Fu­ture of FirstGroup in ques­tion as virus puts brakes on de­mand

School clo­sures and a drop in com­muters leave bus and rail op­er­a­tor nurs­ing an­nual losses of £300m ‘Be­cause we will need the train ser­vices to run and the bus ser­vices to run, we will work our way through it’

The Daily Telegraph - Business - - Business - By

Oliver Gill

FIRSTGROUP has warned its fu­ture is in jeop­ardy be­cause of the coro­n­avirus pan­demic as its an­nual losses tripled to £300m.

First, Bri­tain’s big­gest bus com­pany and also a ma­jor train op­er­a­tor, flagged a “ma­te­rial un­cer­tainty” over its abil­ity to con­tinue trad­ing.

Plung­ing pas­sen­ger num­bers have left the FTSE 250 com­pany at the mercy of tax­payer hand­outs

Matthew Gre­gory, its boss, said: “Where you are in a sit­u­a­tion where you don’t have the schools open, you don’t know how the EMAs [emer­gency mea­sures agree­ments] are go­ing to end up, we don’t know how the Gov­ern­ment funding of bus will ta­per, we don’t know how the de­mand is go­ing to pick up, it is un­for­tu­nately right to say to peo­ple that what is very clear to us is that there is un­cer­tainty.

“We be­lieve that we will work our way through it. And be­cause we are so im­por­tant. Be­cause we will need the train ser­vices to run and the bus ser­vices to run, we will work our way through it.

“It is just right for us and the au­di­tors to flag it.”

FirstGroup shares fell by more than a fifth as in­vestors di­gested the warn­ings. Min­is­ters hur­ried through so­called EMAs on the rail­ways in late March in re­sponse to the Covid-19 lock­down. With pas­sen­ger num­bers fall­ing 95pc, the Gov­ern­ment ef­fec­tively na­tion­alised Bri­tain’s train net­work, guar­an­tee­ing oper­a­tors a small profit through a “cost-plus” mech­a­nism. The EMAs are cost­ing the UK tax­payer an es­ti­mated £900m a month. Mr Gre­gory said min­is­ters were “go­ing to have to” ex­tend them be­yond Septem­ber when they are cur­rently due to ex­pire.

Bus com­pa­nies have also re­ceived sig­nif­i­cant lev­els of fi­nan­cial sup­port from White­hall.

First is also a ma­jor player in the North Amer­i­can trans­port mar­ket, where it is the largest op­er­a­tor of school buses and owns the Grey­hound coach net­work.

Don­ald Trump’s clo­sure of schools in the US was hav­ing a pro­found im­pact on prof­itabil­ity, Mr Gre­gory warned. Grey­hound ser­vices have con­tin­ued through­out the pan­demic, how­ever.

First has en­dured a tor­rid time in re­cent years.

It an­gered some share­hold­ers by ap­pear­ing to spurn an ap­proach from US buy­out firm Apollo two years ago. Fol­low­ing

pres­sure from an ac­tivist in­vestor, First’s chair­man stepped down in 2019 and it put its North Amer­i­can op­er­a­tions up for sale.

Ger­ald Khoo, the Liberum an­a­lyst, said First’s fu­ture was de­pen­dent on “con­tin­ued gov­ern­ment and cus­tomer sup­port”. “The con­tin­u­a­tion of this sup­port is cru­cial to the group’s fi­nances,” he said.

Stephanie D’Ath from Royal Bank of Canada ap­plauded First’s strat­egy to sell its North Amer­i­can arms and fo­cus on bus and rail in Bri­tain.

“How­ever, there is lit­tle chance of progress and value crys­talli­sa­tion neart­erm given the chal­leng­ing back­drop,” she said.

The UK re­mained a “chal­leng­ing” mar­ket for the com­pany as its bus arm had been “un­der-in­vested” in and the rail sec­tor re­mained “po­lit­i­cally risky”, she added.

Shares closed down 11.3p at 37.8p.

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