First Group: General Discussion

[TheGrandWazoo]

I agree with your judgement. Let me just ask one question, as an example: what do we think the First Essex core network actually is?

Difficult for me to say - not knowing the area. However, I think the actual "patch" is now about right. They've got rid of Clacton and apart from one trunk route to Harwich, that's been left to Go East. The one bit that doesn't look quite right is perhaps mid Essex and the lack of a Braintree depot or base these days. Being more forensic, you might argue that the fiddling about in Brentwood but otherwise, the territory isn't far wrong.

However, Braintree is perhaps a good example of the complexity issue.

• There's essentially a route to Colchester and a route to Chelmsford.
• The route to Colchester is essentially interworked with one half of the Chelmsford route to form a through route (70) taking 1hr 45 end to end every 30 mins.
• The other half of the Chelmsford route runs as the 42B every 30 mins, forming part of the 42 group that runs every ten mins from the Hospital into Chelmsford and across the other side to Galleywood; the 42A runs hourly every hour from Stanstead and Dunmow incidentally.
• So Braintree to Chelmsford gets 4 buses per hour Mon to Fri with 2 x 42B and 2 x 70
  • However on Saturday, the 42B runs hourly but are they every 20 mins? No, it's 15/15/30.

I'm sure there's a better way of doing things and that's just one example.

 

[winston270twm]

passenger numbers dropped off several weeks before the actual lockdown. I’m looking at the staff briefing figures and £7.6m Is the adjusted profit/loss in 2019/20 accounts Attributed to corona

Yes, I know numbers started dropping off several weeks before, that's why I can't find the £7.6m figure then, if it's from the staff briefing.

 

[winston270twm]

We will be able to compare it next week when Stagecoach report results.

Stagecoach results will include 4.5 weeks of lockdown up to 27th April.

 

[Volvodart]

We will still be able to compare it! You would have thought that the losses may not be too bad after services were reduced and additional Government funding was available.

 

[43096]

Matthew Gregory only came in to be CFO in Dec 2015, which was about the same time as TPE's franchise was awarded. Priced to win at any cost, it had a major write down along with Greyhound, costing TOT his job. In fairness, he was there for SWR which has had a write down but for other reasons (i.e. an onerous set of govt franchising conditions). Think with David Martin (doing the work of Coast) that the break up will come and the UK/US split has to come sooner rather than later.

There's the excuses again.... SWR wasn't First's fault it's the nasty Government for the terms and conditions. It's rather simple: if you don't like the terms, don't sign. It rather says to me First didn't understand what they were signing, which is worrying given the number of bids they've submitted over the years; they're not a new entrant to the industry. More fool them, and yet another error of judgement.

TBH, the best outcome would be to break the thing up. It would also help deal with the corporate culture.

 

[Volvodart]

Probably an element of it was not having someone like Martin on board then, but maybe no one suitable wanted it!

 

[TheGrandWazoo]

There's the excuses again.... SWR wasn't First's fault it's the nasty Government for the terms and conditions. It's rather simple: if you don't like the terms, don't sign. It rather says to me First didn't understand what they were signing, which is worrying given the number of bids they've submitted over the years; they're not a new entrant to the industry. More fool them, and yet another error of judgement.

It's not an excuse. Just an explanation of what is wrong with the franchising system. TPE was a succession of poor assumptions that were made for the reasons I explained.

SWR for totally different reasons and whilst they undoubtedly they factored in risk, the reality was not as sold and they had nowhere to go. The same is true of Stagecoach handing back VTEC. That's one of the reasons behind the Williams Review as quite simply, if a tenderer gets it right then they make a tidy sum but get it wrong, they lose a lump (SWR), cut things back so much that it fails operationally (Northern) and/or hand it back (VTEC).

 

[43096]

It's not an excuse. Just an explanation of what is wrong with the franchising system. TPE was a succession of poor assumptions that were made for the reasons I explained.

SWR for totally different reasons and whilst they undoubtedly they factored in risk, the reality was not as sold and they had nowhere to go. The same is true of Stagecoach handing back VTEC. That's one of the reasons behind the Williams Review as quite simply, if a tenderer gets it right then they make a tidy sum but get it wrong, they lose a lump (SWR), cut things back so much that it fails operationally (Northern) and/or hand it back (VTEC).

Let’s be honest, UK rail franchising is a mug’s game: low returns if you get it right, high financial risk if not and high reputational risk. NatEx and Stagecoach have been smart enough to get out.

 

[DragonEast]

Maybe slightly off topic. I’m not 100% clued up on First’s Essex operations myself but how did the management structure work when it was split Eastern National/Thamesway?

Looking at Essex as two separate operations in my mind makes far more logical sense.

Thamesway - Outer London (Basildon, Southend)

Eastern National - Rural Essex (Chelmsford, Colchester)

Would taking a different approach to the separate kinds of operation be beneficial? Or if they wanted to sell breaking the business up? (Ensign or Stephensons for example would probably both be interested in acquiring just the traditional Thamesway territory)

Could argue that rural Essex (including Colchester/Chelmsford) may be managed better as part of Eastern Counties... with priority being to simplify the networks! So many of Essex’s routes have A/B/C/X variations and look so complicated.

I don't know so I may be wrong. but I think the Thamesway "split" wasn't so much operational as marketing. Besides both Stagecoach and Arriva manage the different sorts of operational areas together, as do First elsewhere.

But what I think is important is developing customer loyalty, and especially perhaps in the post-COVID world. FSW seems to have got the point. I've mentioned before that the south Essex operations seem to be better at that, and Eastern National historically poor. I do wonder whether the ex-London management in Essex placed the emphasis more solely on operational efficiency, as in London tfl take the customer risk with commissioning? It almost seems like it, and they have some trouble in seeing things from the customer perspective, hence the complexity of the network. Perhaps they tried a bit too hard to emulate tfl without the resources, and the complerxity is as they try to retain as much of that network as possible?

It just seems to me, at least locally, that the small independents have been better at retaining services and passengers during the lockdown. Perhaps in part that customer loyalty thing again, as well as size and risk?

I'm not a busman (and it shows) but it seems to me that if there is a Golden Rule it is that whatever the operational issues, you can't let the passengers suffer?

 

[TheGrandWazoo]

I don't know so I may be wrong. but I think the Thamesway "split" wasn't so much operational as marketing.

Might it also have been a means of reducing the union influence? There were a few similar splits across the UK at that time

 

[Cesarcollie]

I don't know so I may be wrong. but I think the Thamesway "split" wasn't so much operational as marketing. Besides both Stagecoach and Arriva manage the different sorts of operational areas together, as do First elsewhere.

But what I think is important is developing customer loyalty, and especially perhaps in the post-COVID world. FSW seems to have got the point. I've mentioned before that the south Essex operations seem to be better at that, and Eastern National historically poor. I do wonder whether the ex-London management in Essex placed the emphasis more solely on operational efficiency, as in London tfl take the customer risk with commissioning? It almost seems like it, and they have some trouble in seeing things from the customer perspective, hence the complexity of the network. Perhaps they tried a bit too hard to emulate tfl without the resources, and the complerxity is as they try to retain as much of that network as possible?

It just seems to me, at least locally, that the small independents have been better at retaining services and passengers during the lockdown. Perhaps in part that customer loyalty thing again, as well as size and risk?

I'm not a busman (and it shows) but it seems to me that if there is a Golden Rule it is that whatever the operational issues, you can't let the passengers suffer?

The Thamesway/EN split was complete. Aside from sharing an accounts/payroll function, each company had its own MD, Fleet Engineer, Head Office, Marketing function and (in due course) pay and conditions. It is probably true to say that Thamesway ‘modernised’ and implemented new working practices fairly early on, tackling some of the age old industrial relations barriers. Eastern National adopted a far more conservative approach in terms of working practices, marketing and general operational style.

 

[DragonEast]

The Thamesway/EN split was complete. Aside from sharing an accounts/payroll function, each company had its own MD, Fleet Engineer, Head Office, Marketing function and (in due course) pay and conditions. It is probably true to say that Thamesway ‘modernised’ and implemented new working practices fairly early on, tackling some of the age old industrial relations barriers. Eastern National adopted a far more conservative approach in terms of working practices, marketing and general operational style.

Thank you for the correction. That's interesting as later on I seem to recall that Chelmsford depot had a major dispute that led to the dismissal of an entire shift (and the setting up of a union sponsored rival operation for at least six months) which until recently left a lasting legacy in a reluctance towards activism, and a decade or so ago Basildon had something of a reputation for being a troublesome depot (not now, though!). So perhaps these things are never quite written in stone, but nonetheless some of that "independence" in spirit might still be retained! (I think Eastern Counties may have something similar between their Norwich base and the former Great Yarmouth Transport/Lowestoft Corpn operations along the coastal strip).

 

[Cesarcollie]

Thank you for the correction. That's interesting as later on I seem to recall that Chelmsford depot had a major dispute that led to the dismissal of an entire shift (and the setting up of a union sponsored rival operation for at least six months) which until recently left a lasting legacy in a reluctance towards activism, and a decade or so ago Basildon had something of a reputation for being a troublesome depot (not now, though!). So perhaps these things are never quite written in stone.

Things do change over time as personalities change. However, Basildon’s problem was never so much industrial relations related, as the fact that it’s too close to London and so recruitment and especially retention of good quality staff was a major issue, resulting in lost mileage and associated unreliability.

 

[Volvodart]

Let’s be honest, UK rail franchising is a mug’s game: low returns if you get it right, high financial risk if not and high reputational risk. NatEx and Stagecoach have been smart enough to get out.

If you are short of cash like Firstgroup, the upfront payments come in handy!

 

[TheGrandWazoo]

Let’s be honest, UK rail franchising is a mug’s game: low returns if you get it right, high financial risk if not and high reputational risk. NatEx and Stagecoach have been smart enough to get out.

NX got out. Stagecoach got booted.

It used to be a low risk, low return exercise but the government have been bitten by the procurement bug in trying to nail people to the floor then wondering why it doesn't work. However, it is cash positive so does help with the cash flow.

 

[baza585]

NX got out. Stagecoach got booted.

It used to be a low risk, low return exercise but the government have been bitten by the procurement bug in trying to nail people to the floor then wondering why it doesn't work. However, it is cash positive so does help with the cash flow.

Which I think is why First are more prepared to bid more aggressively for rail franchises than peers.

Given the level of control DafT exert over more recent franchises, they are much more akin to concessions. Which I think is the way the Williams report will recommend going, so that the Government takes the revenue risk, though I suspect the Treasury may have a rather different view.

In that environment, cost control is the route to the loot. Ironically Moir was very good (some would say too good) at cost control, it was vanity projects that were his Achilles heel......

 

[BeHereNow]

Surely the main problem with franchises going wrong wasn't the DfT control, it was that revenue hasn't lived up to previous growth rates. Remember the 'good old days' when franchises made money? Much less moaning about state control!

 

[43096]

It used to be a low risk, low return exercise but the government have been bitten by the procurement bug in trying to nail people to the floor then wondering why it doesn't work. However, it is cash positive so does help with the cash flow.

I'm not sure how cash positive it is now, given the increasing amounts of parent company guarantees requiring cash bonds and season ticket guarantees that are needed. Incidentally, this is one of the primary reasons First have partnered with the likes of MTR and Trenitalia - First having more difficulty financing these. It also explains why large state owned operators have done well in recent franchise competitions - they have access to far more cash to fund them.

 

[tbtc]

More rocky roads ahead. Increase in people working from home = less bus passengers and increased investment required due to LEZ's etc. Local Authorities with no money!

I agree that things look bleak overall (fewer people in work, fewer people commuting, a significant loss of evening trade etc etc).

But we don't know if there will be unexpected boosts to some areas - e.g. fewer people flying abroad for summer holidays could make somewhere like Weymouth more attractive for tourists - there will certainly be a lot of "losers" but there may be some "winners".

Which bus companies will be flexible enough to cope with the changing demands is another story though...

Even before Laidlaw, new vehicle investment was cut to fund expansion in the UK, buying up firms like Mainline, GM North, SB Holdings and Cawlett. Steady investment in regional fleets (as was the case in Badgerline and early First Bus days) seemed to became a whack-a-mole strategy with vehicles sent into fleets to deal with problems like O license and maintenance issues, to placate PTEs, or to meet obligations for a particular contract or partnership.

I've mentioned before, to the chagrin of one individual, how one OpCo went from regular investment in 1990-5 to nothing until 2014, save for deliveries in 1998, and a splurge in 2004 that was underpinned by various LA funding, and that is true of many other OpCos

There was a similar pattern here in South Yorkshire.

A spending splurge around 1998 when First took over and flooded us with swanky modern B10BLEs... then around fifty B7L "toilet boxes" from the 2002 Commonwealth Games in Manchester... then an influx of Geminis around 2007... and precious little until the Streetlite invasion of 2013/2014... seems a strange way to run a business IMHO, but replicated across other OpCos (as you say).

 

[TheGrandWazoo]

I'm not sure how cash positive it is now, given the increasing amounts of parent company guarantees requiring cash bonds and season ticket guarantees that are needed. Incidentally, this is one of the primary reasons First have partnered with the likes of MTR and Trenitalia - First having more difficulty financing these. It also explains why large state owned operators have done well in recent franchise competitions - they have access to far more cash to fund them.

A PCG or Parental Bond isn't the same as cashflow. The partnering is a way of spreading the risk.

 

[DragonEast]

Difficult for me to say - not knowing the area. However, I think the actual "patch" is now about riight.

Perhaps I haven't got it then. I think the network creates the "territory", not the other way around. That's the way it used to be in the days of the old monopolies. Perhaps there is still the nostalgia for those "good 'ole days" which we are heading back to? I suspect the 42 with its tentacles works financially, which separate services (and a Braintree outstation) wouldn't, and didn't. As to which is "better" for the passengers? if that's the point - on which I make a further comment below. It better meets the needs of the company.They, at least, think it's efficiency. Isn't that what it's all about?

I agree with you that customers (and regular passengers, at least) are reappraising business. In my case, and for a number of those I speak to, the new (and hard) distinction will be between those that serve the customer and those that have demonstrated they just serve themselves, the "new" scammers if you like. COVID-19 has brought this emerging shadow into the light. On what side of the divide the bus companies lie we may yet have to make our minds up about. It won't take long, and there probably isn't much they can do about it now. It'll be more a local decision than a "national" one, which will make it harder for the monoliths (or dinosaurs?). Old habits have been broken. Which I'd have thought is a good thing. It should have happened long ago. The world has changed, even before coronavirus came on the scene.

 

[TheGrandWazoo]

Perhaps I haven't got it then. I think the network creates the "territory", not the other way around. That's the way it used to be in the days of the old monopolies. Perhaps there is still the nostalgia for those "good 'ole days" which we are heading back to? I suspect the 42 with its tentacles works financially, which separate services (and a Braintree outstation) wouldn't, and didn't. As to which is "better" for the passengers? if that's the point - on which I make a further comment below. It better meets the needs of the company.They, at least, think it's efficiency. Isn't that what it's all about?

I agree with you that customers (and regular passengers, at least) are reappraising business. In my case, and for a number of those I speak to, the new (and hard) distinction will be between those that serve the customer and those that have demonstrated they just serve themselves, the "new" scammers if you like. COVID-19 has brought this emerging shadow into the light. On what side of the divide the bus companies lie we may yet have to make our minds up about. It won't take long, and there probably isn't much they can do about it now. It'll be more a local decision than a "national" one, which will make it harder for the monoliths (or dinosaurs?). Old habits have been broken. Which I'd have thought is a good thing. It should have happened long ago. The world has changed, even before coronavirus came on the scene.

The network creates the territory..... well, yes but they've elected to vacate the Clacton area as it simply didn't pay its way and this is something that we've seen First do but also Arriva (mid Wales, north Northumberland) in simply drawing their horns and exiting an area.

As for Braintree, it was more perhaps a case of a local base that might be easier to staff and also obtaining or maintaining market share, but take your point that it is something that they had previously. I'm not saying it in some nostalgic respect or else I'd have also recommended bases at Maldon, Brentwood or a return to Clacton However, the way in which the services are formed seems to be based on what operational benefits rather than customer. The rationale for extending running from Colchester to Chelmsford via Braintree....? Is there some cross town customer flow or for operational expediency? I suspect the latter and wonder how that may impact on reliability. The 42 again seems to be a cross town service from Galleywood to Broomfield Hospital and then they've taken the opportunity to simply combine with the Braintree or Stansted buses running up the same road. Efficient but reliable?

As for your second paragraph about scammers and shadows.... I haven't the foggiest what you're on about.

 

[DragonEast]

The network creates the territory..... well, yes but they've elected to vacate the Clacton area as it simply didn't pay its way and this is something that we've seen First do but also Arriva (mid Wales, north Northumberland) in simply drawing their horns and exiting an area.

As for Braintree, it was more perhaps a case of a local base that might be easier to staff and also obtaining or maintaining market share, but take your point that it is something that they had previously. I'm not saying it in some nostalgic respect or else I'd have also recommended bases at Maldon, Brentwood or a return to Clacton However, the way in which the services are formed seems to be based on what operational benefits rather than customer. The rationale for extending running from Colchester to Chelmsford via Braintree....? Is there some cross town customer flow or for operational expediency? I suspect the latter and wonder how that may impact on reliability. The 42 again seems to be a cross town service from Galleywood to Broomfield Hospital and then they've taken the opportunity to simply combine with the Braintree or Stansted buses running up the same road. Efficient but reliable?

As for your second paragraph about scammers and shadows.... I haven't the foggiest what you're on about.

Of course you're right: throughout the whole of the south-east cross-town services are the bane of bus operators in terms of reliability which is why most operators avoid them where possible or modify their routes accordingly. First seem to be the exception. To the local passengers, as others have pointed out, the consequence is that timetables are thereotical. Few passengers now make cross-town journeys, as the buses still do; now that industry and commerce have consistently moved out in favour of housing over the last 50 years. The sole exception is the hospital service. The 70 and 100 are recent (well a decade ago, recent in Essex history) route amalgamations, and both have always suffered from chronic unreliability and, before COVID, chronic overcrowding at times. The whole routes, as indeed the whole town centre, is regularly congested. Which is why the COVID lockdown was such a blessing: it removed the other traffic, which nothing else does. Without passengers, there was no risk of overcrowding either. So the reduced bus service ran perfectly, for the first time ever. Everything is made worse as, not unusually for the south-east all new housing is concentrated to the north, due to a tight Green Belt boundary around the rest of the town. And, since the 1970s, Whitehall's answer to everything has been housing growth in the south-east, and apparently still is!

Chelmsford North is still waiting for its second planned railway station, after 20 years (though Cambridge, with even worse traffic, waited as long). Meanwhile each developer pays for new temporary bus routes and give out free season tickets, for the time being, so the roads can be flooded with their parallel commuter bus routes (and give First a guaranteed income for a year or two), even if the buses run empty for most of the day and at weekends. The new towns planned east and west of Colchester are held up at Inquiry while the Inspector awaits a transport solution. Do the buses have any role to play? We don't know.

My second paragraph was oblique. But, and this is not a comment specifically on First but applies to all big operators in this region, they have a reputation for treating their passengers as a captive market. I think COVID-19 has taught the passengers (at least) that they aren't. Maybe the bus operators are in for a shock if they are expecting an eventual return to "business as usual".

 

[Cesarcollie]

Of course you're right: throughout the whole of the south-east cross-town services are the bane of bus operators in terms of reliability which is why most operators avoid them where possible or modify their routes accordingly. First seem to be the exception. To the local passengers, as others have pointed out, the consequence is that timetables are thereotical. Few passengers now make cross-town journeys, as the buses still do; now that industry and commerce have consistently moved out in favour of housing over the last 50 years. The sole exception is the hospital service. The 70 and 100 are recent (well a decade ago, recent in Essex history) route amalgamations, and both have always suffered from chronic unreliability and, before COVID, chronic overcrowding at times. The whole routes, as indeed the whole town centre, is regularly congested. Which is why the COVID lockdown was such a blessing: it removed the other traffic, which nothing else does. Without passengers, there was no risk of overcrowding either. So the reduced bus service ran perfectly, for the first time ever. Everything is made worse as, not unusually for the south-east all new housing is concentrated to the north, due to a tight Green Belt boundary around the rest of the town. And, since the 1970s, Whitehall's answer to everything has been housing growth in the south-east, and apparently still is!

Chelmsford North is still waiting for its second planned railway station, after 20 years (though Cambridge, with even worse traffic, waited as long). Meanwhile each developer pays for new temporary bus routes and give out free season tickets, for the time being, so the roads can be flooded with their parallel commuter bus routes (and give First a guaranteed income for a year or two), even if the buses run empty for most of the day and at weekends. The new towns planned east and west of Colchester are held up at Inquiry while the Inspector awaits a transport solution. Do the buses have any role to play? We don't know.

My second paragraph was oblique. But, and this is not a comment specifically on First but applies to all big operators in this region, they have a reputation for treating their passengers as a captive market. I think COVID-19 has taught the passengers (at least) that they aren't. Maybe the bus operators are in for a shock if they are expecting an eventual return to "business as usual".

Of course you're right: throughout the whole of the south-east cross-town services are the bane of bus operators in terms of reliability which is why most operators avoid them where possible or modify their routes accordingly. First seem to be the exception. To the local passengers, as others have pointed out, the consequence is that timetables are thereotical. Few passengers now make cross-town journeys, as the buses still do; now that industry and commerce have consistently moved out in favour of housing over the last 50 years. The sole exception is the hospital service. The 70 and 100 are recent (well a decade ago, recent in Essex history) route amalgamations, and both have always suffered from chronic unreliability and, before COVID, chronic overcrowding at times. The whole routes, as indeed the whole town centre, is regularly congested. Which is why the COVID lockdown was such a blessing: it removed the other traffic, which nothing else does. Without passengers, there was no risk of overcrowding either. So the reduced bus service ran perfectly, for the first time ever. Everything is made worse as, not unusually for the south-east all new housing is concentrated to the north, due to a tight Green Belt boundary around the rest of the town. And, since the 1970s, Whitehall's answer to everything has been housing growth in the south-east, and apparently still is!

Chelmsford North is still waiting for its second planned railway station, after 20 years (though Cambridge, with even worse traffic, waited as long). Meanwhile each developer pays for new temporary bus routes and give out free season tickets, for the time being, so the roads can be flooded with their parallel commuter bus routes (and give First a guaranteed income for a year or two), even if the buses run empty for most of the day and at weekends. The new towns planned east and west of Colchester are held up at Inquiry while the Inspector awaits a transport solution. Do the buses have any role to play? We don't know.

My second paragraph was oblique. But, and this is not a comment specifically on First but applies to all big operators in this region, they have a reputation for treating their passengers as a captive market. I think COVID-19 has taught the passengers (at least) that they aren't. Maybe the bus operators are in for a shock if they are expecting an eventual return to "business as usual".

The 100 was a simplification of the 152/3/4 in about 1994, I think. However these still ran Lakeside - Chelmsford, although I don’t know their origins. However, i would guess the basic route has existed for at least 30 years.....?

 

[TheGrandWazoo]

Of course you're right: throughout the whole of the south-east cross-town services are the bane of bus operators in terms of reliability which is why most operators avoid them where possible or modify their routes accordingly. First seem to be the exception. To the local passengers, as others have pointed out, the consequence is that timetables are thereotical. Few passengers now make cross-town journeys, as the buses still do; now that industry and commerce have consistently moved out in favour of housing over the last 50 years. The sole exception is the hospital service. The 70 and 100 are recent (well a decade ago, recent in Essex history) route amalgamations, and both have always suffered from chronic unreliability and, before COVID, chronic overcrowding at times. The whole routes, as indeed the whole town centre, is regularly congested. Which is why the COVID lockdown was such a blessing: it removed the other traffic, which nothing else does. Without passengers, there was no risk of overcrowding either. So the reduced bus service ran perfectly, for the first time ever. Everything is made worse as, not unusually for the south-east all new housing is concentrated to the north, due to a tight Green Belt boundary around the rest of the town. And, since the 1970s, Whitehall's answer to everything has been housing growth in the south-east, and apparently still is!

Chelmsford North is still waiting for its second planned railway station, after 20 years (though Cambridge, with even worse traffic, waited as long). Meanwhile each developer pays for new temporary bus routes and give out free season tickets, for the time being, so the roads can be flooded with their parallel commuter bus routes (and give First a guaranteed income for a year or two), even if the buses run empty for most of the day and at weekends. The new towns planned east and west of Colchester are held up at Inquiry while the Inspector awaits a transport solution. Do the buses have any role to play? We don't know.

My second paragraph was oblique. But, and this is not a comment specifically on First but applies to all big operators in this region, they have a reputation for treating their passengers as a captive market. I think COVID-19 has taught the passengers (at least) that they aren't. Maybe the bus operators are in for a shock if they are expecting an eventual return to "business as usual".

Again, I can only stress my lack of insight into First Essex. I only visited fleetingly and the last maiden aunts (who lived near Colchester) have since died, so I am looking from afar with some desktop (or armchair) research. I don't know the specifics of First Essex and, of course, don't know the fundamentals of the business; staff retention and recruitment, lost mileage, late running, spend per capita, ENCTS remuneration levels etc. Similarly, there may be some travel patterns that explain some of the convoluted routes etc. I can merely look at the surface and see a complex array of route variations, little marketing, and an imbalanced fleet profile (that includes a substantial number of mature vehicles i.e. >12 years old).

What is fair to say is this.... Buses are not viewed as integral by developers and that is borne out across the country, and that I don't believe that any operator believes that a) they have a captive market and b) that business will return as usual; even First are bracing themselves for a drop to 70-80% of current levels if we ever do get back to normal.

 

[winston270twm]

We will still be able to compare it! You would have thought that the losses may not be too bad after services were reduced and additional Government funding was available.

The Stagecoach Announcement is far more upbeat than First Group's was, no mention of 'material uncertainties' from them. There's even prospects of them entering new markets in Sweden & Dubai.

Liberium Capital have tipped them as a buy:

UK | BUSINESS SERVICES, BUILDING, LEISURE & TRAVEL | TRANSPORT | SGC LN | MARKET CAP £278m | 22 July 2020^
Stagecoach

FY results ahead, management expects lasting COVID-19 impact

BUY
Target price 100p | Published price 50p

The FY results were not as bad as feared, beating both our forecasts and consensus. As expected, London Bus has been supported by its contractual structures and government financial support for Regional Bus has seen the group remain cash generative, despite lockdown. Liquidity remains strong and covenant waivers are in place for the next year. However, management’s outlook is very cautious, anticipating a lasting impact from COVID-19 on local travel patterns. If correct, this would undermine the central argument of our investment case. We believe management is too pessimistic, but the level of uncertainty is unprecedented.

Results headlines (year to April)
PBT (normalised) £90.9m (-32% YoY, vs. Liberum £86.1m, consensus £81.4m),

EPS (continuing, normalised) 13.5p (-30% YoY, vs. Liberum 12.8p, consensus 11.7p),

DPS 3.8p (-51% YoY, vs. Liberum 3.8p, consensus 3.8p),

Net debt £352.1m (vs. £253m last year pre-IFRS 16, Liberum £358.8m, consensus £410.7m).

Results not quite as bad as feared
The results for the year to April were ahead of consensus and our forecasts. As previously flagged, there was no final dividend. Compared with our forecasts, Regional Bus was light but more than offset by better than expected outturns at London Bus, Virgin Rail (franchises now ended) and central costs. The fall in profits reflects the COVID-19 impact at the tail end of the year in Regional Bus, along with the end of the group’s rail franchises.

Exceptional items were £49.6m, including asset impairments and onerous contract charges of £16.5m, surplus fuel hedging of £12.9m and a £17.8m impairment of the deferred payment instrument related to the sold North American operations.

Management expects a lasting impact on travel demand
Management is giving no guidance for the current year. However, it does expect a lasting impact on travel demand on COVID-19, through increases in remote working, home shopping and education and telemedicine. This is significantly more pessimistic than our assumptions. If Stagecoach is correct, it would completely undermine our positive investment case.

Stagecoach’s financial position remains strong, with positive cash flow continuing, current liquidity of £840m, and adjusted liquidity of £599m after deducting rail liabilities that have yet to be settled and facilities expiring in October 2021. As previously disclosed, banking covenant waivers have been agreed for the next two tests, so they will not now be tested again until October 2021.

We expect a full earnings recovery, although the timing of transition remains uncertain
Stagecoach has been cash generative through the most challenging lockdown phase of this crisis. Our investment base assumes that modest cash generation continues in the transition back to normal as government support is phased out gradually, and there is no material impact to the long-term earnings capacity of the group. The initial government funding for the bus industry has been supplemented by a second package that runs until mid-August, alongside a revised furlough scheme that runs until October. The arrangements beyond August have yet to be confirmed, but we remain confident of continued government support for however long it takes for activity to return to normal.

We understand why there is debate and scepticism about what the new normal looks like. In fairness, no one knows. In contrast to Stagecoach’s management, we do not anticipate a material persistent reduction in bus use in the long term. The majority of jobs are not suited to remote working, especially those in the lower half of the pay scale which we believe non-London bus passengers are skewed towards. There is also not enough road space or car parking capacity to accommodate a major shift to private car use. If anything, road space is going to fall again as more is allocated to cycling. Climate change and clean air policies are not going to be reversed, and these objectives cannot withstand a sustained increase in car use. In any case, a large proportion of bus users do not have access to a car.

If a full recovery is achieved, which is assumed in our current published forecasts, an April 2022E P/E of 3.5x and EV/EBITDA of 2.4x appear unduly pessimistic (vs. five-year averages of 11.0x and 5.6x, respectively). Our recommendation remains BUY with a SOTP-based target price of 100p.

Figure 1: Summary valuation (pre-results)

Valuation (year to Apr) 2019A​ 2020E​ 2021E​ 2022E​ P/E (x) 2.3​ 3.9​ 7.4​ 3.5​ Div Yield (%) 15.3​ 7.5​ 0.0​ 15.3​ FCFE Yield (%) 22.7​ 18.9​ 14.1​ 15.3​ EV/Sales (x) 0.3​ 0.5​ 0.6​ 0.4​ EV/EBITDA (x) 2.2​ 3.3​ 3.4​ 2.4​ EV/EBIT (x) 3.9​ 6.3​ 8.6​ 4.6​

Source: Company data, Liberum estimates

Figure 2: Summary financials (pre-results)

Financials (year to Apr) 2019A​ 2020E​ 2021E​ 2022E​ Revenue (£m) 1879​ 1376​ 1167​ 1400​ Adj. EBITDA (£m) 269.4​ 213.2​ 188.9​ 241.3​ margin (%) 11.5​ 15.5​ 16.2​ 17.2​ Adj. EBIT (£m) 138.0​ 101.3​ 74.8​ 123.7​ margin (%) 5.9​ 7.4​ 6.4​ 8.8​ Adj. PBT (£m) 132.9​ 86.1​ 47.2​ 98.5​ Adj. EPS (p) 22.1​ 12.8​ 6.9​ 14.4​ DPS (p) 7.7​ 3.8​ 0.0​ 7.7​ Net Debt (£m) 253.3​ 358.8​ 333.5​ 305.2​

Source: Company data, Liberum estimates

Mod note - For the sake of continuity, I will leave this post in place, but please continue any discussion of the Stagecoach financial results here:

Stagecoach Group (Group-wide matters)

Rather than take the FirstGroup thread off-course, I thought I'd start a thread specifically for Stagecoach, as they are under a lot of the same pressures as First, but Stagecoach cuts don't seem to attract the same level of attention. The accounts for Stagecoach companies currently being...

www.railforums.co.uk

 

[jay38a]

Aircoach restarted operations today on Belfast and Cork routes, with a limited 2 hourly service on both.

 

[DragonEast]

Again, I can only stress my lack of insight into First Essex. I only visited fleetingly and the last maiden aunts (who lived near Colchester) have since died, so I am looking from afar with some desktop (or armchair) research. I don't know the specifics of First Essex and, of course, don't know the fundamentals of the business; staff retention and recruitment, lost mileage, late running, spend per capita, ENCTS remuneration levels etc. Similarly, there may be some travel patterns that explain some of the convoluted routes etc. I can merely look at the surface and see a complex array of route variations, little marketing, and an imbalanced fleet profile (that includes a substantial number of mature vehicles i.e. >12 years old).

What is fair to say is this.... Buses are not viewed as integral by developers and that is borne out across the country, and that I don't believe that any operator believes that a) they have a captive market and b) that business will return as usual; even First are bracing themselves for a drop to 70-80% of current levels if we ever do get back to normal.

We go round in circles, as we (and First) have been doing for years, if not decades. Don't waste your time. No point in visiting. Nothing that we could come up with helps. It's already been tried, often over and over again.

How about breaking the logjam? Too many fingers in the pie, but could Go-Ahead and First find a way to swop their respective and seemingly failing tfc and First Essex (possibly without Thamesway who may be more attractive on the market), operations and make everyone happy (apart from the authorities no doubt, but nothing ever makes them happy). Fair exchange is no robbery. For the foreseeable they're both pretty well wholly funded by the Government. Maybe, eventually they'll come to it. In Essex, passengers (and staff) would be dancing in the streets, and maybe around Cornwall too.

I suspect if we're ever to get out of COVID, competition in public services is an idea past its time. The Unions have won after all.

 

[richw]

Last night First group share price closed higher than stagecoach group for the first time in a very long time.
First group 43.9p a share
Stagecoach 43.7p a share!

 

[TheGrandWazoo]

We go round in circles, as we (and First) have been doing for years, if not decades. Don't waste your time. No point in visiting. Nothing that we could come up with helps. It's already been tried, often over and over again.

Can't agree. The same arguments were made on First Devon & Cornwall - a basket case that had no future. However, with a clear strategy to improve market share, improve the base product (i.e. buses running where people want to go and on time) before investing in new vehicles and marketing, they've turned that business around.

The potential is there; this is not some post industrial, deprived wasteland of an area (now they've exited Tendring)

suspect if we're ever to get out of COVID, competition in public services is an idea past its time. The Unions have won after all.

Really?

Last night First group share price closed higher than stagecoach group for the first time in a very long time.
First group 43.9p a share
Stagecoach 43.7p a share!

I'll roll this grenade..... I look at First and see a business that is actually moving the right direction (or were before Covid). However, it's not a uniform picture and it's far from perfect. There are still flat spots like Essex and South Yorkshire, and as discussed recently, places like West Yorkshire are behind some of the work that has been done in places like Cornwall and the West Country. However, a lot in the background has been about putting UK Bus on a firmer footing so a lot of back office stuff is bearing fruit, such as the m-ticketing and Ticketer machines which provides much more data and reduced fraud. Don't get me wrong - there was still a lot to do. Potteries were busy refurbing 14 year old Scanias but had Covid not come along, then it felt that things were moving in the right direction; even the fleet profile was beginning to seem that it was coming back into line, being able to withdraw and sell 2005 Solos. The idea that Kernow would be disposing of deckers at 18 years of age was a change as ten years ago, that's when they'd receive them for another 4 years of toil.

Conversely, Stagecoach and Arriva are heading the other way. It would be easy to make it about what colours you paint your buses, and the hand wringing over both these newish corporate schemes vs. the multitude of Best Impressions designed liveries. It's about much more than that. The Arriva website debacle is emblematic of a business that has lost sight of what it needs to do to be successful. In Arriva, there's a lack of investment as DB umms and errs about what it wants to do. New vehicle investment is patchy and some OpCos are moving from having a balanced fleet profile to being much more middle-aged; look at the old Midland Red North business who are struggling with the newest fleet being 6/7 years old, and even the North East is looking a bit old - maybe not so many really old ones but imbalanced. There's a lack of local responsiveness with a move to monolithic structures so that Luton and Oswestry are under one team in Leicester, or Stevenage is managed from Maidstone. Almost....what is the point of Arriva?

Even Stagecoach before the livery confusion was starting to give some concern. Profits falling at certain OpCos and again, running vehicles on longer than I expected. One of the first repaints into the new scheme in Devon is a 2004 Dart. It's a difficult one to explain.... It just feels that the definite intensity of Stagecoach has waned a little. I mean, they're still better run than First and much more consistent but it feels like there are causes for concern.