May 31, 2018 / 6:58 AM / 7 months ago

UPDATE 2-FirstGroup replaces CEO after multiple downgrades

* FY pretax profit down 5 pct to 197 mln stg

* Sees 2018/19 earnings flat, consensus saw 13 pct rise

* Review of Greyhound business could lead to sale (Adds share price, background, analyst comment,)

By Sarah Young

LONDON, May 31 (Reuters) - British transport company FirstGroup replaced its chief executive after a disappointing performance last year and lowered expectations for this year, wiping 14 percent off its share price.

FirstGroup’s CEO had been under pressure for some time. The company has not paid a dividend since 2013, has rejected two approaches from private equity firms and has been targeted by Canadian activist investor West Face Capital.

The bus and rail operator said Tim O’Toole, CEO since 2010, would be replaced immediately by Wolfhart Hauser, who becomes executive chairman, and Matthew Gregory, who becomes chief operating officer in addition to his role as chief finance officer.

Profit fell 5 percent in its last financial year, hit by a poor performance in its Greyhound bus division in the United States, which the firm said it could now sell. In the current year, it said British rail contracts would bring in less profit.

That meant earnings would be flat for the 12 months to March 31, 2019, undershooting a consensus forecast for profit to grow by 13 percent according to Thomson Reuters data.

Chairman Hauser said O’Toole had not been sacked and said he had not received a request from any shareholder for the CEO to go. “It was the right time after the results for him to make that decision,” Hauser told Reuters on a call.

Shares in the company lost 14 percent to trade down at 96 pence at 0830 GMT. The shares have tumbled 34 percent over the last 12 months.


Investors have had five years of disappointments since the company scrapped its dividend and raised 615 million pounds ($820 million) in a rights issue. The stock is 2 percent lower than in 2013, while Britain’s midcap index has risen 46 percent.

“The CEO’s departure should be viewed as an opportunity to pursue a different approach, although there is a lack of clarity as to what that might be at this stage,” said Liberum analyst Gerald Khoo, who rates the stock a buy.

FirstGroup, which also runs yellow school buses in the United States, blamed the poor performance of Greyhound for the fall in last year’s profit, saying it faced competition from low cost airlines as they added capacity between secondary cities.

The company said it had commissioned an external review of Greyhound which could result in selling the business.

The company’s rail business in Britain will also disappoint this year, as growth at the Trans-Pennine Express (TPE) contract is behind its forecasts.

“New rail franchises were meant to help restore the group’s cash flow profile. TPE recognised now as an onerous contract, with over 100 million pounds of future losses to come, is a material disappointment,” Jefferies analyst Joe Spooner, who has a hold rating on the stock, said.

$1 = 0.7499 pounds Reporting by Sarah Young Editing by Paul Sandle and Alistair Smout

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