlling interest relating to the management fee TOCs is now included in the relevant bar on the chart.
At First Bus, the increase in operational leverage during the year contributed GBP 15.3 million to the improvement in operating profit. At Rail, with the more diversified portfolio, a greater proportion of earnings coming from outside the management fee TOCs has meant that growth in the First Rail profits is equally spread across the business, and that portfolio diversification is something that we're very pleased about. Interest costs were GBP 5.1 million lower due to the partial bond buyback, as well as higher interest received on cash deposits. The effective tax rate for the period was 25%, in line with the higher UK corporate tax rate year-on-year. With the increased profitability, combined with the higher tax rate, has meant an additional GBP 13.8 million charged in tax year-on-year.
This results in a GBP 22.5 million or 65% increase in attributable profits to GBP 56.5 million being delivered in the period. This increase in earnings momentum, combined with the confidence in continued business delivery, has meant that the board has declared an interim dividend of circa GBP 10 million, in line with the policy of 1/3 interim and 2/3 final.
Turning to the adjusted cash flow movements for the period on slide nine, that excludes ring-fenced cash, as well as the impact of IFRS 16. The group generated GBP 71.6 million in EBITDA before rail management fee TOC cash inflows, where we received GBP 5.8 million in distributions in the period. As a reminder, these management fees are generally paid following the completion of the statutory audit accounts of the entities in the second half of the year.
Working capital was a net GBP 31.7 million outflow in the period, mainly relating to timing differences in receivables that are largely expected to reverse in the second half of the year, and resulted in a total of GBP 46 million of capital generated from operation, in what is a seasonally lower first half.
This underlying capital generated was deployed in investing GBP 50.2 million in the CapEx, net of grant funding, primarily in bus and electrifications of the fleet, and the average age of the bus continues to reduce and is down to nine years. First Bus generated GBP 50 million in disposals, including the cash received from the Southampton depot sale from the prior year, and the sale of certain fleet in the period as part of the reshaping of the fleet to better align to the network scale.
GBP 4.9 million was paid in cash interests, mainly on the 2024 bond, offset by interest earned on cash balances, combined with nominal amounts in cash tax, with a lower level of cash tax driven by the historical losses and the accelerated capital allowances that should now apply for several years yet, given our decarbonization investment program. GBP 19.7 million is being paid by way of final dividend for the full year 2023 year.
GBP 48.9 million has been received in the period as the initial payment for the transit earnout, with the remaining amount anticipated to be received before the year end, at a level in line with the remaining fair value on the balance sheet of circa GBP 21 million. GBP 66.6 million of the share buyback program was executed in the period.
The other movements outflow of GBP 1 million includes shares acquired by the Employee Benefit Trust of GBP 6 million, and other movements, partially offset by foreign exchange cash inflows relating to the cash flow hedge settlements. This resulted in the group ending the period with GBP 77.1 million in net cash. Turning to slide 10.
This has been a busy period for discharging pensions liabilities, as indicated in our recent trading update, and the group has removed or insured GBP 1 billion of pension risk from the balance sheet. For the local government pension schemes in the UK, we have terminated our participation in the Manchester and Aberdeen schemes at the end of October, and in so doing, we will be removing GBP 713 million of liabilities from the balance sheet.
On exit from these schemes, we anticipate receiving a net cash return after costs of GBP 15 million from surplus. However, the accounting requires the recognition of a GBP 142 million P&L adjusting charge, offset by an actuarial gain of GBP 160 million in the consolidated statement of comprehensive income.
The termination of participating in the local government pension schemes should result in a circa GBP 2 to 3 million overhead and cost savings in full year 2025 onwards at the bus business. At Greyhound, the pension de-risking has removed circa GBP 250 million worth of pension liability risk from the balance sheet, where we have bought in the pension exposure in Canada, and we have partially bought out the pension exposure in the USA at a minimal cash cost.
The remaining exposure in the USA is well hedged in terms of investment strategy, until these liabilities are eventually annuitized in due course. In the UK, we are also making good progress on the merger of the bus and the group scheme to drive operational efficiencies that should result in further cost savings in future years.
As a reminder, the bus and the group pension escrow monies are held on the balance sheet as a financial asset and are not reported in net cash. In the period, GBP 24 million was paid to the bus scheme from the escrow, relating to the settlement for the GBP 500 million that was returned to shareholders in December 2021, following the exit of North America.
The remaining balance in escrow is now GBP 97 million, of which GBP 72 million relates to the bus scheme that is subject to finalizing the valuation in April 2024, and GBP 22 million relates to the group scheme that is subject to the valuation in 2030, plus interest earned on the monies of circa GBP 3 million. The funding levels of the group and bus scheme combined versus the low dependency targets, has improved circa GBP 46 million since the full year 2023 year end to circa GBP 100 million.
W hilst there is no certainty as to how the financial and actuarial markets may perform in the coming years, this continued trend of improving funding levels on an agreed basis provides a certain level of confidence of receiving some of the escrow monies back. Finally, the financial output for full year 2024 on slide 11.
The group has made significant progress year to date, and the outlook for the year is in line with our expectations, with the benefit of the continued improvement on the mix of earnings. The bus business is anticipating to make sequential operating profit progress year on year in full year 2024, in line with our expectations, despite the wider inflation and economic challenges that lie ahead.
At Rail, we anticipate delivering results in full year 2024 in line with our expectations of continuing to earn management fees from the three TOCs, in line with the expectations, recognizing the challenges as a result of the continuing industrial action that are being addressed. The Open Access and additional rail services businesses are anticipated to deliver results ahead of full year 2023, given the strong demand in Open Access, partially offset by inflation, cost pressures, and track access charges.
And at the rail center, we are now incurring some bid costs for growth opportunities that the rail team are evaluating. We anticipate incurring GBP 65 million in interest, of which GBP 60 million relates to IFRS 16 charges, due mainly to the no-risk rail leases, as well as incurring a net cash interest cost of GBP 5 million.
We remain on track to deploy GBP 115 million of CapEx, net of grants in bus business, mainly on the electrification of fleets and depots, after taking into account the cash benefit of circa GBP 20 million from the Hitachi battery transaction that Graham will cover later in the presentation.
We anticipate to end the year in a net cash position of GBP 40 to 50 million, after paying ordinary dividends, as well as assuming the completion of the remaining GBP 93 million outstanding from the share buyback program. The strong, well-capitalized balance sheet provides the group with great flexibility and options for driving future value creation for shareholders. I now hand back to Graham for business review.
Thank you, Ryan, for the comprehensive financial update and insight on the progress made during the first half of 2024. I will now move on to cover the business review, moving to slide 13. The First Bus team continued to make good progress, despite the challenging economic climate and resultant industry-wide inflationary pressures.
Adjusted operating profit in the period has increased to GBP 36 million, up 74% on the prior year. Considerable progress has been made in restructuring the business as we transition to a lower funding environment. The transformation of the business is delivering stronger foundations with a simplified operating model, and our increased capability puts us in a strong position to drive growth and create value.
Our belief still holds, despite short-term challenges on the economy, that medium to long-term government policy, favorable demographics, and environmental and societal trends will support public transport growth in the bus sector. As you can see from the adjusted operating profit bridge, Bus continues to reflect significant profit movements in key items. Passenger volume growth is up 12% year-on-year, with 22 million additional journeys in the first half.
The volume growth has been aided by free under 22 travel in Scotland, the £2 fare cap in England, and the extra week in half one, 2024. Volumes in Scotland are up 5%, 17% if you exclude the disposal of First Scotland East. England is up 14% and Wales, 23%, partially due to lower volumes of prior year, due to the slower exit in Wales from COVID restrictions.
This growth, allied to improvements made in our network and service reliability, have ensured that our revenue per mile has increased significantly by 22% over the prior year. We've also continued to experience the significant pressure of inflation on our cost base, with average driver pay settlements of circa 8% in the first half. We have now completed approximately 75% of all wage settlements due in the FY 2024.
Inflation is still a major challenge for the business, but the team continue to manage in a balanced and effective manner. Operational performance has continued to improve, with a more efficient network and better service delivery. An increase in driver recruitment has helped to improve prior driver shortages, and we're also seeing the benefits of data-led efficiencies across our network.
One example, we're using Prospective AI platform to accurately predict journey times and to facilitate the planning of more reliable timetables. This is delivering improved punctuality, reliability, and ensuring our operated mileage is improving when we compare it to our scheduled mileage. We are now running at 98% operated mileage versus scheduled mileage, up from 96% in the prior year, and this is driving an improving customer experience.
Moving to slide 14. In First Bus, we continue to focus on growth opportunities in areas that leverage our capability, assets, and overall footprint. We have created a solid base in workplace shuttles and corporate transport, airport city express services, and rail replacement services. We can differentiate our service capability by making use of our national footprint, our core bus assets, the First Travel Solutions subcontracted network, and our capability to effectively manage large customers.
Our adjacent services revenue has grown to GBP 116 million in H1, up 78% on the prior year. This has been driven by the increased revenue in First Travel Solutions, new contract wins, and the inclusion of acquisitions completed in full year 2023. This continues the strong progress made in the previous financial year as we continue to grow and diversify our bus revenue profile.
We're also continuing to focus on franchising and partnership opportunities. We've been selected in July by Transport for Greater Manchester to operate the Rochdale franchise contract, which has also facilitated an additional franchise contract win to operate six schools bus services out of the Rochdale depot. We've also been focusing on enhanced partnerships, with Leicester being an excellent example of the progress capable of being achieved.
Starting in May 2022, and supported by GBP 100 million of private and public funding, we, as a key operator, working closely with Leicester City Council, have been able to improve punctuality and frequency, resulting in bus patronage being 20% up on the prior year. It has also facilitated Leicester to become a leader in decarbonization, with high levels of electric vehicle penetration in the council area.
This is a notable example of a public-private partnership delivering effectively and driving real value for customers on an accelerated path to a fully decarbonized fleet. We have an experienced growth team in place who continue to monitor and evaluate further franchising partnership opportunities as they arise. The group's decarbonization goals are a key part of our strategy, and we continue to make considerable progress in bus during the half year.
Working closely with government, we've been able to accelerate our investment in our electric bus fleet and the related infrastructure acquired at our depots. A strong first half, with 166 electric buses delivered, the installation of more than 100 chargers, and the installation of solar panels at 25 depots. We remain firmly on track to have circa 15% of our fleet fully electric by March 2024.
This, along with the completion of four fully electric depots in England, will enhance our knowledge and provide greater insight into the long-term operational benefits of electrification. Turning now to Slide 15. Last week, we announced that we'd signed a strategic decarbonization partnership with Hitachi, a global leader in the transport sector.
Both companies will invest GBP 10 million in a joint venture, NextGen, together with GBP 80 million of debt funding, to purchase up to 1,000 electric bus batteries for the expanding First Bus electric fleet. The batteries will be leased to First Bus over an initial eight-year period, with potential to extend the lease by a further two years at zero cost, depending on battery capacity.
The partnership also includes the provision of battery and charging management services by Hitachi ZeroCarbon, a specialist division of Hitachi. This will allow us to manage energy use efficiently, optimize the health of the batteries, enhance residual battery value, and also with the potential to extend the useful life of the battery. As part of the joint venture agreement, and unlike other possible financing options, we will retain 75% of the residual value of the batteries as they're taken off our buses.
We've previously said that we wanted to participate in the decarbonization value chain, and this agreement facilitates the aim of optimizing material second life battery opportunities. We also have a non-controlling option to participate in future value creation through a small minority interest in Hitachi ZeroCarbon, as they deploy decarbonization solutions to commercial fleet operators worldwide.
The partnership with Hitachi will deliver an anticipated GBP 3 million of adjusted earnings by full year 2026, before any potential operational cost benefits. We're also anticipating a saving of GBP 20 million of full year 2024 capital expenditure, with future savings of GBP 40 million out to full year 2027. This is a landmark partnership for FirstGroup, creating the opportunity to work with a global transport leader as we move forward with our decarbonization journey. Moving on to rail, on Slide 16.
It has been a period of delivery for our teams managing the National Rail contracts at GWR, SWR, and the West Coast Partnership, including Avanti. A new nine-year national rail contract was signed for the West Coast Partnership to run until October 2032. The contract has a minimum core term of three years, with the final six years subject to Department for Transport approval in October 2026. The contract includes acting as the shadow operator for HS2 phase I.
The increased attributable net income from National Rail contracts reflects better-than-anticipated final variable fee awards for full year 2023, which is a testament to the hard work and effectiveness of the teams across our rail businesses. Most of the upside is due to strong operational performance and contract delivery at GWR and SWR.
Rail additional services also had operating profit at GBP 6 million, up 21% on the prior year, and this has been driven mainly by growth through higher volumes at FCC and Mistral. We continue to demonstrate our capabilities and deep sector knowledge to bring value to the government, as we strive to improve customer experience and to reduce the level of rail subsidies. I'm moving now to Slide 17.
Our open access operations at Lumo and Hull Trains continue to exceed expectations and deliver significant improvements of financial performance. Lumo revenue at GBP 26 million is up 43% year-on-year, driven primarily by effective yield and demand management. Seat utilization continues to improve, reaching an impressive 78%, up from 74% in the prior year.
Lumo continues to offer competitive fares and value to our customers, and we've now carried over 2 million passengers since our launch in October 2021. We continue to look at opportunities to increase capacity on our Lumo service. Hull Trains has also had a strong first half, with revenues reaching GBP 20 million, up 40% on the prior year.
This has been driven by increasing passenger journeys of 33% on the prior year, due to effective marketing, increased leisure demand, and significantly improving mix of business customer volumes. In response to increasing demand, Hull Trains are introducing extra capacity from December on certain high-demand services. This will facilitate circa 10% additional seat capacity on the Hull Trains services moving forward, creating the opportunity to continue to improve passenger volumes.
We are also actively reviewing additional open access opportunities, where it may be possible to further leverage the enhanced rail capability and experience we have in the group. And on to slide 19. Looking forward, our strategy remains consistent as we develop our platform to drive further sustainable growth in revenues and earnings, supported by our balance sheet and disciplined capital allocation policy.
Good progress has been made, but we have much more to do. We have four clear strategic priorities that will drive the group forward. Firstly, deliver day in and day out. We aim to improve customer experience and reliability, implement pricing strategies to enhance value, drive demand, and improve yield, and to win and extend contracts in bus and rail. Secondly, driving modal shift.
We're entering the next phase of our development as we aim to drive a step change from car and air travel to bus and train. This will be supported by increasing capacity in our open access rail operations and focusing our bus proposition on driving demand and increasing usage. Thirdly, diversifying our portfolio.
We aim to invest to grow, diversify our earnings, and ensure our business remains resilient in the long term. Our pipeline of opportunities is growing as we look at bus franchising and partnerships, rail open access opportunities, other rail contracts, and expanding our adjacent services both in bus and rail. We will look at selective and organic opportunities, but will remain financially disciplined in this regard. And finally, leading with environmental and social sustainability.
As we deliver our net zero commitments, we aim to optimize funding and bus decarbonization, build out adjacent electrification opportunities, and work to support growth and green jobs in the communities we serve. As I said earlier, good progress so far, but much more to do. Now finally, moving on to slide 20. It has been a challenging economic and industrial relations environment as we've had to deal with elevated levels of inflation and sector-wide industrial reaction in rail.
That said, you know, the business is robust and continues to improve the significant progress made in our financial performance, which is a testament to the resilience and capability of our people across the whole business. Bus remains on track to deliver a 10% operating profit margin, and Rail continues to execute well in national rail contracts and to drive significant growth in open access operations.
This progress is helping to diversify our earnings and increase the resilience of the group. Decarbonization continues at pace and bus, and has accelerated our drive towards greener transport, supporting our own and the government's goals, with the potential to create adjacent value opportunities.
In closing, we have backed up our full year 2023 results with a significant improvement in our financial performance during the first half of 2024. We remain committed to financial discipline, our capital allocation policy, and will continue to scan the market for growth opportunities that will deliver sustainable value to our shareholders. Thank you for your time today, and we will now open for questions.
Thank you, Graham. If you wish to ask a question, please raise your hand. There will then be a brief pause while questions are being registered. First question. First question comes from Ruairi . Ruairi , please can you unmute? Okay. Yeah, I'll go on. Next question, it's Satish at Citi.
Morning, everyone. This is Satish from Citigroup. I got two questions here. Actually, both are related to the rail segment. On the open access, what is the flexibility you have in, just in case if the demand starts to soften? Because this is quite capital intensive, right?
I n terms of drivers, that you are recruiting on the train side, what type of a contract they are coming in? T his also points to that question is, how flexible it is if there's a softening demand. On the open access as well, the customers that are traveling, do you have any color on what type of customers that are traveling there, in terms of demography-wise? That'll be helpful as well.
That's like, that's been on the open access thing. T he second one is around the contract. Usually the contract on the rail from DfT are around, like, say, five to seven years, but this is, like, slightly longer. What has driven the- what has driven this shift? Going forward, do you expect something on these lines, like longer durations? Thank you.
Okay, right. Let me try and deal with that. I mean, obviously, we haven't seen any softening demand at all. In fact, quite the opposite. You know, if you look across the whole rail industry, you know, passenger volumes have been increasing this year as there's some market recovery.
Obviously, on our services, we are, you know, we have relatively high seat utilizations as we've driven our business forward, and that's why we're looking at potential increased capacity. We also offer value fares, you know, which is supporting that demand. Y ou know, at the moment, you know, we're not anticipating a softening in demand. You know, we're very comfortable with the progress and obviously with, you know, revenues in the first half growing at over 40%.
You know, we're very comfortable with the performance of the team, and they are also working very hard on service, you know, which I think is creating loyalty, and helping improve, you know, the, I guess, the stickiness of our product and services.
Y ou know, we're not anticipating a drop in demand in those in Open Access. In terms of drivers, you know, we, we, you know, t hey're on, you know, drivers in Hull Trains . It's even recognized, they're ASLEF drivers, and, you know, we, you know, we negotiate and settle with them, you know, as and when required. And Lumo, you know, it's, you know, we, we don't recognize the union at this point.
Many of our drivers are ASLEF fully state drivers, but again, you know, we have T&Cs that we think are attractive. You know, we've been able to get through this year with no strike action in either of our Open Access operations. In terms of the kind of travel type, you know, I guess what we're seeing is strong leisure demand fundamentally has been driving the growth that we've seen.
I n all trains, we've seen the business customer beginning to come back, you know, again, reflecting the good service we're providing on the ground. You know, but it's a mix of, you know, on Lumo, it's leisure. Hull is a mixture of leisure and business. In terms of the durations of national rail contracts, I mean, you know, we're still...
These are contracts that were set coming out of the back of the pandemic, and by default, have had shorter durations. Avanti is a nine-year contract, and that, you know, with obviously a three-year potential break, but, you know, obviously we feel if we're delivering value on our national rail contracts, which we think we are, and showing the value of the private sector, we expect them to get extended.
Obviously, we have two contracts that will come up in 2025, you know, for potential extension, and we will work hard to make sure that that's the case. But, I mean, there's a couple points to note on national rail contracts. You know, I think there's clear, demonstrable value of the private sector.
You know, if you, you know, if you look at page 31, buried in our RNS, you will see the subsidy in the first half of this financial year is GBP 155 million lower than the same period a year ago. And that's a reflection of the hard work of our teams and, and beginning to push these business forward, both financially and in terms of, you know, driving more demand for services.
I think, you know, obviously we'd like longer term contracts, and that's our aim. I mean, it's part of our strategy is to, to obviously elongate and extend and elongate them, and we will continue to work hard to achieve those goals.
Thank you. If I could, I just, actually ask another one on the bus segment. Obviously, we have seen recently, Arriva being bid for. Would you like look at something on those size, or would you, like, still comfortable with, let's say, let's focus on the transition to EV and then, look at opportunities within the U.K. market later on? What's your, like, capital allocation be there?
We, we obviously, you know, we have, you know, plenty of balance sheet capacity. You know, up to GBP 400 million of plus of balance sheet capacity. You know, obviously we, you know, the market is quite fluid at the moment. There's, you know, there's quite a bit that's either comes to the market or, you know, could potentially come to the market, and we, you know, we have a team that's geared up to review opportunities.
You know, we're clear that we'll be financially disciplined, and, and we'll, you know, if we do any M&A, it will be beyond the basis of that. And we don't feel we have to do it, but clearly, we've got the capacity to do it, and if we think it creates long-term shareholder value, then we will look at it.
You know, that we said that six months ago, 12 months ago, and that remains our position.
Thank you.
Next question comes from Gerald Khoo at Liberum.
Morning, everyone. Three, if I can, starting in rail, there's been some talk about introducing revenue incentives into the NRCs and doing them within the existing contracts. What's your understanding of the likely timeline for that to happen?
In bus, in terms of potential inorganic growth, how do you factor in the sort of franchising and re-regulation risk into how you assess those opportunities? F inally, also in bus, have you been able to agree acceptable reimbursement rates for the £2 fare cap? A ssociated with that, how have you actually got pricing improvements through on such a scale with that £2 cap in place?
Okay, well, that's pretty wide-ranging, Gerald, so we'll give it a go. Just in terms of the revenue incentivization on rail, you know, that's something that's under discussion. And, you know, if it comes to pass, the timeline will be quite short.
In terms of bus and franchising and risk, you know, I guess the way we're looking at it is that, you know, we have the capital available to participate in any franchising that comes up in the next two, three, four years. And obviously, Manchester's play at the moment. You know, Liverpool have intimated that, you know, they're going to go down this route. We have no business in Liverpool at the moment.
It's an opportunity, and there are others, you know, where we do have some business. Y ou know, I think this is a bit of a, it's a bit of a kind of mixed environment. I think the thing to know is I feel that, you know, franchising favors, you know, the larger organizations and the ones with capital to invest.
I think we're in a very strong position from that perspective. W e have an open mind, and we will look at everything. In terms of how that affects your M&A, well, I think you would. You know, it may affect your M&A if something's actually announced and there was an opportunity, then you may say, "Well, look, I've just got to bid.
I'm not going to, to buy. You know, if something's not announced, but it could be something that happens in five or seven years, I think, I think you would assess the opportunities just on, on that kind of basis. Y ou know, in many ways, I think, I think it might affect the valuations of companies who are looking, who are looking to sell.
Y ou know, for us at the moment, we feel, you know, we're. You know, we, we're building a team with lots of capability. Bus division's improving. You know, we're, we're backing investment in that area, and, if opportunities come along, we'll, we'll be at the table.
In terms of the £2 fare, we've agreed position, you know, with DfT up to the end of December, and still in discussion as to how the fare will play out for 2024. The team obviously worked very hard on this issue. In terms of the pricing, I think if you remember, we made a lot of pricing changes about 12 months ago. But obviously see the benefits for that in the first half of the year.
T hey were made obviously in advance of, you know, in advance of the £2 fare coming to pass. B y default within the £2 fare, there is inflation, an inflationary element to it. Y ou know, it gets capped, it gets captured in that way.
I think that hopefully covers all the points.
Yeah. Thanks very much.
Bye.
Next question comes from Alex Paterson at Peel Hunt.
Morning, everybody. Just a few from me, please, and apologies. I think you actually said what happened to the bus mileage if you excluded the disposals. Sorry, I just couldn't write it down quickly enough. I don't know if you could repeat that. Related to that, I just wondered, you're very positive on demand for bus, which is encouraging, and clearly, you've seen a strong recovery.
Can you sort of talk about when you think mileage may need to grow on a like-for-like basis? When do you get to the point in terms of utilization and demand that you need to sort of start growing the mileage? And then just on the rail side, I wondered, have you had any discussions with Labour about what they might be planning and how you would fit into that? Thank you.
Okay. Thanks, Alex. I mean, on bus mileage. Well, first of all, just on the volumes, you know, just go back. I mean, Scotland up 5%, 17% if you exclude First Scotland East. Obviously, there's the extra week in there as well. England up 14, and Wales up 23. You know, but they obviously had a later exit from COVID restrictions, so that's the level.
Y ou know, we're still seeing, you know, bus demand holding up well. You know, and obviously, as I said earlier, the team are really turning their attention now to, you know, using the data we have available, and doing sort of deep analysis to see, you know, the behaviors of car users in and around the area as we operate.
We're moving into another phase where we're really going to look to see if we can generate demand ourselves rather than just coming to us. N ot talking so much about a recovery from COVID, but looking much more about how we can grow our business as a long term. E arly days on that, but that's the mentality that's within our bus team and how they're going to take the business forward.
In terms of mileage, I mean, obviously, we were clear a year ago that we were going to effectively reset our business to the demand that existed at the time. I think the team have done a very good job in doing that. T hat's involved lots of detailed discussion with local authorities, et cetera.
We are seeing signs on certain routes that, you know, extra frequency is required, and therefore, the progress the team have made and beginning to eliminate our driver shortage, with better recruitment and better retention, is beginning to help us.
It's quite hard to say exactly when you think it, it's going to increase overall, but I think, you know, what you could say is that, you know, we did the work to reset the business, and now, you know, as demand begins to increase, we are looking at the, you know, to increase frequency on appropriate routes, where we're seeing, you know, significant volume increase. T o be honest, Alex, it's a route-by-route piece of work, and that's what the team are doing.
You know, obviously, you know, very pleased with the volume recovery and, you know, now, you know, we're going to obviously try and support that as a business and encourage it going forward. W e believe policy, demographics, et cetera, you know, long term are in our favor here.
W ith a strong balance sheet, you know, we're in a good, good position to invest into that. In terms of labour, you know, we do meet on a regular basis, and, you know, we, you know, the kind of key message that I've been hearing is public-private partnership. Y ou know, I think that's where we're going to try and, you know, put forward the benefits of what we do.
You know, in relationship with rail, we, you know, they've had a stated position for many years around a nationalization of the train operating companies. I think the private sector brings a lot of value. I just talked about the subsidy that we're delivering now.
I also, when you look at open access and the value the private sector brings there by bringing capital investment, driving value, you know, creating opportunities for customers, actually raising the bar in the industry, you know, I think there's a lot of good going on. Y ou know, the message that I've heard from Labour is public-private partnerships. You know, the ability to ensure that, you know, private capital is available. And our job is to effectively, you know, keep improving this business, invest wisely.
You know, the bulk of, you know, you know, we, we obviously started for the first time in 10 years, but also, if you look at the first half of the year, GBP 10 million in dividends, GBP 55 million on capital and bus. The bulk of that capital, you know, has been invested in buses being manufactured in the UK, creating jobs, sustainable long-term jobs. W e feel we're doing our bit, and I think if Labour honor the public-private partnership approach, I think, you know, we will be a key partner in the transport sector, and that's what we aim to do.
Thank you very much.
Thanks.
Ruairi Cullinane at RBC. Ruairi , can you unmute, please? No. Okay, we can come back. I think that's everything for questions. This concludes our event. Thank you very much for attending. You can now disconnect.
Okay. Thank you very much.
Thank you very much. Thanks.