FirstGroup: Return to strength ‘needs hard work’

FIRSTGROUP chief executive Tim O’Toole yesterday told shareholders that it will take “hard work” to return the Aberdeen-based bus and train operator to a “position of strength”.

Tim OToole said the firm faced hard work but recovery programme was on track. Picture: Ian Georgeson

Speaking at the firm’s annual general meeting in the Aberdeen Exhibition & Conference Centre, O’Toole said the recovery plan was “on track” following last month’s heavily-discounted £615 million rights issue to shore up the group’s balance sheet.

“The task of returning the group to the position of strength our customers, employees, and shareholders expect will require hard work and persistent delivery for some time to come and we are pleased by the support of our shareholders in the recent rights issue,” said O’Toole.

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“This not only strengthens the group with an appropriate capital structure, but also provides a strong base for the continued investment in our transformation programmes to create sustainable long term value.”

The firm used the AGM to unveil a trading update for the three months to 30 June. Like-for-like passenger revenues at its UK bus division were 1.4 per cent higher year-on-year, while its rail operations enjoyed a 5.5 per cent increase.

Yet revenues at its Greyhound coach business in the United States were down 6.1 per cent as a result of “softness” in the American economy.

Jonathan Jackson, head of equities at Killik & Co, said: “Today’s statement is reassuring, and provides ongoing evidence that the group’s restructuring plan is gaining traction.

“The decision to raise equity was the right one – to do otherwise would have resulted in the expensive loss of its investment grade status – and it removes what has been a long-term overhang on the stock.

“We also believe the decision to step up the rate of investment is sensible although, given the level of historical under-investment in some divisions, we still have some concern more investment might be needed.”

Jackson, who carries a “hold” recommendation on the stock, added: “Although there is significant scope for recovery, driven mainly by self-help measures, we prudently assume that the pace of operational improvement is likely to be slow, due in part to the time it will take for the investment – new buses – to have an impact.”

Analysts at Jefferies also retained their “hold” recommendation on FirstGroup.

Just under 30 per cent of the votes cast at the AGM opposed the directors’ remuneration report, echoing the 43 per cent rebellion in 2011 when a “golden hello” deal for O’Toole sparked shareholder anger.

Yesterday’s meeting also saw 22.7 per cent of ballots opposing Martin Gilbert’s re-election as a director, even though the Aberdeen Asset Management chief executive had announced in May that he would step down as FirstGroup chairman once a successor had been identified, bringing to an end 27 years with the company. It marked an acceleration in the rebellion against Gilbert, which only amassed 9 per cent support at last year’s AGM.