First Group’s chairman Martin Gilbert bowed out on a low yesterday as the struggling transport group tapped investors for £615m to cut debts and axed the dividend as profits slumped.
The shares slid 30 per cent on news of the cut-price rights issue, which is at a 62 per cent discount to their Friday close. The business, struggling under £2bn of debt after its 2007 acquisition of the US bus company Laidlaw, needs the funds to avoid the debt being slashed to junk status and incurring an extra £50m a year in financing costs by 2016.
The company is paying no final dividend for the year to March, in which pre-tax profits fell 37 per cent to £172.4m, and has scrapped the interim payout for the present financial year.
Mr Gilbert, who earned £191,000 last year as chairman, has led the business since 1995. He has said he will stand down once a successor is found. But his extensive outside commitments – as founder and chief executive of Aberdeen Asset Management and on the board of BSkyB – have reportedly raised eyebrows among some shareholders as the company struggles.
First’s bus business bore the brunt of rising fuel costs and subsidy cuts as operating profits tumbled by a third to £90.7m. The company is pulling out of London’s regulated bus market and selling depots to concentrate on markets elsewhere in the country. Its chief executive Tim O’Toole said the subsidy cuts had cost the business more than £20m a year. He added: “Our concern right now is less the economy and more government policy. It is critical if the Government is going to have a thriving economy, it recognises that two-thirds of people who use public transport use a bus.”
John Lawson, at Investec, said the news “should clear the air and reduce the group’s debt once and for all, so should help in the longer term”.