East Anglia: FirstGroup cancels dividend in move to boost investment and tackle debt

FirstGroup chairman Martin Gilbert

FirstGroup chairman Martin Gilbert - Credit: PA

BUS and train operator FirstGroup today announced a £615million round of fundraising and cancelled its dividend after plans to turn around the business were derailed by the West Coast mainline fiasco.

The company, which is planning to pour £1.6billion into a four-year investment programme and tackle debts of nearly £2bn, told shareholders they would have to wait another year before seeing any pay-out.

FirstGroup, a major operator of bus services in Essex, Suffolk and Norfolk, also announced that founder Martin Gilbert was stepping down as chairman after leading the firm for 27 years.

The company, which operates the First Great Western, First Capital Connect and First ScotRail, train franchises, has been hit by the botched bidding process surrounding the West Coast mainline.

After initially winning the bid, a review found flaws in the process, causing the takeover of the franchise from Virgin to be put on hold as well as delaying decisions on three other rail operations it already holds.

Mr Gilbert said the company was “frustrated” that employees and shareholders had to endure the “extraordinary series of events” surrounding the franchise fiasco.

Underlying pre-tax operating profits for the group, which also has interests in US student and Greyhound buses as well as the UK bus network, fell in line with expectations from £271.4m to £172.4m.

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FirstGroup announced that it was raising £615m through the sale of discounted shares and that no dividend would be paid for the full-year or for the next half-year interim period, with the payment expected to return for the full year to 2014.

It is investing in IT programmes across its businesses as well as expansion in the US, including cross-border bus services to Mexico.

Chief executive Tim O’Toole said: “This is a decisive moment for the company.” He said that, with an experienced UK rail bid team, FirstGroup was in a “strong position for the re-commencement of franchising” and that it would remain a “major player” in the industry.

Today’s results showed like-for-like revenues from the railways were up 7.4% to £2.8bn, less than last year’s 8.4% increase. Takings from UK buses fell from £1.2bn to £1.1bn, attributed to a fall in Government subsidy.