Thursday 30 May 2019 8:27 am

First Group to sell off Greyhound arm amid activist pressure as losses narrow

First Group has announced plans to sell parts of its operations including its US Greyhound buses.

Shares in the FTSE 250 company, which has been facing pressure from an activist investor to split up the business, jumped 13 per cent per cent in early morning trading after it also announced plans to separate its First Bus operations in the UK from the group.

The company also said that in the future its core market will be North America, where it is centred on contract-based businesses First Student and First Transit.


First Group boss Matthew Gregory told Radio 4 this morning: "We’ve identified that there are very limited hard synergies between our businesses particularly between the UK and the US….We think now is the time. We‘ve put First Bus in a much better position, we've improved the customer offering, we’ve improved the margins and now is the time to separate that from the group."

In its full-year results today the firm, which is one of the largest bus operators in the UK, reported narrowing losses, which have fallen from £326.9m to £97.9m in the year to March.

"Greyhound has limited synergies with our other, predominantly contract-based, North American businesses and we believe that value for shareholders can best be delivered by seeking new owners that will further support the continued development of this business. As such a formal sale process for Greyhound is underway," First Group said today.

The figures

Adjusted operating profit came in ahead of the firm’s expectations at £332.9m, led by growth and margin expansion in First Student and First Bus.

Losses before tax narrowed from £26.9m to £97.9m in the year to March to 2019.

Underlying group revenue climbed 5.7 per cent to £7.1bn.

 

Why it’s interesting


It has not been a smooth journey for First Group over the last few months amid pressure from activist investor Coast Capital, which owns a 9.7 per cent stake in the transport company. Such is the current state of relations that, as City A.M. reported yesterday, the two sides have even been in a tussle over whether Coast Capital had or had not been allowed to attend today’s full-year results.

But the Aberdeen transport giant has been clear about its strategy today: it plans to spin off its UK bus arm, find a buyer for its Greyhound coaches and focus on its yellow school bus contracts in the US. The group’s First Rail business, its South Western operation which has suffered a £100m writedown, is also under review pending a future government strategy.

 

What First Group said

Chief executive 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 are announcing 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 platforms 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.

He added: "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 our 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."

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