For Tim O’Toole, chief executive of FirstGroup, two of the three defining episodes of his two-year tenure have seen this committed rail man struggling with problems in the bus business. In March last year, Mr O’Toole sent FirstGroup’s shares tumbling when he warned that falling margins in the US school bus division would dent group profits. A year later, he did it again, this time citing the UK bus arm: passengers had retreated in the face of price rises and route cuts, he said; the resulting fall in profitability is expected to wipe 14 per cent off 2013 earnings. He sought to reassure investors that the company was dealing with the problems, despite the recession making it harder to find buyers for the bus operations it has identified as non-performing. Investors will be keen to hear this week how the sell-off is going. The company is aiming to raise £100m by disposing of businesses that produce £130m in revenues annually – a challenging feat in the current environment, argue analysts.
When the company in August was selected as preferred bidder to run the West Coast main line over the next 15 years, it promised to add at least an extra £800m in annual revenues – a steady stream of cash that should help the board stick to its promise of paying big dividend this year in spite of the problems in the bus business. But the controversy surrounding the West Coast franchise– with runner-up Virgin Rail challenging it in court – is not the only reason the win has failed to calm nerves entirely. “The continuing dividend paying policy looks a bit odd,” says Peter Hyde, an analyst at Liberum Capital. Another City analyst, who asked not to be named, agreed: “Paying a dividend by selling off assets on the cheap is a bad idea in my book.” go to link>>>
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