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FirstGroup drops as it replaces its chief executive after profits fall; puts Greyhound bus unit under review

Last updated: 07:00 31 May 2018 EDT, First published: 02:42 31 May 2018 EDT

Firstgroup train
Firstgroup posted a 5% fall in adjusted pre-tax profit to £197mln for the year to March 31

FirstGroup PLC (LON:FGP) shares dropped over 12% on Thursday following news the transport operator has replaced its chief executive after reporting a fall in full-year profits and revealed it is putting its Greyhound bus business in the US under review.

The FTSE 250-listed firm, which earlier this year rejected two approaches from a private equity firm, posted a 5% fall in adjusted pre-tax profit to £197mln for the year to March 31, slightly below the consensus forecast, with a drop to a statutory loss before tax of £326.9mln, reflecting £277.3mln Greyhound goodwill and other asset impairments.

READ: FirstGroup “unanimously rejects” potential all-cash takeover offer from private equity firm Apollo

In a separate statement, the bus and rail operator said its CEO Tim O’Toole would be replaced with immediate effect by Wolfhart Hauser, who becomes executive chairman until a successor is appointed.

It added that Matthew Gregory will take on a chief operating officer role in addition to his duties as chief finance officer. The firm said the process to select a new chief executive is underway.

In the results statement, the new executive chairman said: "The Board is examining all appropriate means to mobilise the considerable value inherent in the Group. Initial actions from its evaluation are underway, including conducting a full external review of Greyhound's business model and prospects, which will conclude in the coming months."

He added: “Overall, we see considerable opportunity to deliver shareholder value in a sustainable way while enhancing the services we provide to our customers and communities."

Commenting on the outlook, FirstGroup said it is expecting “an overall improvement in Road margins and returns, offset by a smaller contribution from the First Rail portfolio, resulting in broadly stable Group earnings in constant currency”.

Sharp share price drop

In midday trading, FirstGroup shares were down 12.1% at 97.35p.

Lee Wild, Head of Equity Strategy at interactive investor commented: “Just weeks after rejecting two bids from Apollo Global Management, chief executive Tim O'Toole has paid the price for failing to revive the business in his eight years at the top.

“The share price is less than half what it was when he joined, and management wants a ‘new approach’. Grim annual results were the final nail in the coffin.”

He added: “With no chance of a resumption of dividend payments anytime soon, FirstGroup shares offer little of interest to long-suffering shareholders. The new CEO will have their work cut out convincing them otherwise.”

 -- Adds share price, analyst comment --

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