Portfolio rationalisation plans at FirstGroup are to include a split of First Bus in the UK and the sale of its Greyhound subsidiary in America
As it announced its annual results for the year ended 31 March 2019, FirstGroup said it was ‘considering structural alternatives to split First Bus operations from the group.’
Financial results
In the results (which compare a 53-week period in the previous results with a 52-week period this time around) FirstGroup’s revenue was £7.1bn, representing growth of 11.0%.
Statutory figures reveal a group operating profit of £9.8m, compared to a £196.2m loss in March 2018, with an operating profit margin of 0.1% (2018: -3.1%). Loss before tax was £97.9m compared to £326.9m in March 2018.
First attributed the vast majority of this to a charge of £94.8m to increase the level of North America self-insurance reserves ‘following a number of adverse judgements and deterioration in the claims environment and subsequent impact on actuarial risk calculations.’
At First Bus, statutory profit was down slightly at £27.4m compared to £29.3m the previous year. However, the figures were heavily impacted by a £16.2m loss on the disposal of First Bus assets in Manchester. Once this and other restricting costs are factored in, adjusted operating profit was up 31.1%, at £65.8m. The Group said First Bus delivered 1.6% like-for-like passenger revenue growth and 180bps of adjusted margin expansion to 7.5%, by maintaining focus on making journeys simpler for customers and investing in its key markets.
The American Greyhound division reported a statutory loss of £33.8m (2018: loss of £266.3m) which was attributed to restructuring and reorganisation costs associated with the withdrawal from Western Canada and Greyhound’s share of the North America insurance charge, partially offset by property disposals. The Group estimates that disposal proceeds from surplus properties in Western Canada will largely offset the cash costs of restructuring and reorganisation, over time.
Commenting on these results, FirstGroup CEO Matthew Gregory said: “Our trading performance was ahead of our expectations for the year, with First Student returning to growth with increased margins, First Bus delivering growth and higher margins, and First Rail adjusted profit ahead of expectations in the year; Greyhound faces challenging market conditions but we are seeing early results from the plan we put in place last year.
“Although our UK rail franchise portfolio has generated £330.9m 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.”
Commenting on the group trading outlook for the year ahead In 2019/20, Matthew continued: “We expect to deliver revenue growth and financial progress in the Road divisions, offset by Rail’s particularly strong adjusted profit contribution in 2018/19 moderating to more normal levels in the year ahead. Overall, we expect adjusted earnings to be broadly in line with our expectations. Our margin expectations are underpinned by structural change and efficiency programmes launched this year.”
Strategy update
Meanwhile, in a separate statement FirstGroup has revealed its strategy update for the coming year and beyond. The key points of this were:
- FirstGroup intends to seek structural alternatives to separate its First Bus operations from the Group;
- To rationalise its portfolio, FirstGroup’s future emphasis will be placed on First Student and First Transit, the core North American contracting businesses, which it said has the greatest potential to generate sustainable value and growth over time. Together, these markets generated 60% of the group’s operating profits in 2019;
- FirstGroup believes that Greyhound has limited synergies with its other, predominantly contract-based North American businesses and as such the best value for shareholders is by seeking new owners to support the continued development of the Greyhound business. A formal sale process of Greyhound is now underway;
- and FirstGroup said it will secure the best value for shareholders by executing these plans with pace, having regard for the regulatory procedures and stakeholder consultations, including pensions, that will be required.
Commenting on the Strategy Update, CEO Matthew Gregory said: “Since becoming Chief Executive in November 2018, I have been focused on setting the Group on a clear path to enhance value. By executing the portfolio rationalisation plans we have detailed in a separate announcement today, our future emphasis will be on First Student and First Transit, our core contracting businesses in North America.
“We see significant potential to generate long term sustainable value and growth from the solid platform these businesses provide in the North American mobility services sector. We are intent on executing this strategy at pace, having full regard to the regulatory and stakeholder procedures and approvals that will be required.
“In parallel with our portfolio rationalisation plans we will continue to drive forward the clear strategies now established in each of our divisions to ensure they deliver further progress and growth in existing and adjacent markets, underpinned by plans to enhance our cost base further.
“Our plans will create a more focused portfolio, with leading positions in our core North American contracting markets and is the most appropriate means for us to deliver enhanced sustainable value for all our stakeholders.”
First Bus separation plan
The strategy plan with regards to First Bus reads as follows: “First Bus is one of the largest operators in the UK, with a fifth of the market outside of London. We have improved our offering by investing in our fleet and transforming our networks, payments systems and passenger information services to improve simplicity and convenience for customers.
“We have significantly improved cost efficiency in the division, through investment in operations and maintenance systems and by rationalising our footprint via network changes, depot sales and closures. As a result, First Bus margins have improved to 7.5% in 2019 and it is now on a much stronger footing as a business.
“First Bus has limited synergies with our other operations and, having set the business on the path to increased profitability, we believe now is the right time to pursue structural alternatives to continue this progression and deliver value to our shareholders while managing the division’s longer term liabilities.”
Unite the Union National Officer for Passenger Transport, Bobby Morton, commented: “I want to make it crystal clear that Unite won’t tolerate one single job loss or any attack on our members’ terms and conditions as a result of this sell-off process.
“On one hand, FirstGroup has praised staff for their hard work and commitment and then, in the next breath, it announces it is selling off First Bus because of so-called ‘limited synergies’ between the parent company and the bus operations.”
Unite will be holding a meeting of its First Bus reps from across the UK in London on 11 June, with First Bus executives in attendance.
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