Bus giant’s woes shatter hopes of rapid UK recovery
‘There will be no quick thaw after the deep freeze we plunged into in March’
Roll up, roll up, it’s the return of the FirstGroup magical mystery tour. First stop: oblivion. If there is anyone out there still harbouring illusions about a V-shaped recovery, feast your eyes on the wreck served up by the UK’s biggest transport operator, an announcement that came with every investor’s favourite bit of news: a going concern warning.
Cue a scramble for the emergency exits as shareholders wondered how long it would be before the FirstGroup bus was forced off the road indefinitely.
The stampede wiped more than a fifth off the shares.
Unlike many companies, FirstGroup didn’t come into the crisis in good shape. Its results for the year to the end of March lay bare an outfit already hurtling backwards. The crisis could simply tip it over the edge.
Pre-tax losses trebled to £300m; there was another £141.3m of costs associated with insuring its yellow school buses and shuttle buses, to add to a £94m provision the previous year; £16m of restructuring charges on top of £58.2m last time around; a giant £186.9m impairment charge on its Greyhound arm; and £21m of coronavirus-related costs, taking one-off charges to more than £400m. The dividend has been scrapped too.
But even that is ancient history. The concern now is whether a company that transports 1.6m passengers on its buses every day and runs four major train franchises including the South Western service into London, not to mention a fleet of more than 40,000 American school buses, can recover from the pandemic.
A warning that there is “material uncertainty” over its ability to continue as a going concern suggests it is touch and go, despite tapping the government coronavirus loan scheme for £300m, sharing in a £400m bus sector bailout, and sitting on £850m of undrawn liquidity as of the end of June.
Coronavirus has devastated bus and train travel and it is quickly becoming apparent that there will be no magic overnight recovery simply because lockdown has ended. Passenger volumes at FirstGroup plunged between 80pc and 90pc but are still down 75pc.
Despite all the costly safety measures that companies have rushed to put in place in a desperate attempt to entice people back out of their homes, there is a palpable sense of trepidation, if not fear.
The high street is quiet, the much-anticipated great British pub crawl turned out to be more of a civilised gathering at the local with everyone tucked up in bed before last orders, and some stops on the London Underground are still eerily empty.
From a medical perspective, perhaps we should be reassured, but economically, it threatens disaster.
There will be no quick thaw after the deep freeze that this Government plunged the country into in March. It’s going to take many months, possibly years. Prepare then for the dreaded “new normal”.
Companies that were already on a knife edge will need further support as boss Matthew Gregory is only too happy to acknowledge, clearly in the hope of twisting the Chancellor’s arm for another bailout.
FirstGroup adds that it has “adequate resources” to keep operating for the next year, but its long-term future depends on several factors – including whether passenger numbers recover and whether governments keep providing support.
Still, at least newish chairman David Martin hasn’t given up yet.
“This is one of the most interesting moments for buses … and public transport,” he says. That’s one way of describing it.
Boohoo shouldn’t jump the gun
Amazing how a free falling share price can focus minds, especially when so much of the founder’s wealth, as well as management bonuses, is tied up in it.
After a third day of heavy falls, leaving Boohoo’s shares nearly half where they were at the start of the week, the company has come out fighting following accusations of labour exploitation in Leicester’s clothing sweatshops.
The appointment of Alison Levitt, a heavyhitting QC that worked on the Jimmy Savile case, and a pledge to undertake a full investigation, is a bold statement that shows, on the surface at least, that Boohoo is taking the claims seriously.
But the company should avoid the temptation to prejudge the outcome of her investigation. Highlighting “inaccuracies” in weekend newspaper reports sounds like an attempt to play down the issue.
As for its failure to find any examples of people being paid £3.50 an hour, perhaps management could enlist the help of campaign group Labour Behind the Label. It points out that “numerous media reports have detailed illegal practices at Leicester-based garment factories linked to big brands” and “wages of £2 to £3 an hour have been reported as commonplace in Leicester factories supplying Boohoo and other e-retailers”.
It could also turn to MPs on the environmental audit committee who heard evidence that not only is underpayment of the minimum wage “widespread” in Leicester’s clothing factories, but that “manufacturers are under pressure from retailers to produce garments at unrealistically low prices”.
Perhaps Boohoo was looking in the wrong places. Still, at least the The National Crime Agency is now investigating.