23rd Jan 2014 10:16
LONDON (Alliance News) - Bus and rail operator FirstGroup PLC Thursday set out more of its growth plans for coming years, ahead of an investor meeting where bosses are likely to be quizzed about why they are rejecting a plan proposed by one shareholder that it should break itself up and sell off its Greyhound bus operations in the US.
Sandell Asset Management, which has a stake of about 3.1% in FirstGroup, has called on management to spin-off the US student transport and transit operations into a US-listed entity and sell the Greyhound operations, using the money to pay down debt, pay for upcoming UK rail franchise bids and the turnaround of its UK bus operations. It thinks the moves would increase shareholder value by more than 50%.
However, FirstGroup has rejected the proposal, saying it isn't compelling and "contains a number of structural flaws and inaccuracies." It has pledged to press on with its own plans.
In May last year, FirstGroup had set out plans to invest about GBP1.6 billion in its divisions over the next four years. Its plan includes turning around the struggling US student transport business, maintaining margins in the transit business, growing Greyhound at rates above US GDP growth rates, boosting UK bus margins to double-digit levels and maintaining the UK rail unit as a market leader.
Its targets include increasing total revenues at rates faster than the economies in which it operates, improving margins in the US student and UK bus units to double-digits, and achieving a post-tax return on capital employed of between 10% and 12%.
It also wants to return to a progressive dividend policy of 2.0 to 2.5 times earnings cover.
However, earlier this month, it had warned of a further slowdown in its US First Student business. It said the unit's market remained tough and the business was experiencing limited opportunities to grow or raise prices. The operation was hit by bad weather conditions during the quarter to end-December, although FirstGroup expects full-year unit revenues to be broadly flat on the year.
It said its cost savings programme at First Student remained on track to deliver USD100 million in annual savings in the current year, though progress towards its medium-term margin target would be slower than hoped because of the worsening in trading conditions. Margins this year will only be slightly ahead of last year, it said.
Setting out more of its plans Thursday, it said First Student "will improve margins to double digit levels over the medium term through the continued delivery of cost savings, the disciplined
management of returns and profitable growth."
Most other targets were the same as the ones set out in May, but it said it was now targeting a margin of about 12% at the Greyhound bus operations in the medium term as it modernised the network and upgraded its technology.
"I am confident we are on the right track to increase the resilience of the Group and improve returns and growth prospects for the benefit of all our stakeholders. While there remains a significant amount to be done, we are making progress in returning to the strength necessary to drive sustainable, long term shareholder value," Chief Executive Tim O'Toole said in a statement.
FirstGroup shares were up 0.8% at 138.90 pence Thursday morning.
By Steve McGrath; [email protected]; @stevemcgrath1
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