Transport giant FirstGroup has said it will sell off its Greyhound business and review “structural alternatives” to spin off its UK bus arm under plans to focus on the North American market.
The group, which includes the South Western Railway (SWR) and Great Western Railway lines, said it will continue to manage its rail franchises but warned that it has concerns over “risk and rewards” in the sector.
It added that it is waiting for the outcome of the Government’s review into the rail industry and said “any future commitments to UK rail will need to have an appropriate balance of potential risks and rewards for our shareholders”.
The move is seen as appeasing activist shareholders, who had pressed for a break-up of the group.
Shares in FirstGroup surged more than 10% as it said the formal sale process for Greyhound is now under way in a move to deliver “best value for shareholders”.
The firm – one of the largest operators in the UK with a fifth of the market outside London – also said it believes “now is the right time” to separate out its bus division, which it added has “limited synergies” with its other operations.
Boss Matthew Gregory confirmed that a sale of UK bus in “whole or in part” is being considered, alongside a possible de-merger of the division, though he added that the group is aware of competition issues with selling to rivals.
The group’s break-up plans come as part of a move to focus on its North American businesses – the First Student school bus division and First Transit, which account for nearly two-thirds of annual earnings.
Mr Gregory, who took up the post of chief executive in November last year, said: “We see significant potential to generate long-term, sustainable value and growth from the solid platforms these businesses provide in the North American mobility services sector.
“We are intent on executing this strategy at pace, having full regard to the regulatory and stakeholder procedures and approvals that will be required.”
Coast Capital, which holds a 9.8% stake in FirstGroup, had argued that the firm’s share price was being held back by less profitable businesses, which was offsetting the stronger First Student unit.
It had requested an extraordinary general meeting and called for six of FirstGroup’s 11 directors to be replaced.
Details of the overhaul came as FirstGroup posted narrowed pre-tax losses of £97.9 million for the year to March 31 against £326.9 million the previous year.
It said underlying pre-tax profits rose 13.1% on a constant currency basis to £226.3 million.
FirstGroup’s results showed the First Student business hiked annual earnings to £173.5 million, up from £156.5 million.
But the Greyhound intercity bus business suffered a plunge in operating profits to £11.4 million from £25.5 million the previous year as it was hit by competition from low-cost airlines and more Americans using their cars thanks to lower fuel costs.
In the UK, the First Rail division also saw earnings rise – to £72.3 million from £57.8 million, while its regional bus business posted earnings of £65.8 million, up from £50.2 million.
But the firm booked a £102.1 million write-down on its strike-hit SWR business amid “high levels of uncertainty around the franchise”.
It is in talks with the Department for Transport to resolve issues around the franchise, which has seen passengers hit by delays and industrial action.
Results also showed that operating margins are far higher for the First Student business – at 9.4% against 2.7% for UK rail and 1.7% for Greyhound.
FirstGroup also warned that the UK rail business will see underlying profits return to more “more normal levels” in the financial year ahead.