A £145.9 MILLION onerous contract provision has been made against the South Western Railway franchise operated by FirstGroup and MTR.
First, the 70% shareholder, confirmed the news as it announced its results for the year to 31 March 2019. The company has also announced plans to rationalise its operations, including the sales of its Greyhound and UK Bus subsidiaries.
The onerous contract provision allocated to SWR represents the maximum unavoidable loss under the franchise agreement, with First’s 70% share of the allocation totalling £102.1 million. The company says it has prepared updated financial forecasts until the initial franchise end date of August 2024, noting considerable uncertainty about levels of growth, with negotiations ongoing with the Department for Transport. When it announced its set of results for the year to March 2018 the company made a similar provision of £106.3 million against the TransPennine Express franchise.
Chief Executive Matthew Gregory said: ‘Although our UK rail franchise portfolio has generated £330.9 million in adjusted profit with net cash and dividends to the Group over the last five years, we have concerns with the current balance of risk and reward being offered. We await the outcome of the Williams review as it seeks to address these and other industry issues. Any future commitments to UK rail will need to have an appropriate balance of potential risks and rewards for our shareholders.’