Great Western Coffee Shop

FirstGroup: We won't be forced into any 'desperate' rail bids

Transport company dispells any suggestion it will have to raise more cash if it fails to win the East Coast Main Line rail bidding competition

(http://i.telegraph.co.uk/multimedia/archive/03065/tim1_3065316a.jpg)
Tim O'Toole, FirstGroup's chief executive, has faced a tumultuous time since the company's ^615m deeply discounted rights issue last year

FirstGroup's chief executive, Tim O^Toole, has insisted the transport company won^t be forced into making any ^desperate^ bids for UK rail contracts, despite coming away empty-handed from four franchise competitions so far this year.

All eyes are on the bidding competition for the prestigious East Coast Main Line, the winner of which is due to be announced by the Department for Transport this month.

Some analysts have suggested FirstGroup^s balance sheet will be put under ^further stress^ if it fails to win the contract to operate London-to-Scotland East Coast services, having already lost out on so many rail bids this year.

FirstGroup was passed over for a new contract to run ScotRail services north of the Border which was awarded to Abellio, the UK arm of the Dutch state railway.

It also lost out to Go-Ahead Group and Keolis in the battle for the giant ^Thameslink Southern Great Northern^ commuter franchise in London and the South of England, while it will no longer run Caledonian Sleeper services from April.

FirstGroup had also been short-listed in the competition for the Essex Thameside franchise but National Express has retained control of the services between London and the Essex Coast.

Mr O^Toole, who led FirstGroup^s ^615m rights issue last year, insisted that the transport heavyweight would not have to raise additional cash, even if it is unsuccessful in the East Coast franchise competition.

FirstGroup is not going to depart from a ^disciplined approach^ to rail bids, he argued. ^That^s always the concern isn^t it? That we will get desperate and put in some uneconomic bid just so we can say: 'Oh, well, look we won one.^ I^m saying, look, we are in the business of restoring shareholder values so we can^t go there.^

FirstGroup was accused in 2012 of putting in a bid for the West Coast Main Line franchise that would have resulted in ^almost certain bankruptcy^ when it was named the preferred bidder for the contract over Sir Richard Branson^s Virgin Trains - an accusation Mr O^Toole has always flatly denied. The West Coast competition was subsequently scrapped in the face of a legal challenge by Virgin.

Despite reassuring over FirstGroup^s disciplined approach to rail bids, Mr O^Toole appeared to question his rivals^ approach to franchise competitions, saying the contracts awarded so far this year were at ^economic levels that were unacceptable to us^.

FirstGroup, which last year suspended its dividend and has been under pressure from activist investor Sandell Asset Management, insisted that its turnaround plan is ^on track^ as it posted a 10.9pc fall in first-half revenues to ^2.9bn.

The bus and rail operator, which is seeking to turnaround its UK bus and American yellow school bus units, blamed one-off factors for the slide, such as the end of revenue support for its First Great Western and First Capital Connect rail franchises.

The group also said revenues from a year earlier included income from several UK bus operations that have since been sold or closed. Excluding these factors, it said revenue increased by 3.9pc. Pre-tax profit rose to ^9.9m in the six months to September 30 from an ^8m loss at the same point a year ago.

In a nod to Sandell, which has been pushing for a strategy change, FirstGroup^s outgoing chairman John McFarlane said the company^s board had reviewed strategic alternatives ^but nothing compelling has become evident^.

Yep. I'm an individual, not a board of directors.

I also have no connection to First Great Western beyond being a passenger. Free to praise. Free to be critical. Free to defend.

I trust the ellipses+1 means some facts are forthcoming.

East Coast franchise awarded to Inter City Railways, a consortium of Stagecoach and Virgin.

Rail journeys between London and Edinburgh will be transformed by more seats, more services and new trains after the government announced its intention to award the new East Coast franchise to Inter City Railways, a consortium of Stagecoach and Virgin, today (27 November 2014).

The new deal will include a host of extra benefits for passengers:

23 new services from London to key destinations, with 75 more station calls a day
plans for new direct links to Huddersfield, Sunderland, Middlesbrough, Dewsbury and Thornaby
proposals for more trains to London from Bradford, Edinburgh, Harrogate, Leeds, Lincoln, Newcastle, Shipley, Stirling, and York
3,100 extra seats for the morning peak time by 2020
across the entire train fleet there will be 12,200 additional seats ^ a 50% increase
65 state of the art Intercity Express trains brought into passenger service from 2018, totalling 500 new carriages
journey times from London to Leeds reduced by 14 minutes, and from London to Edinburgh by 13 minutes
a ^140 million investment package to improve trains and stations.
...

Inter City Railways is 90% owned by Stagecoach, but trains will be branded 'Virgin Trains East Coast', Stagecoach said.

FirstGroup notes the announcement today by the Department for Transport (^DfT^) concerning the new InterCity East Coast franchise.

Commenting, Tim O^Toole, FirstGroup^s Chief Executive, said:

^Our bid for the East Coast franchise was ambitious yet realistic. Had it been selected, it would have created a world class railway for passengers and value for taxpayers with a balanced level of risk and returns for shareholders.

^As one of the UK's most experienced operators, we remain committed to the rail market but we are dissatisfied not to have secured any of the franchises that have come up for tender in this first round.

^Whilst we will retain a disciplined approach to bidding, we will continue to examine and assess the feedback from this and previous rail bids to help shape our approach to future competitions.

^We are shortlisted to run the next TransPennine Express franchise, and are negotiating with the DfT to extend our current operation of that route to February 2016. We are also negotiating with the DfT for a direct award to operate First Great Western, our largest franchise, through to at least March 2019.

^There are 12 franchise competitions still to take place and we remain focused on reaching our desired position in rail by the end of the process, which is to achieve earnings on a par with the previous franchising cycle at an acceptable level of risk and return.^

A bit of poisoned challis

What caught my eye in the DfT announcement was a commitment to reduce long distance anytime fares on ECML by 10%!

Inter City Railways has also given a commitment to reduce all long-distance standard anytime fares by 10%.

Stagecoach/Virgin plans to reduce some of the most expensive standard class fares on the franchise by up to 10% from May next year.

London-Glasgow anytime return via WCML, priced by Virgin Trains: ^352.

London-Glasgow anytime return via ECML, priced by East Coast: ^304.

Mr Branson, why do you look at the speck that is in your brother's eye, but do not notice the log that is in your own eye?

It seems that First Group are hoping for jam tomorrow. However, now might be a good time to buy shares in First Group PLC. If they do bounce back with further franchise wins in the coming years it could be a canny investment.