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’
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.