Pension deficit clouds FirstGroup break-up

On his first day as the group’s new chief executive, Matthew Gregory says that £430m pension deficit would have to be accounted for in any disposals

 

 

FirstGroup’s new chief executive, Matthew Gregory, has indicated that breaking up the company remains a possibility.

Presenting the group’s half year financial results on his first day in his new role, after being promoted from chief operating officer, Gregory said First was “continuing to review all of our options”. With the share price significantly below an offer from private equity firm Apollo which First rejected in April, the company continues to face pressure from investors to explore business sales. However, Gregory highlighted that First’s pension deficit in particular created issues when considering if businesses or divisions could be sold for a price that would provide value to shareholders.

“What we want people to understand is that if we decided and felt it was right to do other structural things with the group, then we would have to take that into account,” Gregory said. Based on the most recent valuations, First has a pension fund deficit of around £430m, with a deficit of £286m in the bus and group schemes in the UK.

A leading City analyst told Passenger Transport that selling an underperforming division such as UK bus could be desirable to allow First to focus attention on turning round the remainder of the group. However, the need for any new owner of the UK bus division to fund pensions from standalone rather than group profits would be a barrier.

It doesn’t make it impossible but it does make it complicated

“It doesn’t make it impossible but it does make it complicated,” he commented.

The half-year results for the six months to September 30, 2018, again showed that advances in some of First’s businesses were offset by significant deterioration in others.

The largest business, First’s US school bus division, grew in the first six months of the year
for the first time in a decade, with operating profit rising 114% to $36.6m on revenue up 5.5% to $1.04bn.

However, performance continued to deteriorate at the problematic US Greyhound coaching business with operating profit falling 56% to $12.9m.

In the UK, performance was also mixed with the bus division continuing a nascent recovery
but the rail division hit by losses at South Western Railway,.

Overall, First reported a 3.4% rise in ‘adjusted’ group operating profit to £92.4m on revenue up 19.2% to £3.3bn, with profit before tax of £42m.

Chairman Wolfhart Hauser said that, after considering external candidates, Gregory’s appointment as chief executive reflected “the leadership skills and strategic decisiveness” he had shown since his promotion from chief financial officer to chief operating officer in May following Tim O’Toole’s sudden departure. His remit will include improving value for shareholders rapidly.

First’s longstanding director of finance Nick Chevis has been appointed interim chief financial officer until a permanent appointment is made. In addition, First has recruited British Airways chief financial officer Steve Gunning as a non executive director.

This article appears in the latest issue of Passenger Transport.

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Author: Passenger Transport

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