Bosses at Aberdeen-based FirstGroup are expected to come under intense pressure tomorrow to clarify what the future holds for the beleaguered transport giant.
Unhappy shareholders are gathering for the annual meeting of the company, which was one of the biggest success stories in UK business in recent decades.
FirstGroup flourished from modest beginnings in the late 1980s into a leading player on both sides of the Atlantic.
But the bus and rail operator has run into a number of difficulties in recent years – the latest include its iconic Greyhound bus operation being hit by “intensifying” competition from ultra-low-cost airlines in North America.
FirstGroup’s share price has been under severe pressure, and the business now appears ripe to be taken over or broken up.
Executive chairman Wolfhart Hauser said at the time of the company’s recent results that it was now a more stable and more resilient enterprise, with a “growing ability” to capitalise on leading positions in its markets. But he admitted that the results fell short of ambitions and added that the board was “examining all appropriate means to mobilise the considerable value inherent in the group”.
Much has changed for FirstGroup in the last decade.
In 2007, it was flying high – gaining international attention when it took over Greyhound.
That same year, the firm was elevated to the prestigious FTSE 100 Index. It was the first time that Aberdeen had had a local company among the ranks of the biggest listed businesses in Britain.
The roots of FirstGroup go back to the late 1980s, when Moir Lockhead led the former Grampian Regional Transport venture on its upwards growth path.
However, he retired at the start of this decade and Tim O’Toole, a former managing director of London Underground, was appointed to the CEO post.
Things have become much tougher for the business since Sir Moir departed, and storm clouds continue to gather.
Problems have been apparent for several years.
In 2013, shares plunged 30% as investors baulked at a rights issue of around £600million and the scrapping of the dividend. Mr O’Toole said at the time that the rights issue was necessary to retain the company’s investment grade credit rating, which stood at triple B minus with Fitch and Standard & Poor’s – one level above junk.
Plans for the rights issue were also accompanied by the resignation of FirstGroup’s long-standing chairman Martin Gilbert.
Moving forward to 2018, Mr O’Toole stepped down suddenly – his departure announced on the same day at the end of May that FirstGroup revealed it had made annual pre-tax losses of more than £300million.
Shares hit a 52-week low of 76.15p at the end of March, while its market capitalisation was sitting at less than £1 billion at the time of writing this article.
Net debts are more than £1 billion, and US private equity firm Apollo Global Management has been eyeing the business.
Back in 2007, FirstGroup employed more than 135,000 staff throughout the UK and North America, with a market capitalisation of over £3 billion.
The company had come a long way in less than two decades. The forerunner of the business, Grampian Regional Transport, was a relatively-small player – it had a fleet of 200 buses, 500 staff and an annual turnover of less than £15 million when it was the subject of a £5.5 million staff buyout in 1989.
Sir Moir’s biggest acquisition at FirstGroup was spending around £1.7billion on US bus group Laidlaw International – the yellow school bus operator and owner of Greyhound.
However, 11 years after its acquisition, Greyhound has become a major headache for FirstGroup.
An external review of the unit’s business model and prospects is under way – which could even result in its sale.
The Aberdeen group may be going through tough times, but it still remains a leading transport operator in the UK and North America.
Annual turnover exceeds £6 billion, and it employs around 100,000 people and transported 2.1 billion passengers last year.
In North America, First Student is the largest provider of student transportation with a fleet of 42,000 yellow school buses, First Transit is one of the largest providers of outsourced transit management and contracting services, while Greyhound is the only nationwide operator of scheduled intercity coaches.
First Bus is one of Britain’s largest bus operators, transporting 1.6 million passengers a day, while First Rail carried over 260 million passengers last year.
The above facts and figures are impressive, but the transport giant’s results for the year to the end of March do not make good reading.
FirstGroup recorded pre-tax losses of £326.9 million – the bulk of them due to problems at Greyhound.
The group said: “Greyhound’s significant short-haul and express growth was more than offset by declines in long-haul demand as a result of intensifying competition from the ultra low-cost-airlines, which are bringing significant additional aircraft capacity into operation while also connecting to a growing number of secondary airports.
“The growth in these businesses represents a meaningful shift in US travel patterns.
“Our ability to mitigate these revenue challenges through further cost efficiencies is limited by ongoing increases in fleet maintenance and driver costs, resulting in a significant reduction in Greyhound’s margin.
“We are currently investing to support Greyhound’s growth opportunities while continuing to trim our timetables, and the group is conducting a full external review of Greyhound’s business model to help determine the most appropriate response to this long-term structural challenge.
“We have also updated our view of the carrying value of the division’s goodwill and other assets in light of these issues, impairing them by a total of £277.3 million accordingly.”
Investors Chronicle commented: “We’ve argued before that FirstGroup’s shares look undervalued, but this set of results and the sudden departure of the chief executive has us reconsidering our stance.”
It added that, given the uncertain future, it was moving its view of the group from buy to hold.
Meanwhile, it has emerged that ex-chief executive Tim O’Toole received a pay package of £1.1million in the last financial year, as well as earning nearly £700,000 in lieu of sums owed to him during his notice period.
There was no sympathy for the former boss from the UK’s largest union, Unite.
It described his years in the top post as a “disaster of managed decline”.
Unite national officer Bobby Morton added: “Tim O’Toole’s time as FirstGroup chief executive was nothing short of a disaster, marked by bus depot closures, attacks to workers’ terms and conditions, and cuts that went too close to the bone.”
An external review of Greyhound’s business model is under way – which could even lead to its sale
