Dividend blow as FirstGroup in £615m cash call

The company, which is planning to pour £1.6bn 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.

It also announced that founder Martin Gilbert was stepping down as chairman after leading the firm for 27 years.

The Aberdeen-based company, which operates First Great Western, First Capital Connect and First ScotRail, 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. As a result, the takeover of the franchise from Virgin had to be put on hold.

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.

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. Shares fell yesterday.

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. Yesterday’s results showed like-for-like revenues from the railways were up 7.4 per cent to £2.8bn, less than last year’s 8.4 per cent increase.

Takings from UK buses fell from £1.2bn to £1.1bn – blamed on a fall in Government subsidy.

FirstGroup said its ability to obtain credit needed for financing, insurance and pension costs had been under threat.

“The prolonged economic weakness and impact of Government austerity have weighed on our recent cash generation and, coupled with the delays to the UK rail franchising programme, meant that we were unlikely to continue to support investment grade credit rating in the near term.”

It said the rights issue would support the credit rating as well as remove “the constraints of our current balance sheet”.

Net debt for 2012/13 was £1.98bn, up from £1.84bn in the previous financial year.

Mr O’Toole said yesterday: “We have clear plans in place for all of our divisions, and while there remains significant work to be done, our confidence continues to grow as a result of the progress to date.”

FirstGroup said that the fall in underlying operating profits at its UK bus arm from £134.4m to £90.7m had come in spite of rising passenger revenues, 1.4 per cent up on last year. This was “principally down to a fall in Government funding available to the industry as well as external cost pressures, particularly fuel and pension costs”.

The division has been undergoing a strategy to “fix and restore sustainable growth”, including the disposal of 14 bus depots across the country for nearly £100m. Eight of the depots are going in London, after FirstGroup decided to “focus our business” on the deregulated market outside of the capital.

On the trains, First Capital Connect recorded a fall in punctuality to 88.3 per cent, largely due to bad weather, while flooding was blamed for worse performance at First Great Western. Underlying operating profits in the rail division overall were down from £110.5m to £63.2m. The fall reflected a three-year extension to the TransPennine Express franchise “at operating margins closer to the industry average”.

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