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Discussion in 'Buses & Coaches' started by overthewater, 23 May 2012.
That was an awful realistic joke.
First Group have made a small acquisition in Canada for First Student:
So its overseas investments are doing better than the UK? Where did the money come for this?
How it happens is anyone's guess but I think First's woes may give us an opportunity to reconfigure Britain's public transport in a more sensible way. It almost couldn't be configured worse than it is at the moment. It too often meets the needs of the past more than the needs of the present, and economic woes just highlight the problem.Yes I know about the TC and the CC, the museum curators, but we just have to work around them like every other obstacle.
For instance in the East the X30 and Xcel routes would actually sit better with NatEx as they compliment their network and they have the necessary expertise which the busmen of First don't. Isn't the same true of Berkshire's RailAir and even the Heathrow services? Things don't have to stay together. And depot reconfiguration should be across the networks. So in some cases might First keep (and sell the vacant depots, which in many cases are ideal housing sites, which is where the money is to be made, not in running local buses), and pass on the services? Depots and services don't have to be kept together just because they have in past history. Less depots, more outstations. Yes individual operators have done so, but we need to do so across the present operational boundaries. Or costs, as First have found too often, will get out of control. If anything is the UK Bus problem, that is it. I appreciate too that running buses is a thankless task, not least because of our national "can't be ars3d" attitude to being told to do anything. That's why the sadly so rare good management (or government for that matter) is so important.
If First have an issue it seems to me to be that they have been too slow to change. What has actually changed under First's stewardship? Not much it seems to me, except the odd depot closure, withdrawals and sales of units, and a bit of lipstick here and there. Instead the effort should have been on reconfiguring the mess that they inherited. It's now just a slightly smaller mess, instead of sorting it out. Others have made a better (although by no means perfect) job of it; and it shows. Change in modern business is the name of the game, not consistency. I don't by the way mean changing the reporting structure or just tweaking the timetables, or even tracking and contactless. That's administration, not management (though First can be bad enough at that, too). Cosmetics. Though, like the lip gloss or nail varnish, an endless talking point.
What ever was First's vision for the future of UK Bus? I never could work it out. A occasional bit of hot air about the means, but nothing about their destination. Too often like their buses (and their passengers), stuck and going no-where.
Yes buses need to watch the accounts as with any other business; but because something makes sense in accounting terms doesn't make it sensible in business terms. We Brits don't ever seem to understand the difference.
Worcester in trouble again, but its is just spin by the council and the paper?
Worcester in trouble again.... Bit overdramatic?
The reality is that the council withdrew funding across the county in 2014 and have precipitated a massive reduction in passengers -http://www.worcesterbusforum.org.uk/2018/07/big-fall-in-bus-passenger-numbers/ . The journeys affected by these changes were, I believe, kept on commercially by First and generally comprise Fri and Sat evening services.
Worth remembering that in Kidderminster (albeit a smaller place), there is virtually nothing after 1830, the Diamond fleet all tucked up whilst still light outside!
When you say 'Worcester in trouble again', to which previous episode are you referring ?
You both raise very good points, I dont know why.
Rivals circle FirstGroup's assets amid break-up rumours
Unless there's more in the rest of the article, this doesn't amount to much. Finch's vague remark about maybe being interested in bits of UK Bus has turned into an 'admission' - a great journalistic word, like he's been forced to confess something he would prefer to have kept secret. Good to know it's a 'crack squad' of consultants looking into Greyhound, I was afraid they'd go to Poundland.
The Greyhound 'crack squad' are 11 years too late.
Remainder of the article below:
Thought this was interesting too from Julian Peddle
“I frequently find myself at odds with the usual financial analysts when results are reported as often what I think is good news they think as bad news, and vice versa. In this case my initial look at the numbers led me to think that at last some real progress had been made, albeit eight years after the real cause of the problem had left the company. For First was the creation of one man, Moir Lockhead, who wanted to be the world’s biggest transport provider, and nearly succeeded by creating an overly-centralised and disjointed monolith over two continents, weighed down by £2bn of debt. This was clearly unsustainable and was obvious to everyone, except the First board, at the time of the purchase of US firm Laidlaw in 2009. Even the low margin US school bus business, where the only real growth in margin would be achieved by cutting costs, had £1bn of goodwill allocated to it. This is the legacy that Tim O’Toole and his team had to resolve, which has overshadowed everything that has happened subsequently.
In this year’s results were three positive items. Net debt was down by 20 per cent; other debt has been refinanced at much lower rates; and UK bus margins have finally started to increase. In addition, the board has finally realised that Greyhound is doomed in its current format by writing off the goodwill on acquisition. But clearly much more has to change.
First has been living in cloud cuckoo land ever since it paid £1.9bn for Laidlaw, well over the odds. The Americans clearly saw Moir Lockhead coming.
When O’Toole and his team took over in 2010 their strategy appeared to be to try to improve margins in the US and UK bus businesses, and win more rail franchises. All logical, but whilst some underperforming operations were disposed of, nothing really moved the needle. So in 2013 there was the rescue rights issue that halved debt, but it was really more of the same and the needle still did not move. On the basis that it should be obvious after three years that a plan is succeeding or failing, the alarm button should have been pressed in 2016. But First’s board sat on their hands.
Throughout this period there were numerous good housekeeping measures, and the quality of the UK bus offering improved considerably from the Lockhead years. But the financial performance did not improve, although net asset value has doubled over the past five years. In UK Bus some operations such as Bristol began to sparkle in terms of passenger numbers, and fare cuts in Manchester also boosted passenger numbers. But in both cases the benefits to the bottom line would be five years down the road, which was not helpful to First’s weak balance sheet. The downside was that the increase in rail passenger numbers slowed, contract prices in the US continued to be competitive, and UK Bus was hit by rising costs and falling passenger numbers due to events outside its control, such as congestion and internet shopping.
In spring 2018 along comes the indicative bid from US private equity giant Apollo Management, which was rejected by the First board. This is rumoured to have been around the level of £1.10 per share. Who knows if Apollo was ever serious, as it never came back with a real bid. But this, coupled with write-off of the carrying value of Greyhound and losses at TransPennine Express has now left First in crisis mode.
What to do next? The first thing to look at is First’s board with three executive and five non-executive directors, now of course minus Tim O’Toole. It’s time to clear out anyone who has been there for more than two years. The financial meltdown seems to have come as a bit of a shock; in fact, reading the various press releases a scene of panic seems to have set in. The chairman and two of the non-executives list one of their strengths as “strategy”. Really? So you have a chairman on £600,000 and four non execs on £60,000 each who did not see this coming and clearly don’t know what to do next. There is a statement in the 2018 results that the board will decide its future strategy and then appoint a new CEO. So the new CEO has no hand in future strategy?
First needs a CEO who actually understands transport. How about David Martin, formerly of Arriva, or Keith Ludeman, formerly of Go-Ahead? Or get both, that would certainly drive some progress.
Where to take the businesses? In the US, First Student and Transit seem to have relatively stable businesses and margins and these must remain the core of the company. Greyhound is in trouble as the long-distance market has changed, and it is time for FirstGroup to get out. Flixbus or other competitors might like to buy bits, and the city centre terminals either have value as redevelopment sites or as income-generating terminals for other operators. In either case they need selling off to cut debt.
In the UK the bus business has good and bad parts, some of which may have some goodwill value. It will be interesting to see how much goodwill Go-Ahead will pay for their next acquisition; that will be a pointer to value. Action needs to be taken with the poor performers. Has the South West operation a future? Perhaps it could be sold to a management buy-out. Go-Ahead might find the Southampton operations attractive. And what about the isolated operations in Weymouth, Slough and Worcester? Larger operations such as Essex and Glasgow need to be made to pay or hived off to others (Ipswich to Go-Ahead?).
Unfortunately, there are two real problem areas. In Greater Manchester my suggestion would be to say to Transport for Greater Manchester, ‘you can have it to run, and simply pay us an asset utilisation fee or alternatively we will progressively shut it down’, and South Yorkshire, where in my view the only option would be to sell to Stagecoach, if it was interested. In both cases there would be all kinds of regulatory and financial issues but I think everyone needs to understand that unless there is a pragmatic way forward then both conurbations could end up with significantly fewer bus services.
On UK rail, Great Western is a management contract so low risk, and TransPennine Express is clearly a millstone, so surely this should be handed back to the DfT. All available brainpower should be concentrated on the South Western Railway to salvage as much as possible there. Given the risk to the balance sheet, First should not bid for any more rail franchises, particularly the West Coast Partnership where the risk, and presumably bidding costs, will be even higher than normal as HS2 is involved.
I must emphasise that I have no inside knowledge and all of this article is based on an outsider’s view based on published information. The hurdles that First faces are high but not insurmountable, and it is constrained by its debt and pension liabilities. But unless firm action is taken by a rejuvenated and competent board very soon, the financial position will only get worse.
The next AGM should be very interesting”
Not certain I agree with everything but a lot of shrewd stuff there
Intelligent and insightful article by Julian Peddle.
Interesting comments about UK Bus.
J.P talks about UK Bus as having "Good & Bad parts" - In slightly tongue in cheek mode, I have often wondered if UK bus (Like some Banks) could be divided into 'Good Bus Plc' & 'Bad Bus Plc'?
I will let others speculate on where the various Bus subsidiaries should be allocated!!
Nice piece by Julian Peddle, which could have come from some of the members on here
At least with bad banks you have something to underwrite them, with Bad parts of UK bus what would underpin it? I would end up over a cliff within 18months. I doubt there is much goodwill left since were years late on this subject, If First can shift some of the bad parts to other companies ie just paying cost price for the assest, I would take the money and run. Since it get bad areas off its books and it wouldn't have deal with pay off etc.
Except as he knows full well even the new Bus services Act specifically outlaws local authorities eg TFGM owning and running buses. Also, the CMA would never allow Stagecoach buying FSY.
I'm speaking for First Essex, as it is the area I'm most familiar with.
Steve Wickers seems to have been drafted in to work through the (many) inefficiencies that First Essex has. North Essex (Chelmsford, Colchester areas) has already seen a lot of changes. South Essex (Basildon, Hadleigh) not so much, but I think a lot of changes will be made to the way South Essex operates over the next couple of years.
All of this will reduce costs, which seems to be the millstone around First Essex. Their turnover seems healthy at £50 million plus and is likely to increase with a large number of housing developments in Essex.
First Essex has been left to run itself largely until this year and some extent last year, which has allowed wastage to creep in as the market has changed. With someone to identify the problems (and I agree, there are many problems to be resolved at the moment, such as reliability, staffing and vehicle quality), First Essex could make a valuable contribution to it's current or any future owner.
How does all those council owned company stay in business?
Because they're already in existence. It's new companies that can't be started.
There is still £98 million of goodwill on UK Bus. We have no way of knowing where this will be from.
I think that’s part of his point. That FGM would operate in a different manner to that and that the CMA would need to change their outlook or you’ll have a similar but larger scale Barnstable situation where instead of a sale, they pull out and it’s a worse situation anyway.
Exactly and that’s one area where I sort of don’t quite agree with JP. First could have been bolder in 2013 or 2016 but the goodwill writeoff was substantial so you can understand why they didn’t do it.
They would have needed profits from elsewhere to cover the losses, or they would have been in the situation they are today a lot earlier.
How can we know it's 98million but not know where it came from?
Sorry - don’t understand what you mean?
It will be detailed in the financial statements for each firm.
Yes - except goodwill is not a cash item. So although their profits would take a one-off hit, they would have a more profitable, leaner core going forward (with less capex required), and cash position would be neutral or better (since even if they only got asset value,subject to any finance, it would bring in cash). And importantly management would be more focussed.
True and they have had some one off hits in areas such as Northampton and Plymouth (and possibly some other sales or exits).
Guess the argument is whether they should have sold off more in 2013 but the prevailing view would be that most were good businesses but stifled by underinvestment and that they would trade better. That they didn’t foresee how things would go is one of the key criticisms.
The big mistake First Group made under both Lockhead & Tim O'toole was retaining Greyhound (which always was non-core), and not selling it at a time whilst it still had good value/made decent profit margins and use the funds to pay down debt & re-invest in to the ailing UK Bus Division. Had they done this, they may have been able to avoid the rights issue which has also damaged the groups value. They are not looking to sell Greyhound when it's struggle against competition, profits are failing and we've yet to see any impact of competition from the latest new entrant Flixbus, if anyone is prepared to take Greyhound in full or part off their hands, valuations / offers will reflect this. Whilst Julian Peddle is a long standing industry professional and raises some good points, you need to remember that he's never been involved with any of the big bus groups, all his assets are small / low margin bus operations i.e. Select Bus Services, D&G, Midland Classic, Centrebus etc and has links with Arriva and has often purchased operations they are disposing.
I don't think FGP should have sold off London or Wigan in 2013, both were profitable ops with London being a good source of midlife buses for the poorer performing ops in the provinces. The problem for First is investors patience has run out, they want value extracting from the group assets, even under a revised turnaround plan it could still take years.....
As a matter of (now, historic) interest, what was the thinking behind First buying Finglands from EYMS give their general financial standing? And at the risk of drifting off-topic, who else bid? Obviously, Stagecoach couldn't buy it, but from comments made locally at the time, Arriva must have bid.
I wouldn't say Wigan was that profitable if at all. I heard that the Monday morning 135 trips took more cash than the whole Wigan operation on a monday under First Manchester