* Abandons earlier plan to restart dividend
* Sees payouts "some time" away
* FY profit 112 mln stg, broadly in line with forecasts
* Shares up 3 pct
(Recasts, adds analyst comment, share price, background)
By Sarah Young
LONDON, May 21 British bus and train operator
FirstGroup has deferred the restart of dividend
payments, acknowledging its finances still need rebuilding as it
seeks to turn round two underperforming units and cut debts of
over 1 billion pounds ($1.7 billion).
FirstGroup, owner of Greyhound buses in the United States
and operator of British rail franchises including the Thameslink
route across London, has been under pressure to improve its
performance and last year had to raise 615 million pounds ($1.0
billion) to avoid its credit rating being cut to "junk" status.
It also scrapped its final dividend for what it said would
be a 12 month period to fund investments, saying last May it
planned to pay out about 50 million pounds in a final dividend
for the financial year to the end of March 2014.
However it has now abandoned that plan, citing slower
progress in the turn round of its yellow school bus unit in the
United States and investment needs.
In a statement on Wednesday, Chairman John McFarlane, who
joined FirstGroup in January, said: "It will take some time
before the group is able to deliver a profile of consistent
surplus cash that can be distributed to shareholders."
The group, whose debts in part reflect the near 2 billion
pound U.S. Laidlaw acquisition in 2007 that brought it yellow
school buses and Greyhound, has also come under pressure from
U.S. hedge fund Sandell Asset Management to divest its U.S.
operations to invest in its domestic arm.
But McFarlane threw his weight behind the company's strategy
for reviving the underperforming U.S. First Student and UK Bus
units, whose revival is key to generating additional cash flow
to help the company reduce its debts and fund dividends.
Shares in FirstGroup, which carries more than 2.5 billion
passengers a year in Britain and North America and which is
bidding to run several new rail contracts in the UK, were up 3
percent to 136.2 pence in morning trading.
"We think the news that the group will not pay a dividend is
positive, showing it taking a more realistic view of its cash
flow challenge," analyst Joe Spooner at brokerage Jefferies
FirstGroup has for some years struggled to reduce its
borrowings, which still total 1.3 billion pounds (down 34
percent from a year ago), much of which come from the 1.9
billion pound Laidlaw acquisition in 2007.
Its stock has lost about 70 percent of its value since that
The company's net debt to core earnings ratio has fallen to
2.2 times from 3.4 times last year, it said, adding it was
considering ways to accelerate improvements to cash flow to help
reduce its debt. It did not expand on what that could involve.
For the year to March 31, FirstGroup reported a 23 percent
rise in pretax profit to 112 million pounds, compared with a
Thomson Reuters consensus forecast of 114.7 million from a poll
of 14 analysts.
The performance of the U.S. bus businesses were affected by
prolonged bad winter weather in the United States, prompting the
Scotland-based company to warn in April of a 14 million pound
hit to annual profits.
($1 = 0.5935 British Pounds)
(Editing by James Davey and David Holmes)