Wigan operation sold due to fleet investment decisions

FirstGroup has countered rumours that it would be prepared to extend its bus disposals programme to some of its more profitable companies.

Speculation has mounted in recent weeks that First may consider listening to offers for core bus businesses, despite the impact that would have on its intention to improve the UK bus division’s profit margin through the disposals programme. Slow progress in disposing of underperforming operations in an attempt to raise £100m has seen the speculation grow, and it was intensified by First’s announcement of the sale of its Wigan operation to Stagecoach last month (PT044).

Speaking to City analysts last week, chief executive Tim O’Toole acknowledged that the sale of the Wigan business with an 11% profit margin, compared to current 6.7% average across the bus division, could appear contrary to the stated aims of selling the worst performing operations. However, he insisted it should not be regarded as an indication of a willingness to sell more profitable companies.

“It is a very fair comment because I’m the one who made a big statement about the fact that as we sell these off, there’ll be a natural snap back to the margin because we’re selling off low margin businesses,” O’Toole said. “Wigan isn’t a particularly low margin business … [but] it is actually not a good read across to the programme generally.

He said the rationale for the Wigan disposal related to the planning of where to place the 1,000 new buses being allocated across the UK division, the inability to justify replacement of Wigan’s ageing fleet in that programme, and the consequent adverse impact that will have on Wigan’s financial results.

“Wigan is largely a cash story,” O’Toole said. “Those buses are very, very old. It wasn’t going to stay at that margin for long. It is geographically not connected to our major operations. And, so, we thought it was of more value to Stagecoach and we were avoiding what would otherwise be the need to invest in even more buses.”

 

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