First Group: General Discussion

[Towielad]

Not certain you've read the figures properly? Or just picking out the bits that support your usual narrative?

"They always appear to me like a business in receivership, just keeping their heads above water" - you should check out the liquidity and cashflow figures. In fact, they now have a better cash flow because of the SWR franchise though, of course, that is lower margin business. I might also add that whilst you may believe that First Group have bought another year, that's handy as next year, another lump of very expensive Moir era debt falls off so they'll be able to get a better deal on that! Not withstanding the fact that group debt has dropped further - did you miss all of those figures?

In terms of UK Bus, the revenue is up by £5m but the operating profit is up by £9m. That's partly because they've been screwing down the costs. Comparing with the previous year, they have had the pain of the one offs for closing the two Manc depots and Rotherham but those revised cost bases together with improved revenue capture (basically, less fiddling by drivers) is feeding through. Of course, there are other issues like the reduced new vehicle intake (only 180 vehicles of which a number are on lease rather than capital spend) though increasing in 2018/9 to 260. Then there are like for like increases in passenger volumes of 0.7% - quite modest but compare with the industry?

Congestion is their biggest enemy and they say, clearly, that they will invest where LA stakeholders will work with them to tackle this. Put another way - if an LA isn't playing ball (take somewhere like Somerset), what do you expect them to do? Invest in levitating buses that can avoid road congestion in Taunton? Build their own bus lanes? I'd question why they'd be putting much more operational strategy detail in their half year update???

If you want to beat First Group with a stick, the absence of anything reflecting the clamour to divest from activist investors is the most obvious gap. As a shareholder, these are nothing much more than a solid set of results. Nothing transformational but heading the right way though very slowly - debt is coming down, the pension deficit cut, though no sign of a dividend or fundamental value creation. As has been said before, whether that's enough to appease investors whose patience has been sorely tried, I would doubt.

I’d .ime to take issue with your statement about drivers fiddling where is your proof, from personal knowledge this has mostly come from the introduction of Ticketer machines stopping PASSENGER fraud through screenshotted weekly and monthly tickets as well as pass misuses through sharing passes and fraudulent weekly tickets. The advent of QR codes on all tickets has reduced fraud to amazingly low levels.

Equally the accurate recording of concessionary permits has assisted with better payouts from local authorities.

So best you read some of First’s own press releases regarding the new ticketing equipments bonuses.

So maligning hard working bus drivers who have put up with sub standard equipment in the past and relying on a flash of a pass with little hope on a busy bus of pulling a fraudulent pass was impossible.

 

[smtglasgow]

Maybe just an urban myth, but *allegedly* there used to be certain pubs in Glasgow where Firstweek/Firstcard tickets could be yours for a small consideration. QR codes have stopped that. Fareboxes have always minimised staff fraud up here, but passenger fraud has always been a much bigger issue.

 

[Kahuna47]

Completely agree with regards to fare dodging. A lot of the passengers who would try their luck often twist their face when I ask them to scan their ticket!

Not to say there isn't drivers who might take a bit for themselves but First GM are pretty tight on any dodgy goings on now from passengers and staff.

The big issue we have now are the 'third party' tickets - the System One range. The issue you have is the ticket is printed at a PayPoint and stuck in a wallet. All the details are so small (ticket type, membership no, expiry date) are so small and, and when light shines on it, that if you do have a full swinging load you haven't got the time to check - just wave them on.

TfGM really need to get all S1 tickets moved over to the GetMeThere cards and that'll get the fraud rate down to practically zero. It'll be the same for all GM operators as I'm sure in other areas too

K

 

[TheGrandWazoo]

I’d .ime to take issue with your statement about drivers fiddling where is your proof, from personal knowledge this has mostly come from the introduction of Ticketer machines stopping PASSENGER fraud through screenshotted weekly and monthly tickets as well as pass misuses through sharing passes and fraudulent weekly tickets. The advent of QR codes on all tickets has reduced fraud to amazingly low levels.

Equally the accurate recording of concessionary permits has assisted with better payouts from local authorities.

So best you read some of First’s own press releases regarding the new ticketing equipments bonuses.

So maligning hard working bus drivers who have put up with sub standard equipment in the past and relying on a flash of a pass with little hope on a busy bus of pulling a fraudulent pass was impossible.

You are correct in that there are other factors in improving the revenue capture. Part is ENCTS remuneration, part is avoiding passenger based fraud. However, the increased emphasis on moving to off bus ticketing and payment has had two main benefits - it improves cash flow (as people may be paying for tickets well in advance) and also, sad to say but it is a reality, there has always been a dishonest element among drivers.

I'm a driver's son so not maligning anyone unduly and certainly not painting all drivers as thieves. Most drivers are extremely honest and my father, who was also a shop steward, was always massively conflicted when a driver was caught fiddling - had to ensure that the person was dealt with fairly but absolutely hated dishonesty as did most of his colleagues.

 

[TheGrandWazoo]

But what has Giles Fearnley done to improve First Bus? It would appear that the individual managers at Bristol, South West, Leicester and Norwich have achieved this - with the help of Best Impressions.

What would you expect him to do?

He's probably been instrumental in luring James Freeman, Alex Carter and Nigel Eggleton (and others) to leave their previous roles and join a perceived basket case of a business. Not only that, making big strides away from the centrally controlled directive culture of Moir and allowing managers to make their own decisions (even if that includes mistakes).

He's also probably been pretty important in getting the various disposals sorted both with the purchaser and in terms of internally at First Group - who takes the pension liability, redundancies etc. I'd also suggest that, in these straitened times for First and limited funds for investment, he's been having to bang the drum again with those in FGP holding the purse strings.

Directors don't do anything - they just make sure that other people do (as a wise man once said to me).

 

[Driver362]

Maybe an element of truth in the director stat ment ,but, on the whole maybe a little b it of over simplification of the role

 

[TheGrandWazoo]

Maybe an element of truth in the director stat ment ,but, on the whole maybe a little b it of over simplification of the role

Think it’s more a reflection of leadership and allowing/enabling your team to get on with things

 

[winston270twm]

FGP has responded to Coast Capital demands:

FirstGroup dismisses demands by leading shareholder Company’s chairman rejects call for dividend and replacement of majority of board. The chairman of bus and rail business FirstGroup has written to a leading shareholder, hitting back at the investor’s demands for management change and criticism over the company’s failure to pay a dividend. In the letter seen by the Financial Times, Wolfhart Hauser dismissed suggestions that the company immediately commit to a dividend, replace a majority of its board and separate its US and UK assets. Mr Hauser wrote the letter to James Rasteh, chief investment officer of Coast Capital Management, in response to his criticism. He then copied and sent the letter to other major shareholders. Coast Capital Management is a top-15 shareholder, according to the latest filings on Bloomberg. Last week Mr Rasteh told the FT that FirstGroup had radically underperformed its closest peer, National Express, and that it “deserves the best management . . . and it has the worst”. Mr Rasteh also sent a letter to Mr Hauser containing similar views. Mr Hauser has written back, saying it was “in the best interests of shareholders . . . to use the company’s free cash flow to reduce leverage further and for targeted growth” rather than pay a 5p dividend. He defended the board, saying a third of its members had “specific transportation and travel industry experience”. Coast Capital Management had also asked for a period when only they could make a bid for the company’s Greyhound US coach division. Mr Hauser rejected this request. “We did not consider it to be in the interests of all shareholders for us to enter into such an arrangement . . . based on the level of your indicative proposal.” Mr Rasteh said he disagreed with observations in the letter and would comment in due course. A top-20 shareholder said: “It is incumbent upon the board of directors to formally consider all of its options before shareholders are forced, after a decade of woeful performance, to take matters into their own hands.” FirstGroup declined to comment. This week FirstGroup announced a solid set of results and installed a new chief executive, Matthew Gregory, formerly finance chief and interim chief operating officer. The company’s shares rose 10 per cent to 87.60p after the results, but have since fallen back to 81.2p. Mr Hauser, who had become executive chairman after Tim O’Toole resigned following a full-year loss announced in May, has stepped back to his former non-executive role. In the six months to the end of September, FirstGroup’s unadjusted pre-tax loss worsened from £1.9m the year before to £4.6m. But its revenue rose 19 per cent to £3.3bn and it delivered improved operating margins in its US student bus and UK bus divisions. Unadjusted operating profits for FirstGroup’s UK rail division, which includes the South Western Railway and Great Western Railway franchises, fell from £30.2m to £27.5m even though revenue increased 80 per cent to £1.2bn.

https://www.ft.com/content/d5e572f6-e8df-11e8-885c-e64da4c0f981

 

[winston270twm]

This Investors Chronical assessment of First Group's recent Half Year results makes interesting reading:

The challenge assessing FirstGroup's profits

By Phil Oakley

The way FirstGroup (FGP) presents both its adjusted profits and cash flow performance frustrates me. Its income statement is often littered with exceptional one-off costs which make it difficult to work out its true level of profitability.

I’ve written a lot about FirstGroup (FGP) in my magazine column this week when discussing how to work out a company’s true underlying profits. The conclusions are not particularly flattering for the company.

In many ways, this company should be doing a lot better than it is, as it has some reasonable assets in its UK and US bus companies. It has problems with its long-distance bus services in the US and its rail operations in the UK. It also has lots of debt.

My frustration with FirstGroup is concerned with the presentation of its adjusted profits and its cash flow performance. Its income statement is often littered with exceptional one-off costs which make it difficult to work out its true level of profitability.

This week’s half year results were no different. The Student and Transit business in the US saw a good increase in profits but this was largely offset by lower profits at Greyhound. The UK bus business performed well with a good increase in profits.

Overall, adjusted operating profits increased slightly from £89.4m to £92.4m. But those profits were presented after significant adjusting items. Another big restructuring expense is not a good sign of health and is an outflow of value whether it is exceptional or not. The £17.6m of intangible asset amortisation includes £8.6m relating to software, which is a real cost in my opinion.

Where I have real concerns about FirstGroup is the size of provisions on its balance sheet and their scope to muddy the waters in terms of its underlying profitability.

The company continues to spend more cash (utilising the provision) on self insurance provisions on its US buses than it charges as an expense to the income statement. This may be down to timing and fleet issues and not relate to any wrongdoing, but the fact that the claims are big and estimated means there are grounds to scrutinise the expenses.

The other provision issue relates to the company’s Trans Pennine Express (TPE) rail franchise. Last year, the company made a provision of £106.3m for the expected losses for the remainder of the franchise until 2023. This was treated as an exceptional item in the accounts with all the expected losses being realised upfront in full. This means the losses will be excluded from underlying results in future years.

For the first six months of 2018/19, the company’s underlying rail profits fell from £31.1m to £29.3m but do not include any losses from TPE. Looking at the provision note, the losses look like they were £20.7m which utilised some of the provision.

Because the losses have been realised upfront as an exceptional item, analysts and investors are being told to ignore them. This is all above board as far as accounting is concerned, but I can’t help thinking that FirstGroup’s rail profits were £20.7m lower, at £8.6m rather than £29.3m. In my view, the provision therefore distorts the picture of underlying profitability, but many investors will have ignored this.

I think FirstGroup’s true profits are probably lower than they are currently presented and that debt levels are far too high. I therefore struggle to find the shares attractive despite the very low one year forecast rolling PE of 6.6 times, at a share price of 86.5p. If I was going to invest money in this challenging sector, I would be looking at National Express (NEX), which is by far the best managed business with the best assets in my opinion.

https://www.investorschronicle.co.u...the-challenge-assessing-firstgroup-s-profits/

 

[Robertj21a]

I'm very pleased that this has been highlighted by a respected publication. This is exactly why I often refer to First Group as 'fudging' the figures.

 

[Surreyman]

I'm very pleased that this has been highlighted by a respected publication. This is exactly why I often refer to First Group as 'fudging' the figures.

To be fair to First (Choke, choke - I am certainly no fan by the way), they are only doing in accounting terms what all major 'Corporates' do, blame the accounting standards by all means.
As for the under - performing Rail franchises, TPE & SWR, discussions are going on with Dft.
As I said in an earlier post, Dft/Government have got a lot to lose if any more current Rail franchises fail (Doesn't just apply to First Group Franchises).
Matthew Gregory has also said words to the effect of, that the the Deficits in the UK Defined Benefit scheme(S) restrict Firsts options on restructuring/selling off parts of the business.

 

[TheGrandWazoo]

To be fair to First (Choke, choke - I am certainly no fan by the way), they are only doing in accounting terms what all major 'Corporates' do, blame the accounting standards by all means.
As for the under - performing Rail franchises, TPE & SWR, discussions are going on with Dft.
As I said in an earlier post, Dft/Government have got a lot to lose if any more current Rail franchises fail (Doesn't just apply to First Group Franchises).
Matthew Gregory has also said words to the effect of, that the the Deficits in the UK Defined Benefit scheme(S) restrict Firsts options on restructuring/selling off parts of the business.

I agree with you. They are GAAP compliant procedures and it's exactly what one of my former employers did. Also, it's a bit of "damned if you do" scenario - don't show it as a one off and you're fudging it the other way (i.e. kicking the can down the street or not really revealing the true extent of issues).

I also agree with you on the franchise issue - this government will probably not want another franchise fail so any issues with SWR may be ranked in the "Network Rail delays" pile and so premiums/penalties waived to an extent. That said, another more ardently public sector focussed government (general election dependent) who wishes to take control will be more disposed to letting a franchise fail!

 

[Robertj21a]

To be fair to First (Choke, choke - I am certainly no fan by the way), they are only doing in accounting terms what all major 'Corporates' do, blame the accounting standards by all means.
As for the under - performing Rail franchises, TPE & SWR, discussions are going on with Dft.
As I said in an earlier post, Dft/Government have got a lot to lose if any more current Rail franchises fail (Doesn't just apply to First Group Franchises).
Matthew Gregory has also said words to the effect of, that the the Deficits in the UK Defined Benefit scheme(S) restrict Firsts options on restructuring/selling off parts of the business.

Yes, I understand that. Even so, it doesn't explain why I always find First Group's figures significantly more difficult to follow, seemingly with an excess of 'excuses' and strange adjustments.

 

[overthewater]

Pension deficit clouds FirstGroup break-up
http://www.passengertransport.co.uk/2018/11/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.

DON’T MISS OUT – GET YOUR COPY! – click here to subscribe!

 

[Surreyman]

The December "Modern Railways" magazine has an article by Roger Ford on 'Zombie' Rail Franchises, SWR gets a name check amongst others, specifically about Franchises failing to meet their financial targets, he refers to 'CLE' - 'Central London Employment', seems that this once reliable indicator of Commuting numbers is somewhat askew, discussions ongoing.
TPE doesn't get a mention but the article does provide some interesting details on Franchise terms.

 

[winston270twm]

I presume the pension deficits and the amount FGP would need to raise to make a disposal viable (and add shareholder value) is why none have occurred to date, and also why they FGP are sticking with Greyhound.

 

[overthewater]

Couldn't someone buy out First, on the cheap Sell Greyhound and use that money to plug the pension deficits?

 

[Surreyman]

Well I keep hoping!!!!
There are several different combinations, North America versus Uk/Ireland, Rail/Bus, profitable versus 'not so profitable' (Interpret how you will).
Apparent 'Common Sense' says you sell off the bits that are less profitable or which are judged as not having good future prospects, problem is any buyer is only going to buy the less desirable parts for a very low price, this doesn't do much for shareholder value.
i know next to nothing about the North American businesses save that they are apparently profitable and improving their performance. (Greyhound , I assume has been severely 'Rightsized' and may come good).
The Money Men/Financiers want a new Dynamic board of Directors to rapidly turn the company around, increase margins, pay down debt, start paying decent dividends and presumably do something about that nasty DB Pension(s) deficit, all of which (if possible?) certainly isn't going to happen quickly.

 

[Volvodart]

The real underperforming part is First Student. With its size, a small margin improvement would make all the difference to profits.

 

[Robertj21a]

Well I keep hoping!!!!
There are several different combinations, North America versus Uk/Ireland, Rail/Bus, profitable versus 'not so profitable' (Interpret how you will).
Apparent 'Common Sense' says you sell off the bits that are less profitable or which are judged as not having good future prospects, problem is any buyer is only going to buy the less desirable parts for a very low price, this doesn't do much for shareholder value.
i know next to nothing about the North American businesses save that they are apparently profitable and improving their performance. (Greyhound , I assume has been severely 'Rightsized' and may come good).
The Money Men/Financiers want a new Dynamic board of Directors to rapidly turn the company around, increase margins, pay down debt, start paying decent dividends and presumably do something about that nasty DB Pension(s) deficit, all of which (if possible?) certainly isn't going to happen quickly.

It would happen a lot quicker if the shareholders vote to accept the next good offer for the Group that comes along.

 

[overthewater]

I take it Deans talk was just a load of hot air a while back?

 

[winston270twm]

It would happen a lot quicker if the shareholders vote to accept the next good offer for the Group that comes along.

There's not going to be any good offers, that's FGP's problem. Any suitors will want all or parts of FGP at knock down prices.

It's clear FGP can't sell anything due to said pension defecits not being covered & shareholder value not being created. This is why they're sticking with Greyhound, even though it's none core.

I take it Deans talk was just a load of hot air a while back?

NX may well have made offer proposals for parts of the business (UK Bus), but for offers to progress to a transaction they need to be acceptable to the seller & benefit their shareholders......

 

[Robertj21a]

There's not going to be any good offers, that's FGP's problem. Any suitors will want all or parts of FGP at knock down prices.

.

It was a bit tongue in cheek !

The major shareholders must want to see something significant happen before too long, I'm amazed at how patient they have been to date. We've already had a couple of attempts to get sufficient votes on board and it will be interesting to see how many more similar attempts might yet come along. Alternatively, one or two major shareholders may simply decide that they've had enough, and offload all their shares - that would drop the price quite a bit, and thereby encourage a further bid.

 

[winston270twm]

It was a bit tongue in cheek !

The major shareholders must want to see something significant happen before too long, I'm amazed at how patient they have been to date. We've already had a couple of attempts to get sufficient votes on board and it will be interesting to see how many more similar attempts might yet come along. Alternatively, one or two major shareholders may simply decide that they've had enough, and offload all their shares - that would drop the price quite a bit, and thereby encourage a further bid.

They may want to, but it seems that FGP is stuck between a rock & a hard place.... if they sell anything is sounds as though they will take a hit on it, if the group receives a takeover offer, it will reflect the risks of taking on the whole group. I doubt MG can turnaround fortunes within the next two years.

Any major shareholders selling now would be taking a big hit on the prices they paid.

 

[Driver362]

I have it on good authority that deans was losing in the region of £1mil per annum a few years ago

 

[winston270twm]

I have it on good authority that deans was losing in the region of £1mil per annum a few years ago

overthewater was referring to 'Dean' Finch's talk, about NX Group being interested in buying parts of First UK Bus

 

[Robertj21a]

They may want to, but it seems that FGP is stuck between a rock & a hard place.... if they sell anything is sounds as though they will take a hit on it, if the group receives a takeover offer, it will reflect the risks of taking on the whole group. I doubt MG can turnaround fortunes within the next two years.

Any major shareholders selling now would be taking a big hit on the prices they paid.

Agreed, but major shareholders only have to look at a graph of where FGP has gone (or not gone) for all the recent years to realise that this massive super tanker is not just taking the expected very long time to turn around, the current evidence suggests that it may have gone aground in the process. Even a novice trader knows that there are occasions when it's better to take a hit and get back at least some of the investment rather than see it sitting around doing nothing significant, year after year.

 

[winston270twm]

Agreed, but major shareholders only have to look at a graph of where FGP has gone (or not gone) for all the recent years to realise that this massive super tanker is not just taking the expected very long time to turn around, the current evidence suggests that it may have gone aground in the process. Even a novice trader knows that there are occasions when it's better to take a hit and get back at least some of the investment rather than see it sitting around doing nothing significant, year after year.

I guess it largely depends at level the major shareholders got in at & whether they took part in the right issue to maintain their percentage stake / average down. I just can't see anyone willing to make a half decent offer for the group / First can't afford to accept low ball offers for selling off bits, so it's stale mate....

 

[TheGrandWazoo]

I guess it largely depends at level the major shareholders got in at & whether they took part in the right issue to maintain their percentage stake / average down. I just can't see anyone willing to make a half decent offer for the group / First can't afford to accept low ball offers for selling off bits, so it's stale mate....

Indeed - some will have come in as opportunists. Some will have their own governance issues should they exit with a thumping loss.

One bit of good news will be the maturing of another bond this next year though, to be fair, it's not the crippling high level as the one that was dealt with this year but should still deliver a benefit in terms of lower finance costs.

 

[Driver362]

My humble Apologies, that's what happens when our having a.quick look at forum at lay over point ,suffice to say this information was from 5/6 years ago ,it would.appear to be I better financial footing nowadays with all that new stock and multiple 're paints at what 5k a time, again old figures for 're paints