FirstGroup soars as new boss gets City thumbs-up

The City cheered on Tuesday as troubled buses and rail operator FirstGroup put a new man behind the wheel.

Matthew Gregory, who joined as chief financial officer in 2015, took the driving seat amid calls for the company to be broken up. He succeeds interim executive chairman Wolfhart Hauser, who had to step in after Tim O’Toole was ousted in late May.

One of FirstGroup’s largest shareholders, Coast Capital, said it should start repaying dividends and separate the UK business from its North American one as well as reshuffle the board.

Coast added that, in its current form, the owner of the South Western Railway and Great Western Railway franchises “is designed for failure”. Gregory insisted he will keep the company as it is for now as he focuses on paying down debt and its pension liabilities, which would make it more attractive for prospective suitors.

He added: “We ran the maths and we looked at what we could do but at the moment we want to drive profitability in each of the individual businesses. Our prime objective is to improve shareholder value.”

He added he will keep the businesses, including US buses company Greyhound, First Student and First Rail, under review.

Losses widened from £1.9 million to £4.6 million for the six months to September 30. However, revenues rose 19% to £3.3 billion, in line with analysts’ consensus. FirstGroup rejected a takeover offer from private equity firm Apollo Global Management in April and had to warn on profits in May.

The shares, which tumbled in the summer, leapt by 10.3%, or 8.2p, to 87.85p.

Sources close to the company said a takeover had not been feasible because of the pension costs it had racked up.

The FTSE 250 company’s £159 million dividend from Great Western for the years between 2015 and 2018, drew criticism this month as FirstGroup is expected to pay just £68 million to the government for the line by April 2019.

Gregory will get a salary of £635,000, plus 15% pension contributions. If he hits pre-set targets he could get an annual bonus of up to 150%.