FirstGroup’s Tim O’Toole admits ‘hard slog’

The former London Underground boss also revealed that chairman Martin Gilbert, who today confirmed that he would be stepping down after 27 years’ service, had first raised the prospect of making his departure last year.

Gilbert, the co-founder and chief

executive of Aberdeen Asset Management (AAM), had been under intense scrutiny over his twin roles at the top of two major listed companies, but O’Toole insisted the outgoing chairman had been “absolutely attentive” to FirstGroup, which saw its pre-tax profits tumble 36.5 per cent to £172.4m for the year to 31 March, down from £271.4m the previous year.

FirstGroup, which plans to invest about £1.6 billion in its bus and rail businesses over the next four years, also announced it is to axe its final dividend but promised to establish a “progressive” payout policy at the end the current financial year.

Shares in the company tumbled 68.2p, or 30.5 per cent, to 155.6p yesterday and Shore Capital analyst Martin Brown said: “The key question is can the capital raising and subsequent increased investment help reinvigorate the business and drive earnings growth. At this stage we remain to be convinced.”

O’Toole said: “It has been a hard slog and more difficult than I expected, but that’s the essence of many of the challenges I’ve taken on in my business

career and just because things are tough you don’t back away from them.”

He added: “Martin [Gilbert] indicated last year that his instinct was to move on, but he refused to leave before he had clarity for the business.”

FirstGroup is Britain’s biggest bus operator with around 8,000 vehicles in 40 locations across the UK, carrying 2.5 million passengers a day.

It won the West Coast main line franchise from incumbent Virgin Trains last year but lost the deal when the UK government discovered “significant technical flaws” in the bidding process.

The firm has a net debt pile of almost £2bn, much of which stems from its 2007 acquisition of US bus company Laidlaw. The heavily-discounted three-for-two issue of new shares at 85p will raise about £585m after costs, of which about £200m will go towards its debt. Finance director Chris Surch said this would trim about £15m a year off the firm’s £170m financing costs. The new shares are priced at a discount of 62 per cent to the closing price on 17 May, and a 39.5 per cent discount to the theoretical ex-rights price, the price of the stock after the issue, which is 140.5p.

Gilbert, who has led the transport group’s board since it was founded in 1995, said: “When this project is complete, I intend to step down as chairman once a successor has been identified.”

O’Toole said Gilbert’s continuing participation would let the search proceed “at a sensible pace”. Gilbert is also a non-executive director at satellite broadcaster BSkyB but stepped down from the board of Aberdeen Football Club last year.

O’Toole added: “Martin has been absolutely attentive this whole time and has always been right there for me every time I turned to him for support and guidance.”

O’Toole said the board had looked at selling off a major division, such as its Greyhound bus business in the US, but decided that such a deal would have hit earnings without solving its problems.