FirstGroup shares soar on new CEO, results

UPDATE 3 – Shares of Aberdeen-based bus and rail giant FirstGroup plc rose 11% on Tuesday after it appointed its chief financial officer Matthew Gregory as chief executive and said its first-half results were boosted by strong demand for bus travel across the US and UK.

FirstGroup, under pressure from some major shareholders to break itself up, said adjusted first-half profit before tax rose 37.7% to £42 million on revenue up 19.2% to £3.3 billion.

However, it reported a statutory first-half loss before tax of £4.6 million “reflecting restructuring and reorganisation costs from withdrawal of Greyhound services in Western Canada.”

Analysts at Liberum wrote in a note to clients: “We (see) positives in the UK Bus and First Student performances, and the confirmation of Matthew Gregory as CEO, but disappointment that the strategic review at Greyhound has concluded that further organic turnaround measures are the preferred option, along with a further deterioration in trading there.”

In addition to his role as CFO, Gregory has been performing the role of interim chief operating officer (COO) since May 2018.

Alex Paterson, an analyst at Investec, told the Financial Times that Gregory’s appointment was “a positive development” because “he knows the group well and strikes us as extremely capable.”

On the first-half results, Gregory said: “We have made good progress in the first half delivering on our plans to strengthen the group, generating sustained cash flow to further reduce leverage and deploy to targeted growth.

“First Student’s bid season success will see our largest business return to growth as planned, while maintaining our disciplined approach to pricing.

“In September, First Bus completed the rollout of contactless payment across the UK on schedule, becoming the first of the UK’s principal bus operators to do so.

“Together with other revenue and cost actions this helped First Bus to achieve strong margin improvement in the period.

“Meanwhile our First Rail operations continued to focus on improving services for our passengers while maintaining overall profitability in a more challenging industry environment during the period.

“We completed our review of Greyhound and have launched a plan to optimise our smallest business for the challenges it is facing.

“Having recently addressed our loss-making activities in Western Canada, these further actions will assist in improving Greyhound’s performance going forward.

“In summary, we are getting on with delivering our plans to improve performance in our divisions.

“Although conditions in our markets remain challenging, our performance to date underpins the confidence we have in our unchanged outlook for the full year.”

Chairman Wolfhart Hauser will now revert to his non-executive chairman role.

FirstGroup also announced that British Airways CFO Steve Gunning has been appointed to its board as an independent non-executive director with effect from January 1, 2019.

Hauser said: “Since his appointment as Interim COO in May, Matthew has demonstrated the combination of strong leadership skills and strategic decisiveness, which has allowed us to make progress in a number of key areas.

“Having conducted a thorough selection process, which considered external and internal candidates, the board unanimously concluded that Matthew is the right person to take on the role of chief executive.”

Gregory said: “It’s a great honour to lead FirstGroup and our 100,000 employees who are relied upon by millions of customers across the UK and North America each day.

“I believe we are now in a better position to make the most of our opportunities and create a stronger business for the future.

“I am committed to delivering on our plans to improve our offering, increasing ease and convenience for customers, and creating sustainable value for shareholders.”

FirstGroup’s director of finance Nick Chevis will become interim CFO with immediate effect.

Chevis will attend board meetings but will not be appointed as an executive director. The process is underway to recruit a permanent CFO.

On Gregory’s remuneration, Stagecoach said: “Since appointment as interim COO in addition to his role as CFO, Matthew has received a base salary of £500,000 per annum.

“On appointment to the position of chief executive, Matthew will receive a base salary of £635,000 per annum and a pension contribution of 15% of salary.

“Matthew’s annual bonus opportunity of 150% and long-term incentive awards of 200% will be in accordance with the group’s remuneration policy, which was approved by shareholders in July 2018.

“Matthew will be subject to the shareholding guideline of 200% of salary for the chief executive and he will required to retain at least 75% of any shares, net of tax, vesting under a group share incentive plan until the shareholding guideline is met.

“Matthew will also be eligible for benefits in line with the approved policy …”