FGP Firstgroup Plc

 
TIDMFGP 
 
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 RelationsAndrew Porter / Simone Selzer 
 
Stuart Butchers, Head of Corporate CommunicationsTel: +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 FishleyJames Agnew / Jack Wood 
 
Tel: +44 (0) 20 3100 2000Tel: +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. 
 
 
This information was brought to you by Cision http://news.cision.com 
 
 
END 
 
 

(END) Dow Jones Newswires

November 17, 2023 02:00 ET (07:00 GMT)

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