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FirstGroup in talks to extend Great Western rail franchise FirstGroup in talks to extend Great Western rail franchise
(about 4 hours later)
FirstGroup is negotiating an extension to its Great Western rail franchise as it continues to hold out the threat of legal action over the government's "traumatic" decision to overturn the west coast award. FirstGroup is negotiating an extension to its Great Western rail franchise as it continues to hold out the threat of legal action over the government's decision to overturn awarding it the west coast mainline.
The franchising fiasco left First's share price in tatters, but the company hopes to retain the London-Bristol-Wales route on enhanced terms, despite allowing the franchise to expire in early 2013 rather than 2016 to avoid an estimated £800m in premium payments. The franchising fiasco left FirstGroup's share price in tatters, but the firm hopes to retain the London-Bristol-Wales route on enhanced terms, despite allowing the franchise to expire in early 2013 rather than 2016 to avoid an estimated £800m in premium payments.
FirstGroup's embattled chief executive, Tim O'Toole, said he was "in active discussions about terms of extensions" that were "within government's gift". The timetable for a new franchise has already slipped from April to July, and the competition is on hold pending the findings of two inquiries into the west coast debacle demanded by the transport secretary, Patrick McLoughlin. FirstGroup's chief executive, Tim O'Toole, said he was in discussions about terms of the extensions that were "within government's gift". The timetable for a new franchise has already moved from April to July, and the competition is on hold pending the findings of two inquiries into the west coast debacle called by the transport secretary, Patrick McLoughlin.
O'Toole said his company was still seeking satisfactory explanations for what had led to the cancellation of the west coast competition in October almost two months after the Department for Transport announced that FirstGroup would be taking over the running of the London-Manchester-Glasgow service from Virgin. O'Toole said his company was still seeking satisfactory explanations for what had led to the cancellation of the west coast competition in October almost two months after the Department for Transport announced FirstGroup would be taking over the running of the London-Manchester-Glasgow service from Virgin.
O'Toole said an interim report by Centrica boss Sam Laidlaw into the ministry's handling of the franchise process had shed no light and he warned that retrospective explanations would not be acceptable. "We really want to know what the justification was at the time. There was a great deal [in Laidlaw's report] on the lack of transparency – but that wasn't a revelation to us. That was the design of the competition." O'Toole said an interim report by Centrica boss, Sam Laidlaw, into the ministry's handling of the franchise process had shed no light, and warned retrospective explanations would not be acceptable. "We really want to know what the justification was at the time. There was a great deal [in Laidlaw's report] on the lack of transparency – but that wasn't a revelation to us. That was the design of the competition."
O'Toole said the findings had to show more than "things they don't like or want to change". He said the findings had to show more than "things they don't like or want to change", adding that terminating the competition had been a "traumatic thing for us and the whole industry. We want to know if there were any other options. We want absolute clarity on what went wrong and why it had to be handled this way."
He said that terminating the competition had been "an awfully traumatic thing for us and the whole industry. We want to know if there were any other options. We want absolute clarity on what went wrong and why it had to be handled this way". O'Toole, who leads the industry's strategic forum, the Rail Delivery Group, said his company was aligned with the other major franchise owners in urging the government to restart the stalled franchising programme as soon as possible.
O'Toole, who leads the industry's strategic forum, the Rail Delivery Group, said his company was "absolutely aligned with the other major owning groups" in urging the government to restart the stalled franchising programme as soon as possible. FirstGroup is still discussing compensation for its fruitless west coast bid, but O'Toole said the government had not yet agreed to any for other paused bids, despite mounting staff costs incurred during the delay.
FirstGroup is still discussing compensation levels for its fruitless west coast bid, but O'Toole said the government had not yet agreed to any compensation for other paused bids, despite mounting staff costs incurred in the delay. Analysts warned that shareholders would be rattled by the group's decision to cut promised dividend payments, after pre-tax profits – announced on Wednesday – fell from £128m in the first half of the last financial year to £8.4m for the six months to the end of September 2012.
Analysts warned that shareholders would be rattled by the group's decision to cut promised dividend payments, after pre-tax profits – announced on Wednesday – fell from £128m in the first half of the last financial year to £8.4m for the six months to the end of September 2012, with heavy losses in the UK bus division.
Gerald Khoo of investment bank Espirito Santo said: "It will undermine confidence among those investors who had relied on the board's previous strident defence of seeing through the current policy."Gerald Khoo of investment bank Espirito Santo said: "It will undermine confidence among those investors who had relied on the board's previous strident defence of seeing through the current policy."
Douglas McNeill of Charles Stanley pointed to a halving of share price since O'Toole took over and said there would be "a bumpy ride" ahead. "The second anniversary of Tim O'Toole's appointment occurs in doleful circumstances, with the share price having fallen substantially, profits running well below the level he inherited, and net debt down only slightly."Douglas McNeill of Charles Stanley pointed to a halving of share price since O'Toole took over and said there would be "a bumpy ride" ahead. "The second anniversary of Tim O'Toole's appointment occurs in doleful circumstances, with the share price having fallen substantially, profits running well below the level he inherited, and net debt down only slightly."
Asked if he would be at the helm in 12 months time, O'Toole said: "I think the board is extremely supportive – this is a tough business to turn around. I stand to be judged by conventional means."Asked if he would be at the helm in 12 months time, O'Toole said: "I think the board is extremely supportive – this is a tough business to turn around. I stand to be judged by conventional means."