First Group: General Discussion

carlberry said:

Was there a tender involved or where they just told to move? If there was a tender there's still going to be winners and losers, airport coach access has caused numerous issues over the last couple of years.

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There was a tender yes,

From reading the documentation there were two lots of premium bus stop locations up for tender, Lot 1 was the inner rstops outside arrivals (Aircoach's current location) whereas Lot 2 was the outer stops outside arrivals (currently used by Dublin Bus Airlink). No one party can hold both Lot 1 and Lot 2, not only has Aircoach lost the best spot outside the airport, it hasn't even got second best which means it'sbeen relegated to an out of sight bus stop for arriving passengers.

However about 18 months or so ago, the long term Aircoach managing director, highly experienced in the Irish market, regarded as one of the best commercial brains in the industry in Ireland, left the company for Bus Eireann and Aircoach replaced him with someone wth more of an operations background from the UK side of the business. One has to wonder if this had played a part, certainly this post on another forum seems to suggest so and perhaps they underestimated the strength of competition in the tender and their commercial inexperience of the Irish market showed in the bid.

The Dublin Airport car park and staff shuttle contract is up for renewal soon as well, they'll have to be much more competitive in that tender than they were in this one. Losing that tender, coupled with this one and the recent commencement of Dublin Bus operating 24 hour airport services, the strong chances of a government less favourable to private operators being elected in a few weeks and Brexit could mark a serious cocktail of issues that result in a significant decline in their fortunes.

Really it would be a good time to sell up having made good profits over the past few years.

F Great Eastern said:

There was a tender yes,

From reading the documentation there were two lots of premium bus stop locations up for tender, Lot 1 was the inner rstops outside arrivals (Aircoach's current location) whereas Lot 2 was the outer stops outside arrivals (currently used by Dublin Bus Airlink). No one party can hold both Lot 1 and Lot 2, not only has Aircoach lost the best spot outside the airport, it hasn't even got second best which means it'sbeen relegated to an out of sight bus stop for arriving passengers.

However about 18 months or so ago, the long term Aircoach managing director, highly experienced in the Irish market, regarded as one of the best commercial brains in the industry in Ireland, left the company for Bus Eireann and Aircoach replaced him with someone wth more of an operations background from the UK side of the business. One has to wonder if this had played a part, certainly this post on another forum seems to suggest so and perhaps they underestimated the strength of competition in the tender and their commercial inexperience of the Irish market showed in the bid.

The Dublin Airport car park and staff shuttle contract is up for renewal soon as well, they'll have to be much more competitive in that tender than they were in this one. Losing that tender, coupled with this one and the recent commencement of Dublin Bus operating 24 hour airport services, the strong chances of a government less favourable to private operators being elected in a few weeks and Brexit could mark a serious cocktail of issues that result in a significant decline in their fortunes.

Really it would be a good time to sell up having made good profits over the past few years.

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As an outsider the change actually makes sense if the company feels that physical positioning isn't important now. The company would know the proportion of it's business that was pre-booked online or in other ways so if it felt the cost of being on the premium stops now just wasn't worth it they may well have bid very low. It's only when you arrive you realise how far the walk is. However I have zero recent knowledge of the area!

carlberry said:

As an outsider the change actually makes sense if the company feels that physical positioning isn't important now. The company would know the proportion of it's business that was pre-booked online or in other ways so if it felt the cost of being on the premium stops now just wasn't worth it they may well have bid very low. It's only when you arrive you realise how far the walk is. However I have zero recent knowledge of the area!

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In my experience, the vast majority of people who are traveling on the 700/702/703 routes, serving Dublin Suburbs, which are licensed to carry passengers to/from Dublin Airport only, are buying tickets upon arrival at the airport. There is often long queues at the Aircoach ticket desk where passengers are doing exactly this because you know, people tend not to buy short distance bus/coach tickets ahead of their arrival.

There's a lot of passing trade as well from tourists, who will just come out of the terminal and find the first bus they can see going to the city centre. Right now they see both Aircoach and Dublin Bus, soon they will only see Dublin Bus and Aircoach will require a 5 minute walk to be found. Dublin Bus will be laughing all the way to the ban and will pick up almost all the passing trade.

It won't affect their long distance services, since the vast majority of passengers on those services will be booking up in advance to be sure of a space and they also have city to city traffic as well as airport traffic, so they won't lose out so much here.

Aircoach profits held stable at approx €4.1m for the year to March 2019 according to figures just published.

However there has been indications and rumour in the trade in Ireland in recent days that First are now looking to sell off the company due to the difficult trading conditions that lay ahead. They have come to the conclusion that the loss of stops at Dublin Airport, Brexit impacting cross boarder services, the impact of 24 hour competing Dublin Bus services starting up and the growth of Go-Ahead Ireland as the leading private operator in the state means the outlook for the business is extremely challenging and profitability will be hit in the short term and the value of the company is only going to reduce over the next short while.

The prospect of obtaining more business and extra contracts are also remote. Today's revelation that the current government in Ireland is likely to be booted out of office in the country in the next few weeks in favour of Fianna Fail, who would be much bigger supporters of state provided transport and have gone on record saying they will halt the expansion of private operators, means that there is a gloomy outlook ahead and ultimately, First want to try and sell up before those factors affect the price they could get too much.

F Great Eastern said:

Aircoach profits held stable at approx £4.1m for the year to March 2019 according to figures just published.

However there has been indications and rumour in the trade in Ireland in recent days that First are now looking to sell off the company due to the difficult trading conditions that lay ahead. They have come to the conclusion that the loss of stops at Dublin Airport, Brexit impacting cross boarder services, the impact of 24 hour competing Dublin Bus services starting up and the growth of Go-Ahead Ireland as the leading private operator in the state means the outlook for the business is extremely challenging and profitability will be hit in the short term and the value of the company is only going to reduce over the next short while.

The prospect of obtaining more business and extra contracts are also remote. Today's revelation that the current government in Ireland is likely to be booted out of office in the country in the next few weeks in favour of Fianna Fail, who would be much bigger supporters of state provided transport and have gone on record saying they will halt the expansion of private operators, means that there is a gloomy outlook ahead and ultimately, First want to try and sell up before those factors affect the price they could get too much.

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I would guess that they have left it too late already.

https://www.glasgowtimes.co.uk/news...-plans-off-table-first-group-decide-not-sell/

TAKING Glasgow's bus services into public ownership is no longer being explored by the city council after First Group pulled plans to sell its UK operations.

Council leader Susan Aitken revealed the operator had confirmed "the sale is now off the table" following enquiries by officers from the city authority.

She said the focus would now be on "securing Glasgow's share of the £500m allocation by the Scottish Government for bus priority measures".

...

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Article that came out earlier this morning

It doesn't really say they're not selling though, the quotes from First state that essentially it's a 'not yet'

"Our bus companies are attractive businesses and we are confident that greater value can be created from more efficient operations," he said.

"We are delivering on plans that will improve operational performance in First Bus and the results of this will be visible in the coming months, and beyond.

"Therefore, we intend to deliver these improvements before launching any sale process.

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PaulMc7 said:

https://www.glasgowtimes.co.uk/news...-plans-off-table-first-group-decide-not-sell/

Article that came out earlier this morning

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That will also knock rumours of any potential sale of First's West Lothian operations firmly on the head. With that uncertainty gone, they can now focus fully on repelling the Lothian invasion.

DunsBus said:

That will also knock rumours of any potential sale of First's West Lothian operations firmly on the head. With that uncertainty gone, they can now focus fully on repelling the Lothian invasion.

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The article only confirms what First Group has been saying for a while (after changing their mind.......) - that they are not interested in selling any of UK Bus **at present** [because they have yet to knock it into better shape so as to then achieve a better sale price].

It probably depends if they can get rid of the USA operations.

SO if there can't get rid of USA operations UK bus stays? Either way there at least trying to get the UK operation better.

They probably had no choice - the shareholders are wanting more out than the sale of First Bus would bring, plus if they were left with just the 3 contract businesses there may be doubts about the ability to pay dividends, and what then?

I’m reading that as just first Glasgow . Not selling to Glasgow council .

Robertj21a said:

The article only confirms what First Group has been saying for a while (after changing their mind.......) - that they are not interested in selling any of UK Bus **at present** [because they have yet to knock it into better shape so as to then achieve a better sale price].

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TBH, it's probably something that you half expected? When David Martin took the helm as Chairman, I did wonder if a more Coast Capital sympathetic view might be adopted.

You have UK Bus that, with certain exceptions like Aberdeen, Essex and South Yorkshire (FSE is a special case), is now returning some better performance and some decent results and is finally getting the benefits of investment in m-tickets and the like. Also, and I alluded to this yesterday, it feels that with the current slew of new vehicles going into Bristol, Portsmouth, Norfolk, Leeds (and more due for York) alongside various PVR cuts, that the fleet profile might actually beginning to get some sort of alignment with the rest of the industry. Arguably, First have never achieved that because Moir was too fixated on being the biggest so there were always shots of elderly First fleet being shunted from one OpCo to another, whether it be Aberdeen Atlanteans to Cornwall or Strathclyde Atlanteans to Port Talbot! I digress...it finally feels like a genuine turning of a corner rather than a false dawn (sorry for mixed metaphors)

I've long said that a US/UK split made more sense. Dispose of Greyhound for what you can get, and yes, we all know that Greyhound should've been sold a) to Stagecoach when they made the offer or b) at least 8-10 years ago to pay down the debt pile! Of course, it's interesting to see what happens with the rail franchises with one newly taken on, one being a cash cow, one being overbid and propped up, and one seemingly heading for a denouement with the government.

Perhaps the view is that they actually want to keep UK Bus and get rid of the stuff (like some rail franchises) that isn't performing?

TheGrandWazoo said:

TBH, it's probably something that you half expected? When David Martin took the helm as Chairman, I did wonder if a more Coast Capital sympathetic view might be adopted.

You have UK Bus that, with certain exceptions like Aberdeen, Essex and South Yorkshire (FSE is a special case), is now returning some better performance and some decent results and is finally getting the benefits of investment in m-tickets and the like. Also, and I alluded to this yesterday, it feels that with the current slew of new vehicles going into Bristol, Portsmouth, Norfolk, Leeds (and more due for York) alongside various PVR cuts, that the fleet profile might actually beginning to get some sort of alignment with the rest of the industry. Arguably, First have never achieved that because Moir was too fixated on being the biggest so there were always shots of elderly First fleet being shunted from one OpCo to another, whether it be Aberdeen Atlanteans to Cornwall or Strathclyde Atlanteans to Port Talbot! I digress...it finally feels like a genuine turning of a corner rather than a false dawn (sorry for mixed metaphors)

I've long said that a US/UK split made more sense. Dispose of Greyhound for what you can get, and yes, we all know that Greyhound should've been sold a) to Stagecoach when they made the offer or b) at least 8-10 years ago to pay down the debt pile! Of course, it's interesting to see what happens with the rail franchises with one newly taken on, one being a cash cow, one being overbid and propped up, and one seemingly heading for a denouement with the government.

Perhaps the view is that they actually want to keep UK Bus and get rid of the stuff (like some rail franchises) that isn't performing?

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Yes, all quite possible.
Perhaps they should take it a stage further and rename it something like Badgerline or Grampian.....

Robertj21a said:

Yes, all quite possible.
Perhaps they should take it a stage further and rename it something like Badgerline or Grampian.....

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I've long suggested a return to the Badgerline Group name. Dunno if Moir would be bothered - he has his knighthood, his money, his cows.

Mind you, he did have his vision of an all conquering First Group and that's in tatters, and even Badgerline (in a small way) has returned to the streets of Weston super Mare.

TheGrandWazoo said:

I've long suggested a return to the Badgerline Group name. Dunno if Moir would be bothered - he has his knighthood, his money, his cows.

Mind you, he did have his vision of an all conquering First Group and that's in tatters, and even Badgerline (in a small way) has returned to the streets of Weston super Mare.

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So, something of a cash cow for him then....

Robertj21a said:

So, something of a cash cow for him then....

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I'd say more of a cow pat.....

winston270twm said:

I'd say more of a cow pat.....

TGW - a split of US/UK yet, but not an outright sale of US.

The First Student & Transit are profitable & growing, UK bus is in a spiral of terminal decline, I can't see that changing. ​

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That wasn't what Coast were asking for. They were looking to get rid of the rail franchises (low margin and apparently now high risk) and keep UK Bus, not surprisingly as it's higher margin that First Transit.

With Greyhound on the way out and some real doubt on UK rail franchises, not difficult to see a broken up group with an American arm (let's call it something like.....Laidlaw) and then a UK one, perhaps with some furry, mono-coloured, coughing mammalian symbol as its logo...

Coast certainly believe there's more value in the UK ops by keeping them than selling them off on the cheap. As I've said before, there are operations (like First Essex) that seem to have real potential and could do with learning what places like FSW and FWoE have done.

TheGrandWazoo said:

That wasn't what Coast were asking for. They were looking to get rid of the rail franchises (low margin and apparently now high risk) and keep UK Bus, not surprisingly as it's higher margin that First Transit.

With Greyhound on the way out and some real doubt on UK rail franchises, not difficult to see a broken up group with an American arm (let's call it something like.....Laidlaw) and then a UK one, perhaps with some furry, mono-coloured, coughing mammalian symbol as its logo...

Coast certainly believe there's more value in the UK ops by keeping them than selling them off on the cheap. As I've said before, there are operations (like First Essex) that seem to have real potential and could do with learning what places like FSW and FWoE have done.

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First should never have bid for more Rail Franchises in the first place, the risk/reward ratio simply isn't worth it.

The US offers far more growth prospects than UK Bus ever will, even if the UK does currently produce higher margins, there's no guarantee these can maintained, the margins appear to only be being boosted by cutting pvr, fleet size is shrinking year on year. Historic returns of bus companies earning 18-25% margins are long gone, there's nothing to say current UK bus margins couldn't halve again over time.

It all depends on Coast's long term strategy, Coast may just want to dispose of First's most valuable assets, reduce debt to minimal levels, boost share price accordingly then take the exit.

I personally don't think First Group have ability to realise that potential, I agree there are pockets like Kernow & FWofE that are doing well, but we are yet to see the impact of Plymouth Citybus & Cornwall CC tender awards & any new commercial services being implemented. Essex / Eastern Counties / Worcester / Potteries / South Yorkshire are just getting cast off's.

First Student is plodding along, but not able to do much under Firstgroup ownership as the debts preclude Firstgroup doing what needs to be done. It may be doing a bit better just now, so they should sell it now. They have to hope their competitors have had similar insurance increases, or it will put them at a disadvantage when they have to increase their contract prices because of it. Plus they have an unusually large number of their "at risk" contracts coming up for renewal. First Transit's margin has been falling because they lost their high margin contract.

Volvodart said:

First Student is plodding along, but not able to do much under Firstgroup ownership as the debts preclude Firstgroup doing what needs to be done. It may be doing a bit better just now, so they should sell it now. They have to hope their competitors have had similar insurance increases, or it will put them at a disadvantage when they have to increase their contract prices because of it. Plus they have an unusually large number of their "at risk" contracts coming up for renewal. First Transit's margin has been falling because they lost their high margin contract.

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But that just proves how poor First Group PLC are at managing all their businesses, something is fundamentally wrong within the group. You compare that to the fortunes to NX US businesses, and it's a completely different story. They are actually exiting low margin contracts by choice & managing to raise their rates & margins on new & renewed contracts ahead of driver inflation, The impact of adverse weather seems to affect First far more than anyone else, same with increasing insurance costs. Yes, fleet size are different, but NX are now in a large proportion of US states, so it's all proportional.

Some of NX's growth is coming from targeted acquisitions, but they're generally bolt-on's rather than large. I've also noticed Student are now making bolt-on acquisitions:

Extracts from 2019 NX half Year Results:

• North America: grew by 8.2% in constant currency to $812.3 million;
• North America: grew by 9.3% in constant currency to $83.3 million;
• A successful North American School Bus bidding season, with rates secured for next school year higher than driver wage inflation:
• Average rate increase of 5.9% on expiring contracts, or 3.9% across our whole portfolio, above the prevailing wage inflation of 3.4%
• We have managed unprecedented weather disruption impact in North America to still achieve strong profit growth. Group operating margin has increased 60 basis points to 10.4%. Nearly 80% of the normalised operating profit increase has come from organic growth in the period
• Operational Excellence: driving organic growth Revenue growth of 8.2% to $812.3 million (2018: $750.6m) and an increase in profit of 9.3% to $83.3 million (2018: $76.2m) have driven another record performance in North America. This is despite the exceptionally cold winter costing the business $3 million more in lost profit compared to last year, through operating days that were not recovered by the end of the school year. Operating margin grew to 10.3% (2018: 10.2%). This strong performance has been driven by a combination of organic growth, the benefit of recent acquisitions, continued cost-control and the pivot away from a school bus dominated business, with the recent growth in transit and expansion into shuttle services.
  
• We continue to adopt a very disciplined approach to school bus bidding, prioritising the protection of returns. The success of this approach can be seen in the 5.9% rate increase on expiring contracts, or 3.9% across our whole portfolio. Importantly, these new rates – which will start in September - are above prevailing wage inflation of 3.4% and the margin on the contracts lost was over 400 basis points lower than those won. We will see the benefit of this season’s disciplined bidding later this year and next. As we reported in May’s Trading Update, this disciplined approach to bidding saw fewer school buses secured, as returns are protected. The number has improved from May’s net 1,000 buses lower, to just over 900, with a retention rate of 92%. We expect this number to improve further as we traditionally gain extra routes when schools restart after the holiday and bidding concludes in the Charter School market – where we have already won nearly 150 buses.

You never get told how the First Student acquisitions do, if they are high margin businesses, as they should be.

Volvodart said:

You never get told how the First Student acquisitions do, if they are high margin businesses, as they should be.

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I guess it's because they are only small bolt-on acquisitions, no financial details are revealed at all (same with NX)

What is the end game plan here? is it sell everything off? sell off crappy bits only? try and boost the crappy bits? after 8 years are we really any further forward than 2012? Either sell and be rid or there need to just stop teasing the markets.

overthewater said:

What is the end game plan here? is it sell everything off? sell off crappy bits only? try and boost the crappy bits? after 8 years are we really any further forward than 2012? Either sell and be rid or there need to just stop teasing the markets.

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I think 'the markets' sussed out FGP a long time ago. One to always avoid other than to go 'short' from time to time.

I guess no one wants to buy UK Bus as a whole, therefore selling the US business, which Coast Capital have said is worth more seperated from First, is the only way of providing some quick benefit to shareholders. Which would lead UK Bus, as a standalone business, but otherwise much as now.

TheGrandWazoo said:

Coast certainly believe there's more value in the UK ops by keeping them than selling them off on the cheap. As I've said before, there are operations (like First Essex) that seem to have real potential and could do with learning what places like FSW and FWoE have done.

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Essex has potential, but like you said, isn’t showing it. There is potential and you can see that with what smaller operators have done eg. Stephensons. The problem is that the council and First don’t promote or provide attractive, or decent public transport. These OpCos along with FSY and Eastern Counties are the ones that the big bosses don’t really care about because of monopoly power. First really need to unlock their potential.

I thought the plan was to sale First as 4 lots? Surly that would have look good to some buyers?

overthewater said:

What is the end game plan here? is it sell everything off? sell off crappy bits only? try and boost the crappy bits? after 8 years are we really any further forward than 2012? Either sell and be rid or there need to just stop teasing the markets.

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Are they further forward than 2012? Well, no....and yes.

First Student had a seemingly tricky time of things and they had to spend a lot of time sorting out IR issues there. That seems a better business.

UK Bus has obviously undergone a lot of change, not least in having to be compliant with the various DDA deadlines; we forget just how bad the fleet was in 2012 with unhealthy numbers of step floor let alone non-DDA low floor Darts knocking around.

Selling off the crappy bits.....so you can incur some more massive asset impairments? Selling off the GM depots was probably a sound idea (and now the potential franchise model has been unveiled, it looks a better deal) but it meant a truckload of write offs. Aside from FSY, why would they dispose of anything else? That's why Coast were so vocal about not selling off bits of UK Bus, specifically citing the Manchester writedowns.

winston270twm said:

First should never have bid for more Rail Franchises in the first place, the risk/reward ratio simply isn't worth it.

The US offers far more growth prospects than UK Bus ever will, even if the UK does currently produce higher margins, there's no guarantee these can maintained, the margins appear to only be being boosted by cutting pvr, fleet size is shrinking year on year. Historic returns of bus companies earning 18-25% margins are long gone, there's nothing to say current UK bus margins couldn't halve again over time.

It all depends on Coast's long term strategy, Coast may just want to dispose of First's most valuable assets, reduce debt to minimal levels, boost share price accordingly then take the exit.

I personally don't think First Group have ability to realise that potential, I agree there are pockets like Kernow & FWofE that are doing well, but we are yet to see the impact of Plymouth Citybus & Cornwall CC tender awards & any new commercial services being implemented. Essex / Eastern Counties / Worcester / Potteries / South Yorkshire are just getting cast off's.

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Definitely with you on rail. SWR has been a disaster and lord knows where that will end up. TPE WAS a good franchise but they took far too many risks on it, with always accepting the greatest upside, in order to secure the renewal. Too early with West Coast to say.

I don't think anyone is expecting 20% margins in UK Bus. However, if you compare First to where the other major groups are, then they should be getting 9% not 7.5% but it has been going the right way and they are clearly now screwing things down. One of the routes that FWoE was the Severn Express with Stagecoach gleefully taking it on and now realising that they were losing a small fortune on it. On a macro industry level, I'm hoping that after the years of austerity that we have now seen the worst in the bus industry and that the government will actually support buses more.

BTW, Eastern Counties are getting their new deckers for Excel and that should allow for cascades across the fleet so that Norwich should end up with much less abysmal kit, and the only ancient stuff will be at GY and Lowestoft for the schools and Bernard Matthews stuff. They are also looking to invest in Norwich as part of a large bid for government cash.

Take your point on some other OpCos and clearly Worcester is being raided to enable Leicester to meet its LEZ. However, First are generally getting rid of the worst crud so if we fast forward by 6 months and the B7Ls are gone, and only a few 2002 or older deckers are left for low mileage work, that would be better than I can remember in First.